Building Biomass Supply Chains Key Elements in Performing Transportation Due Diligence Advanced Biofuels Symposium July 23 2015 1
Current demand and market outlook • Global wood pellet consumption grew from 1.7M tons to 25.1M tons per year between 2000 and 2014, a compounded growth rate of 23% per year. • EU is by far the biggest consuming market today, accounting for 19.5M tons of wood pellets in 2014 which makes up 80% of global consumption. EU forecasted demand is expected to reach between 30M and 40M tons per year by 2020 • Explosion in growth of European industrial wood pellet market is primarily predicated by EU legislation called Renewable Energy Directive (RED) which aims to reduce greenhouse gas emissions by 20%, increase use of renewable energy sources by 20%, and improve energy efficiency by 20% by 2020 • Main industrial consumers of wood pellets are owners of large coal-fired power stations in Europe (DRAX, E.ON, RWE, GDF Suez, etc.). These companies are actively converting their power stations to co-fire wood pellets with coal, this in order to comply with EU regulations aimed to reduce greenhouse gas emission • Co-firing wood pellets with coal is lowest cost method for power plants to convert to renewable power and is also relatively easy for them to implement • EU market consumption is split at 44% industrial pellets 56% home heating 2
Wood pellet production and consumption From 2000 to 2014, the world pellet market has a 23% Compound Annual Growth Rate 3.8 ROW 7.4 Canada USA Million Tonnes Russia & East Eur. 20 EU28 12.5 World 1.7 2.2 2.6 3.0 4.0 5.2 7.6 9.7 11.7 14.5 15.7 18.3 22.4 24.5 25.1 European wood pellets consumption is forecasted to reach 36 M tons by 2020 Source: REN 21 (Global production 2000-2012) and Hawkins Wright (forecast global production and consumption in 2014)
Global consumption prospects Europe will continue to be primary growth driver while China, Korea and Japan are expected to be the next big export markets 4
Global production prospects North America will continue to be primary source of exported pellet production due to stability of supply chain and relatively close proximity to consuming markets 5
Global production and CN market share • The continual steep rise in EU wood pellet consumption cannot be satisfied by European wood pellet production as it is running out of resources with a current production of 12.5M tons per year • North America is natural fit to fill in the production gap as region benefits from an abundance of fibre, reliable supply chain, sustainable forest practices, and relative proximity to Europe • USA and Canada exported over 4M tons of wood pellets to EU in 2014 with main exporting regions being Western Canada (1.7M tons) and South Eastern US. (2.3M tons) • CN participates in moving 90% share of Canadian wood pellet production, primarily from Western Canada producers located in BC. CN is currently the largest rail mover of exported wood pellets in the world and transported over 16,000 railcars and 1.6M tons of wood pellets in 2014 • More than 95% of Canadian production of wood pellets is dedicated to bulk export, mainly to European countries 6
Industrial wood pellet market flows Prince Rupert Quebec Vancouver Montreal Halifax Rotterdam New Orleans Pellet Producing Region 80% of volume is exported from North America to Europe today
Mindset of energy buyers Only talking to serious wood pellet producers who: • Can demonstrate that they are well financed • Have a formal business plan in place • Have source of fibre secured • Can produce and deliver large scale capacity • Can provide stable pellet production on a long term basis • Can meet wood pellet quality specifications (ENplus certification) • Can demonstrate sustainability of supply chain Looking to secure long term off-take contracts with pellet producers featuring: • Guaranteed yearly production capacity • Long term contract terms • Predefined cost escalators Key criteria is building a reliable and robust supply chain that will feed their plants for the long term
