Wood For Energy and Bio-refining

American Loggers Council

March 10, 2005

Discussion Items

• Forest Industry Business Condition

• Industry Actions

• Forest Industry Outlook – Logging Sector– Finding new market opportunity

Forest Business Conditions

• 1997-2002 Import/ Export Imbalance Deteriorated

• Excess Capacity Worldwide for pulp and paper production

• Forest Industry under pressure:– Aging Facilities

– Excess Global Capacity

– High Financial Leverage

– Strong U. S. $

– Substitutes

– Limited End Uses Demand

• 2002–2005 Structural Change significant with recovery underway

• Paper Markets improving

• Solid wood markets Strengthen

• Mergers Consolidation of Industry major players

• Energy Impacts cost of production of timber

• Reduction in overall capacity of logging drops by 20-26%

Manufacturing Job Losses Total 47,000 Since 1997

in Pulp and Paper

Merger & Acquisition Activity Affecting Alabama Companies

Mead & WestvacoWeyerhaeuser & Willamette

Bowater & Alliance Forest ProductsGeorgia-Pacific & Fort James

Plum Creek & The Timber CompanyInternational Paper & Champion International

Weyerhaeuser & Trus Joist InternationalWeyerhaeuser & MacMillan BloedelInternational Paper & Union Camp

Stone Container & Jefferson SmurfitBowater & Avenor

James River & Fort HowardKimberly-Clark & Scott Paper

Timber Market Conditions

• Soft Timber Markets – Capacity related downtime

– Reduced local market competition

– Increased Recycle

– Weak Product Pricing

• Will Product Market strength transfer to timber market?– Abundant supply will cap

price for pulpwood

Forest Industry Actions

• Significant Movement in Forest Operations– Increased merger and acquisition

• 14 million ton loss of production in 2000 2001 in pulpwood production FL, GA, MS, AR,TX

• Permanent closure of high cost mills

• Market related downtime at production facilities

• Divestiture of Timberland Assets – TIMO’ s

– REIT” s

Outlook for Forest Industry

• New Pulp Mills Highly Unlikely– Worldwide demand, Slow Domestic Demand, Cost

Competitive issues, Environmental Constraints

– Incremental Expansion possible but not likely unless accompanied with Bio-refining or energy options

– Additional Shutdowns possible but slower pace

– Major capital investment milestones, New Environmental Regulations

14

January, 2005Bioenergy in Alabama Forestry

World demand will grow at an average annual rate of 2.2% from 2000-2015. Asia and Latin America will fuel global growth. Europe and N.A. are mature markets.

Global Paper & Paperboard Production

Source: Jaakko Poyry Consulting

Eastern Europe

Latin America

Africa

Asia excl.Japan & China

China

JapanNorth America

Western EuropeOceania

Average 2.2 %/a

Demand growth %/a

0

1

2

3

4

5

0 20 40 60 80 100Share of consumption in 2000 (325 million tons), %

Per capita, kg

WorldNorth AmericaWestern EuropeChina

2015

63320264

51

2000

54325207

30

Outlook for the Forest Industry

Forest Products Bio-refining and Energy

• Forest resource Overview

• Forest Residues

• Managing Forest for Biomass fuels

500 Million Acres of Timberland45 Billion Green Tons of Wood

2002 If wildfires were converted to energy???

• 7 million acres burned would equal

– 7000btu/kw or enough electricity to supply U S with 22% of annual demand

– 973 billion barrels of oil

Forest Residues

• Forest operations yield significant volume of wood residue:– Up to 30 tons of

woody biomass at age seven in salvage operations

– Up to 20 to 25 tons per acre on first thin of southern pine plantations

Alabama Forest Resources

• 23 Million acres Timber– 46% Hardwood

– 35% Pine• Approximately 20%

plantations

– 19% Mixed Pine Hardwood

– 900 Million Tons of Dry woody biomass

– Production off 22% since 1997 or about 7 million tons per year

Logging Residue

• Alabama generates 2.6 million dry tons annually from logging

• Most logging residue is not recovered

• These residues represent a cost to subsequent forest operations

Is it Sustainable ?

• Alabama’s total timber inventory is 138% larger than it was fifty years ago, and is the largest ever recorded

• Alabama’s annual harvest increased by 150% between 1963 and 1998. Harvests peaked in 1998 and have declined by about 25% since then

• Alabama’s pine timber inventory is 125% larger than it was fifty years ago, and is the largest ever recorded.

