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  • RWE Supply & Trading

    How the biomass supply market is becoming global What this means for Asian & European wood pellet buyers


    September 2018

  • RWE Supply & Trading GmbH

    RWE: Renewable and conventional power generator

    Page 2WPAC September 2018

    RWE Group

    < Leading European generator with diversified and balanced generation technologies

    < De-risking of portfolio with >60% of low CO2 generation capacity

    < Leading provider of reliable and flexible generation capacity to balance intermittent production of renewables

    < Opportunity to extract value from enlarged portfolio through leading commercial asset optimization platform

    < 3rd largest installed renewable capacity in Europe, post E.On merger approval





    8.3 2.8

    Lignite Hard coal Nuclear Gas Renewables Other

    Pro forma combined electricity generation capacity1

    46 GW

    (as at 31 December 2017)

    Firm and flexible capacity >80%

    Low CO2 generation capacity >60%

    1 RWE stand-alone (excluding Mátra) plus E.ON’s and innogy’s renewables businesses.

  • RWE Supply & Trading GmbH

    RWE: Producer, trader and end-user of wood pellets

    Page 3

    RWE Group

    < Industrial scale wood pellet mill in Waycross, GA < Owner: innogy SE

    < Commissioned in 2012 < Port storage 50kt in

    Savannah, GA < Industrial and domestic


    Upstream 750,000 tonnes capacity

    Midstream Covers the full interface

    for trading

    Downstream Annual portfolio c.1-2

    million tonnes per year

    < Wood pellet trading – physical and financial

    < Integrated freight and logistics team

    < Risk and credit management – Optimization of – Freight / logistics – Storage / working capital – Quality

    < Co-firing in the Netherlands – Amer 2018 – Eemshaven 2019

    < Supply to traders and utilities Europe and Asia

    < Industrial and heat market customers

    RWE is the only party in the world with multi years of experience in all three parts of the supply chain

    24/09/2018WPAC September 2018

  • RWE Supply & Trading GmbH

    RWE NL: large scale co-firing power

    Page 4

    RWE Group

    Amer 9 Eemshaven

    600 MWe & 350 MW heat 800k mtpa co-firing from 2018, increasing to over 1.5 MM mtpa wood pellet demand in 2020

    1,500 MWe, with 15% co-firing from 2019, 750k mtpa wood pellet demand

    24/09/2018WPAC September 2018

  • RWE Supply & Trading GmbH

    RWE uses certification to guarantee sustainable biomass throughout the supply chain

    Page 5

    RWE Group


    Wood Independent audit on sustainability of the feedstock

    Pellet production Transport

    Certified biomass is tracked and traced throughout the supply chain

    Power Plant

    Biomass certificate received at power plant

    Two leading biomass certification schemes using two leading forest schemes

    24/09/2018WPAC September 2018

  • RWE Supply & Trading GmbH

    Biomass trading – Biomass trading – All change in 2018

    Page 6

    Biomass Trading – Global Market

    < The global market is no longer oversupplied – Industrial and heating demand has increased in Europe and in Asia – Supply has had issues in almost every major production region

    < FOB Vietnam pricing is indicative of supply balance – Pricing power shifted from Korean buyers to Vietnamese sellers in November 2017 – FOB BC competitive into Asia


    2018 is a transitional year – pricing has recovered and flows are now global











    Sep-2013 Sep-2014 Sep-2015 Sep-2016 Sep-2017 Sep-2018

    CIF ARA Pricing (EUR/t, USD/t) Sep-13 to Sep-18











    Ja n- 16

    M ar -1 6

    M ay -1 6

    Ju l-1


    Se p- 16

    No v- 16

    Ja n- 17

    M ar -1 7

    M ay -1 7

    Ju l-1


    Se p- 17

    No v- 17

    Ja n- 18

    M ar -1 8

    M ay -1 8

    Ju l-1


    FOB Vietnam Pricing (USD/t) Jan-16 to Sep-18

    WPAC September 2018

  • RWE Supply & Trading GmbH

    BC pellets: To Asia or to Europe?

