At the turn of the 20th century, U.S. President Theodore Roosevelt warned Congress, with subsequent hyperbole appearing in New York Times headlines, that “a timber famine is inevitable.” Gifford Pinchot, the first chief of the U.S. Forest Service, echoed the sentiment by proclaiming, “In 20 years, the timber supply in the United States on government reserves and private holdings, at the present rate of cutting, will be exhausted.”  The timber famine or scarcity never happened, despite the increased consumer demand placed on our nation’s timber resources through the Roaring Twenties, post-World War II boom and other high-growth periods.

 

The complete opposite of timber scarcity has occurred over the past century. To exemplify the purest definition of sustainability, the amount of forestland in the U.S. has remained stable around 750 million acres from 1907 to 2007.  Additionally, over the past two decades, forestland has increased by 20 million acres.  As of 2006, the volume of annual net growth exceeded the volume of annual removals by 38 percent. The U.S. is growing more timber volume than it is harvesting, by a fairly wide margin. 

 

If a timber famine occurred, stumpage prices—the amount paid for standing timber— would have reflected the inherent scarcity. According to the revealing economic study by Johnson and Libecap, the annualized rate of change in stumpage prices during the perceived timber famine era remained a constant 6 percent.  Supply and demand stayed in relative balance, never approaching a supply shortage that could be termed a “famine.” 

 

Why has the timber resource remained abundant in the face of growing demand?  Simply put, markets existed that created demand. A major factor aiding in the expansion of forestland is the presence of deep, well-established markets for wood products. A nation of consumers required wood for prosperity, thereby fostering development of private sector innovation in the form of technological improvements in milling and tree-felling technology, advances in silviculture, tree-seedling genetics and tree-farming practices, and the conversion of degraded agricultural lands to timberland plantations aided by federal government programs. In the wake of appreciating timber commodity prices, the consumer side of the equation responded with advances in wood conservation measures (e.g., utility pole treatment) and product substitution.

 

Burgeoning Biomass Markets

 

Differentiating from the aforementioned traditional timber markets, the woody biomass market, defined as supply for energy demand, emerged vigorously over the past decade.  Ironically, wood has been used as a source of fuel in the U.S. since the Colonial Era. Seen through the prism of contributing to cellulosic ethanol, heat generation and electrical power generation, the growth of this emerging market has largely been precipitated by government subsidies, legislative initiatives/mandates, increasing oil prices, negative pressure on utilization of food resources and environmental solutions for alternative energy sources. The pressures for the woody biomass market to flourish present a dichotomy of optimism and pause for concern over the actual market formation.

 

Forisk Consulting LLC estimates there are a total of 452 announced or operating woody biomass projects in the U.S. with a projected operating capacity of 124.8 million green tons of wood annually by 2022. Of the projects that actually pass the Forisk screening criteria of successful project financing, proven technology, permitting, supply agreements, etc., Forisk projects that only 77 million green tons of wood annually will be needed, a decrease of 38 percent from the total capacity of all 452 projects. As a data point, the forest products industry currently consumes more than 500 million green tons of wood annually.

 

Anecdotally, Forest Investment Associates has directly met with dozens of potential biomass participants who have expressed interest in securing biomass supply to support potential bioenergy projects. While FIA has had the opportunity to fully evaluate the potential for adding value to timberlands through working with some of these participants, the exercises were largely in vain. Substantiating the screening process conducted by Forisk, most of these potential biomass participants are no longer in existence for a myriad of reasons. 

 

Stalled Biomass Markets

 

What has hampered the development of the woody biomass market?  There is no doubt the financial crisis of 2008-’09 took a toll. Largely, project financing, technological capability and environmental resistance have squeezed out potential market participants. In the first instance, a number of enterprises tried to put the cart before the horse by attempting to secure long-term biomass feedstock supply agreements, in order to secure debt financing, in order to build a biomass-using facility.  It seems cliché, but FIA is a firm adherent of the “Field of Dreams” mantra, “Build it and they will come,” i.e., if new bioenergy facilities that consume biomass are developed, forest landowners will respond to meet the new demand by growing more wood.    

 

In technological capabilities, FIA's interest in the market was piqued in 2006 by an announcement of the Range Fuels’ cellulosic ethanol facility in Soperton, Ga. At full production, the facility was projected to consume 1.6 million green tons of woody biomass feedstock, in an economically depressed area that could have benefited greatly from the related jobs. Sadly, the commercial-scale feasibility of the two-step, thermochemical conversion process was lacking, at least in profitability. With cautious optimism, FIA turns to KiOR Inc. as it prepares for the start-up of the newly constructed cellulosic biofuel blend stock facility in Columbus, Miss. While liquid fuel production from biomass has struggled, pellet production is a proven, long-established technology that provides a reliable market in certain locales, albeit dependent upon European policy models. 

 

Much of the interest in woody biomass as an alternative fuel feedstock originated from the idea of American energy independence and environmental opposition to fossil fuel sources. Ironically, the same environmental community has condemned the use of woody biomass, petitioning for an equal carbon emissions footprint as coal. In the same vein, the final U.S. EPA Tailoring Rule announced in 2010 treated the regulation of greenhouse gas emissions from biomass-sourced and fossil fuel-sourced electricity in an identical fashion. The EPA has deferred the permitting requirements until 2014 in order to gather more data, in the meantime injecting a fair amount of uncertainty into the market. 

 

Despite the setbacks in the woody biomass market, one thing has remained constant: the continual and sustainable management of the timber (and woody biomass) resource. 

 

Biomass Keeps Growing

 

As an open free-market participant, foresters are poised to participate in supplying the emerging demand. In order to generate the highest returns for our clients, timberlands are managed for the highest and best product, which is presently sawtimber.

 

 If the net present value shifts such that a pulpwood or energy rotation provides a better proposition, management strategies will be adapted, as demonstrated in competitive pulpwood markets in the Southeast. Once upon a time, the southern forest products industrial landowners planted 1,000 to 1,200 trees per acre for the primary purpose of supplying feedstock for their pulp facilities. The mantra was, “plant them thick, cut them quick.” Since then, the sawtimber market has grown in the South, and the forest industry as a whole has practiced more intensive silviculture coupled with advanced gains in genetics. The optimum economic sawtimber rotation is satisfied by planting 500 to 600 trees per acre (with current mortality around plus or minus 5 percent in first year).  This planting density allows for a first thinning between ages 13 and 16 to remove pulpwood and a small amount of chip-n-saw.  The increased residual spacing allows for sawtimber growth optimization over the next 10 years or so, until final harvest. 

 

In order to stay diversified in timberland management options, research and operational endeavors have been deployed to couple the pulpwood regime with the sawtimber regime in the form of so-called flex plantations. This method provides for the interplanting of lower-value and higher-value genetic seedling stock. Whatever direction the traditionally deep timber markets or emerging biomass markets may take, land managers and foresters will be poised to provide forest products to both markets in order to meet demand.

 

Author: Joshua Kane Harrell, Certified Forester 
Regional Investment Forester, Forest Investment Associates 

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