Feedstock Focus: Canada's Wood Pellet Supply Chain and 2025 Outlook

Hannah: From Argus Media, this is the "Biomass" podcast, focusing on all discussions that affect the biomass industry. I am your host, Hannah Adler, senior reporter on the biomass desk for Argus Media. Today, I am with Gordon Murray, executive director at the Wood Pellet Association of Canada. Thank you so much for joining today, Gordon. 

Gordon: It's my pleasure to be here, Hannah. 

Hannah: We are going to be discussing Canadian pellet production today and fiber supply and all things Canadian, basically, and just an outlook on what's to come over the upcoming year and further ahead. So, why don't we start our discussion with a brief overview on Canadian pellet production in 2024? 

Gordon: In 2024, production went down probably by around 100,000 cubic meters in total across the country, so from around 3.3 million tons in '23 to around 3.1 million or 3.2 million tons or so in 2024. And I would say a lot of that was attributable to forest fires last time in the hot summer season when the fires were raging. And then, in addition, there were several sawmills closed in Western Canada. A lot of that was due to forest policy, especially in British Columbia. There's been a very uncertain policy environment since around 2020, and the situation has gotten worse since the election in the province last fall. And there's a coalition between the ruling NDP party and the Green Party that's put additional pressure on forest policy, and you've got a government that's more or less hostile to the forest industry. 

The industry has found it very difficult to gain access to cutting permits on crown timber, and we're only harvesting at a rate of around 60% of the allowable cut. And so, a lot of the large Canadian primary forest manufacturers have shut down sawmills permanently. In British Columbia, for example, Canfor closed three major mills, West Fraser closed one major mill, for probably a total of around 1,000 jobs lost. And then, of course, the wood pellet sector, we rely on those sawmills to provide our raw material, and so that's put pressure on raw material supply and made it increasingly difficult for production. 

And another notable...in the difficult policy environment, one of the largest companies, Canfor, had planned to build a new sawmill in Houston, British Columbia. And in the uncertain policy environment, they announced a pause on that investment. And the pellet plant in Houston that relied on that raw material is continuing to be under pressure as well. It's been a very difficult operating environment between fires, low lumber markets, the tariffs. It's a very challenging operating environment now. 

Hannah: I think in terms of the fiber supply then in 2024, I think there was also the amount of timber you could legally cut down was also changed. I think something about the government wasn't handing out permits. 

Gordon: So, it's the government's responsibility to set the annual allowable cut. So just to start with, around 95% of Canadian forests are owned by the government, and access to those forests is through license agreements. We call them tenures here in Canada. And then the forest companies that have those tenures are responsible for the forest management in those areas. But it's the government that determines the allowable amount of harvest to come off, and that's based on the biological capacity of the forest to produce wood. But once you have a tenure, that doesn't give you the go-ahead to start harvesting. You still need to get a permit from the government to harvest in any area. And the government has been refusing to hand those permits out. As a result, we've been only harvesting at a rate of around 60% of the total allowable cut, and consequently, sawmills have closed, and so on. 

Hannah: Wow. I think you also mentioned earlier about the fires. In 2023, there was also quite a big issue with wildfires. What was the sort of comparison between wildfires in '24 to '23? 

Gordon: So 2023, we burned 15 million hectares in Canada, across the country, and it was the biggest forest fire year we had ever had in our history. But even in the last five years, in total with climate change, the frequency and the severity of forest fires has been increasing across the country. And although '24 was a little lower than '23, we still burned 5 million hectares. And what happens is in addition to not being able to operate where forest fires are occurring, even where fires are not occurring, the risk of having fires is so high that forestry operations and sawmill operations close to prevent starting new fires. And so, obviously, when that happens, the availability of raw material for pellets dries up, and pellet plants must take downtime. 

Hannah: So far in 2025, what's the thought for 2025 in terms of fiber supply? Are any of these issues going to resolve, do you think, in 2025? 

Gordon: Well fires, they vary from year to year. It's hard to predict on an individual year. But all we can say is, you know, it's getting warmer and warmer every year, and we're having more severe fire seasons. And that has accelerated over the last five years. This year, we had a very mild winter, low snowpacks everywhere. I'm quite fearful of what we're going to face this summer in terms of fires as well. But, you know, that's kind of emerged as one of the least of our worries, as strange as it sounds, now. 

