Eric Kingsley of Innovative Natural Resource Solutions LLC presenting on the current state of markets for low-grade wood in New England. Pulp, paper, biomass, wood pellets. Black Fly Breakfast. Mud Season Breakfast. April 2016

1. Black Fly Breakfast
April 26, 2016
Henniker, NH
Eric Kingsley
Innovative Natural Resource Solutions LLC
kingsley@inrsllc.com
Phone 207‐233‐9910

2. Innovative Natural Resource Solutions LLC
• Founded in 1994
• Offices in New Hampshire and Maine
• Focus at the intersection of forest industry, energy and economic
development
• Author of Maine Future Forest Economy Project (2005)
• Services include:
‐ consulting in renewable energy
‐ advocacy
‐ forest management and protection
‐ forest certification and sustainability
• Clients from the private, non‐profit and government sectors
• Conducted work in all regions of North America
• www.inrsllc.com

3. 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Sawlogs Pulpwood Biomass
Volume (Tons)
Value ($)
Volume and Value to Landowner of Products from a Timber Harvest
North East State Foresters 2013
All NH, 2010

4. Markets for Low‐Grade

5. Pulp and Paper

6. ‐
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
2008 2009 2010 2011 2012 2013 2014 2015 2016e
Estimated Pulpwood Consumption by Maine Pulp Mills
Estimates Based Upon INRS Data

7. Since 1999, the Northern Forest
region has lost 11 pulp mills
New York
‐ Deferiet
‐ Lyons Falls
New Hampshire
‐ Groveton
‐ Berlin
Maine
‐ Westbrook
‐ Bucksport
‐ Old Town
‐ Lincoln
‐ Millinocket
‐ East Millinocket
‐ Madison (May 2016)

8. Emails you never expected…

9. Key items from Verso bankruptcy filing
• Androscoggin Mill
• Established 1965, about 500 employees (post‐2015 layoffs)
• Shut down one paper machine and one pulp dryer to deal with high operating
costs (particularly winter costs)
• Total paper capacity 470k tons (15% of Verso total)
• Cost of Paper to Chicago (benchmarked)
• Coated freesheet
• Androscoggin 3rd lowest of 10 North American mills
• Cost ~$600 / ton, Global average $879 / ton
• Coated groundwood
• Middle of the pack for North American mills
• Cost ~$600 / ton, Global average $474 / ton

10. Key Items from Verso bankruptcy filing
Coated paper market
• Traditional markets face decline in key Verso grades
• “The coated paper industry faces long‐term, structural decline”
• Driven by a move to digital in key markets (magazines, catalogues)
Total NA coated paper market decline 16% between 2010 ‐ 2014
• A strong US dollar has increased imports
• Reduced market size and increased imports led to available market
decrease of 8% between 2014 – 2015
• Total US paper demand (coated and uncoated) predicted to shrink by 3%
2015 – 2016
• Capacity reductions expected to continue (not specific to Verso or any
company)

11. Good News for N.H. Wood Pulp
A high‐volume paper machine in Rumford, Me., that had been idle
since September has returned to operating status. The machine in the
Catalyst Paper mill in Rumford produces nearly 90,000 tons of paper
per year; when the machine was shut down eight months ago, 51
Catalyst employees were laid off.
The revived machine will be fed with as much as 135,000 tons of wood
pulp per year, at least partially reclaiming the more than 2 million tons
of wood pulp that had been lost to the market due to mill closures.

12. Pulp and Paper
• Pulp and paper mills remain region’s largest consumer of wood
products, and represent significant fixed infrastructure.
• Mills produce a variety of products, including market pulp,
communication papers (coated and uncoated), and tissue. Each of
these markets is unique.
• The Northern American paper industry has been shrinking, both in
output and capacity. Individual mills often do well, but new
investment in production is extremely limited in the U.S.
• Maine will remain a paper producing state for well into the future
• I expect reduced pulpwood consumption, and reduced prices for
pulpwood (a bunch of factors in this one, not just demand).
• The closures are NOT cyclical