Setting up new mill Key elements to consider Fibre source: • What region will the fibre be sourced out of? • Do you have fibre allocation and/or are contracts in place with fibre suppliers? • What species of wood to be sourced? (i.e. softwood? hardwood? ) • What type of fibre will be used for production (ex. debarked logs? wood chips? other? what % mix?) • What type of pellets will be produced at the plant ? (ex. white pellets? torrefied pellets? biocoal? other?) • What mode of transportation will be used to receive fibre into the plant? (i.e. rail, truck, or both? what is % mix per mode?) Production site: • Where will the plant be located? • Is plant currently operational, under construction, in planning stages, or feasibility proposal? (If not operational, please specify forecasted start up date) • Will this be a take over of an existing OSB mill or construction of a brand new site? • For new site, has the land been secured? geo-tech and environmental studies completed? permitting process been completed? • What will be yearly production? • What markets will the pellets be sold to? (domestic home heating? export for power generation? export for home heating? CHP projects? - Please specify target markets and destinations) • What mode of transportation will be used to ship from pellet plant to domestic destinations and/or port of exit? (truck? rail? barge? combination of several modes? please specify % mix per mode) • Is plant rail served or are you planning to truck to a loading site and transload to railcar? (If plant is rail served, please specify servicing railroad) • If plant is rail served by CN, has condition of spur from the main line to the site and the track on site been inspected and approved by CN engineering? • What is current track capacity on site (i.e. how many tracks do you have on site? how many cars can you stored at one time? how many car spots do you have?) • Do you own the track on site or do you have a track lease agreement in place with CN? • Loading capabilities (i.e. how many cars can you load per day? what are hours of operation for the plant? how many days per week? ) • Will you have bagging capabilities on site? 9
Setting up new mill Key elements to consider Railroad Equipment: • Do you plan to ship pellets in bulk covered hopper cars or bagged in boxcars? • If shipping in covered hopper cars, do you plan to lease or purchase rail equipment? • How many private cars do you plan to have in your fleet? • Where will you store your private fleet? (on site? arrangement with local CN operations? ) • Have you taken into account weight limitations on track leading from the plant to the port? Origin Transload (If required): • Name and location of the transload operator • Have they confirmed capabilities to handle bulk transfer of pellets from truck to rail? • What transfer equipment will they use to do this? • Where do they plan to store pellets (silos? warehouse?) • What is their storage capacity? • How many cars spots do they have? • How many trucks can they offload per day? • How many cars can they load per day • Which railroad services the transload facility? • How often are they currently serviced by the railroad? Operations: • Expected volume to be shipped from the plant each week • How much tonnage do you foresee loading in each railcar? • What will be estimated cycle time to ship loaded cars from plant, offload at the port, and return empties to point of origin? 10
Setting up new mill Key elements to consider Ports • Are you responsible to pay freight FOB origin port or all the way to destination port? • Port of exit to be used for export • Terminal operator to be used to offload the cars and reload to ship • Terminal operator track capacity • Terminal operator car spot capacity • Terminal operator storage capacity • Terminal operator offloading capacity (i.e. how many cars can the offload per day?) • How often are they currently serviced by the railroad? Ocean: • Types and sizes of ocean vessels to be loaded • Frequency these ships will be loaded • Tonnage to be loaded per ship • Delivery ports at destination • Estimated ocean costs from origin port to destination port General: • What wood pellet market are you targeting and where? • Do you have financing secured? • Do you have long term contracts with pellet buyers secured? • What is your target delivery cost/ton for pellets going from the plant to destination port? • What are current timelines for start up? 11
Rail equipment • Industrial pellets: move from mill to port in bulk via private covered hopper cars. CN does not provide covered hopper equipment to this market • Domestic home heating: move in bagged one ton super sacs via railroad owned boxcars. • Export home heating: If bagged at origin, pellets move to port in boxcars or export containers. If bagged at destination, they move to port in bulk via private covered hopper cars CN 60 ft high cube boxcar Private jumbo covered hopper • 7,000 cu ft capacity • 5250 cu ft capacity • Wood pellet producers avg. loading 76 mt/car • Wood pellet producers avg. loading 95 mt/car CN moves the majority of wood pellets volumes in private covered hopper cars 12
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