• Alabama’s hardwood timber inventory is 150% larger than it was fifty years ago, and is the largest ever recorded

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1952 1963 1972 1982 1990 2000

Year

Source: USDA Forest Service, Alabama Forestry Commission, & AU School of Forestry

Finding Markets?Approximately 15% of pine saw timber volume is left as woody debris, for hardwood

almost 24% according to USFS research

• Alabama Could recover 5.4 million tons of forest residues annually

• Amount equal to 15 million barrels of crude oil

• These residues are currently not recovered and represent a cost to logging operations

• Two Ways to manage for Woody Biomass

– 1) Energy Crops

» Some research done mostly outside of the south

» Economics have not been previously viable

» More research is needed

– 2) Co- manage for Energy and Conventional Products

» Economics have not been available

» Requires market development for biomass

» New research needed for development and management

Woody Biomass Status and Outlook

• Existing Forest Biomass Operations

• Potential for expanded use of woody biomass

• Needs to Stimulate Development

• Potential Public Benefits

Existing Woody Biomass Operations in AL

• Five to Six operations on Forest Harvesting Sites (Fincher, Castleberry, Baseline, Farley, Mobile Forest)

• Yield on Pine Plantations:

– AGE 10-12 First Thin 1/1– Age 14-17 Second Thin 2/1– Age 20-22 Saw Timber 4/1– Over 25 about 15% of total

wood is residue– For Hardwood about 24% is

wood residue

What are the benefits of developing wood biomass markets?

Logging only Vs.

Logging with Fuel Wood Markets

1) Economic Benefits - new markets for timberland owners- new jobs to grow, harvest & transport woody biomass fuels- new incentives to invest in productive forests- new investment in energy conversion technologies

2) Environmental Benefits- reduction in greenhouse gases & noxious emissions from fossil fuels - additional carbon sequestration from managing forests for energy

Outlook for Wood Residue Markets

• 1) Increased Use of Woody Biomass Within the Forest Industry- mills still using natural gas are converting steadily to wood

2) Growing Interest in Woody Biomass in Other Industries- mills using natural gas are interested due to cost factors- mills using coal & fuel oil are interested due to environmental

factors- unfamiliarity & complexity = risk- initial capital investment- economic incentives are definitely growing, but are not compelling

3) Use of Woody Biomass by Electric Utilities Is the Key to Development of a Woody Biomass Fuel Industry

- including a small percentage in the fuel mix could have big impact - incentives are needed to induce utilities to action

Natural Gas ?

Tenaska Peeking Plant Billingsly AL

Conclusions !!!• Forest industry is emerging from a difficult business period which has

resulted in a down-sizing of the industry and reduced demand for timber, particularly for pulpwood.

• Our public and private forests are growing in both timberland area and timber inventory volume, and have never been more productive.

• A decrease in timber demand and an increase in timber supply has resulted in weak prices, particularly for pulpwood and low-valued timber.

• There are abundant sources of woody biomass within the existing forestry system that could be used for energy purposes at the present time.

• The development of a viable market for woody biomass fuels would likely result in productive new systems for managing forests for energy production.

• Public policy initiatives are needed to provide the leadership and incentives needed to make woody biomass an attractive and sustainable source of energy.

• There are multiple and substantial benefits that could result from the large-scale use of woody biomass for energy, both to Alabama and to the Nation.

Bio Energy ! What are we waiting for?

Special Thanks to:

Ken Muehlenfeld Auburn University

John Tourtelotte TALLC

Scott Spear AIME

Dan Daly AIME

Gene Quick SAUBR

Bio Energy Needs Assessment• Clearinghouse for Technology Development and Investment

– SAUBR Southern Alliance for the Utilization of Biomass Resources needs full time coordinator. SAUBR needs allied group in each sub-region up to one million annually partnered with appropriate University systems for a period of five years at which time investment should take on responsibility for funding.

• Open loop Bio mass language in JOBS Bill must recognize longer investment period to attract capital and extend investment tax credits and capital to harvest operations

• Tax credits extended to co-firing and syn-gas operations• Find incentives for states to go to a net metering system• Amplify emission credits for conversion to blended fuels • Demonstration Projects funded• Market development for liquid fuels• Loans over $25 million limited to Coops- Expand the range of B&I USDA loan

program.