Exploring the full value of the forest
September 1, 2010 By Pulp & Paper Canada
At the 2009 PricewaterhouseCoopers Global Forest and Paper Industry Con- ference, with multiple sectors of the forest products industry bottoming out, there was a sense of grasping at bioenergy as a l…
At the 2009 PricewaterhouseCoopers Global Forest and Paper Industry Con- ference, with multiple sectors of the forest products industry bottoming out, there was a sense of grasping at bioenergy as a life preserver for the industry. One year later, prices had rebounded and the prev- alent theme at the event was one of trans- forming the fundamentals of the business to introduce new co-products and new revenue streams, including bioenergy.
The Forest Products Association of Canada’s Avrim Lazar cautioned attend- ees: “When you live with a cyclical indus- try, one of the real dangers is that you pay too much attention to the cycle and not the underlying structural changes.”
No danger of that here. These experts certainly recognize that the foundations of the pulp and paper industry are shifting.
PwC’s annual gathering of analysts and business leaders touched on both short-and long-term issues; from the economic outlook for 2011 to the shape of the world in 2050.
The concept of the forest performing “ecosystem services” was raised. One facet of this is carbon sequestration, but eco- system services encompasses more: recre- ational uses, providing clean water, bio- diversity. These “services” that a standing forest provides for the climate and the ecosystem are gaining recognition.
“The eco services of a standing forest are significant and of value to society,” says Dan Fulton, president and CEO of By Cindy Macdonald, editor
Weyerhaeuser Co., but he adds that it’s not clear who would pay for those ser- vices. However, he notes that there has been the precedent of purchasers of con- servation rights, such as Riparian zones.
A future in chemicals
FPAC’s Lazar and others presenters advocate that the forest products industry must extract full value from the forest resource, including biomass for energy or fuel, and bio-chemicals.
Brian Merwin, vice-president strategic initiatives for Mercer International, envi- sions the Zellstoff Celgar mill in 10 years as a biorefinery with various bolt-on tech- nologies. “I see a future in specialty chemi- cals, as well as a growing kraft pulp mill.”
Mercer International, which owns the Zellstoff Celgar mill in Castlegar, B.C., is accomplished at incorporating green energy into its business. Merwin says Mercer’s two German mills are the largest biomass energy facilities in that country. The company’s green energy revenue has been growing at a compounding annual growth rate of 27% since 2007.
“Our industry has extracted value from by-products for a very long time,” Merwin notes. Now, he believes a para- digm shift has occurred due to the global demand for green electricity. “Secondary by-products are now co-products and have potential to positively impact the bottom line.”
This paradigm shift to a new busi- ness model means companies can’t pair old revenue models with the new costs. The modified cost model is creating a new cost curve, and Merwin foresees an energy premium on costs.
Merwin’s conclusion: the industry needs to reinvest to support the paradigm shift.
Mercer’s approach is to focus on top line results, and treat energy revenue as a separate line item.
The Castlegar mill became a net ener- gy exporter in 2007. Since then, the mill has initiated a $55 million Green Energy project which includes a 48 MW con- densing turbine.
Biomass as a revenue opportunity
“We look at all sources of revenue that come from our land,” Weyerhaeuser’s Ful- ton told the conference attendees. Wey- erhaeuser owns and manages 22 million acres of land, 15 million of that in Canada.
“Biomass is a real potential source of revenue — not just burning it, but biofu- els and biochemicals. There’s long term potential in carbon markets for seques- tration, and longer term, water will be increasingly important,” Fulton predicts.
Another forest manager, Gunnar Olofs- son, president and CEO of Sveaskog, the Swedish government’s forest management organization, predicts that wood products will continue to a forest owners’ revenue base for several years, but “biofuels will be the third leg for us as forest owners.”
By 2050, the world has changed
Bjorn Stigson is a man with a clear vision of how the world could look in 2050. As president of the World Business Council for Sustainable Development, he is well versed in population trends and eco- nomic forecasts.
He is convinced that pressure on the environment will be substantial in the next few decades.
The WBCSD is basing its actions on these assumptions: that in the next 40 years, we will add another 1/3 to the global population, bringing the total to 9 million; that 85% of the world’s popu- lation at that time will live in developing countries; and that in the future the world will be more urbanized.
“Governments are looking at a world that’s going to be resource-and carbon- constrained,” states Stigson.
In the WBCSD scenario, the forest products industry has a crucial role. “The yield from planted forests must have a three-fold increase to meet needs for bioenergy, pulp and paper,” says Stigson. At the same time, during what Stigson calls the transformative period, from 2020 to 2050, carbon prices and payment for ecosystem services may be an incentive to not cut down natural forests.
FPAC’s Lazar is skeptical of the idea of natural forests being preserved for ecosystem value while plantations are used for production. One of the huge poverties of the future will be land pov- erty, Lazar comments. Stigson agrees. He anticipates agriculture and forest uses will compete for land.
While competition for land is not a likely scenario for Canada, the global development trends that Stigson out- lines will affect markets and societal values over the long term. Pulp and paper companies must be aware of the slower and more subtle structural changes, not just the dramatic cyclical ups and downs.
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