Parratt & Associates Scoping Biorefineries: Temperate Biomass Value Chains

3.4 Indicative costs associated with production, harvest and transport

Although large quantities of biomass currently exist and even larger amounts could be produced in the future, a key factor determining the potential viability of a biorefinery will be the cost of the feedstock. This could determine which feedstocks are likely to be preferred, the potential economic scale of a facility and indeed whether such a facility is likely to be financially viable. This cost can be broken down into three components: growing, harvesting and chipping, and transport costs. Estimates of the ranges in costs for these components for different feedstocks are shown in Table 3-5.

The costs of most feedstock types were not readily available. The Australian Pine Log Price Index¹³⁰ provides historical averages for the stumpage value (i.e. value prior to harvest and transport) of different log types from softwood plantations. However, there is no similar information for logs from hardwood plantations or native forests, and no published figures for mill door prices or costs of harvesting and haulage. Likewise, there is no published information on the farm/mill gate cost of crop or sawmill residues or the cost of transporting this material.

In order to estimate the cost of harvest and processing different biomass feedstocks, farmers and forest and sawmill managers were contacted. Transport costs were estimated using a model published by Lambert and Quill¹³¹ based on estimated load sizes. Since there is no specified location for a biorefinery, figures for a range of distances (10–200 km) are provided. Costs of production and harvest of short rotation biomass plantings were based on figures from Bartle and Abadi¹³². Assumed prices used to estimate total cost per dry mass delivered for various feedstocks are shown in Table 3-6 (includes chipping).

The growing cost is the price paid to the farmer or forest owner to cover land rental, establishment costs and management inputs. For pulp logs, stumpage prices are estimated to vary from $20–$60/t (oven dry weight), with softwood pulp logs the cheapest and hardwood plantation pulp logs the most expensive. For forest and crop residues, the growing cost covers the estimated value in terms of nutrients and organic matter lost and may range from $10–$20/t for stem wood left after harvesting forests and plantations and $5–$10/t from stubble. For bioenergy plantations, Bartle and Abadi estimate the growing cost to be around $35/t¹³³.

The cost of harvesting and collecting biomass is estimated to range from $34–$100/t for pulp logs depending on the forest type, age, terrain and the products removed. Smaller trees generally cost more to harvest, so short rotation hardwood plantations grown primarily for pulp logs can be expected to be more expensive to harvest than longer softwood plantations grown for both sawlogs and pulp logs. Since harvest residue is a by-product of timber harvesting operations, only the collection cost need be considered. This is estimated to range from $34–$70/t. Harvesting and collection costs for crop residues are estimated to range from $50–$60/t, while those for an integrated harvesting/chipping operation in short rotation mallee plantations estimated at $20–50/t. For forests, chipping is carried out either by mobile chippers (e.g. for forest residues) or fixed chippers at mills that are cheaper (e.g. for pulp logs and sawmill residues). Chipping costs are estimated to range from $10–$20/t for the former and $20–$30/t for the latter.

Therefore, total prices for feedstock at the farm or forest gate may range from $55–$70/t for crop residues to $100–$180/t for pulp logs. Sawmill residues are the cheapest feedstock, with prices ranging from around $10–$60/t. Based on the values given by Bartle and Abadi¹³⁴ and URS Forestry¹³⁵, and McCormack et al.¹³⁶ the cost of biomass from bioenergy plantations may be $65–85/t although these figures are highly speculative. Although the cost of biomass from short rotation mallee plantings is greater than that for crop stubble, tree crops have the advantage of being available for harvest all year round and are thus not subject to the year-to-year fluctuations associated with broadacre crops.

Table 3-5: Assumed costs of producing, harvesting, chipping and transporting different feedstock types

Feedstock type		Growing cost or Mill price		Harvest and collection		Chipping		Transport
								Load size	Cost (50-200 km)
		$/t green		$/t green		$/t green		t green	$/t/km green
Forests and plantations
^137^138^139^140	Pulp log	$10–$30	^,,	$20–$50	^40,41	$5–$10	^40,41	43	$0.14–$0.11
	Harvest residue	$5–$10	^40,41	$20–$30	^40,41	$10–$15	^40,41	43^43	$0.13–$0.11
^141	Sawmill residue	$5–$35						43^43	$0.13–$0.11
^142^143Crop residues		$5–$10		$45–$55				24	$0.26–$0.19
^144^145^146Bioenergy plantings		$19		$18–$26	^,			43^43	$0.13–$0.11

Note: Costs for stumpage, harvest and chipping are based on surveys of forest and mill managers, farmers and transport companies.

Transport cost determines the economic distance from a biorefinery that biomass can be grown, and hence the total amount of biomass that can be produced for a particular biorefinery. There is limited information available on the cost of transporting different types of biomass. Based on the estimates here, the cost of transporting biomass 50–200 km is estimated to range from $12–$46/t. For distances of 200 km or more, transport alone may represent over 50% of the total feedstock cost.

