The demand for biomass in Asia is growing rapidly. The question is, is there enough biomass supply to satisfy it? Here, we will explore the supply and demand balance of wood pellets in the region and the prospects for the next few years.
Our estimates indicate that demand for industrial pellets in Asia is likely to reach 4.9 million tons in 2018, an increase of 49% from 2017. Demand for pellets in South Korea and Japan is expected to continue to grow. We estimate it could reach 13 million tons by 2027. Several factors can affect whether all needs are met, the most important of which may be the availability of biomass.
Our data for the second quarter of 2018 sawdust particle observations show that there are 44 million tons/year of wood pellet production capacity (heating and industrial), of which nearly 6 million tons are industrial capacity in Asia, Australia and Western Canada. For a more in-depth breakdown of national supply capacity and projects, please refer to the Asia Pacific Biomass Report.
There is currently enough supply to meet the needs of the region, but it is clear from our data that if the supply can meet the demand, more investment is needed. Japanese utility companies are considering upstream investments to ensure they need it. In addition, Japanese users offer 10- to 15-year off-take contracts that have been subsidized and will attract investors to support new supply capabilities. So far, the trend is for Japanese utility companies already with Engie, Pinnacle and Enviva Supply contracts are signed by well-known industry participants (usually through Japanese trading companies), but as buyers expand their net worth, we may see more new members.
Another question is whether capacity can be launched fast enough. The Southeast Asian market has proven that it can quickly build new capacity. The most obvious example is that Vietnam exports 100 times to South Korea in six years and exports more than 1.5 million tons to South Korea in 2017. Most of the exported pellets come from several small factories, usually less than 20,000 tons/year. Malaysia, Thailand and Indonesia have also rapidly expanded their capacity and continued. Again, the supply is mainly for many small factories. By building in existing sawmills The pellet plant, Russia's supply capacity is also growing rapidly, saving time and costs by using existing infrastructure and easily accessing raw materials. Russia mainly supplies the European heating market, but recent expansion has been focused on the Asian market. Suppliers have emerged to support South Korea. Spot market, but few long-term off-take contracts.
In contrast, the Canadian market has expanded to meet the growing demand in Japan. Japanese buyers favor the security of Canadian supply, but North American plants are larger (usually over 300,000 tons/year) to take advantage of economies of scale. It means progress is a bit slow. Usually a lot of money has to be raised, which requires extensive due diligence and secure off-take contracts, and the planning process may take longer than the rest of the world. Although more than 1 million tons per year in Western Canada is underway In development, but if you need to find a large supply quickly, Japan will not be able to rely entirely on Canada.
Industrial production capacity in all stages of development worldwide exceeds 18.4 million tons. If all are online, industrial capacity will increase by 84% on a current basis, but if the demand level is to be predicted, all of this must be developed in 2026. However, the industry The short-term situation will be more challenging. In 2019, demand and supply seem to be very balanced. According to our calculations, there may be a supply shortage in 2020, which means that the planned projects must develop rapidly.
