Struggling Forestries Bet On Biofuel Boom

HELSINKI - European and North American forestry companies are increasingly investing in making biofuels out of wood residues, a market they say will be closely linked with their core paper business. Making production self-sufficient is their primary target as rising energy costs hurt their already low profit margins, but they also see bioenergy as a lucrative business in itself. "We wouldn't be there if we didn't see good profits out of that kind of business," said Jussi Pesonen, chief executive of the world's top magazine paper maker UPM-Kymmene.

UPM has for years invested in energy production and its paper plants are already self-sufficient in Finland and at 70 percent across its operations globally. Pesonen said combining energy production with paper-making was a natural move and adds value to biomass used. "Bioenergy is well integrated into the paper and pulp mills, where you can combine biomass coming from forests and mass production," he said.

That is what makes the business so profitable, he said. "Standalone, a biodiesel plant wouldn't be that competitive," he said.

Along with some of its peers, UPM is now investing in developing biodiesel technology, looking to reduce dependency on skyrocketing electricity costs. Stora Enso, the world's top paper and board maker, has formed a joint venture with refiner Neste Oil to jointly develop technology for producing biofuels from wood residues.

Pine tree oil
Swedish refiner Preem said last month it planned to start making biodiesel from pine tree oil, a non-edible forestry industry waste product, in the face of criticism biofuel has pushed food prices to record highs. Biofuels are mainly produced from food crops such as wheat, maize, sugar cane and vegetable oils and are seen as a way to cut greenhouse gas emissions that contribute to climate change.

But critics say diverting land from food crops to biofuel feedstock production has helped push up global food prices. "Previously wood scraps have been unused totally, so this will definitely improve the companies' profitability," Handelsbanken analyst Sampo Timonen said.

"But it is not going to change the total picture of the forestry industry - it will be a side product." The profitability of the biofuel production also depends on the size of subsidies governments will provide as part of their drive to meet EU directives for increasing the share of biofuels among traditional energy sources. But Norwegian newsprint maker Norske Skog said in the long run the biofuels business was more promising than that. "I think ten years from now the biofuel industry will be equally as big as the paper industry today," Chief Executive Christian Rynning-Toennesen said.

"It will not help Norske Skog's earnings in the next year or two, but it could be significant in the long term." Oil company Chevron Corp and forest products maker Weyerhaeuser have launched a 50-50 venture to develop technology to transform wood and other cellulose sources into clean-burning fuels for cars and trucks.

Ethanol from plant cellulose has the same chemical properties as ethanol made from corn and sugar cane, but it is produced from a variety of nonedible materials such as cereal straw, wood, sawdust and switchgrass.

In the United States, corn is the dominant feedstock used to make ethanol. As the number of corn-fed ethanol plants has mushroomed, the price of the crop has steadily risen. This has led a number of companies to explore alternative raw materials, which could help reduce the pressure on corn prices.

(By Agnieszka Flak, Camilla Knudsen and John Acher, Planet Ark, 22/08/2008)