Bioenergy Demand and the Southern Forest Resource. Bob Abt. NC State University

Transcription

1 Bioenergy Demand and the Southern Forest Resource Bob Abt NC State University Karen L. Abt, Frederick W. Cubbage, Christopher Galik and Jesse D. Henderson Mulch&Soil Council 10/31/12 1

2 My focus Forest economist focused on regional market outlooks for the medium run 5-20 years. Usually take current inventory, growth, and removals as a starting point to model supply over time Then look at the impact of various demand scenarios Energy demand scenarios dominate current research Mulch&Soil Council 10/31/12 2

3 Southern Forest Resource Assessment Consortium SOFAC Members American Forest Management American Forest & Paper Association Arborgen, LLC Duke Energy Environmental Defense Fund The Forestland Group Georgia-Pacific Hancock Natural Resources Group Huber Engineered Wood Products International Paper KapStone Paper Larson & McGowin MeadWestvaco NCASI Plum Creek Enviva Pellets Rayonier Resolute Paper Resource Management Service (RMS) Southern Company Rock-Tenn Timberland Investment Resources Electric Power Research Institute Mulch&Soil Council 10/31/12 3

4 Outline Overview of the Southern Forest Resource Logging Residues Hardwoods Pines Planting trends/age class distribution Shortage of small roundwood/glut of large roundwood Bioenergy Demand Interaction with recession and age class distribution Pellets Mulch&Soil Council 10/31/12 4

5 Theme Residues Free and Plentiful Bio-power industry can be built on waste from current harvest And this is good because: It s Free It won t compete with current woodusers Supported by several supply studies My view not likely to build a new energy economy on logging residue Mulch&Soil Council 10/31/12 5

6 Theme Supply is a Number What is biomass supply? To an economist, it s the positive relationship between harvest and price Other definitions of supply Inventory within a x mi. radius of a point Residuals within a x mi. radius of a point Harvesting cost curve Gross growth or net growth Transportation cost curve Increased consumption x current price Mulch&Soil Council 10/31/12 6

7 Transportation cost and residues bio-power based only on residues? How free depends on how far? Assumptions: 1) residues 20% of growing stock removals (e.g pine) or 40% (e.g. hardwood), 2) firm has 40% market share in procurement circle. Figures show 1) procurement area required for residues only to remove equivalent volumes found in 50 mi. radius of growing stock plus residues, and 2) additional cost based on distance required to get 50% of feedstock and $.13/ton mile haul cost Transportation cost 2-4 times higher for a residues only system 50 miles = $6.50/ton Mulch&Soil Council 10/31/12 7

8 Zero Stumpage Price? bio-power based only on residues stumpage price of residuals in only going to be zero while there is one buyer, otherwise need to add stumpage cost to previous cost difference. Not likely to be one buyer of residuals in this market LC Base Mulch&Soil Council 10/31/12 8

9 Residual Focus Concentrates Demand in High Price Areas Locating near max residuals means locating near max competition for roundwood. Which means you re going to compete in an expensive market when you need roundwood Mulch&Soil Council 10/31/12 9

10 Closing Thoughts on Residues Logging Residue advantages Clear and easy to understand carbon advantage Reduces competition with traditional industry Potential cost advantage Value-added to harvesting operation Logging Residue disadvantages Concentrates demand (near high cost roundwood) Significantly expands procurement circle Supply Uncertainty (tail wagging the dog) Limits supply response (can t manage for residues) Apparently not feedstock of choice Limits renewable potential Subject to business cycle fluctuations Mulch&Soil Council 10/31/12 10

11 Some thoughts on hardwoods Inventory vs. availability Physical and ownership availability Procurement more difficult No management to increase supply Twice as much logging residue per unit harvest than pine Only two hardwood pulp plants left in the SE Eucalyptus? Mulch&Soil Council 10/31/12 11

12 NC Biomass Demand 25% pine / 50% hwd residue utilization Feedstock Composition Biomass Demand Grw/Rem usually looks good on hardwoods, availability is the big question Timberland 11.8% Decrease Mulch&Soil Council 10/31/12 12

13 Some thoughts on hardwoods Hardwood and bioenergy Enviva Pellets using hardwood in NC & VA, can use pine too. Dominion Power has contracted logging residue from MWV and Enviva to fuel 2 new powerplants VA state policy subsidizes residue use (~ $7/ton) New Chemtex biorefinery in NC will use energy grasses and soft hwds Mulch&Soil Council 10/31/12 13

14 Bob Abt Karen Abt Ray Sheffield Mac Lupold Mulch&Soil Council 10/31/12 14

15 Southern Forest Resource Mulch&Soil Council 10/31/12 15

16 Tree Planting in the South Mulch&Soil Council 10/31/12 16

17 Mulch&Soil Council 10/31/12 17

18 Two Classic Themes Timber Famine Associated with old USFS timber assessments that always showed the future demand > future supply Wall of Wood Associated with historic increases in planting in the South Hugo effect in South Carolina Mulch&Soil Council 10/31/12 18

