By Bill Sendelback
Today, at the beginning of October, business is functioning smoothly for the pellet fuel industry, at least as it concerns pellet availability and consumers eager to purchase. Pellet manufacturers have worked 24/7 all year to meet expected demand, and most have pellets available. In a much-needed change in buying habits, dealers and consumers both have ordered early and placed larger orders. Unless we have an incredibly cold and long winter, pellets should be readily available all season.
“Pellet sales are strong this year, particularly in the East,” says Jennifer Hedrick, executive director of the Pellet Fuels Institute (PFI). “Consumers are finally buying earlier, especially in the Northeast and Mid-Atlantic states, the strongest regions for pellets.
“The West is hoping for some sort of winter to boost sales. The Big Box stores are changing their buying habits to acknowledge a longer heating season, and pellet dealers are extending their sales efforts to accommodate that longer pellet sales season. The wild cards, of course, are the weather and the cost of fossil fuel. It seems that, following a few hectic seasons, this season will return to normal.
But the price of crude oil has not been kind to the pellet market. With crude oil prices hovering around $45 a barrel – half of last year’s price – heating oil prices in the Northeast are so low that some claim it is cheaper to heat with oil than with pellets. Natural gas prices are stable, and LP prices are low.
Even though the International Energy Agency forecasts that the supply of crude oil will drop sharply next year, and that demand will rise, crude oil prices are forecast to increase only to $54 a barrel next year, according to the U.S. Department of Energy. This is all due to a glut of oil in the market.
“The oil market is even more oversupplied than we had expected, and we now forecast this surplus to persist in 2016,” say analysts at Goldman Sachs.
|Pellets being bagged at Earth Sense, Dale, Wisconsin.|
The pellet fuel industry cannot count on higher oil prices to increase the demand for pellets. Pellet stove sales are expected to see moderate increases this year, but even if stove sales remain at 70,000, as in 2014, there are still more than 1.5 million pellet stoves in use in North America that need fuel.
“The very cold last winter and record low heating oil prices in the Northeast, which has about 60 percent of the U.S. pellet market, are competing forces,” according to Seth Walker, associate economist in bioenergy for RISI, an information provider for the global forest industry, “but the weather has much more impact on pellet sales.
“Low oil prices will affect growth and are more of a concern for the future of the pellet market. Unfortunately, we see a long-term trend of crude oil prices at about $50 a barrel for at least the next five years. So we’re looking at pellet sales in North America for 2015 being pretty subdued.”
Walker points out that the industrial export market for wood pellets is skyrocketing. “Wood pellets are replacing coal in very large power generation plants in Europe. In the UK, for example, three power stations, each producing 660 megawatts, will each use 2.3 million tons of pellets annually. The total usage of these three will greatly exceed the three million tons of pellets consumed annually in North America.”
Walker points out that residential and industrial pellets are two separate industries. “Quality is not as important for pellets exported for industrial purposes. Price is more important.”
“Everyone is quite optimistic,” says Gordon Murray, executive director of the Wood Pellet Association of Canada, about residential pellet sales north of the border. “Domestic sales were slow in the summer, but have now picked up. Dealers were buying earlier, and the mills added production including two new mills in British Columbia.”
Murray points out that the Canadian pellet industry is “heavily weighted toward exporting, especially on the West Coast. Seventy percent of Canada’s pellet production is going to the UK for power generation.”
|Lignetics’ plant in Sandpoint, Idaho.|
“In the West Coast of the U.S., pellet sales have been pretty flat for the last couple of years,” according to Ken Tucker, president and CEO of Lignetics with six pellet mills in Maine, Oregon, Idaho, West Virginia and Virginia, “and the weathermen are not calling for any weather events in the West this year. But the East is different. Our mills have been working 24/7 for a year, and yet we have no inventory. It’s moving out as soon as we make it, and we’re making more pellets than ever.
“If we don’t have a cold winter in the East, we’ll have a lot of fuel, but the weathermen are calling for a cold winter again in the East.” Tucker says there has been some sales fall off because of cheap heating oil, but he believes pellets mostly displace propane and electric heat.
Lignetics recently acquired GF Funding LLC and its Geneva Wood Fuels pellet operations in Strong, Maine.
