The Scary Truth about Pulp and Paper
The amount of potential for the nascent biorefining sector within the pulp and paper industry could be scary. To start, look at what’s already there: infrastructure, feedstock supply, onsite chemical engineers and above all, years of experience dealing with woody biomass. But it doesn’t end there. Part of the potential is included in what is not at an existing facility, namely thermochemical process technology, designer bugs and job creation. For a startup looking to bring a technology to the world, coexisting, co-locating or even repurposing a mill site seems like a no-brainer. For a mill looking to diversify product, squeeze more out of existing assets, or even just to stay afloat, adding a biorefining component to the site seems like a perfect marriage. So where are all the happy couples?
The idea that a pulp and paper mill offers a biorefining developer an immediate ability to deploy that thermochemical process or designer bug while saving a struggling mill town with new jobs, new energy products and new hope, is a good one. It also goes without saying, there are no perfect marriages. And although partnerships like these seem to be scarce (there are roughly three current projects underway in the U.S.), there is still a scary amount of potential for pulp, paper and biorefining relationships, and with the right circumstances, almost perfect can be good enough.
What Scary Means
There is a lot we already know about the pulp and paper industry. Earlier this year, Apple’s CEO Steve Jobs took a health-related leave of absence, and some worried about the future of the media device supergiant. Three months later, Jobs made a surprise appearance for the unveiling of the IPad2. Since its release, Apple has reportedly sold out (roughly 500,000) of the device, and a survey by Piper Jaffray shows that of the second edition devices sold in 2011, 70 percent were purchased by new buyers. So what does all of that mean? For one, Apple might be unstoppable (even when its leader is ill), which we already knew. Also, traditional media, namely newsprint that the IPad and other devices like it are replacing, are becoming the new paper, which again, we already knew.
Stan Parton, who formed the Parton Group, a consulting firm for project developers with 35 years of experience in the pulp and paper industry, agrees that technological advancements of devices like the IPad have changed the landscape for some mill operations forever, but there are also other factors that have affected the pulp and paper industry that ultimately show the need for a change that might not be as obvious. “What we are now beginning to see for the first time, when you take out tissue consumption, the U.S. per capita paper consumption is now declining.” In an industry based on scale, which hinges on the size of a production line, the U.S., he says, has fallen behind. “We are dealing with production lines of the newest, most modern facilities in other parts of the world that are two to three times [the capacity] compared to the systems that are in North America.” In addition to larger production lines, the newest facilities can operate with a smaller number of operators due to more advanced control systems. Add in the higher labor costs in the U.S. and the fact that it is cheaper to tack on the freight costs and ship pulp from South America to the U.S., and the struggles in the industry become pretty clear.
These circumstances have forced some marginal mills, facilities that were never equipped with new technology, to shut down, explains Parton. But a marginal mill might not be what you think it would be. “For example,” he says, “International Paper shut down a mill in Virginia, a very technically advanced mill.” That mill, he says, did receive technical upgrades, but because the company built a large pulp mill in South America, the mill in Virginia was shut down—coincidentally, both mills have the same installed capacity—showing that a mill might only be considered “marginal” as part of a larger corporate portfolio.
In Canada, the pulp and paper scene might be even bleaker than in the U.S. The Forest Products Association of Canada recently completed a study titled, “The New Face of the Canadian Forest Industry: the Emerging Bio-Revolution.” The point of the study, says Tom Browne, program manager of mechanical pulping and sustainability for FPInnovations, was to try and look at all of the proposed ways to better utilize woody biomass in Canada based on the decline of the pulp and paper industry. “I think the Canadian industry is aware that it needs to do this,” he says. “The number of mill shuts in the last five years has made everybody sit up and notice. I think government at all levels think that this is not just the case of an industry that is whining about tough times, but an industry,” he says, “that is in serious crisis.” The government, he says, is not interested in finding ways to help the mills squeeze out another dollar in savings but, instead, the focus has been put on transformation. “It’s a matter of extending it to other products.”
In addition to the decline in newsprint, Browne points to another area of decline that has affected those mills in Canada: the U.S. housing market. “The Canadian lumber industry is also idled to a large extent because we typically sell lumber into the U.S. housing market,” he says, adding, “so a lot of our lumber mills are idle and we have to find new products.”
