Brian Fallow

The Economics Editor of the NZ Herald

Wood could fuel our future

Wood pulp could be processed into fuel ethanol, which has been used for high performance cars including V8 racers.  Photo / Thinkstock
Wood pulp could be processed into fuel ethanol, which has been used for high performance cars including V8 racers. Photo / Thinkstock

At many ports around the country wharves are stacked with raw logs. About half the national wood harvest is exported in that form, with no value added.

Last year raw log exports earned the country $1.7 billion, Statistics New Zealand says.

At the same time we imported $8 billion of oil and petroleum products, including around $2 billion of refined petrol and diesel, because demand for transport fuels has long since outstripped the Marsden Point refinery's capacity.

So one can imagine two ships passing at sea, one carrying the products of a Singaporean oil refinery here, another other laden with logs for China. In both cases the value added to the underlying resource occurs overseas.

The country's external accounts are not a pretty picture. We struggle to earn a first-world living as a trading nation.

An uninterrupted string of current account deficits, now decades long, has left us net debtors to the rest of world to the tune of $147 billion or $33,000 a head.

Servicing that debt last year cost just over $10 billion or 5 per cent of the value of all the goods and services the economy produced.

That much reliance on the good opinion of foreign lenders is widely seen as a source of economic vulnerability in these debt-averse times.

So the obvious question is: could we not be making better use of that all that wood - roughly 6 million tonnes - being shipped overseas as raw logs?

In particular could we use it to produce biofuels, to reduce the imported oil bill and reduce the transport system's reliance on fossil carbon?

One man who thinks so is Dr Richard Phillips. He is a chemical engineer who teaches and researches bioenergy at North Carolina State University.

He worked for many years for International Paper, which used to be the main shareholder in Carter Holt Harvey, and is consequently familiar with the pulp and paper industry here.

A lot of R&D is under way around the world into "second generation" biofuels, which start with ligno-cellulosic (woody) material, rather than things we can eat such as corn or sugar.

The problem is the lignin. Nature has designed it not only to stop trees and other plants from falling down but to protect their precious carbohydrate from creatures that would happily gobble it up, including the ones we want to use to produce ethanol.

A number of clever ideas about how to overcome that shield are being pursued. But Phillips argues there is no need to reinvent the wheel here.

Separating cellulose from lignin is exactly what happens in kraft pulp mills using technology virtually unchanged for the past 100 years.

"They are working on things that are much more complicated, more sophisticated. They don't seem to appreciate the value of having your technology risk out of the equation," he says.

"You can build a mill for a predictable price with predictable performance."

In the New Zealand context a new pulp mill, like existing wood processors, would have to be competitive with the export price of logs for its feedstock. Forest owners will seek the best price for their trees.

But Phillips argues that the economics of a pulp mill may improve if we factor in the option value of the primary product, pulp, and if we make smarter use of the byproduct, lignin.

Right now pulp is what we make paper products from. It is worth more than raw wood, of course, and we already export about $800 million worth of the stuff annually.

But that may not always be the highest and best use of the cellulose content of a log.

Pulp can also be thought of as long strings of sugars, just waiting to be hydrolysed, fermented and distilled into fuel ethanol which has been used for high performance cars, including V8 racers.

How long might that wait be?

Modelling by Infometrics economists Adolf Stroombergen and Daniel McKissack in 2009 concluded that making biofuels from wood would not produce a net economic benefit for New Zealand unless some combination of the following occurred:

Cheaper, more efficient production techniques, an oil price higher than $150 a barrel, a carbon price higher than $100 a tonne, and lower opportunity costs in terms of land diverted from agriculture or trees diverted from regular forestry.

Since then oil prices have climbed more than 50 per cent in New Zealand terms to just under $150 a barrel.

But carbon prices have dropped to around $8 a tonne on the local market.

The reason the carbon price is important, Stroombergen and McKissack say, is that biofuels from wood are almost carbon-neutral, whereas buying oil from revenue earned for agricultural exports, and then burning the oil, is very carbon-intensive.

Phillips believes ethanol from wood is a lot closer to being economic here than in the United States.

In any case there is still the other component of a log, the lignin, which represents about a quarter of the dry weight of pine.

It is a complex compound of mainly carbon and hydrogen, with a range of potential uses.

"There's a saying in the industry that you can make anything out of lignin - except money," Phillips says.

But he does not regard that as any kind of eternal truth.

Among the options is technology developed by a Swedish company, Chemrec.

It processes a pulp mill's black liquor stream to recover chemicals used for the pulp making process, and gasifies the remainder, mainly lignin. The result is synthesis gas, a mixture of hydrogen and carbon monoxide.

Known to its admirers as syngas, it is versatile stuff. It can be converted into diesel using the Fischer Tropsch process - the same technology Solid Energy wants to use to produce diesel from Southland lignite.

It can also be turned into methanol and thence petrol, using the Mobil process, a technology used for several years in Taranaki with Maui gas as the feedstock.

And there are other products you can make from it.

But black liquor is not a waste product. It is used to provide the pulp mill's process heat and sometimes a surplus for electricity generation.

In that sense it is already used as a biofuel and has an opportunity cost; if used for liquid fuels an alternative fuel source for the mill would be required. Wood waste perhaps, or geothermal steam.

Sceptics also question whether the necessary minimum scale of a syngas to liquid fuel plant would require an infeasibly large pulp mill to supply it.

But it is a gas and can be transported by pipelines, allowing the possibility of aggregating supply from several sources.

They might include syngas from the underground gasification of coal too deep to mine conventionally - technology into which Solid Energy is sinking serious money in Waikato.

Clearly, this is an area where the questions outnumber the answers.

But it would seem to be promising enough to spend some money, whether in the private sector, at Steven Joyce's new super ministry or the forestry research institute Scion, to do the sums properly.

- NZ Herald

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