Table 3-6: Estimated production and transport costs ($/t oven-dry weight) for different feedstock types and distances *

Feedstock		Production cost ($/t ODW)				Transportation cost ($/t ODW)
		Growing	Harvest and collection	Chipping	Total	Distance (km)
						50	100	150	200
Forest
	Pulp logs	$20–$60	$70–$100	$10–$20	$100–$180	$15	$25	$36	$46
	Forest Residues	$10–$20	$30–$70	$20–$30	$60–$120	$14	$25	$36	$46
	Sawmill Residues	NA	NA	NA	$10–$60	$12	$21	$31	$40
Crop Residues		$5–$10	$50–$60	0	$55–$70	$15	$25	$35	$45
Bioenergy Plantations		$35	$30–$50	0	$65–$85	$12	$21	$31	$40

ODW = oven dry weight

*Table based on CSIRO derived assessments and assumptions plus data from Table 3-5

The sensitivity of total feedstock price to transport cost, combined with the relatively low density of biomass production across the land area, provides an upper limit on the total amount of feedstock that could be sourced by a biorefinery. Based on the combined data presented in Tables 3-5 and 3-6, a clearer understanding emerges for the potential location and value chains for biomass transformation.

Data above suggest that in any given cropping belt if 25% of the land area is used for grain production, and that the maximum price that a biorefinery could pay for the biomass is around $100/t, then the maximum transport distance would be around 100 km.

Thus, the amount of available stubble biomass that would be economic to transport is about 0.7 Mt/y (25% x 0.4 x 3.14 x 100 x 100/10)². This is based on the 2008-09 ABARE data indicating 0.4t/ha/y of utilisable stubble is available. Spatial data of biomass production and transport networks combined with more accurate estimates of production and transportation costs would allow more accurate estimates to be made regarding the amount and type of biomass that could be economically used by a biorefinery located in a particular region.

A large amount of biomass currently exists in Australia that could potentially be used as feedstock for biorefineries. Estimates of the current theoretical maximum amount of biomass available include 9.2 Mt/y crop residues, 6.5 Mt/y pulp logs, 3.1 Mt/y sawmill residues and 2.0 Mt/y harvest residues from plantations and native forests. The total amount of biomass is expected to increase by 6 Mt/y as a result of new hardwood plantations reaching harvestable age in the next 5–10 years. In the longer term, it is estimated that 10 Mt/y biomass could be produced from dedicated bioenergy plantations established on 5% of currently cleared crop and grazing land.

The price of the biomass depends on its source, the type of material, whether it is a primary product or residue, the distance from market and other factors such as technology, land value, competing uses and scale of operation. Estimated farm, forest or mill gate prices range from around $10–$60/t oven-dry weight for sawmill residues to $100/t for pulp logs. Estimated transport costs range from $12–$46/t depending mainly on the distance (50–200 km) between the feedstock source and the plant location. For distances of 200 km and over, the transport cost may make up over 50% of the total cost of the biomass. Transportation distance is thus a key limiting factor on the amount of biomass that can be economically accessed by a biorefinery.

Availability and Access to Biomass

The figures presented in the preceding paragraphs indicate a significant and growing resource of biomass within Australia. Wood supply from plantations is projected to increase to more than 29million cubic metres by 2020 (Abare: Future Directions for the Australian Forest Industry, March 2010). Wood supplies from native forests are projected to continue to fall with a 17% decline in the 7 years to 2008-09¹⁴⁷. Lignocellulosic residues from forests and crops sources are estimated to rise to over 14 million tonne p.a. by 2020, excluding pulpwood logs.

Low and Mahendrarajah¹⁴⁸ indicate that between 2007-08 and 2008-09 there had been a drop in value of forest product exports (down 5.2%) and an increase in the value of imports (up 1.1%). In 2008-09 5.25Mt of woodchips were exported at a value of $997M¹⁴⁹. Japan dominates both the hardwood and softwood demand for woodchips accounting for over 75% of the Asia Pacific trade¹⁵⁰. China has been taking increasing quantities of Australian woodchips and there is evidence of an increasing interest in wood pellets to Europe. The RIRDC study suggests that there will be a greater reliance in China on importation of pulpwood over woodchips. The 2007 study forecast ‘ with the increase in pulpwood supply it appears unlikely that increasing volumes of hardwood pulpwood in Australia will be absorbed by the existing export markets without ongoing real decline in prices’. The authors predicted the softwood and hardwood chip markets are likely to remain volatile.

There have been several proposals to expand the pulp production in Australia to meet a perceived increase in demand, especially from China. As detailed later in this report and by others (RIRDC) cost competitiveness in the sector is a significant issue. Margins are tight relative to other wood products and scale has become a determining factor in pulp mill development along with access to lower priced pulpwood and woodchips. The recent decision to drop the pulp plant at Collie in Western Australia was based on forecasts that suggested it could not meet internationally competitive unit costs of production¹⁵¹.

