By Joel McKay
A bio-revolution is underway in the forestry sector.
Across Canada, wood product companies have found new ways to draw value from every tree.
This while scientists and venture companies invent solutions to use the forest’s resources in everything from heat and power to bulletproof vests and airplane wings.
The Forest Products Association of Canada (FPAC) predicts the global bio-market will total $200 billion in just four years, with Canada accounting for one-quarter of it.
“People keep saying, ‘When is the forest industry going to come back?’ Well, the real question is, ‘How does it come back?’ And it’s not just the markets coming back,” said FPAC president and CEO Avrim Lazar. “It’s the industry shifting its business model so that we’re not as vulnerable to the sort of cycles we just went through.”
The U.S. housing collapse dealt a near-crushing blow to the Canadian forest sector a few years ago. It bankrupted some companies; others shut mills or trimmed production.
The squeeze forced the survivors to think up new ways to extract value from every piece of woody fibre.
Lazar said while new products won’t supplant traditional lumber and pulp markets, they could steer the industry away from cyclical vulnerabilities.
“It’s very hard to make a living harvesting trees and then turning them into chemicals and energy,” he said, “but if you harvest trees and turn them into lumber and chips for pulp and energy and new bio-materials you have a very robust economic base.”
But is B.C. an attractive environment for bio-projects?
Forests Minister Pat Bell believes it is.
He pointed to companies like Quesnel-based Pinnacle Renewable Energy Group, which operates five pellet plants across B.C. with a sixth planned near Burns Lake.
There’s also Vancouver-based Pacific BioEnergy, which has a pellet plant in Prince George, and Nexterra Systems, which has installed its biomass gasification systems at several locations throughout the province.
But not every company has been able to cash in on B.C.’s bio-age.
Take North Vancouver’s Fortress Paper (TSX:FTP), for example. It specializes in niche wood-based products such as bank notes and wallpaper. Last year, Fortress bought a defunct pulp mill in Quebec and will invest $153 million to convert it into a dissolving pulp producer.
The dissolving pulp can be used to produce rayon, which is then made into clothing.
Fortress CEO Chad Wasilenkoff said it’s a unique business opportunity made possible because of a co-generation agreement with Hydro Quebec and a secure supply of wood fibre.
The company wanted to make a similar investment in B.C. last year, but was unable to land a power agreement or a secure wood supply.
Wasilenkoff said the industry’s high labour costs mean that government support, power agreements and wood supply are crucial for bio projects.
“It’s a very, very expensive industry to operate, with these large investments you need to make sure it’s sustainable for decades so you’ve got to have that wood security,” he said.
Wasilenkoff plans to triple his dissolving pulp business by the end of 2011.
He’s firmly embraced the coming bio-revolution, but he believes B.C. has yet to fully realize the opportunities it holds.
“Looking at B.C., people say China saved the B.C. forest or lumber industry, but all they’re doing is canting the logs, knocking the corners off, putting them in a container and shipping them to China,” he said. “Well, that’s not rocket science … that’s not exactly game-changing types of strategy.”
But Michael Weedon believes B.C. has a number of initiatives underway to support bio-projects. One of them is the BC Bioenergy Network, which was established in 2008 with a $25 million grant.
Weedon, executive director of the network, said his group has committed $12.5 million of its funding to $74 million worth of projects.
He also pointed to federal initiatives such as the Green Transformation program, a $1 billion scheme to support bioenergy projects at pulp mills, as evidence of Canada’s growing bioenergy market.
“Change is afoot, there’s no question, and there will be growth,” Weedon said.
But the industry remains heavily dependent on government grants and incentives, which means it has difficulty attracting private capital.
FPAC believes there are dozens of opportunities for growth and investment. It envisions products such as nanocrystalline cellulose composites replacing heavier materials in airplanes, bio-plastics replacing traditional petroleum-based plastics and bio-pharmaceuticals, or forest medicines, being extracted from the woods.
Weedon said investors should have an eye to the future for bio projects because many don’t provide quick returns. Regardless, he believes the industry is set to take off.
“There’s a lot more people seriously looking at these technologies,” Weedon said. “They’re in the planning stages; they’re not in the ‘what is this stuff’ stage [anymore].”