Wood Pellet Fuel, a Commodity?

In the world of wood energy there are two basic fuel “types:”

 Minimally processed fuels such as cordwood and wet wood chips  More heavily processed fuels such as dry wood chips, wood pellets and wood briquettes. These fuels all require some level of drying. In the case of pellets and briquettes additional mechanical processing is require to develop the final fuel “form.” The focus of this paper is on pellets fuels.

The more heavily processed a fuel, the more it “costs” to manufacture. Assuming the raw material for the pellets is waste sawdust and shavings from a saw mill, the following steps are generally required to manufacture pellets:

 Raw material delivery and temporary storage.  Drying in a rotary drum dryer.  Initial sizing via cyclone separation; larger sizes are redirected to a hammer mill for size reduction and reintroduction into the dried raw material stream.  Final screen sizing.  Compression in a pellet mill; pellet length generally varies from ¼” to 1.25”  Cooling….the pellets emerge from the pellet mill hot due to compression so they must be cooled before further processing.  Final screening for size and debris removal.  Bagging in 40 lbs bags or shipment in bulk.

An interesting 3 minute video of the entire process can be found at:

 video.google.com/videoplay?docid=-5902182363142348090

Significant energy is required to manufacture wood pellets. Fifteen percent (15%) the raw material is initially burned to provide the heat necessary to dry the remaining 85% of the raw material so that it can be processed. All additional energy is electrical and it is used to power fans, conveyors, pellet mills, cyclones, etc. Estimates of this additional “imbedded energy” range from 5% to 10% of the available energy in the final pellet. This does not include the energy involved in the delivery of the raw material to the pellet plant, nor the delivery of the final pellet product to the end user. Electrical energy in the US is generally produced using coal or nuclear fuels; and it is usually the most expensive form of energy in the United States. Does this correlate with the pricing of electricity and pellets? Reviewing data at www.woodpelletprice.com and www.electricchoice.com we find the following average prices. Although not a perfect relationship (obviously other factors also have an effect), it does show a general trend.

MN pellets @ $185/ton electric @ 10 cents/KWH

New England pellets @ $250/ton electric @ 16 cents/KWH

Pellet marketability is a function of cost/payback when compared to more traditional fuels such as fuel oil, propane and natural gas. If the cost to produce pellets is high, the market may be small or the margins will be slim for a manufacturer due to the relatively lost cost of conventional fuels in the US. However, in a world market pellet sales may provide a much greater profit margin because the market price of fuel oil in other countries is much higher than in the US. Thus the manufacturer would be foolish to market his product in the US when he could increase profit and experience a better ROI with foreign sales.

Is the export of pellets from the US to overseas markets presently occurring? Large quantities of pellets are presently exported from the US to Asia and Europe, especially the Scandinavian countries. In fact there is an upcoming conference specifically aimed at the export of wood pellet fuel: North American Biomass Pellet Export Conference, September 8 -9, 2011, New Orleans, LA. Exporting of wood pellets has two effects on the US market:

 May reduce availability of pellets  Will increase the price of pellets (price is now set on an international basis)

Thus wood pellets are essentially an international commodity with pricing and availability driven by world influences, not just US supply and demand.