19 TIMBER FAMINE (PINE PULPWOOD INVENTORY AND MARKETS) Mulch&Soil Council 10/31/12 19

20 Current Plantation Age Class Structure The Supply-Side of Too Much or Too Little Mulch&Soil Council 10/31/12 20

21 Future Implications of Current Age Class Structure Harvest constant Economics turned off Not a forecast or perhaps a better forecast depending on your view of economics SRTS projection by 2 dbh class Starting harvest by dbh class and total plantation acres are held constant Mulch&Soil Council 10/31/12 21

22 Inventory by dbh class harvest constant South Carolina Georgia Mulch&Soil Council 10/31/12 22

23 Inventory by dbh class harvest constant South Carolina (index) Georgia (index) Mulch&Soil Council 10/31/12 23

24 Inventory by dbh class Harvest constant South Carolina (million tons) Georgia (million tons) Mulch&Soil Council 10/31/12 24

25 Future Implications of Current Age Class Structure Product Defn Change Economics turned on slightly by assuming product redefinition but constant harvest Treating 5-13 dbh as small and 13 + as large Starting harvest by dbh class and total plantation acres are held constant Chose 13 dbh since that was the minimum that kept the first decade small timber inventory from decreasing significantly Mulch&Soil Council 10/31/12 25

26 SC pine small roundwood Model projections Prod. Defn. Chg 5-13 dbh as small roundwood SC pine large roundwood Mulch&Soil Council 10/31/12 26

27 GA pine small roundwood Model projections Prod. Defn. Chg 5-13 dbh as small roundwood GA pine large roundwood Mulch&Soil Council 10/31/12 27

28 Mulch&Soil Council 10/31/12 28

29 Timber Famine Conclusions Planting decline is region-specific we focused on the two worst states, SC & GA In some regions, pulpwood product redefinition will need to be significant (up to 13 ) to meet current demand levels Continued low sawtimber prices/harvest means that low planting rates likely to continue, which dampens supply response to biomass, OSB, and other small roundwood demand increases. Mulch&Soil Council 10/31/12 29

30 WALL OF WOOD (PINE SAWTIMBER INVENTORY AND MARKETS) Mulch&Soil Council 10/31/12 30

31 Plantation Age Class Structure The Supply-Side of Too Much or Too Little Mulch&Soil Council 10/31/12 31

32 Wall of Wood Simulations sawtimber overhang Constant Harvest No recession growth-drain extrapolation Constant Demand No recession harvest follows inventory Recession/Recovery Impact of recession on inventory/markets Recession/Recovery without PSW inventory impact Impact of PSW inventory wall on price recovery Recession/Recovery with land use change Impact of slow price recovery on planting/inventory Mulch&Soil Council 10/31/12 32

33 Input: Demand Shifts By Product Starting values based on product definitions Mulch&Soil Council 10/31/12 33

34 Results--ALFLGA Constant Harvest ALFLGA pine removals ALFLGA pine inventory Mulch&Soil Council 10/31/12 34

35 ALFLGA Constant Demand ALFLGA pine pulpwood ALFLGA pine sawtimber Mulch&Soil Council 10/31/12 35

36 PPW Constant Demand ALFLGA vs. Southwide ALFLGA South Mulch&Soil Council 10/31/12 36

37 Comparing Pine Sawtimber Markets With and Without inventory effect ALFLGA w/inventory effect (WoW affects price and removals) ALFLGA no inventory effect (what if the WoW didn t affect price) Mulch&Soil Council 10/31/12 37

38 PSW Recession--Recovery Demand ALFLGA vs. Southwide ALFLGA pine sawtimber South pine sawtimber Mulch&Soil Council 10/31/12 38

39 Conclusions Peak in planting in 80 s and recession in 2010 means that some states have both a timber famine AND a Wall-of-Wood. Shortage of pine smallwood likely to be extended by low sawtimber prices Product redefinition most likely short term response former small sawtimber becomes fiber wood. Could lead to pine sawmill capacity expansion. How pine sawtimber recovers is key. Might be a good time to plant? Mulch&Soil Council 10/31/12 39

40 Future Impact of Recession Harvest/Residues down >30% - low roundwood price low residue supply No pulpwood come-along from sawtimber harvest pulp competing for CNS Delayed harvest pine sawtimber stocks rising future glut? Delayed/reduced planting planting and mgt intensity decline continues Mulch&Soil Council 10/31/12 40

41 Importance of Sawtimber Biomass demand helps, but Pulpwood demand not the problem in many areas Biomass/pulpwood important but forestry values driven by sawtimber Sawtimber markets historically have driven planting and harvesting Can t afford to manage timberland only on biomass/small roundwood Mulch&Soil Council 10/31/12 41

