In the past few years, EU's quest to limit its dependency on fossil fuels and to cut CO2 emissions, has brought renewable energy on the peak of the European most successful market developments. While most of the wood industry was struggling with the effects of the financial crisis and a critical drop in consumption, the wood energy sector was setting new records every year.
And indeed the numbers are impressive: in just six years, wood pellets consumption has increased more than 3 times ( from 4,6 mil. tons in 2006, to 14,3 mil. tons in 2012). In the same period, production tripled (3,5 mil. tons, up to 10 million), while imports rose five times (from just 800,000 tons in 2006, to 4,4 mil. tons in 2012). But so far, the potential of the market hasn't reached its limits, as future expectations surpass any of these recent evolutions.
The annual 2013 EU biofuels report forecasts that by 2020, pellet consumption in Europe will be somewhere in the range of 50 to 80 mil. tons per year (2012: 14,3 mil.). Both the advantage of pellet use in heating systems, as well as many power plants are trying to reduce the usage of coal and switch to renewable energy are major factors that will contribute to this upsurge.
However, the European pellet market is facing a dillema: the relatively high costs of wood pellets in Europe have resulted in a massive increase in imports, especially from North America, where raw-material costs are lesser than in the EU. In addition, the two largest pellet pellet producers in the EU, Germany and Sweden, have either slowed down or decreased their production. The consequence is that, in 2012, intra-EU trade of pellets declined by -12%, meanwhile purchases from North America jumped 44%.
Recently, US and Canada have expanded their production capacities, gaining some important shares on the European pellet market. Their combined market share has jumped from 28% in 2011, to 37% in 2012, reaching an all-time record of 43% in the seven months of 2013. But clearly the US exports are rising at a higher pace than the Canadian ones. Last year, the US almost doubled its pellet deliveries to Europe becoming, in just one year, EU's main source of wood pellets. Moreover, in January-July 2013, US pellet shipments to EU further grew by 74% over the same period of 2012, totaling 1,67 million tons.
New pellet plants projects where announced during 2013 in the US, with almost 1,5 mil. tons of new pellets ready to be shipped in Europe in the next years. UK's Drax started construction of two pellet plants (one in Louisiana and the other in Mississippi) with a joint capacity of 900,000 tons per year. Also, Viridis Energy, a Canadian company, already started pellet production in August at its facility in Middle Musquodoboiin/Canada. The production will reach 120,000 tons of pellets per year.
BlueFire Renewables Inc. has integrated a synergistic wood pellet production plant to its facility in Fulton, Mississippi. The reconfigured design will be a 9 million gallon per year ethanol plant integrated with a 400,000 ton per year wood pellet plant. The company says that the pellets will be sold under long term contracts into the European mandated renewable energy market.
The outlook for the upcoming years is interconnected to some factors such as the ability of the EU countries to satisfy internal demand. Although with an expected 4-6 times rise in demand, it is obvious that EU's pellet production will not be able to keep up the pace and will become partially dependent on imports. Already, with recent new pellet plants construction announced in the US, some market predictions estimate that by 2014, the US will cover more than half of all European pellet imports, which means almost 25% of the overall consumption.