Feb. 9, 2015 - This year’s big story has been the plunge in oil prices followed quickly by a fall in the Canadian dollar. As analysts watch to see how low prices will go, there has been a flurry of prediction about who will be the winners and who will be the ultimate losers in this altered economy. The energy sector looks glum while manufacturers are predicted to find some relief.
By Amie Silverwood
When the manufacturer makes renewable energy products, however, the story is not as easy to predict. Manufacturing will benefit from lower transportation costs that will make remote feedstocks more affordable. Mills that use oil or natural gas for energy will see some relief, though many in the forest industry have shifted to use more residuals. There are some specific advantages to different biomass products.
Since the majority of Canadian pellets are sold into the U.K. on long-term contract, they aren’t subject to the volatility of oil prices. The U.S. dollar is strengthening against the British pound and the euro, which is making U.S. pellets more expensive. A recent study released by FutureMetrics predicts American pellet producers will have to find efficiencies to remain competitive in light of their strong dollar. In this scenario, Canadian pellet producers have the competitive advantage.
The U.S. isn’t just a competitor in the pellet business: in 2014 Canadian pellet producers sold 150,000 tonnes of pellets to our southern neighbour. They’ll benefit from the lower loonie. And though it may be cheaper to buy oil to heat the average American home than pellets, dropping oil prices won’t convince consumers to abandon pellet stoves. But they may take away any incentive to invest in new ones, cautions RISI’s bioenergy economist Seth Walker. The lower cost of Canadian-made pellets may lessen the sting for those who have already made the switch to green fuel.
It isn’t as easy to predict where Italy will get its wood pellets this winter, however. Walker points out that with the temporary upheaval in Belgium and the Netherlands (see page 10 for details), Italy was the second biggest market for Canadian wood pellets. “It’s going to be interesting to see how the Italian market plays out because the Euro has dropped so much. Their purchasing power for importing pellets is down quite a bit,” Walker notes.
The story is different for biofuels that are mandated for blending, like ethanol. As prices at the pump drop, consumers are more likely to plan that extra road trip. Since the Canadian Biofuels Mandate calls for five per cent renewables in gasoline and two per cent in diesel, the demand for ethanol will rise with the demand for gas.
Another benefit ethanol producers in Canada will notice is that ethanol prices rise as oil prices fall. “I think there is a little bit of an inverse relationship in that when the price of gas drops, the demand for gas increases and therefore the demand for ethanol increases.”
For updates on how the markets wax and wane in 2015, keep an eye on canadianbiomassmagazine.ca as we continue to monitor the situation.