Wood Pellet Production to Penetrate the European Market

The condition of the Russian-Ukrainian war that occurred had an impact on the wood pellet industry, namely the shortage of supply in England and other European countries. They have made efforts to increase supply to secure the availability of these wood pellets. The shortage of wood pellets both for industrial and household use (room heating / pellet heating). Wood pellet production from Russia cannot be accepted by the European market even though the amount is large (Russia exported more than 870,000 tons to Denmark alone last year) and this condition is expected to occur for at least the next 12 months. The supply shortage of wood pellets is estimated at 3.4 million tons, which is production from Russia, Ukraine and Belarus. The Russia-Ukraine conflict has led to high wood pellet prices for various reasons, mainly due to the scarcity of wood pellets and other fuels coming to Europe and high electricity prices.

The need for wood pellets also continues to increase along with the decarbonization program (substitution of fossil fuels for renewable energy). According to Hawkins Wright's data, from 2020-'21, demand for wood pellets for the global industry grew by 18.4%, with production only growing 8.4%. Especially now with the disappearance of Russia, the price of wood pellets is higher, which reaches $ 300 per ton, but even at high prices, the supply of wood pellets is still constrained. The high price of fossil fuels has also created an increase in demand for wood pellets, especially households in Europe who have switched to wood pellets for space heating and it is estimated that the increase in demand will reach 2.5 million tons in 2022, according to the Austrian proPellets report. In Austria—and most of their representatives across Europe—wood pellet prices broke records by increasing more than 53% over the previous year with no signs of slowing down anytime soon. Even the June 2022 survey completed by Austrian proPellets resulted in an average price of wood pellets rising 66% compared to the previous year. However, despite the increase, wood pellets still offer a price advantage of 82.7% compared to heating oil and 18.3% compared to natural gas. Meanwhile, packaged wood pellets (bagged pellets) increased 52.8% compared to last year.

ProPellets Austria also reported that to respond to the demand for wood pellets, especially to ensure long-term needs, the Austrian wood pellet industry built 11 new wood pellet factories by accelerating the utilization of wood residue. The international energy market is in a state of upheaval, not least because of Russia's invasion of Ukraine, and this also affects the wood pellet market globally, especially in Europe. Whereas the UK has also faced a shortage of 200,000 tonnes of wood pellets in the domestic/household heating market and that new supply chain pathways are being explored, importing larger volumes is one solution. With a very tight market, supply chain bottlenecks, inflation and the ripple effects of ongoing wars, strategy, creativity and supply chain flexibility will be required from wood pellet stakeholders. As for whether global wood pellet supply is expected to be closer to meeting demand, that likely won't be in the near future, according to Matthews, biomass consultant from Hawkins Wright. . Economic strength will have an effect over time — high prices are the driving force of investment in a new wood pellet plant. The wood pellet industry is currently investing hundreds of millions of Euros so that supply is guaranteed in the long term, but they also need support from political decision makers.

Indonesia, with its vast territory and tropical climate, has the potential to develop large capacity wood pellet production, including the use of energy plantations. Indonesia's wood pellet production, which is currently still small or estimated at only 200 thousand tons per year, needs to be boosted so that it responds to European needs. Even though so far Asia, Japan and Korea are the target markets for wood pellets, recent developments in European conditions have also become a new impetus. The high price of wood pellets in Europe due to the Russia-Ukraine war made suppliers in North America (United States and Canada) also start supplying Europe. In fact, this opportunity was also seized by a number of suppliers from Asia. Vietnam is the second largest exporting country in the world for wood pellets. The volume and value of wood pellet exports has continued to increase since October 2021 and export prices have soared to an average of nearly US$150 per tonne, up more than 27% compared to the average price recorded last year. The sharp rise in export volumes and prices can be attributed to the sudden increase in demand from the European Union. With this extraordinary production capacity, Vietnam's wood pellet industry is starting to face a number of challenges, namely limited raw materials and more stringent requirements demanded by importers such as sustainability certification. This condition should be seen as an opportunity for the wood pellet industry in Indonesia.