Huge demand for wood fuel calls for transparent pricing

Rubber and Wood  |  2011-05-20 08:55:13   |   By

Wood pellets demand has risen in recent years as it has emerged as a viable alternative to coal, gas and traditional wood logs

LONDON (Scrap Monster): During the past few years the global demand for wood pellets has experienced a dramatic increase.

Wood pellets represent an alternative to the use of coal, gas and even traditional wood logs and chips. Burning wood and crop waste emits less carbon than fossil fuels but the balance can topple if it is not replanted, or natural forests are logged.

With European countries being one of the major consumers of wood fuel, The European Biomass Association expects that Europe will reach a consumption of 50 million tons per year by 2020. However, the supply constraints have started putting wood fuel into competition with the paper and even construction industries.

The European Union has stated that by 2020, at least 20 percent of total energy consumption should be supplied by renewable energy resources. Due to this the demand for wood pellets in some European countries, including Sweden, the Netherlands, Belgium, Italy, Denmark and the UK, has outpaced domestic production over the past few years. This has resulted in the increased imports from neighbouring countries as well as North America.

The utilities like power plants are burning biomass in massive amounts and are now demanding price certainty and derivatives to manage their cost exposure.

Recognising this demand and the huge market of wood pellets, the energy exchange APX-Endex is working with the Port of Rotterdam to supply an exchange-traded pellet product this year. Also the index provider FOEX has joined up with specialists Wood Resources International (WRI) for a global wood chip index.

This indicates a gradual shift towards the development of a more transparent and open market for deals between consumers and suppliers.

The rapid expansion in global trade of biomass (both wood chips and pellets) is likely to continue over the coming years as more countries favour renewable energy and as local, relatively inexpensive supplies of biomass reach their limits. However, concerns regarding the environmental impact of such high consumption of biomass fuel are being raised by the environmentalists all over the world.