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Seismic shifts and trade tremors

With stagnating demand in the Europe and price volatility in South Korea, North American industrial wood pellet producers have hopes pinned on that Japan will soon emerge as the new go-to market. They are not alone as the 200 or so delegates at the 7th Biomass Pellets Trade and Power conference in Tokyo found out.

Emi Ohno Combustion Engineer and Manager for IHI Corp., spoke on design considerations for pellet coffering in pulverized coal power plants.

Emi Ohno Combustion Engineer and Manager for IHI Corp., spoke on design considerations for pellet co-firing in pulverized coal power plants.

Held in mid-May the two-day conference was well attended by North American and European pellet majors, Southeast Asian producers as well as woodchip and palm kernel shell (PKS) producers and traders. A pre-conference workshop on torrefaction also drew attention as well as a post-conference visit to Soma Kyodo’s Shinchi power plant.

PKS peak?

– 2015 saw the commissioning of 339 MW previously FIT approved installations come on line. Over 76 percent of the 2.9 GW biomass FIT approved projects, 500 MW of which have been commissioned, are using or plan to use woodchip or agro-residues like PKS, said Miho Kurosaki, Senior Power and Gas Senior Analyst with Bloomberg New Energy Finance.

On the topic of PKS Oliver Mauss, co-founder and director for Singapore-based Asia Resource Partner (ARP), a company that has been trading and aggregating PKS for the international markets, noted that PKS import volumes to Japan have gone from a few thousand tonnes in 2008 to passing an “incredible” ½ million tonnes 2015.

Figures from the country’s finance ministry reveal that PKS imports almost doubled to just over 539 000 tonnes in the 2015-16 fiscal year compared to around 287 000 tonnes 2014-15. Furthermore, according to Mauss, forecasts were circulating that it could double again to an “unsustainable” 1 million year-on-year as biomass plants come on stream.

– No farmer plants oil palm to grow PKS fuel any more than a forester would plant trees to produce pellets, he said reminding delegates that PKS is a minor residual by-product from fresh fruit bunch (FFB) processing in palm oil production.

– Of 100 percent FFB input, the PKS output is around 6-7 percent depending on oil mill efficiency, type and FFB species. Aggregating large volumes in a short time frame is difficult but doable, the amount of available PKS is strictly a function of palm oil production volumes, said Mauss suggesting that it may soon be time to diversify to alternative fuels like pellets or invest in multi-fuel boiler capabilities if supplies going forward haven’t been secured.

Biomass stockpiles at a Japanese power plant with PKS in the foreground. Imports of PKS has almost doubled year-on-year to just over 539 000 tonnes in the 2015-2016 fiscal year.

Biomass stockpiles at a Japanese power plant with PKS in the foreground. Imports of PKS has almost doubled year-on-year to just over 539 000 tonnes in the 2015-2016 fiscal year.

Turning point

A general consensus amongst speakers was that Japan will be heavily reliant on biomass imports such as woodchips, PKS and pellets sooner rather than later, given the number of commissioned and FIT approved biomass projects in the pipeline. Although Japan has 67 percent of its land area under forest cover, only a fraction of this 25.1 million ha forest estate is technically or economically available even though about 10.3 million ha is in fact plantation forest. This is in desperate need of thinning, which the FIT tariff tier structure seeks in part to address.

– Many FIT projects are thinking of utilizing domestic wood on account of high purchasing prices US$81-109 green tonne for wood classed as forest residues. But their procurement plans for domestic wood biomass have not been well prepared and designed. They will face the difficulty of collecting enough wood biomass for fuel in the long run, said Kiyoshi Kamikawa, Japan Paper Association.

Kamikawa detailed that the Forest Agency aims to mobilise up to 5.6 million m3 per annum of unutilized wood for energy by 2020.

– Most thinned wood, estimated around 20 million m3, has been left unutilized on the ground in the first place because labour and transportation costs are so high. That is why projects will face difficulties and will be trying to collect any wood biomass available, even already utilized wood biomass. This is bedding for trouble with existing wood industries, Kamikawa said, adding that the other alternative is biomass import for those in a position to do so.

– At the same time the government will have to take measures such as subsidy to promote annual thinning of about 0.5 million ha plantation forest in order to achieve its 3.8 percent carbon sequestration target as pledged under phase II of the Kyoto Protocol and this could help, remarked Kamikawa.

Japanese cedar (Cryptomeria japonica) logs and off-cuts stockpiled at a pellet plant. The species is endemic and accounts for around 44 percent of the plantation forest estate.

Japanese cedar (Cryptomeria japonica) logs and off-cuts stockpiled at a pellet plant. The species is endemic and accounts for around 44 percent of the plantation forest estate.

Future ”availability landscape”

– Near term, North Asian demand for internationally traded biomass will increase. Could be between 4.5 and 9.5 million tonnes by 2020 but probably more likely to be around the 5-6 million mark, said Matt Bovelander, Senior Consultant with Indufor Asia Pacific Ltd and conference chair Bovelander highlighted that regional policy developments are changing the biomass “availability landscape” with policies in several exporting countries such as Thailand and Malaysia being put in place to encourage domestic use of biomass.

– An acceleration of domestic biomass use over the coming 4-5 years in these countries will see biomass availability constrained. The main impact is on non-wood biomass but there are implications for rubberwood supply, wood chip and wood residues, Bovelander said.

He suggested that the biomass cost and price implication as a result is not likely to affect Japan so much in the near term, but Korean buyers may come under increasing pressure to pay more to mobilise biomass.

Both Bovelander and Brodie Govan, Biomass Broker with Voyage Power concurred that the new FIT rates and policy will be the key near term driver for biomass demand in Japan and that the region will supply bulk of the Japanese biomass demand.

–  If Japan demands FSC or SBP certification for its biomass along with security of supply and credit worthy counterparties, then perhaps South East Asia suppliers won’t dominate long-term pellet contracts unless Japanese firms go upstream and build their own plants, said Govan, alluding to the Sumitomo and Cosan joint-venture in Brazil.

5349/AS

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