U.S. Wood Pellet Exports Double in 2013 in Response to Growing European Demand

Source: U.S. Energy Information Administration, based on U.S. International Trade Commission data

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Wood pellet exports from the United States nearly doubled last year, from 1.6 million short tons (approximately 22 trillion Btu) in 2012 to 3.2 million short tons in 2013. More than 98% of these exports were delivered to Europe, and 99% originated from ports in the southeastern and lower Mid-Atlantic regions of the country.

Wood pellets are traditionally manufactured from wood waste (including sawdust, shavings, and wood chips) that results from wood processing activities, but they can also be produced from unprocessed harvested wood (generally at a higher cost). Wood pellets are primarily used as a residential heating fuel in the United States, but wood pellets can also be used for commercial heating and power generation applications. As recently as 2008, the U.S. Forest Service estimated that approximately 80% of U.S. wood pellet production was consumed domestically. However, because of strong demand growth in Europe, wood pellet exports have been the driving factor in the growth of domestic wood pellet production in recent years.

Growth of U.S. wood pellet exports has been concentrated in southeastern states, which have advantages in terms of abundant material supply and relatively low shipping costs to Europe. Transportation cost is a large part of the total cost of wood pellets; for example, according to Bloomberg New Energy Finance, transportation accounted for a quarter of the delivered price of wood pellets from the Southeast to the Netherlands in mid-2013. Shipping costs generally increase with distance, so the proximity of the United States to Europe compared to wood pellet manufacturers in Brazil and western Canada provides a pricing advantage for U.S. wood pellet exporters.

European countries, particularly the United Kingdom, are using wood pellets to replace coal for electricity generation and space heating. A principal driver in market activity is the European Commission's 2020 climate and energy package, binding legislation enacted in 2009 that implements the European Union's 20-20-20 targets. The 20-20-20 targets have three individual goals for 2020: to reduce EU greenhouse gas emissions by 20% from 1990 levels, to increase the renewable portion of EU energy consumption by 20%, and to improve EU energy efficiency by 20%.

In 2013, the top five importing countries of U.S. wood pellets exports were all European: the United Kingdom, Belgium, Denmark, the Netherlands, and Italy. The United Kingdom accounted for the majority (59%) of U.S. wood pellet exports, and more than tripled its imports from the United States between 2012 and 2013.

Source: U.S. Energy Information Administration, based on Eurostat data

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The United Kingdom's wood pellet imports from all sources have grown from near zero in 2009 to more than 3.5 million short tons in 2013. Because of the United Kingdom's Renewables Obligation program, the operators of several large coal-fired power plants have either retrofitted existing units to cofire biomass wood pellets with coal or have converted to 100% biomass. The Drax power plant—rated at nearly 4,000 megawatts and the largest coal-fired power plant in the United Kingdom—is in the process of implementing plans to convert half of its six generating units to run solely on wood pellets. The first of these three units entered service in 2013, while the remaining two conversions are planned for completion in 2015. According to Eurostat, the United Kingdom is also a major importer of wood pellets from Canada and, to a lesser extent, from other European sources. Until 2013, Canada was the primary source of the United Kingdom's import supply.  (DOE-EIA)