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MARKET WATCH

Wood Fiber Supply and Demand in the Baltic Rim

Posted by Tracy Leslie on July 26, 2016

The latest data from Eurostat indicates that the EU is on target to meet its renewable energy target of 20 percent by 2020. In 2014, with six years left to reach the targets, 16 percent of the region’s energy was derived from renewable sources. The Baltic Rim countries have been some of the most successful, with Sweden (49 percent), Finland (38 percent), Estonia (25 percent) and Lithuania (23 percent) already exceeding their shares. Denmark (30 percent), Latvia (40 percent), Poland (15 percent) and Germany (18 percent) are on trajectory to meet their targets, though they have yet to do so.

 

Demand

One of the many components of the success of these countries in meeting their 2020 targets is a commitment to district heating (DH) and combined heat and power (CHP) projects. Though these countries either have met or are quickly approaching their targets, they continue to invest in small scale DH and large scale CHP projects.

Denmark is a good example of this. Just 0.8 percent shy of its target, the country is slated to get two new CHP plants between now and 2019. Dong Energy plans to open a 280 MW CHP plant in Fredericia in 2017, a facility that will be fueled primarily by wood chips (an estimated 700,000 tonnes), and Hofor plans to open a 500 MW CHP facility near Copenhagen that is expected to consume 1.2 million tonnes of wood chips annually. And Denmark is not the only Baltic Rim country ramping up its biomass CHP capacity. Also coming online in 2019 is a newly announced 150MW facility in Lahti, Finland.

Where will the fiber supply come from to meet this new demand? Among the most likely suppliers will be the Baltic States. With modern and well-developed forest products industries (sawmills, panel mills and pellet mills); effective and efficient harvesting, processing (chipping) and transportation infrastructure; an excess supply of biomass (annual harvests equal approximately 70 percent of net annual growth in the region’s forests); and a history of strong export partnerships, the Baltic States are poised to take advantage of these market opportunities.

 

Wood Fiber Supply in the Baltic States

According to the United Nations Economic Commission for Europe (UNECE), approximately 30 million cubic meters of timber are harvested annually in Latvia, Estonia and Lithuania. Approximately 50 percent of the annual harvest is in the form of saw and veneer logs and 26 percent is pulpwood, a product that has very limited capacity for consumption in the immediate region. Other roundwood makes up 4 percent of the annual harvest, and wood fuel makes up another 20 percent.

 

Wood Chip Classifications

Wood chip classifications in the Baltic States can be fluid; they can vary based on source, quality and market conditions and destination. In Latvia, for instance, chip producers supply pulp quality conifer and hardwood chips to pulp and paper facilities in both domestic and export markets. In addition, they produce technology and energy chips for domestic and export markets that are sometimes interchangeable and sometimes not, depending upon their destination:

  • Forest residue quality domestic energy chips—Domestic energy chips are generated from forest residues, chipped in woods post-harvest and used to fuel district heat and CHP plants.
  • Forest residue quality export energy chip—Excess supply of forest residue quality energy chips are exported to Finland and Sweden.
  • Domestic technology chips—In Latvia, hundreds of small sawmills do not have debarking capacity. Bark remains on slabs after logs are canted, and this material is stored on site awaiting chipping. Chip producers then send mobile chippers to these mills to create technology chips that are delivered domestically to medium-density fiberboard (MDF) or wood pellet (a growing business in the region) mills.
  • Danish quality export energy chips—Excess supply of technology chips are exported. Denmark sources this higher quality energy chip from Latvia because it has a lower ash content than forest residue energy chips.

 

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Clean pulp chips from debarked saw logs in Latvia, destined for domestic or export markets.

 

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Pine logging residue at Latvian forest site destined for domestic energy chips.

 

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Domestic energy chips with limbs and needles.

 

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Slabs and other residue at small sawmill being chipped.

 

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Technology chips (bark on) for domestic MDF or pellets.

 

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Export fuel chips piled at the Port of Riga; 70 percent of technology and export quality fuel chips are of similar quality and interchangeable depending on market demand.

 

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Energy chips in a Latvian wood yard: domestic left, Danish quality on right. Domestic energy chips are a lower quality fuel product with higher ash content.

  

Challenges Remain

While the Baltic States have much of what they need to capitalize on the export energy chip trade as it expands, perhaps the single most important missing ingredient to aid this expansion is the kind of market transparency that high quality market pricing information brings.

With these four categories of wood chips, all with different raw material, chipping and transportation costs, pricing will challenge both suppliers who are trying to maximize their revenues and consumers who are trying to keep their wood costs low. As export opportunities for this underutilized material from the Baltic States grows over the rest of this decade, the addition of high-quality market data will create the kind of transparency that will allow for more orderly sales and purchases of this material, and support the types of long-term supply agreements that will stabilize the market for long-term benefits for the industry as a whole.

European benchmark

Topics: wood fiber supply, Baltic States Forest Industry, Baltic Rim Fiber Benchmark, baltic rim

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