    Page 7

    Biomass Trading – Global Market

    ASEAN Supply Vietnam/Thailand/Malaysia

    Ideally suited to supply small bulk vessels and bagged pellets to Korea and Japan

    Evolved to meet Korean quality requirements. Will take time to meet Japanese standards

    Issues in 2018 undermining credibility of supply

    North America British Columbia

    Shipping to Europe/Asia in Handy/Panamax

    Potential spot opportunities for BC vessels already in 2018 due to Asean supply issues and additional Japanese and Korean demand

    Canada is beginning to be the swing supplier


    Wood pellets produced in Asia to meet Korean demand Most not ready for Japanese quality & sustainability requirements

    Wood pellets from BC to Europe Work well in Japan too Spot & medium term

    WPAC September 2018

  • RWE Supply & Trading GmbH

    Biomass trading – a global market

    Page 8

    Biomass Trading – Global Market

    Wood pellet flows to Europe and Asia

    < As Asian demand exceeds SE Asian supply, the two markets compete for the same pellets – West Canadian pellets already are sold to both Asia and Europe (today’s swing supplier)

    • Currently share of West Canadian pellets sold to Asia is smaller, but is increasing – Australia is similar but much smaller – Vietnamese pellets currently stay in Asia. Europeans may be interested – sustainability & quality tbc – Eastern Russian supply is minimal today

    What makes a product suitable for all markets: Europe, Japan and South Korea?

    < Reliable, good quality and sustainable supply, but also logistics – Price is a function of currency, freight and market conditions – and is different all over the world – Spot or long term? Sellers need to be flexible to meet different contract tenors

    • Buyers don’t all want the same contract tenor • Korea vs. Japan shows the extremes

    – Vessel size is also a constraint. More flexible suppliers can access more markets • Sellers need to be able to load bulk vessels from 5-60kt and / or containers. Most can’t

    24/09/2018WPAC September 2018

  • RWE Supply & Trading GmbH

    Increased contracting into Asia

    Page 9

    Biomass Trading – Global Market


    Seller Buyer Start Date Tonnes/yr Years Canada Japan 2019 70 15 Canada Japan 2021 100 15 Canada Japan 2021 30 15 Canada Japan 2022 75 15 Canada Japan 2022 75 15 Canada Korea 2022 315 15 Europe/USA Japan 2021 300 15 USA Japan 2022 100 10 USA Japan 2021 270 15 USA Japan 2022 630* 15 USA Japan 2021 250* 15 USA Japan 2022 180* 15

    Announced deals since Q4 2017, *CPs

    Over 2 million tonnes of contracts into Asia announced since WPAC 2017

    WPAC September 2018

  • RWE Supply & Trading GmbH

    European demand balances markets

    Page 10

    Biomass Trading – Global Market

    The largest wood pellet market is currently European utility (industrial) demand

    < c.16 million tonnes p.a. from 2020, mostly on medium term contracts

    < Supply currently from Canada, the US and Europe (Portugal, Russia and the Baltics)

    < Bulk, I1 or I2 quality, sustainability demonstrated through FSC, PEFC, SBP and / or GGL

    European utility buyers have flexibility that can be used to balance the world market Most have stable demand, pellets in storage and long term supplier relationships

    < Storage is needed for when the utilities have issues themselves.

    – It can be used to provide supply when others need it too

    < Established supply chains allow for switching between different suppliers

    – Standardized contracting helps this

    < Vessels can be diverted on their way to one utility to meet demand somewhere else

    – Outright sales and time swaps have been seen this winter in Europe to meet demand in:

    • Industrial power and heating markets

    • Residential heating market

    The next market that European demand can be used to balance is Asia 24/09/2018

    WPAC September 2018

  • RWE Supply & Trading GmbH

    Need for trading to optimise long term contracts

    Page 11

    Biomass Trading – Global Market

    24/09/2018 WPAC September 2018

    Limited Producer Flexibility Need for Flexibility < Long term contracts

    – Commitments being made for 15 years

    – Finance often linked to offtake

    – Suppliers selling over 100% of capacity

    < Take or pay contracts

    – Pricing in / out of the money

    – High cost to ramp down production

    < Annual shipping schedules

    < Freight agreements

    < Currency hedges

    < Supply disruption

    – Production

    – Rail

    – Fibre

    < Demand disruption


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