“We’re seeing strong demand, and we’re sold out,” says Lori Hamer, president of Hamer Pellet Fuel. “We’re shipping pellets as fast as we can make them. Dealers bought early and with larger orders. After two cold winters, people finally will be prepared for the season.”
While Lignetics is having no problems getting raw materials for its plants on both coasts, Hamer is having some problems because of more competition for those raw materials and rising prices.
Pellets ready for delivery at Black Swan Fireside & Hearth, Newtown, Connecticut.
Tom Swan, co-owner of Black Swan Fireside & Hearth in Newtown, Connecticut, was in the eye of the pellet fuel shortage storm last year. “But so far we’ve had no problems with the availability of pellets,” he says. “Customers seem to have gotten the message. They have ordered earlier this year. We’re overjoyed that customers have bought pellets all year long. We’re moving a truckload every two or three days and selling 10 pellet stoves a week.”
Last year one of Swan’s pellet suppliers suddenly canceled during the season all of its fall preseason orders to fill orders from mass merchants. This year it happened again with that same New Hampshire mill cutting Swan’s orders from his requested four trucks a month to just one. Fortunately, Swan has other pellet producers that were more than happy to fill his orders, prompting Swan to now say, “Supply is not an issue.”
“This will be an interesting year for the pellet business,” says Stephen Faehner, CEO and president of American Wood Fibers and chairman of the PFI. “Our sales are slightly below plan, but pellets are moving. A lot of the pellet business is reactionary. Hopefully, we will have a fairly typical winter, but some weather folks say we’re due for a mild one.”
Faehner points to circumstances that will ensure pellet availability this season. First, the availability of raw materials is stronger than for the last two or three years. “And the vast majority of pellet producers have been working around the clock all year to have inventory. It will not be for lack of effort if there are shortages.” He adds that the industrial market for pellets has softened, perhaps adding some of that inventory to the residential market.
Faehner is very much a supporter of the PFI fuel standards program as witnessed by American Wood Fibers (AWF) being one of the first pellet fuel producers to be certified to the standards. “The consumer needs and deserves this program,” he says. “Now they can be assured they are getting the consistent quality fuel they paid for. These standards have not added cost for us, but the program has improved our quality. Participation in the standards program can improve our whole industry, so everyone wins.”
|A pallet ready for delivery at Hamer Pellet Fuel, Elkins, West Virginia.|
Along with American Wood Fibers, other pellet producers qualified for the PFI standards program are Curran Renewable Energy, Forest Energy, Indeck Ladysmith, Lignetics, Marth Peshtigo and New England Wood Pellet, with a total of 13 mills now producing PFI certified fuel.
“Quite a few other producers are gearing up to be certified now that the EPA’s New Source Performance Standards (NSPS) have been released,” says Chris Wiberg, co-chair of the PFI’s standards committee and manager of Biomass Engineering Services for Timber Products Inspection of the companies conducting PFI certification.
However, the NSPS has raised some concerns for pellet producers and the PFI. The NSPS, in addition to the PFI standard, also references two other EPA-approved standards to which pellets can be tested, the EN Plus, primarily a European standard, and the CAN Plus standard. Differences in the standards and definitions in them, some of which conflict with the PFI standard, have caused the PFI to file with the EPA a “petition for review,” technically a lawsuit.
“This is all conflicting and confusing,” according to the PFI’s Jennifer Hedrick. “We need the language and definitions to be clarified for such things as limitations, sizing and trace metals. The appliance manufacturers can decide to which standard they wish the fuel they will be using in testing to be certified. The manufacturers are familiar with the PFI standard, and the vast majority of them will test with PFI-certified fuel.”
That’s an important point since a few pellet producers want to see what fuel standard stove manufacturers will use before they decide under which standard they will be certified. The NSPS required pellet stove manufacturers to test their stoves with a specific grade of certified fuel and to state that grade in the stove owner’s manual, and to instruct consumers to only use pellets that meet that grade. It’s hoped that discussions with the EPA on these clarifications will begin in mid-November.
“Last year was the perfect storm for pellet fuel,” says Lignetics’ Ken Tucker. “Dealers and consumers had no fuel, producers had a very limited supply, so the pipeline was empty.” It appears that everyone got the message for 2015.
Let’s hope pellet shortages are a thing of the past. If not, future shortages could just sink the pellet ship.