By R. Bruce Striegler
The staggering North American growth in wood pellet production, due to exports to Europe, has opened significant opportunities for Canadian rail companies. With 42 plants producing three million tonnes in 2012, Canadian production and export has exploded from 1.9 million tonnes in 2011. Explaining the Canadian market, Uri Szyk, CN’s Market Manager for wood pellets and wood chips, says the supply chain in Western Canada is more mature than that in Eastern Canada, even while the west continues to develop. “We’re seeing expanded export terminal capacity with Pinnacle’s new Westview Terminal in Prince Rupert”, he says, noting that British Columbia accounts for 65 percent of Canadian capacity and production.
“In the east we’re encouraged that an export supply chain is emerging, and with Rentech’s entry into the market, constructing two new mills in northern Ontario, the infrastructure economies of scale in are being built.” The Atikokan and Wawa, Ontario, pellet plants will produce 440,000 tonnes with contracts to supply Ontario Power Generation and British Drax.
Uri Szyk says that Quebec Stevedoring at the Port of Quebec plans to spend $20 million to build storage facilities and equipment designed to handle 75,000 tonnes of wood pellets for Rentech Inc. The commitment is part of a long-term contract which will see Quebec Stevedoring provide terminal, warehousing and stevedoring services. The company has also signed a deal with CN to transport the pellets to port, expecting to lease more than 200 covered hopper cars from third parties. Szyk says that as well as the terminal in Quebec City, “We’re also seeing some mills being built close to the ports in New Brunswick and Nova Scotia.”
Both Canadian and U.S. producers see huge volume increases
In North America, the wood pellet industry is currently developing four million tonnes of new capacity, with more than three million of that to go online this year. Mr. Szyk points out that the growth rate in the U.S. is exponentially larger than Canada, and the majority of the new U.S. development is in the American southeast and on the Gulf Coast. Canadian capacity increases include the two new Rentech mills in Ontario, scheduled to begin production this fall. Szyk notes that Rentech’s operations in Ontario have proved to be a challenge to all stakeholders, given the long haul on the rail side, but he says together, CN and the producer have achieved a successful resolution.
Thierry Lysiak, CN Director of Marketing, Forest Products, says that the high level of development in the U.S. southeast is due in part to the advantage they can achieve due to lower transportation costs, including the ocean shipping portion. “We’re looking at a $25 to $40 metric tonne advantage due to lower supply chain costs.” Lysiak notes that although CN does not currently have a presence in any U.S. pellet transportation markets, it is in talks with a number of producers interested in establishing themselves on the U.S. Gulf Coast. Pellet production in the U.S. south during 2012 and 2013 has tripled, and exports to Europe have jumped from 800,000 tonnes in 2011 to 2.9 million tonnes in 2013.
CN offers pellet producers logistics support as well as matchmaking
Meanwhile, Canadian pellet exports were 50 percent higher in 2013 than 2011, a majority of that coming from British Columbia, where the first regular shipments of pellets to South Korea began in the second half of 2013. At the same time, eastern Canadian exports to Europe also increased. In 2013, CN moved over 16,000 carloads and expect that total will reach 18,000 in 2014. Lysiak says that with several new projects coming online over the next several years, almost another million tonnes of pellets (10,000 carloads) will be produced, while Uri Szyk explains that, typically, producers supply their own cars for shipment. “They go out and buy or lease covered hoppers, some, with a little larger capacity are called jumbo hoppers so railcar capacity ranges between 95 and 97 metric tonnes.”
Lysiak says that CN continues to work with pellet producers in both eastern and western Canada, offering advice on site selection, best rail connection for producers who are not rail-served, help customers on railcar selection and provide contacts with leasing suppliers. “We’re able to counsel producers on customs and logistics problems, and provide transportation management services that include tracking carloads to ensure they are on-schedule, or we can manage their fleet pipeline.”
Further, CN can match-make for a pellet producer looking to build a new facility, but needs contacts for product sales or may require further financial investment. “We can help customers find customers, or other resources they may need,” he says. “We have relationships with all the large Canadian forest product companies and we can connect pellet producers with those companies in terms of fiber, wood chips or logs. If they don’t have connections with an export terminal we can connect them.” He concludes by saying that the CN advantage is clearly the service to all major Canadian ports, along with established expertise in logistics and shipping wood pellets.