I think probably the more pressing issue for us now is the relationship with the United States and the tariff situation. And, you know, the United States has started a trade war with Canada, of course. And until recently, we've had an average of 14% tariffs on lumber being exported to the U.S., which has been our largest and most important market. And then just as of about a week ago, those tariffs were increased to 20%, and now President Trump has announced that there'll be an additional 25% put over on top of that. But, you know, we can't even plan for that. It changes hourly. If he gets in a bad mood, he'll say it's going to be 200%. 

We're operating in an environment where we've put all this effort into sending or building customers and supply chains and everything to supply the U.S. lumber market, and then to pivot overnight and suddenly find new markets overseas is very challenging. With low lumber markets, you know, that's putting additional pressure on the sawmills. We're, you know, very concerned if they cannot continue to operate. Without the sawmills, we have no access to fiber supply, and so we're very nervous about the situation there. It remains to be seen how that plays out over the next little while. 

Hannah: We're all watching that to see what's going to happen. I think a lot of the biggest sawmills in America are Canadian-owned anyway. 

Gordon: That's true. As the policy environment has become more and more difficult in British Columbia, the companies here have chosen to invest outside the province. We've seen that British Columbia companies build sawmills in the Southern United States or they bought companies in the United States and in Europe as well, in Sweden, in particular. There's lots of investment, but it's all outside of Western Canada. Well, I shouldn't even say that. 

Our neighboring province of Alberta is very pro-forestry, and their mills are just chugging right along. But in British Columbia, there's a great urban-rural divide, and largely, you know, the government represents people in the urban communities who are just utterly opposed to forestry. The forest industry has just been strangled for the last five, six years, and the situation is quite desperate here. 

Hannah: Just touching on if we're talking about Canada with the East Coast and the West Coast, are there any major differences in the feedstock availability on both coasts? 

Gordon: I would say, in the East Coast, well, if we look at Eastern Canada, so we would probably include the very large province of Quebec, and then you've got the Atlantic provinces, there's New Brunswick, Nova Scotia, Newfoundland, and so on, Quebec has been very badly affected by forest fires, similar to what we've experienced in Alberta and British Columbia. There's been pressure on fiber in Quebec, for sure. But in the Atlantic provinces, it's been more stable. The climate's a little wetter. They don't experience those large fire seasons, and so it's been steady. But they will be equally affected by the tariffs coming now with the current situation with the trade war with the United States. 

Hannah: Considering all these challenges in the fiber basket and the feedstock supply, how is this reflected in exports at all in 2024? 

Gordon: I make it sound like a doom and gloom, and it is a very challenging operating environment. But I'm amazed at the resilience of our operators, too, because with all these challenges, they still manage to find a way to get access to fiber. We went from around 3.1 million tons of exports in 2023 down to 3 million, so we're down 100,000. I wouldn't be surprised to see it down again a bit in 2025, you know, with these current pressures. But there's so much uncertainty now over how this tariff situation will play out with the United States. It's all I can say, it's a very risky and difficult operating environment right now, and we're going to have to find our way through it. 

Hannah: Has it affected internal domestic use or sort of demand internally? 

Gordon: Internally, in Canada, we only consume somewhere around 300,000 tons of pellets within the country. Of that, you know, roughly 100,000 is consumed in the former coal power plant that now runs completely on biomass in Ontario. It's called Atikokan. It's the Ontario Power Generation. So that runs steady. It's a peaking plant. It's up and down. But even so, it does consume a reliable 100,000 tons a year or so. Then the other 200 or so is stoves and boilers and so on across the country. We're slowly, slowly building that market. You know, it's growing but at a slow rate and not consuming a whole lot. 

One of the big barriers there has been access to boiler technology, and there has been a lack of acceptance of the European boiler standards in Canada, which we've been working hard to correct. I'm optimistic that we'll have that solved in around 12 months or so after having worked on it for the last 5, 6 years, because we don't have any of these modern boilers being manufactured here in Canada at a small scale. We really need to get the ability to import those European boilers without having to modify them in any way just to be able to use them. And I think once we break that barrier down, that's going to open, you know, our ability to use more for bio heat. In the Atlantic provinces, you know, there's a heavy reliance on a fairly dirty electricity supply, as well as a lot of reliance on heating oil. And so wood pellets are, you know, not only a better climate solution, but they're about half the cost of competing fuels. We're optimistic that we can make some inroads there. 

