Biomass Technologies & Trends:

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1 Biomass Technologies & Trends: Challenges and Opportunities in a Changing Forest Sector Presented to the 69 th Annual Meeting of Members Maritime Lumber Bureau by Peter Milley, CMC Partner, Halifax Global Inc. June 5 th, 2008

2 Presentation Overview Context Changing Forest Sector Changing patterns of demand for key products Changing relative values of currencies and energy Biomass Technologies Some Initial Observations Biomass Technologies Brief Review of Current State Opportunities for Forest Sector Incremental Improvement Opportunities Transformational Change Opportunities Future Directions -- Conclusions

3 Major Trends Changing Demand / Supply Relationship Decline in North American demand for newsprint accelerating year over year drop was almost 13% in January decline may be slowing Supply continues to exceed demand Significant excess supply in North America NA Newsprint prices improving in Europe and Asia, but still soft in North America Recent high of USD 650 / tonne summer 2006 currently about <USD 600± today New newsprint capacity in growing markets notably Asia Individual machines 440,000 tonnes / yr Most Eastern North American machines in range of 150, ,000 tonnes / yr Opportunity for NA mills to shift surplus product to those markets constrained Newest pulp mills in South America -- >2 million tpy eucalyptus pulp Smooth Rock Falls, ON recently closed by Tembec 150, ,000 tpy NBSK

4 Market Trends Changing Demand Represents Full Year Decline of >500,000 tonnes - - >4.5 million tonnes since 2000

5 Major Trends Declining Home Starts New home construction down by > 20% over past two years Demand for S-P-F lumber down by nearly 20% over two years Average S-P-F price down by approximately 40% past two years Renovation spending has remained reasonably buoyant But softening US economy likely to lead to declines Sub-prime mortgage rate resets -- > 1.5 million in 2008 Another 500,000 in 2009 Significant percentage will result in foreclosures April inventory of foreclosed homes in US 660,000, up from 493,000 in January and 231,000 in January 2007 Optimists look for lumber market recovery late 2009 Could easily be well into 2010 before recovery takes hold Derivative impacts mill shut downs, reduced harvesting, lower residual product output

6 Major Trends Changing Relative Values Currencies CAD vs. USD 60% increase from low in 2003 Revenue loss > $20 million for 100 million fbm sawmill Revenue loss of $150 million for typical 400,000 tpy newsprint mill Result mill / machine downtime / shutdowns Harvesting activities / residual flows disrupted At least two major integrated companies may need bankruptcy protection CAD vs. Other Currencies (eg. ) about 10 15% increase Manageable change for producers shipping to those markets However, very large focus / dependency on US market

7 Major Trends Changing Relative Values Hydrocarbons more expensive but Canadians have been cushioned by dollar, at least until this year. Change since 2003 in USD 430% -- in CAD 282%

8 Major Trends Changing Relative Values Forest sector all segments undergoing fundamental, strategic change NOW / FUTURE values driven by Values energy historically / chemical determined components by directly competitive as products / raw materials substitutes for hydrocarbons BIOMASS PROCESSING TECHNOLOGIES key to unlocking that value

9 Biomass Technologies Five main technologies Combustion Gasification Pyrolisis / Flash Pyrolisis Anaerobic Digestion Fermentation / Distillation Two minor technologies Densification Steam explosion

10 But First Some Initial Observations Very little of this is new mankind has been using biomass for energy and chemical / medicinal use since the beginning of time

11 But First Some Initial Observations And some of what seems new has actually been in use for much longer than we generally realise 1920 s 30 s Ford Truck converted to tractor powered by a wood gasifier

12 But First Some Initial Observations Saab 99 powered by a wood gasifier, circa mid-1970 s

13 But First Some Initial Observations 28.2% projected increase in daily consumption over next 20 years With oil >USD $100 / barrel, and likely to stay there, the relative economic value of biomass changes and becomes a viable substitute for hydrocarbon based fuels and chemicals

14 Biomass Technologies Overview Five main technologies Combustion Gasification Pyrolisis / Flash Pyrolisis Anaerobic Digestion Fermentation / Distillation Two minor technologies Densification Steam explosion

15 Biomass Technology Combustion Primarily energy generation CHP / Co-gen Refractory lined / fluidised bed Scalable from small to large In commercial use

16 Biomass Technology Gasification Process involves reaction of solid fuel (biomass) with hot steam and air (or oxygen) and production of gaseous fuel by partial oxidation Primarily energy generation technology. But, also syngas / chemical production.

17 Biomass Technology Pyrolysis Process involves heating of biomass in near absence of air newest technologies up to 900 C produces vapours / aerosols that condense to bio-oil used for energy or chemical outputs. Fuel value about half of conventional fuel oil. Bio-oils also produced for food additive / pharma applications. Early stage commercial.

18 Process typically associated with processing of agriculture waste. But any organic material will decompose in wet, warm, airless conditions. Involves bacterial decomposition in absence of air. Outputs include methane / biogas and solids. Commercially established. Biomass Technology Anaerobic Digestion

19 Process involves heating of biomass in hot water 160 C under moderate pressure to separate hemicellulose from lignin / cellulose. Hemicellulose C6 and C5 sugars processed to ethanol, acetic acid, or PHA s Designed as pre-treatment for hardwood pulp chips with lignin / cellulose continuing to pulping Pre-commercial limited to hardwoods Biomass Technology Fermentation / Distillation

20 Biomass Technology Minor Technologies Densification most commonly seen as technology producing pellets / briquets Steam explosion most frequently used as intermediate treatment eg. after extraction of hemi-cellulose, before remaining cellulose lignin densified into pellets

21 Incremental Biomass Opportunities Increased / more intensive use of CHP / co-gen applications Likely new biomass-based markets for mill and harvest residuals eg. pellet producers, 3 rd party CHP, hemi-cellulose extraction Increased efforts / objectives to substitute biomass for externally purchased energy electricity or petroleum fuels power generation plants will convert to wood from coal announcement of such conversion yesterday will increase demand for wood fibre by 1 million tons in MI, MN

22 Transformational Biomass Opportunities Integrated biorefinery / biofuels production will almost certainly be part of future opportunities in forest sector

23 Transformational Biomass Opportunities

24 Transformational Biomass Opportunities Science & Research leading to many new opportunities things that can be made from wood Acids Dyes Gas Animal Fodder Explosives Fabrics Plastics Protein supplement Glues Vitamins Food additives Resins Emulsifiers Pharmaceuticals Sugars Liquid Fuels Essential Oils Toys Diapers Furniture Dietary fibre Films Filter tips Membranes Dust control Fengel & Wegener, 1984 Courtesy Dr. Sally Krigston, UofT

25 Future Directions - Conclusions Change in traditional forest industries is fundamental not just cyclical downturn North American producers of traditional forest products will have increased difficulty competing in commodity grades Scale needed for commodity competitiveness will be very difficult to achieve Time to start thinking about trees as something more than just furnish for pulp and S-P-F lumber Biomass uses of trees may be more valuable than pulp, paper or lumber Biomass energy uses viable way to reduce GHG s We need to apply science and technology to Grow more and better quality trees / fibre Extract significantly higher value from every tree Develop better processing / extraction technologies

26 Halifax Global Inc. BETTER PLANNING BETTER PERFORMANCE A copy of this presentation is available for download at our website