13. Challenges to the Pulp & Paper Industry
• You will hear
• High taxes
• High energy costs
• High wood costs
• And so on
• There are all very real, and present real challenges to the
industry
• Mills and regions now fighting over a shrinking pie
• They aren’t the fundamental issue, which is change in the
marketplace, and a capital intensive industry that is hard to
change with any reasonable speed

14. Biomass

15. Biomass
Electricity
(MWh)
“Green” Attributes
(Renewable Energy Certificate)
Electricity (MWh)
(Wholesale)

16. Average over the next year
$47.14
$‐
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
$160.00
$180.00
Jan‐10
Mar‐10
May‐10
Jul‐10
Sep‐10
Nov‐10
Jan‐11
Mar‐11
May‐11
Jul‐11
Sep‐11
Nov‐11
Jan‐12
Mar‐12
May‐12
Jul‐12
Sep‐12
Nov‐12
Jan‐13
Mar‐13
May‐13
Jul‐13
Sep‐13
Nov‐13
Jan‐14
Mar‐14
May‐14
Jul‐14
Sep‐14
Nov‐14
Jan‐15
Mar‐15
May‐15
Jul‐15
Sep‐15
Nov‐15
Jan‐16
Mar‐16
May‐16
Jul‐16
Sep‐16
Nov‐16
Jan‐17
Mar‐17
Average Real Time Wholesale Electricity Prices, ISO New England
Futures Prices as of 4/25/2016 9:15 AM
Actual Futures

17. Biomass Electricity – Fuel Costs
• ~1.7 green tons of fuel per MWh
• That means if biomass fuel is $28 / tons, fuel cost is ~$47.60
per MWh (hypothetical)
• Add in staffing, consumables (emissions control),
maintenance, debt service, etc. @ $30 per MWh
• Cost of generation (absent profit) is somewhere around
$80 per MWh

18. Biomass Fuel Cost ‐ $ per MWh (estimated)
$0
$10
$20
$30
$40
$50
$60
$70
$80
$22.00 $24.00 $26.00 $28.00 $30.00 $32.00 $34.00 $36.00 $38.00 $40.00

19. Biomass Electricity – RECs
• Plants need Renewable Energy Certificates (RECs) to
operate economically
• MA has effectively excluded stand‐alone biomass
• Set an efficiency standard that cannot be met by a stand‐alone facility
• Also a forestry standard, which suppliers were responsible for
• CT has a phase‐down for biomass beginning in 2018(?)
• Biomass a huge economic boost to local regions, forestry
• Only renewable with ongoing economic benefits
• Apparently not as important to Southern New England as
we would hope…

20. REC Prices (Connecticut, indicative, broker quote, 4.3.2016)
$‐ $10 $20 $30 $40 $50
2017
2016
2015
Prices dropped about $15 per REC between
Friday and Monday, given new information
from ISO‐NE about total electricity load

21. What does it take to operate biomass in 2016?
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
Revenue Expenses
Electricty RECs (CT) Fuel O&M
• Assumes:
• Electricity at current futures price
for the next year
• RECs at current broker quote
• Biomass fuel at $28, 1.7 green
tons per MWH
• O&M at $30 per MWh
• With these assumptions, this is
not an attractive business

22. 22

23. The glass is half full…
• We have markets, and are incredibly well positioned compared to
other parts of the country
• We have the forest resource and supply infrastructure (landowners,
loggers, entire forest industry ecosystem) that would make other
regions jealous
• We live in close proximity to (and are part of) the greatest collection
of consumers in the history of the world
• There may never be a better time to be develop a project or
technology that uses low‐grade, particularly softwood

24. Forest Resources Association
• Promote the interests of forest
products industry members in the
economical, efficient, and
sustainable use of forest resources
to meet the needs of the wood
fiber supply chain through private
enterprise.
• Join me for dinner on the 1st
Thursday of the month – give me
your email.

25. About My Woods

26. Eric Kingsley
Innovative Natural Resource Solutions LLC
Phone 207‐233‐9910
Email kingsley@inrsllc.com
www.AboutMyWoods.org