10 Questions for . . . Jon Strimling, President of WoodPellets.com
In this installment of 10 Questions for . . ., Associate Editor Gian Trotta speaks with Jon Strimling, president of WoodPellets.com about the pellet market. Strimling also addresses some of our readers' concerns about wood pellets and their delivery.
Last year there were reports of pellet shortages. What are the prospects for pellet supplies this winter?
We're clearly in a better position now at the macro level than we were last year, when oil prices shot through the roof in May, June, and July and caused a run on pellet supplies. The industry usually has until November to provide enough fuel for a winter season, but last year many people saw prices going up and thought that they should get their pellets early.
The sudden surge in demand was challenging, and there were times last year when one coast or another would go into back order. But the country has never been short of supply; it was just a case of the product sitting in the wrong place. We were able to keep a flow, but pellets were traveling farther and cost of transport was higher.
A fair bit of additional capacity has also become available. Over past few years 20 new mills have started producing pellets in U.S. and Canada, and new capacity has been added to existing plants. This year, a major boost to raw-material supplies consists of lodgepole pines in Colorado and British Columbia. Because of beetle infestations in recent years, there is an enormous quality of dead standing timber being removed for forest-fire mitigation, and the highest-value use of that resource is pellets.
Will all those factors offset the reduction in pellet raw materials from lumber and wood-flooring production?
Certainly, housing starts are down, and that has reduced capacity of some mills that rely on that stream of dry residual wood. But most of the newer mills can employ "green chips" that enable them to continue to produce premium pellets, and in some cases even superpremium pellets. These clean, debarked chips are cut before wood is dried, for example from the lumber cut from side of logs to square them.
How vulnerable are pellet-producing plants to supply interruptions?
Fortunately, production is dispersed among several areas and companies to reduce chance of shortages. Individual pellet-supply facilities can go down, especially if they are linked to a particular lumber mill. The network of 80 to 100 plants is as a whole pretty robust, so if someone goes down, someone else will pick up that volume.
One of our readers noted that when he began using pellets five years ago, pellets were $110 a ton, now he's paying $265. What is your long-term forecast for pellet prices?
It may be that this consumer got a very unusual deal in 2005 through some sort of a clearance event, because that price is much lower than even typical wholesale pricing was in 2005. If you look at when we started this business in 2006, our retail price was right about what it is now. In 2008, pricing went up about 10 percent.
If you go back five to 10 years ago when crude was cheaper, pellets cost less. Wood and pellets are typically moved by trucks that use diesel fuel, which has gone up since then; so there's no avoiding that pellet prices will rise as oil rises, as diesel fuel is an element of pellets' cost. Normally, when the price of oil doubles, it results in an increase in transportation costs for pellets of about 25 percent.
How do sales of pellet-burning appliances affect your demand forecast?
Last year, sales of pellet-burning appliances were up 180 percent. We won't see sales like that repeat this year—probably not until the next spike in oil pricing. But every heating system sold creates an incremental increase in demand, and people who have systems are continuing to use them, even with oil at lower price levels.
What we're seeing this year is that demand for pellets is coming later. There hasn't been mad rush to go out and buy supply, so we're seeing a later buying season with strong demand. There's not a feeling of panic of everyone this year like last year with the continued growth in the industry. Folks with stoves and inserts are telling friends to go out and buy a pellet-burning stove.
What's the difference between premium and superpremium pellets?
The Pellet Fuel Institute just released a new standard for superpremium pellets and is working out the statistical data around the new methodology. Ash level is a major distinction. Premium has a maximum of 1 percent ash content while superpremium has less than one-half of one percent. That's a big deal to a stove owner because you're cleaning your stove half as often.
Other things tested by the PFI include Btu content, length and diameter of the pellets, and durability. The heating value and ash level are of primary interest to a consumer. The range of variation for the heating value can be 10 percent, but ash level can vary by a factor of three. Moisture level is inversely proportional to heating performance also.
We're clearly in a better position now at the macro level than we were last year, when oil prices shot through the roof in May, June, and July and caused a run on pellet supplies. The industry usually has until November to provide enough fuel for a winter season, but last year many people saw prices going up and thought that they should get their pellets early.
The sudden surge in demand was challenging, and there were times last year when one coast or another would go into back order. But the country has never been short of supply; it was just a case of the product sitting in the wrong place. We were able to keep a flow, but pellets were traveling farther and cost of transport was higher.
A fair bit of additional capacity has also become available. Over past few years 20 new mills have started producing pellets in U.S. and Canada, and new capacity has been added to existing plants. This year, a major boost to raw-material supplies consists of lodgepole pines in Colorado and British Columbia. Because of beetle infestations in recent years, there is an enormous quality of dead standing timber being removed for forest-fire mitigation, and the highest-value use of that resource is pellets.
Will all those factors offset the reduction in pellet raw materials from lumber and wood-flooring production?
Certainly, housing starts are down, and that has reduced capacity of some mills that rely on that stream of dry residual wood. But most of the newer mills can employ "green chips" that enable them to continue to produce premium pellets, and in some cases even superpremium pellets. These clean, debarked chips are cut before wood is dried, for example from the lumber cut from side of logs to square them.
How vulnerable are pellet-producing plants to supply interruptions?
Fortunately, production is dispersed among several areas and companies to reduce chance of shortages. Individual pellet-supply facilities can go down, especially if they are linked to a particular lumber mill. The network of 80 to 100 plants is as a whole pretty robust, so if someone goes down, someone else will pick up that volume.
One of our readers noted that when he began using pellets five years ago, pellets were $110 a ton, now he's paying $265. What is your long-term forecast for pellet prices?
It may be that this consumer got a very unusual deal in 2005 through some sort of a clearance event, because that price is much lower than even typical wholesale pricing was in 2005. If you look at when we started this business in 2006, our retail price was right about what it is now. In 2008, pricing went up about 10 percent.
If you go back five to 10 years ago when crude was cheaper, pellets cost less. Wood and pellets are typically moved by trucks that use diesel fuel, which has gone up since then; so there's no avoiding that pellet prices will rise as oil rises, as diesel fuel is an element of pellets' cost. Normally, when the price of oil doubles, it results in an increase in transportation costs for pellets of about 25 percent.
How do sales of pellet-burning appliances affect your demand forecast?
Last year, sales of pellet-burning appliances were up 180 percent. We won't see sales like that repeat this year—probably not until the next spike in oil pricing. But every heating system sold creates an incremental increase in demand, and people who have systems are continuing to use them, even with oil at lower price levels.
What we're seeing this year is that demand for pellets is coming later. There hasn't been mad rush to go out and buy supply, so we're seeing a later buying season with strong demand. There's not a feeling of panic of everyone this year like last year with the continued growth in the industry. Folks with stoves and inserts are telling friends to go out and buy a pellet-burning stove.
What's the difference between premium and superpremium pellets?
The Pellet Fuel Institute just released a new standard for superpremium pellets and is working out the statistical data around the new methodology. Ash level is a major distinction. Premium has a maximum of 1 percent ash content while superpremium has less than one-half of one percent. That's a big deal to a stove owner because you're cleaning your stove half as often.
Other things tested by the PFI include Btu content, length and diameter of the pellets, and durability. The heating value and ash level are of primary interest to a consumer. The range of variation for the heating value can be 10 percent, but ash level can vary by a factor of three. Moisture level is inversely proportional to heating performance also.
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