All of these factors—labor costs, advanced operating systems, production lines that can produce 3,000 tons per day, reading devices that can store 3,000 books or more on a single device—reveal the broad trends of the industry. “Some are positive, and some are negative, quite frankly,” says Pete Stewart, president and CEO of Forest2Markets. Along with newsprint, which Stewart says is basically dying, there is also a negative trend for copy paper in both North America and other developed nations. But, there are some product segments like container board (cardboard) that are doing well, he adds. “You hear that there is all kinds of talk that the pulp and paper industry is dying on the vine,” something Steward notes is not true, but says, “there is definitely a lot fewer mills remaining.” In the end, there is a general decline in demand for paper.
For the biorefining industry, all of these elements may seem like a giant arrow with blinking lights pointing to a commercial site, and the same might even be said for pulp and paper facilities looking for a new revenue stream. Unfortunately, as Browne says, “this is not the type of thing that is going to get turned around in a weekend.”
How Long to Turn Around?
One of the hurdles blocking the development of biorefining projects is the pulp or paper products themselves. Doug Dudgeon, manager of process solutions for the Harris Group, says the difficulty is that the value of some products is still high and if you have markets for those products, a facility should still be selling into that market. “That is why it has been hard for the pulp and paper industry to jump into this with both feet,” Dudgeon says. Stewart notes that paper prices are at an all-time high right now, and Parton has a similar sentiment to Dudgeon on why more developments haven’t taken root.
“Generally, management is caught watching the goose that lays the golden egg instead of watching for new chicks to hatch,” Parton says, adding that, in general, the pulp and paper industry is conservative.
It’s not just the pulp-and-paper side that is holding up the development of more co-located biorefining projects. Within each likely class of options—a distressed or idled plant and an operating plant—there are progress blockers. “If a plant has been shut down,” Parton says, “the owners didn’t decide to just shut it down.” Instead, he notes, that plant was most likely run without upgrades for as long as possible before it was actually idled. As Browne explains, a plant that has been completely shut down (especially in a Canadian winter) will present a number of challenges during any restart efforts.
For those mills already running, there are the technology issues that include starting with a process that actually works on a commercial scale, and finding a way to integrate it in a feasible manner. Add those issues to a number of others and it might sound like a combined biorefinery and pulp and paper mill may never happen in any other place than Wisconsin (Flambeau Rivers). The issues include: determining a role for the mill owners in the overall process and how a mill can handle more feedstock; dealing with existing environmental permitting issues; and competing with the 145 or so mills in the U.S. that are still making paper out of virgin fibers, as well as the mills in the Pacific Northwest and Northeast that have gone idle. Doug Machon, business development manager for NAES Corp., has news regarding any sort of timeline. “This is a little bit of a good news/bad news answer. The good news,” he says, “I do believe that the integration of biorefineries into existing plants makes a lot of sense. The bad news,” he adds, “it’s going to be three to five years before policy, funding and economics converge to allow for significant momentum forward.”
Even Parton, who adamantly hopes such projects will happen, questions whether a window of opportunity has passed. “If you look at some of the companies in the industry, do they have the economic capacity to do this?” he asks.
Dudgeon, like Stewart, says there is general interest by those in the biorefining sector to do this, “more than just kicking the tires,” and the Harris Group is “bullish on this idea.”
The truth about pulp, paper and the biorefining industry is that there is an opportunity for a new industry to partner with an old industry in some capacity, and both can play a role in a sustainable future. To get there, however, it’s not as easy as following the blinking arrow created by a declining industry, or by recognizing that we don’t find our next used car in the local classifieds but, instead, online. Whether a developer is looking to partner with an economically established facility or purchase a distressed or mothballed one, not every plant may be perfect, or ready, for such a project. But, as Dudgeon says, “It doesn’t have to be a big number. If it were 5 percent, it is still a lot for an industry in a nascent stage.” Browne points to the FPAC report, which, he says, concluded that integrated facilities or projects are “going to work a lot better than a bunch of standalone plants.”
Author: Luke Geiver
Associate Editor, Biorefining Magazine