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Siting a Biofuel or Biochemical Facility? Maximize Your Resource Study

February 12, 2016
Author: Stan Parton

Proper site selection of a wood-consuming biofuels or biochemicals manufacturing facility is imperative for its long-term success. Prior to siting a new facility, or even deciding whether to repurpose an existing facility, due diligence requires that the project developer seek verification that adequate feedstock can be procured from the supply region for the life of a project. This verification is a complex process. The only way to hedge against uncertainty with any degree of confidence is with the fact-based data and reliable forecasts of a comprehensive resource study.

Producing valuable, bankable resource studies requires a deep understanding of the bio_fuel_plant_04.jpgwood fiber supply chain. As the housing market recovers, the pulp and paper industry flourishes in Africa, Asia Pacific, Latin American and the Middle East and as bioenergy, biofuels and biochemicals markets mature, competition for wood fiber will intensify in local supply areas. The onus will be on project developers to achieve a comprehensive knowledge of supply chain and other operational issues that affect project bankability and, ultimately, project success.

Project developers should be aware that some sources of information are better than others when beginning the process of locating a biofuels or biochemical plant. What are the primary pitfalls to avoid?

  • Don’t be influenced by regional Economic Development Authorities or swayed by tax abatements. While these types of economic and tax incentives are appealing and can help to control costs, they don’t often account for a wide-ranging view of the site and its surrounding market and resources. Ultimately, these benefits pale in comparison to wood costs, which will be the primary operating expense for the life of the project. Securing long-term access to a sustainable and affordable feedstock will have a far greater impact on the bottom line than any temporary incentives.
  • Don’t be influenced by major timberland owners. These types of owners and timberland managers may have vast supplies of wood raw materials available, which may be a tempting proposition while siting a facility. However, this access may come with a premium price tag as they have a vested interest in keeping you close to their resource, which may not be the lowest cost material available.
  • Don’t be influenced by wood suppliers and the phrase “no problem.” When negotiating with loggers and wood suppliers, it may be tempting to place your trust with the outfit that talks the best game, or the guy that claims he can deliver any amount of feedstock at any given time. The reality is that suppliers in a region often assume they can get all of the available feedstock, and thus overstate their ability to supply.
  • Don’t base your decision on what is available today. Only advanced modeling can determine if the resource supply is sustainable and cost-competitive over the life of the project. A comprehensive resource study will uncover potential trouble areas and deficiencies, as well as pinpoint advantaged sites.

Now that we have examined what not to do during the infancy stage of new facility development, what should project developers actively look for in an effective site selection process and the supporting resource study?

A neutral, third party advisor. Forest2Market does not buy or sell timberland, timber or wood fiber of any kind; it does not manage timberland or provide credit wraps. Forest2Market is an independent source of wood and fiber supply chain expertise. Extensive relationships and experience within the wood fiber, wood pellet and biobased products industries provide us with unique insights into global markets.

  • Complete, current and accurate market transactional data. The right set of data is the foundation upon which to build an effective long-term forecast. Forest2Market’s data is unique within the forest products industry, as it is the only comprehensive set of data that is collected at the transaction level; no survey data is used or incorporated. The depth and breadth of this data allows for unparalleled insight into wood supply chains, from the source to final consumption.
  • A partner with detailed knowledge about ALL of the participants in the market place. Forest2Market’s transactional data provides a full-spectrum view of market dynamics and includes information supplied by forest products companies, wood dealers, loggers, consultants and landowners. Every year, an estimated 30 million tons of wood raw materials, or approximately 10% of the market, are referenced in supply and offtake agreements to Forest2Market indexes.
  • An advisor with the ability to conduct complex forest growth/yield and economic models. In order to accurately project availability, sustainability of supply and cost over the life of the project, a number of customizable tools and methodologies—as well as the ability to provide expert analysis of the results—must be utilized. Forest2Market has both the resources and the knowledge to provide expert guidance during the site selection process and thereafter.

Selecting the proper site for a new biofuels or biochemicals facility is the single most important factor in the project development process. As noted above, economic incentives and tax benefits may be alluring during the planning stages of a project, yet they offer very little in terms of dependable, long-term forecasting and profitability. Rather, selecting an ideal site with confidence based upon the reliability of an expert resource study is a far more prudent method.

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