Russian wood pellet production expected to rise, driven by EU demand

Russian wood pellet production expected to rise, driven by EU demand

The USDA Foreign Agricultural Service’s Global Agricultural Information Network recently published an annual report on the Russian biofuel sector, namely the wood pellet industry.

According to USDA’s report, Russian wood pellet production growth is largely encouraged by the increasing interest of the EU countries for for biofuel. Today, Russia is the third largest exporter of wood pellets to the EU, after the United States and Canada. According to Rosstat (Russian Federal Statistical Service), Russia produced 878,000 metric tons of wood pellets in 2014, nearly double from 2012.

However, as the report states, a significant slide in wood pellets production in Russia in 2013 is attributed to the temporary suspension of operations at Russia’s largest wood pellet facility – “Vyborgskaya Forest Corporation” – during the beginning of 2013. Nevertheless, since 2014 the factory is said to be back to its normal operation. Vyborgskaya Forest Corporation is the largest wood pellet producer in Europe with a total installed capacity of 1 million metric tons of wood pellets, annually. However, to date the facility operates at 50 percent capacity, due to an unstable raw material supply.

According to USDA’s report, the production statistics for wood pellets may be not quite accurate because the statistics primarily capture large-capacity factories, and mid-sized and smaller facilities which operate as part of larger wood processing plants, do not report their production.

The top ten pellet production facilities have 92% export share of the total Russia wood pellet industry, and remaining 7% is destined to South Korea. In 2015, the production of wood pellets is expected to rise about 15%. In the mid-term, domestic demand for wood pellets is forecast to increase at 10-20% annually. In the local market wood pellets are used for heating.

The Russian Customs Service reports exports of wood pellets from Russia in 2014, at 880,000 metric tons, or more than 18% higher than in 2013. The leading export destination for these products was Denmark at 382,000 metric tons, followed by Sweden at 218,000 metric tons, and Italy at 57,000 metric tons. Europe will continue to be the largest importer of Russian wood pellets.

In 2015, 4 more new wood pellets facilities are being constructed in Irkutsk oblast with total estimated annual capacity of 500,000 metric tons. When in operation, Russia will be increasing exports to Asian countries as well, because of the proximity of these new processing plants to the border. Near-term foreign demand for wood pellets is likely to increase by 10-15%, underlines USDA.

Some EU experts estimate that Russia’s share of the EU’s total 2014 import market of wood pellets is 18%. European pellet demand is likely to stimulate an increase in Russian production and growth the Russian export potential, but Russia will require large investments in order to upgrade its facilities and expand its production capacity, the report sums it up.

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