And then one other pretty significant announcement has been made by New Brunswick Power, NB Power, and they operate a power plant at Belledune. It's 450 megawatts, if I'm not mistaken. It's a large single boiler. But they're working. They've got approval from the board of directors now to proceed with the conversion by 2029 to operating on, let's say, black pellets, so either torrefied or steam-treated pellets. So, they're going to be working to build a supply chain there. They've been talking to some of our members on whether, you know, they would be willing to invest in that technology. And depending on how many months per year that plant operates, they could consume anywhere from, let's say, 300,000 to 500,000 tons of wood pellets a year, advanced wood pellets. 

Hannah: The board just approved it at the beginning of the month. 

Gordon: Yes. 

Hannah: Yeah, the conversion.  

Gordon: That's a real project. It's been underway for a couple of years now. They've had some very respected experts working on it. They've run several successful tests with the product, and you know, they've done all their due diligence, and they're convinced that they can make it work. I know there's some questions about where the supply will come from, but I think now that NB Power has made the commitment, there's probably going to be more serious look by potential suppliers at making that technology available and being suppliers. 

Hannah: It’s exciting. I want to see, because I think in terms of the supply, are they going to get it from inside Canada, or are they going to get it from or import it? The capacity to produce the feedstock is hopefully going to increase and improve and then be able to provide it. 

Gordon: Well, they had a request for proposal, or I guess you would call it a request for expressions of interest. They did that around a year ago, and they got quite a few parties that responded. They did do their due diligence on these parties, and they've satisfied themselves that the supply will be available. I don't know if any of us can say exactly who's going to be the suppliers at this point, but we know there's, reasonable technology that's out there. So now it's up to individual producers to see if they want to make the investment decisions to put that converting technology into existing white pellet plants and become suppliers. Then there's, you know, probably a few non-traditional-type suppliers, like perhaps pulp mills that are in the region that might look at putting in that technology as well and becoming suppliers. 

I guess it's uncertain exactly who are going to be the suppliers at this point, but I think they have this "if we build it, they will come" type of mentality, and it's probably justified. It's at least enough to convince the board of directors who are cautious. They're convinced. We'll just have to see how it plays out. I think, though they're convinced that they'd like to have as much domestic supply as they can, given that we're a big forest country, but I'm pretty sure that they're going to be open to imports as well. 

Hannah: Well, we're just coming to the end now. I guess, before we finish up, so this is obviously a major development. If we look at, potentially, other developments that are coming in 2025 in either the feedstock or the pellet industry, I mean, there's obviously the EUDR at the end of the month. What are your thoughts on the EUDR? 

Gordon: In terms of the goals of the EUDR in a nutshell, is to minimize deforestation, and you know, they're defining deforestation as conversion to agriculture and minimizing forest degradation. I think any reasonable person would agree with those goals. To that end, we think that the EUDR is a good idea. But the devil is always in the details, right? So, we feel that we're well-positioned to comply. We have no deforestation and, you know, no forest degradation in Canada to speak of. 

However, the administrative requirements, especially the geolocation tracking and reporting all the points where you're using products that aggregate from multiple, like a wood pellet could have particles in it from 100 or 1,000 different plots of land to track all that and report it to the commission, it's a pretty onerous administrative undertaking. We think we have a solution to do it. I mean, it's an expensive aggravation, I would say. But as long as the law is there, we're going to have to comply, and so we'll comply. 

Hannah: But you're saying, so Canada is well-positioned, and it's got sort of production facilities that they're not worried about it coming up in December.  

Gordon: No. 

Hannah: Well, thank you so much. That's probably all we have time for, but we've covered such a great variety of topics. Thank you so much for coming on, and it was great to talk to you. 

Gordon: Well, I enjoyed our conversation. Let's do it again sometime. 

Hannah: Stay tuned for the next edition of the Argus "Biomass" podcast. In the meantime, if you want to learn more about this topic and other factors driving the biomass industry, follow all our coverage in the Argus Biomass Markets reports and visit us at argusmedia.com.