The global wood pellet market was already facing supply issues and price increases issues before Russia’s invasion of Ukraine. Following the sanctions imposed on Russia and Belarus, we now face a worldwide shortage in wood pellet.
We spoke to Bruno Berardelli, AMP Clean Energy’s Head of Asset Services, to find out more about the global wood pellet crisis, his views on the future of the wood pellet market, and what he is doing to secure supplies for AMP Clean Energy’s customers.
How is the situation in Ukraine affecting global wood pellet supply?
The UK market is not self-sufficient in the supply of wood pellet, and as with most commodities, we have relied on a certain level of imports for many years. In recent years 12-15% of global supply has historically come from Russia and Belarus.
The global market for wood pellet was already extremely stretched before the Russian invasion of Ukraine. Several factors, including recent bad weather, container shortages and rising shipping costs, led to wood pellet prices increasing significantly in the last 12 months.
On top of this we have recently seen international sanctions on trade with Russia and Belarus, which is now leading to a shortage of wood pellet in the coming weeks and months. Of course, where you have high demand, you see prices rise, which is exactly what is happening in the pellet market.
How has the biomass industry reacted to the Ukraine situation and what is it doing to secure future wood pellet supply chains and sources?
The biomass industry faces a similar dilemma to that of the oil and gas market in terms of needing to diversify its global supply chains.
The European Pellet Council (EPC) has suspended all ENplus® certified producers, traders, and service providers based in Russia and Belarus as of 15 April 2022.
The UK Pellet Council, its members and the UK heat biomass industry has, like many other sectors, took immediate and alternative measures to restructure its global supply chain, working with overseas partners to help ensure a continuous supply of biomass wood pellets for UK customers. The UK Pellet Council has also said the UK Government has a very real opportunity to better, support, strengthen and heavily invest in a home-grown wood pellets market.
At AMP Clean Energy we support the actions of the European Pellet Council and the UK Pellet Council. We are working very hard to secure enough wood pellet for the assets we manage and own and for our contract wood pellet customers.
What is AMP Clean Energy doing to secure wood pellet supply for its customers?
Given the previous levels of Russian exports, the Ukraine situation is having an impact on supply worldwide, so we are now all competing for the same premium product from similar suppliers.
At AMP Clean Energy, we have been working hard in recent weeks to secure the future volumes required to meet the heating needs of our customers. Whilst the traditional winter heating season is coming to a close, many of our customers are schools, care homes, hospitals, food production and factories that rely on heat all year round. Fortunately, we have long standing relationships in the market and have been able to negotiate contracts with both our existing suppliers and some new suppliers to help us continue to meet customer demand.
When can we expect the wood pellet price to stabilise? At this point in time is biomass still economical in comparison to gas?
Whilst we expect this to be a temporary situation, we do not know how long it is likely to last. At AMP Clean Energy we have absorbed much of the price rises in wood pellet to date. However, given the volatility of the current market, we have unfortunately had no choice but to pass on some of those costs to our customers. However, we are committed to reducing our prices for our contract customers as soon as we can.
Biomass still represents value for money as a heating source. The cost per kWh is still very competitive against oil, natural gas and electricity, which are all seeing potentially even more significant cost rises.
When can we expect the situation to improve for biomass heat users?
There are several factors affecting this situation, and the immediate outlook is very uncertain. However, biomass fuel, and wood pellet, has proven to be a low cost and relatively stable priced heating fuel over the long term, and we fully expect that this stability will return in due course. We want to reassure our customers that we have done all that we can to shore up wood pellet supplies for them and that we will reduce prices as soon as that becomes a viable economic option