Business in Vancouver June 10-16, 2008; issue 972
Energy driving new B.C. forestry opportunities
Emerging bio-economy pegged as promising new business direction for the province’s troubled timber barons

Krisendra Bisetty

BC’s biggest forest industry crisis could turn into B.C.’s biggest forest industry opportunity.

As forestry companies sweat out the worst market downturn in memory and threats to their long-term competitiveness, they’re being presented with what could be a blueprint for survival.

From a bigger push into bioenergy and wood pellets to producing new types of construction materials and cashing in on the emerging market for carbon credits, it all points to business not being as usual.

“[I]f we’re trying to rely on market pulp or two-by-fours, we’re not going to make it,” Jack Saddler, dean of forestry at the University of British Columbia, testified recently before a House of Commons committee on natural resources. “We’re basically going to have to be very innovative in terms of the products we get out of our forests.”

The committee released a 74-page report on June 3 after it heard submissions from a raft of forestry folk, investment bankers, worker unions and academics. It has already provided a shot in the arm for the distressed industry.

Three of the committee’s 23 recommendations spotlight emerging bio-economy, including one that calls on the federal government to establish a national forest industry innovation fund to ensure the industry’s central role in it.

The committee also wants increased bioenergy and bio-products research and development funding.

“I think the most important thing that has been recognized is that while we are in a pretty good slump in the forest industry, the sky is not falling,” committee member Dick Harris, the Tory MP for Cariboo-Prince George, told Business in Vancouver.

Harris said he expects the Conservative government will follow up on the recommendations.

“We could be a leader in the world with some of the products that we could produce, and I think it would be a very sad day for Canada if we lost that opportunity,” said Catherine Bell, vice-chairwoman of the natural resources standing committee. “We formulated our recommendations so that they could be doable.”

Bell, a New Democratic Party MP for Vancouver Island North, added that if the study gets the industry up and running again, communities, labour and business should all prosper.

She pointed out that forestry was a big economic driver in Vancouver Island North until recently, when local manufacturing was sidelined in favour of raw log exports.

The multi-party committee calls on government to explore opportunities for adding value, in Canada, to the logs that would otherwise be exported.

Other committee recommendations call on Ottawa to offer refundable tax credits for research and development and to extend for the next five years the accelerated capital cost allowance for investments in manufacturing or processing machinery.

While the committee heard that traditional forest products will continue to be important in the near to medium term, others told it that a fundamental transformation is needed.

For them, it’s a future centred on bio-refining – turning forest biomass into liquid fuels and other chemicals – and forestry companies partnering with energy or chemicals companies to develop and market bio-refinery products.

With legislation paving the way, B.C. forestry companies could be some of the province’s biggest independent power producers.

In recent weeks, several have jumped on the electricity generation bandwagon following the province’s new power tender, which calls for burning biomass to make electricity.

Vancouver-based West Fraser Timber Co Ltd. said it’s working with Epcor Utilities Inc. to explore the potential of a biomass-fuelled 50- to 70-megawatt power generation facility near Houston.

And Mercer International, a U.S. company with a corporate office in Vancouver, is developing a $55 million energy project at its B.C. Celgar mill to optimize its power generation.

“I think it behooves pretty much every forest products company to come and take a serious look at this, because I think there’s some very interesting opportunities and potential there,” said Kevin Mason, an analyst with Equity Research Associates Inc.

“Sometimes the value of certain forest products doesn’t justify producing it, and it’s better to turn around and make power instead.”

Warren Mabee, a UBC research associate who is set to join Queen’s University as a professor, said the investment community and some forestry companies see electricity generation and power sales as a big opportunity in the near term. “In my opinion, it’s a little bit short-sighted.”

With energy costs historically “very low” in Canada, bioenergy is a relatively expensive option, said Mabee, who favours bio-refining technologies that produce multiple products like paper, fuels and chemicals from a single feedstock.

“My hope [however] is that we continue to develop bioenergy, because I think it should be part of our energy portfolio,” said Mabee. “This could be a tool to revitalize a resource industry that is facing a lot of challenges.” •

kbisetty@telus.net