Pellets for export? Options to consider…
18 April 2016
Quite recently when everyone forecasted soon lack of oil and gas resources, Europe started actively developing alternative energy sources, incl. pellets – with annual growth of pellet market making up 15-20%.
Currently we see that forecasts did not meet expectations. However, decreased prices on oil did not influence European pellet market due to at least two reasons. First of all, there is a strong interest and support on the governmental level and to some extent pressure to the energy sector of the countries from the European Union in order to increase the share of renewable resources in energy production. Besides, Europe made huge investments to develop this direction – with hundreds of large and small pellet burning boiler-houses being constructed within last 20 years to ensure heat and hot water supply for both small communities and big municipal formations. In other words the market has been formed and just cannot disappear in the nearest future, on the contrary, will keep growing.
However, as opposed to the decreased prices on oil there is a factor able to significantly influence the current situation in the market, and it is just weather. To be more specific, it is warm winters that, for example, made Europeans happy during two previous years, but did not add optimism to pellet producers and exporters, incl. their colleagues from Russia. As within warm winters pellet consumption decreases as much as 2-3 (!) times, today some new pellet producers face another problem – to find pellet consumers is more difficult now than some 3 years ago. Currently pellet market is becoming saturated here and there, as stocks made by pellet consumers are not depleted so far. However, the very first cold winter, and especially a number of cold and even typical winters can turn the tide.
Inner market – perspectives and experience
However, non-dependence on European pellet market situation can be possible for some of the non-European pellet producers. For such countries as e.g. Russia it is just necessary to create a local market for pellet consumption considering that the basic rule is as follows: fuel (pellets) production capacity should always exceed their consumption.
Inner pellet market in Russia will allow solving several problems that affect both the government (continuous heat supply, especially, in remote communities) and business (effective sales market and decreased transportation costs). The fact is that the farther a manufacturer is located from the European border, the more opportunities for pellet production due to raw materials availability he has, but the higher is transportation cost (up to 50% and higher) for their export.
A solution – simple, but effective – has been applied in the Northwest of Russia (in Arkhangelsk) for several years. These are pellet burning boiler-houses – the same boiler-houses that are constructed in Europe and operate on pellets produced by Russian manufactures.
There are 7 operating boiler-houses (delivered by Hekotek AS) in the suburb areas of the regional centre, where heat supply was a real bane for the local authorities. The first boiler-houses are to finish their sixth heating season. Easy-to-operate, fully automated, handy, environmentally-friendly boiler-houses can be controlled via Internet, including fuel delivery: operators easily control pellet remains and therefore can plan the next delivery in time.
By the way, there is strong interest to continue development in this direction. It does not only make sense, but is rather prudent. Today the situation is not clear. However, according to the general practice the one who invests in the crisis time, despite wait-and-see attitude and anxiety of other players in the market, inevitably wins when the crisis is over. Of course, in difficult economic situation people are ready to refuse from many things, but no doubt, it does not appeal to heat that belongs to a type of goods that is always in high demand in northern countries.
Source: Hekotek AS