New Pellet Markets
February 10, 2011
By Gordon Murray
Who knew that being executive director of the Wood Pellet Association of Canada could be such a hazardous job?
Who knew that being executive director of the Wood Pellet Association of Canada could be such a hazardous job? On the afternoon of November 23, 2010, I flew from Bejing over Yeonpyeong Island en route to Incheon City, South Korea, just 80 km to the east. Imagine my surprise when I arrived at my hotel and turned on the news to discover that, while I was in the air, North Korea had been firing dozens of artillery shells at the island and South Korea was returning fire!
The purpose of my trip was to promote Canadian wood pellets to South Korea and to give a presentation at a biomass energy seminar hosted by Incheon Metropolitan City. The South Koreans wanted to learn about European experiences with biomass energy, particularly co-firing, and about Canada as a potential source of wood pellets.
Although South Korea is a tiny country, just slightly larger than the province of New Brunswick, it is the world’s tenth largest energy consumer, fifth largest oil importer, and second largest coal importer. It produces about 64% of its electricity from fossil fuels.
South Korea presents a great opportunity for Canadian pellet producers. The country has become serious about reducing greenhouse gas emissions and has committed to a 30% reduction in CO2 emissions from projected levels by 2020. The government has directed 374 of the country’s largest companies to reduce emissions by 30% by 2020. The companies, which include 78 petrochemical producers, 57 paper and wood manufacturers, 36 power generators, 34 steel manufacturers, and 31 electronic chip manufacturers, are required to submit action plans to the government by mid-2011 and must begin making meaningful emissions reductions starting in 2012. In addition, the Korean government has introduced renewable portfolio standards that require coal-fired power generators to begin producing a minimum of 2% renewable energy by 2012, increasing by 0.5%/year until 2020, at which time they will be required to produce a minimum of 10% renewable energy. At least 60% of renewable energy is expected to come from biomass, i.e., wood pellets, leaving about 40% for other sources such as wind, solar, and tidal.
The power sector presently consumes 75 million tons/year of coal. With economic growth, it will likely consume more than 100 million tons/year of coal by 2020. For 2012, wood pellet consumption by the power sector will likely be at least 1.4 million tons/year (calculated as 75 million tons of coal times 2% renewable energy times 60% biomass times 1.5 tons of wood pellets per ton of coal). By 2020, wood pellet consumption should increase to at least 9 million tons (calculated as 100 million tons of coal times 10% renewable energy times 60% biomass times 1.5 tons of wood pellets per ton of coal). To put this in perspective, the European Union presently consumes about 9 million tonnes/year (9.9 million tons/year) of pellets.
Although South Korea has a small domestic wood pellet industry, the country is too small to be able to meet more than a small fraction of its own pellet needs. Its current domestic production capacity is about 20,000 tons/year. Canada is seen as a potentially abundant source of wood pellets for Korea, but it will have to compete with countries that are located closer to the final destination, including Southeast Asia (i.e., Vietnam, Cambodia, Laos, Malaysia and Indonesia), New Zealand and Australia. Nevertheless, the distance from Vancouver to Incheon is just 8,000 km, which is less than half of the 16,500 km from Vancouver to Rotterdam—Canada’s current largest market.
Canadian pellet producers will need to focus on South Korea in 2011. The South Korean coal-fired power producers and the 374 large companies targeted by the government will all be scrambling to put plans in place to meet the requirements for 2012. Canadians need to establish relationships with potential buyers, work on transportation logistics, send test shipments, work out off-take agreements, and establish market share.
In the month since my visit, the Korean Peninsula teetered precariously on the brink of military conflict, but for now at least, tensions have eased and the parties are talking. Let’s hope that the North and South can restore their armistice and that South Korea can focus on buying Canadian pellets and reducing global warming!
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