Low-Grade Wood Markets: The New England Perspective

Transcription

1 Low-Grade Wood Markets: The New England Perspective Granite State Division Society of American Foresters February 10, 2017 Eric Kingsley Innovative Natural Resource Solutions LLC Phone

2 Innovative Natural Resource Solutions LLC Founded in 1994 Offices in New Hampshire and Maine Focus at the intersection of forest industry, energy and economic development Services include: - consulting in renewable energy - advocacy - forest management and protection - forest certification and sustainability Clients from the private, non-profit and government sectors Conducted work in all regions of North America

3 Volume and Value (Stumpage) for NH Timber Harvests Volume (Tons) Value ($) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Sawlogs Pulpwood Biomass

4 Pulp and Paper

5 Since 1999, the Northern Forest region has lost 11 pulp mills New York - Deferiet - Lyons Falls New Hampshire - Groveton - Berlin Maine - Westbrook - Bucksport - Old Town - Lincoln - Millinocket - East Millinocket - Madison (May 2016)

6 10,000,000 Estimated Pulpwood Consumption by Maine Pulp Mills Estimates Based Upon INRS Data 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000, e

7 12,000,000 Maine Pulpmill Wood Use (tons) 10,000,000 8,000,000 6,000,000 4,000,000 2,000, Hardwood Spruce - Fir Hemlock - Pine

8 Maine Pulpwood Consumption by Mill Green Tons Madison East Millinocket Lincoln Bucksport Millinocket Old Town Jay Woodland Rumford Somerset

9 Coated Paper Market Key Items from Verso bankruptcy filing Verso emerged from bankruptcy July 2016 Traditional markets face decline The coated paper industry faces long-term, structural decline Driven by a move to digital in key markets (magazines, catalogues) A strong dollar has increased imports

10 s you never expected

11 Pulp and Paper Pulp and paper mills remain region s largest consumer of wood products, and represent significant fixed infrastructure. Mills produce a variety of products, including market pulp, communication papers (coated and uncoated), and tissue. Each of these markets is unique. The Northern American paper industry has been shrinking, both in output and capacity. Individual mills often do well, but new investment in production is extremely limited in the U.S. Maine will remain a paper producing state for well into the future I expect reduced pulpwood consumption, and reduced prices for pulpwood (a bunch of factors in this one, not just demand). The closures are NOT cyclical

12 Challenges to the Pulp & Paper Industry You will hear High taxes High energy costs High wood costs And so on There are all very real, and present real challenges to the industry Mills and regions now fighting over a shrinking pie They aren t the fundamental issue, which is change in the marketplace, and a capital intensive industry that is hard to change with any reasonable speed

13 New Investment at Woodland Pulp 2 new tissue machines ~$150 million in new investment Used New Markets Tax Credits 70 new employees FIRST SALEABLE JUMBO ROLL MARCH 16 14

14 SAPPI Announced Investment This Week $165 million rebuild of PM1 at Somerset Mill $25 million in new wood yard (October 2016 completion) Clearly investing in the future of the mill, New England s largest market for low-grade wood

15 $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 New Hampshire Pulpwood Prices ($/ton, delivered) 3Q Q 2016, Data from NHTOA Market Pulse 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13 3Q 13 4Q 13 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 Hardwood Pine Hemlock

16 120% Pulpwood Price Trends in New England 3Q 2008 as Baseline, Data from NHTOA Market Pulse Analysis by Innovative Natural Resource Solutions LLC 110% 100% 90% 80% 70% 60% 50% 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13 3Q 13 4Q 13 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 Hardwood Pine Hemlock

17 Biomass

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19 3,000,000 Biomass Fuel Use - New Hampshire 2,500,000 2,000,000 1,500,000 1,000, ,

20 Green Attributes (Renewable Energy Certificate) Biomass Electricity (MWh) Electricity (MWh) (Wholesale)

21 $180 Average Real Time Wholesale Electricity Prices, New Hampshire Dollars per MWh, Futures Prices for On-Peak, as of $160 $140 $120 $100 $80 $60 $40 $20 $0 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Actual Futures

22 Average Monthly Wholesale Electricity Price, New Hampshire Trailing 12 Month Average $80 $70 $60 $50 $40 $30 $20 $10 $- Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17

23 $50.00 CT Class 1 RECs (estimated) $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 Source: Testimony (and verification through order) in DE ELECTRIC RENEWABLE PORTFOLIO STANDARDS Adjustment to Renewable Class Requirements Order Maintaining Class III RPS Requirements for 2017 and Modifying Class I Useful Thermal RPS Requirements for 2016 Order Number 25, Jan-17 $

24 What does it take to operate biomass in 2016? $80 $70 $60 $50 $40 $30 $20 $10 $0 Revenue Expenses Electricty RECs (CT) Fuel O&M Assumes: Electricity at current futures price for the next year ($41) RECs at current broker quote ($24) Biomass fuel at $25, 1.7 green tons per MWH O&M at $30 per MWh With these assumptions, this is not an attractive business

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26 The Wood

27 The Markets

28 The glass is half full We have markets, and are incredibly well positioned compared to other parts of the country We have the forest resource and supply infrastructure (landowners, loggers, entire forest industry ecosystem) that would make other regions jealous We live in close proximity to (and are part of) the greatest collection of consumers in the history of the world It is cold in New England, we heat buildings, we need process heat There may never be a better time to be develop a project or technology that uses low-grade, particularly softwood

29 Eric Kingsley Innovative Natural Resource Solutions LLC Phone