The conditions described above, go in part to addressing the question as to whether any proposed lignocellulosic temperate biorefinery could acquire sufficient biomass, at an appropriate price to achieve adequate returns on investment. There are a number of factors that will effect to the price of the biomass residues or pulpwood. Many of these have been discussed earlier in this report and are also considered in later chapters. In summary the following variables are just some of the more obvious factors that could effect pricing;

• 
  plant growth rates;
  
• 
  availability of substitutes or product (biomass) replacement e.g. woodchip for crop residues;
  
• 
  transport costs (distance, densification, mode of transport, scale of transport loads, pre-treatment potential, fuel);
  
• 
  fit for purpose of the biomass (e.g. specific plants oils or fractions)
  
• 
  import potential of pulp as a precursor to transformation; and,
  
• 
  the scale of the value add by the biorefinery (e.g. high value chemicals vs. energy vs. commodity chemicals).
  

These variables will change from location to location and from biomass to biomass and for the technology applied (thermo-chemical versus bio-chemical versus a combination).

Policy Considerations

The additional question as to whether government’s should intervene in pricing of biomass needs to be considered. The development of an appropriate policy approach by government, to examine, and to potentially intervene in a market failure for the supply of biomass is not clear. The negative environmental externalities could in themselves provide a justification. However, the justification is for policy to reduce the impact on the environment and hence the environmental external costs and not any specific technology or production method. If, climate change adaptation and abatement are the goal by reducing the utilisation of fossil based fuels and co-products, biomass transformation to energy or co-products is only one means of achieving the endpoint amongst competing carbon emission reduction or sequestration schemes¹⁵².

Similarly, there may be a social imperative to ensure the development of biorefineries. The Commonwealth Department of Agriculture Fisheries and Forestry states that the ‘Forest industries contribute significantly to the economic and social well being of rural and regional Australia’ (www.daff.gov.au, 2010 Fact Sheet). The forest and wood product industries are estimated to contribute approximately $23billion to the Australian economy and employ approximately 76,800 people. The latter includes 13,200 people in forestry and 63,600 in the wood manufacturing sectors. Intervention through application of government policy may lead to economic inefficiencies but may provide a short-term bridge to ensure the long-term survival of regional communities and the flow on effects to the chemical and plastics industry.

Soderholm and Lunmark suggest that it is best to support R&D activities, such as in the chemistry and biology of raw material use rather than biorefineries themselves. This argument is founded on the broader benefits that are gained from knowledge spill-over into allied sectors as well as biorefineries e.g. fermentation biology or gasification. As with most economic arguments there is an underlying assumption of perfect information flow and allocation of resources along timelines that are not defined. Public policy intervention, particularly when there is an imperative that is both time and resource bound (climate change, energy, food and resource security) may override assumptions of economic efficiency in the short-term, at least.

Allocation of raw materials via government intervention has typically failed to promote efficient allocation of those resources. Indeed the argument can be made that there is such a wide range of potential products to be produced from a biorefinery and that intervention could lead to either an inappropriate allocation of the biomass or at least inefficient allocation. Clearly, there is sufficient biomass available to provide raw material for a number of biorefineries. However, as to whether there is sufficient biomass would be accessible at the right price for a biorefinery, is at this stage pure speculation. It is evident there is a large and growing resource, the crop residue part is almost entirely untouched. The market for forest residues and pulpwood suggest a price between $130 and $200 bone dry tonne freight onboard for export from a port. Also, the data suggest that pulp is valued at approximately $600 per tonne (see Chapter 5 or 6). This would imply that if the end-product from a biorefinery can be delivered either by better utilisation of the same resource or reallocation of the pulp or lignin residue to, for example either a chemical or energy outcome then the market will determine where the resource is allocated. However, market intervention to direct resources to either energy or chemical products may in the short or longer term lead to distortions in the production and pricing of end products. This in itself may not be problematic if the environmental and social externalities are more important.

The implementation of government policy should be directed toward filling the technological gaps in the development of appropriate transformation technologies that will maximise the added value of biomass from either forest or crop based systems. As will be detailed in later chapters the gaps in this space are significant and Australia lags significantly behind international developments to produce sustainable bio-products.

Key Messages:

There are relatively few accurate, validated studies on the scale and type of Australian temperate biomass.

Current, theoretical output is estimated to 20.8M dry tonnes per year available for biomass transformation. There is no ability to process this quantity of biomass within Australia. Only 7% of Australian hardwood is processed onshore.

The pre-transport costs for biomass from forests range between A$60-180 per oven dry tonne. For residues, crop or sawmill, the range is between A$55-70 per oven dry tonne.

Current costs to transport biomass can represent a significant proportion of the total feedstock delivered to for use in a biorefinery.

Data and some international studies recommend plant location within 100-150kms of the biomass feedstock supply.

Biomass, as a bio-fuel could tribute between 13-45GL/year of ethanol to Australian supplies of transport fuels.

Significant opportunities exist across the value chain for rural industries to capture value from growing, harvesting, and transporting biomass.

Current prices and returns from crop residues and forest biomass indicate there will an excess of supply over demand that could drive prices for temperate biomass down.