42 The %mber market, inventory and carbon outcomes from new bioenergy markets 42 KAREN L. ABT SOUTHERN RESEARCH STATION ROBERT C. ABT NORTH CAROLINA STATE UNIVERSITY CHRISTOPHER S. GALIK NICHOLAS INSTITUTE, DUKE CONTRIBUTORS: BROOKS MENDELL AND AMANDA LANG FORISK CONSULTING Mulch&Soil Council 10/31/12

43 Alabama- Florida- Georgia 43 Mulch&Soil Council 10/31/12

44 Biomass Demand Forisk Status Screen = Low 44 Mulch&Soil Council 10/31/12

45 Biomass Demand Forisk Announced = Medium mil tons Mulch&Soil Council 10/31/12

46 Biomass Demand Forisk Announced + RFS = High 46 Renewable Fuel Standard Mulch&Soil Council 10/31/12

47 Tradi%onal Demand Paper and Wood Products 47 Mulch&Soil Council 10/31/12

48 Scenarios 48 TradiJonal Demand Bio Demand Residue Recovery Low Low 33% Medium Medium 33% Medium Medium 66% PlanJng response Growth increase Medium Medium 66% yes yes Medium Medium 66% yes Medium Medium 66% yes High High 66% yes yes Mulch&Soil Council 10/31/12

49 medium biodemand TradiJonal Demand Bio Demand Residue Recovery Low Low 33% Medium Medium 33% 49 Medium Medium 66% PlanJng response Growth increase Medium Medium 66% yes yes Medium Medium 66% yes Medium Medium 66% yes High High 66% yes yes Mulch&Soil Council 10/31/12

50 residual recovery rate TradiJonal Demand Bio Demand Residue Recovery Low Low 33% Medium Medium 33% 50 Medium Medium 66% PlanJng response Growth increase Medium Medium 66% yes yes Medium Medium 66% yes Medium Medium 66% yes High High 66% yes yes Mulch&Soil Council 10/31/12

51 residual recovery and plan%ng rates TradiJonal Demand Bio Demand Residue Recovery Low Low 33% Medium Medium 33% 51 Medium Medium 66% PlanJng response Growth increase Medium Medium 66% yes yes Medium Medium 66% yes Medium Medium 66% yes High High 66% yes yes Mulch&Soil Council 10/31/12

52 Biodemand Feedstock Composi%on 66% residue recovery and increased plan%ng 52 Mulch&Soil Council 10/31/12

53 Mulch&Soil Council 10/31/12 53

54 2011 Pellet Mill Survey Mulch&Soil Council 10/31/12 54

55 Capacity mil tons of pellets Mulch&Soil Council 10/31/12 55

56 Production mil tons per year Mulch&Soil Council 10/31/12 56

57 Wood consumption capacity mil tons Current production mil tons Reference: 2009 NC PPW consumption 5.7 mil grn tons Mulch&Soil Council 10/31/12 57

58 Future EU Pellet Demand (all markets) Mulch&Soil Council 10/31/12 58

59 Pellet Conclusions Southeast capacity significant and likely to rise, primarily due to EU. Adds demand for small roundwood. Until sawtimber recovers, and final harvest picks up, planting unlikely to recover. Pellet plants are largely a producer of logging residue, NOT a big consumer (except for their own boilers) Mulch&Soil Council 10/31/12 59

60 Market Sustainability Thoughts Higher wood prices Hurts wood consumers lowers demand Help forest landowners increases supply Next decade key factors Plantation age gap regional growth/drain swings Current g/d not a good resource forecast Recession Low residue production and low sawtimber prices Continued low planting and management intensity Build-up of sawtimber inventories (inc. sawmill capacity?) U.S. Policy uncertainty and scarce capital kills energy investment (EU is the counter-example) Mulch&Soil Council 10/31/12 60

61 Recent announcements UK Renewable Obligation Credit (ROC) announcment led to several recent pellet announcements 2 new biofuel facilities announced Chemtex - Clinton, NC enzymatic conversion using grasses and softhardwoods KiOR MS catalytic conversion using pine Mulch&Soil Council 10/31/12 61

62 Commentary We have moved from irrational exuberance about the potential of free residuals -not supported by knowledge of forest markets to: A skepticism about forest sustainability in the face of increasing demand -also not supported by past market behavior A significant move toward renewable energy will inevitably create winners and losers there is no free lunch (or residues) Mulch&Soil Council 10/31/12 62

63 Decade 1 Decade 2 Decade 3 1 milgrnton/yr < 33% price impact < 67% price impact > 67% price impact pine pulpwood demand increase decades 1-3 Mulch&Soil Council 10/31/12 63