Big in the Baltics
In this not-so-talked-about part of Northeast Europe, the Baltic states—Latvia, Estonia and Lithuania—almost secretly possess a successful and burgeoning wood pellet industry, exporting to many major European pellet markets.
“The ever-growing level of production capacity in the Baltic region was the key reason we decided at Argus to put together our weekly fob (free on board) Baltic index for spot deals,” says Brodie Govan, editor of Argus Biomass Markets. “The Baltics have become one of the major supply hubs in the wood pellet sector, along with Portugal in Europe and the West Coast of Canada and Southeast U.S. The region has long been considered a reliable exporter to end-users in Scandinavia but that reputation is changing as more buyers from mainland Europe sign up for supply deals.”
Brodie estimates the Baltic’s current wood pellet production capacity at about 1.3 million metric tons per year. Latvia leads the way with 800,000 metric tons per year, Estonia at 450,000 metric tons and Lithuania at 120,000.
“It’s difficult to put a figure on projected production growth in the region,” he says, “but if Baltic production is currently around 1.3 million metric tons per year, then we can expect this number to continue rising to meet ever-increasing demand.” The level of increase will depend on the cost of raw materials in the region, which, he adds, have been volatile of late and now account for more than 50 percent of the final pellet price for some producers, “forcing some to look elsewhere, to the likes of Belarus and Ukraine,” Brodie says.
Producers in the Baltics are well-aware of the interest in their pellet production, but they need to consider their current production capabilities, logistics and raw material availability before they can make expansion plans.
“Denmark and Sweden are our biggest export markets and we sell to Lithuania and Estonia,” says Daiga Markova, a spokesman for Latvia-based pellet producer Latgranula, which produces pellets using pure sawdust that it secures from domestic markets. “We export pellets packed in bags and in bulk by vessels from the port of Riga. There is big interest for pellets from such countries as Italy, Germany and Austria but they are using pellets in diameter of 6 millimeters, but we produce only 8 millimeter pellets so this market is closed for us at the moment.”
Gatis Eglitis, director of Ekoliesma, also reports a significant export wave. “We export about 90 percent of our total yield, and the main markets are Denmark, Germany and also a significant portion to Italy,” he says. “For industrial products we have markets in the Netherlands and Sweden.”
Ekoliesma would like to expand its export markets to developing ones such as the U.K., but because of transportation issues shipping to bordering European countries makes more economic sense.
The domestic market in Latvia is a burgeoning one, but there are obstacles to overcome.
“While the local market is growing, there are issues such as the scarcity of raw materials like sawdust,” Eglitis says. “There is also competitive pricing with heating pumps that produce heat and are about 30 percent cheaper than most other forms of electricity generation.”
A number of correlations exist between the Estonian and Latvian markets in the sense that while the domestic market is increasing, it’s the exports that make it all worthwhile.
Figures from Statistics Estonia paint an interesting picture regarding its electricity “trade balance” with 1,100 gigawatts being imported, vastly outweighed by 4,354 gigawatts exported with wood pellets being a significant part of its overseas sales.
The export market trail leads mainly to Denmark and Sweden, with Italy and Belgium also providing trade routes for pellets. “In Estonia, the traditional raw material—sawdust—is used by existing production units,” says Jaanus Roots, manager of Timber OU, in explaining the domestic market. “In addition, pellets are produced from pulp wood. The price of the pulp wood is, in turn, influenced by state [subsidies], therefore the raw material prices and sales prices are currently increasing.
Guaranteed access to raw material is the key for opening pellet production in Estonia these days.”
A special mention should go to AS Graanul, the Baltics’ largest pellet producer, one of the top five producers in Europe, which has a foot in both the Estonian and Latvian markets.
Total production from its six factories, with one of them operational in Alytus, Lithuania, has reached 500,000 metric tons of sawdust pellets per year, with volumes expected to increase by 25 percent over the next five years and ambition to be the continent’s largest producer.
AS Graanul’s goal is to manufacture an additional 320,000 metric tons of pellets, and it hopes that will be achieved by raising its activity in Lativa with a new 180,000-metric-ton capacity plant it plans to have completed by the end of this year. Increased production is planned at AS Graanul’s two existing pellet plants, and finances are expected to be finalized soon.
“Domestic markets in the Baltic states are growing quite fast, but it is still a fraction compared to the actual production here,” says Raul Kirjanen, head of sales for AS Graanul. “I think in 10 years, more than 50 percent of the pellets produced here will also be locally utilized.”
“Our production is 50 percent residential quality and 50 percent industrial quality, which is flexible between markets, so we are able to produce the pellets that the markets need,” he says. “For premium pellets we use bark-free raw materials shavings, sawdust and chips. For industrial pellets, we use logs and industrial chips.”
The company has also received a boost from the European Bank of Reconstruction and Development, which is providing a senior corporate loan of 34.4 million euros (46.9 million) to fund two combined heating boilers in AS Grannul’s pellet mills.
Another interesting development in Estonia is the decision by Swedish-based firm Stora Enso to build its own plant in Imavere Parish, a rural municipality in Estonia’s Jarva County area.
This is an unusual logistical move but Tomas Isaksson, director of pellet operations for Stora Enso, is unperturbed and believes the new plant will be a success providing more pellets for the Swedish market.
“We plan to start in December this year and initially will look to produce 75,000-80,000 [metric tons] but the maximum capacity will reach 100,000 after the first year, Isaksson says. “All of the pellets will be exported to Sweden and the produce will be for the domestic market.”
Despite having the widest land mass and the highest population at 3.3 million, Lithuania is the youngest sibling when it comes to the pellet market, as both Estonia and Latvia started manufacturing pellets earlier.
Lithuania currently has four plants in full operation and total production stands at 150,000 metric tons per year, with 5,000-6,000 of those metric tons used within the domestic market, according to the Lithuanian Biomass Energy Association. As for exports, pellets are being shipped to Germany, Italy, Denmark and Sweden.
There is room to grow the domestic market as 50 percent of the population receives heating through districts, which feed heating into small cities and rural areas via local boiler houses and they could be rebuilt into using biomass for heating. The district system is not unique in Lithuania as it’s also used in Sweden and Finland.
Those who reside in private houses with individual heating plans are also interested in receiving biomass-based heating, the motivation perhaps stemming from high gas prices.
“In Lithuania, the potential is there to grow the wood pellet market as gas prices here are the highest in Europe so pellets are more affordable to the consumer,” says Remigijus Lapinskas president of the Lithuanian Biomass Energy Association. “We have a lot of high-quality raw material and only the highest standards of pellets are produced.”
It’s debatable just how much of an advantage building a plant in the Baltics really is, however, despite the obvious geographical advantage for export markets into Scandinavia and Central Europe.
Eglitis and others argue that there is an abundance of raw material, while others warn of its finite volumes. The cost for labor is viewed as being more economical by some observers such as the International Energy Agency, but Lapinskas believes labor costs are higher in Lithuania than in many other countries.
“Ten years ago, building and operating such a pellet plant as ours was something innovative in Latvia,” Markova says. “Now people are used to pellets as heating energy and have equipped their houses with pellet heating boilers. Now they are satisfied and see advantages for using biomass heating energy, but now when there are lot of pellet plants in Latvia, competition has been growing as well as a shortage of raw material such as sawdust. I am talking about high-quality, pure sawdust, as we are producing only premium class pellets. So nowadays for building and operating new pellet plants, I don’t see a big advantage.”
Despite the concerns over the amount raw materials, the evidence suggests there is likely to be more talk about this corner of Northeast Europe in the future, as it would seem that the pellet markets can only escalate.
Author: Peter Taberner