War has cut off the supply of compressed-wood pellets from Russia, Belarus and Ukraine to the power plants in Western Europe that burn them instead of coal. That has put a premium on pellets from North America, especially the U.S. South.<\/p>\n
U.S. export volume, which has climbed steadily over the past decade, is running ahead of last year, when a record of more than 7.4 million metric tons of U.S. wood pellets were sold abroad, according to the Foreign Agricultural Service. The average price before insurance and shipping costs has risen to nearly $170 a metric ton, from around $140 last year.<\/p>\n
\n
Prices for on-the-spot deliveries, which can be scarce in a business that runs mostly on long-term supply deals, have jumped to almost twice that, analysts and pellet executives say.<\/p>\n
The big winner has been Enviva Inc., a Bethesda, Md., company that accounts for the bulk of U.S. wood-pellet exports, and its largest shareholder, New York energy investment firm LLC, which has a 42% stake.<\/p>\n
Enviva\u2019s shares have returned 127%, including price change and dividends, since just before the pandemic lockdowns, better than twice the S&P 500\u2019s 46% total return over that span.<\/p>\n
Enviva is building several new pellet plants in the Southern Pine Belt with the aim of doubling production capacity over the next five years. It buys branches, bark, understory brush, sawdust, spindly or diseased logs and other waste wood from landowners and sawmills and processes the fiber into pellets that are about the circumference of a piece of chalk.<\/p>\n
The company\u2019s output flows from ports along the Atlantic and the northern Gulf of Mexico to European utilities and through the Panama Canal to Asia. Japan is a big importer, and Enviva has set up a sales outpost in Taiwan ahead of a big state-owned coal plant\u2019s conversion to pellets.<\/p>\n
The company on Thursday said it signed five-, 10- and 15-year supply contracts with new customers in Germany. One will burn Enviva\u2019s pellets to produce heat used in a manufacturing process and another is replacing lignite coal and natural gas, which have surged in price even more than pellets. An existing customer elsewhere in Europe agreed to\u00a0pay a higher price in exchange for more guaranteed volume.<\/p>\n
Though some scientists and environmental groups contend that wood-fired generation is no cleaner than coal when it comes to emissions, burning biomass counts toward renewable-energy targets under European rules. Demand was already rising when Russia invaded Ukraine, leading to bans on imports from the aggressor, along with ally Belarus, and interrupting shipments from Ukraine.<\/p>\n
About 3 million metric tons of annual supply from those countries needs to be replaced in Western Europe, said Brooks Mendell, chief executive of Forisk Consulting, which advises timber investors. Meanwhile, natural-gas and coal prices in Europe have soared to multiples of their prepandemic prices due to low supplies before the war and disruptions since, making wood pellets an enticing alternative.<\/p>\n
The technology behind wood pellets stems from Pres-to-Logs and other household fire-starters developed decades ago to make use of sawdust piling up at mills, Mr. Mendell said. Domestically, pellets are sold mainly by the bag for cabin stoves and grills. The export business took off about a decade ago when rules in Europe began encouraging biomass.<\/p>\n
With financial backing from Riverstone, Enviva began consolidating the pellet business in 2010 with the purchase of a mill in Amory, Miss., and started sending boats full of pellets down the Tennessee-Tombigbee Waterway and out Mobile Bay.<\/p>\n
Enviva is building its biggest plant yet along that route, in Epes, Ala. It will be the largest in the world, with capacity to produce 1.1 million metric tons annually. The firm plans to replicate the plant in Bond, Miss., where pellets would move through Pascagoula\u2019s port. Chief Executive\u00a0 John Keppler said the company expects to announce the location of a third 1.1-million-ton plant around the end of the year and has three more on the drawing board.<\/p>\n
\u201cWe tend to build facilities where other people have left,\u201d Mr. Keppler said. \u201cWith the secular decline in paper and pulp, that hasn\u2019t been hard.\u201d<\/p>\n
The bulk of U.S. wood-pellet exports comes from Enviva Inc., and it wants to double its production capacity over the next five years.<\/p>\n
North Carolina State University forestry professor Rajan Parajuli said that the pellet business has been a big uplift for pine growers in the South, where a glut of mature trees has depressed log prices.\u00a0\u00a0He found in\u00a0a 2021 study\u00a0that the presence of a pellet mill boosts competition and prices for the trees that are too skinny to make lumber and gives landowners an additional product to sell when they clear-cut their woodlots.<\/p>\n
A pre-markets primer packed with news, trends and ideas. Plus, up-to-the-minute market data.<\/p>\n
\u201cFrom the grower standpoint, this is great,\u201d said Dr. Parajuli. \u201cThey used to burn the waste, or let it decay.\u201d<\/p>\n
Analysts say changes in government policies are one of the biggest threats\u00a0to Enviva and others in the pellet business. The European Parliament\u2019s environmental committee in May voted to stop encouraging the burning of woody biomass by eliminating its\u00a0eligibility for renewable-power subsidies and changing how emissions are counted, but\u00a0the full parliament would need to sign on to\u00a0change the rules.<\/p>\n
\u201cParticularly amid the war and resulting natural-gas supply crisis, this seems like the worst possible time to change policy on bioenergy,\u201d Raymond James analysts wrote to clients last week. \u201cWe doubt that the committee will get its way, at least anytime soon.\u201d<\/p>\n
Enviva\u2019s Mr. Keppler said he doesn\u2019t believe Europe\u2019s demand for\u00a0pellets will slow, given the alternatives. \u201cEurope used to have a natural-gas transition strategy away from coal,\u201d he said. \u201cToday, it\u2019s nothing but risk.\u201d<\/p>\n
Western leaders are preparing for the possibility that Russian natural-gas flows through the key Nord Stream pipeline might never return to full levels. WSJ\u2019s Shelby Holliday explains what an energy crisis could look like in Europe, and how it might ripple through the world.<\/p>\n
Enviva\u2019s plant in Epes, Ala., will have annual capacity to produce 1.1 million metric tons of wood pellets. An earlier version of this article incorrectly said it will have annual capacity to produce 1.1 metric tons of wood pellets.<\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"
The wood-pellet market is on fire. War has cut off the supply of compressed-wood pellets from Russia, Belarus and Ukraine to the power plants in Western Europe that burn them instead of coal. 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