FORT KENT — University of Maine at Fort Kent official said their biomass plant received 50 tons of wood pellets from Northeast Pellets of Ashland as of Dec. 31 via the university’s contractor, days after the mill operator said he was cutting production in part because of a drop in orders for the UMFK boiler.
Northeast Pellets announced Dec. 28 it was reducing operations from five to three days per week along with hours for the 13 full-time employees, amid warmer weather, low heating oil prices and the favorable Canadian currency exchange rate.
“It’s not the kind of trifecta you want,” said Matt Bell, founder and president of Northeast, the state’s first pellet manufacturer.
Pellet sales have been slow this heating season, and some pellet makers around the country may have an oversupply currently, Bell said. The Fort Kent college, through its supplier Daigle Oil Company, accounted for 15 percent of Northeast Pellets’ annual production last heating season, Bell said, adding that the mill recently expanded its storage system in anticipation of continuing demand.
UMFK’s two-year fuel contract for a biomass plant shared with the local school district requires two sources of wood pellets, and because Northeast Pellets is the only manufacturer in Aroostook County, Daigle said it has an account with a Canadian company.
Bell said he thinks the biomass plant has been using Canadian pellets and capitalizing on the strong U.S. dollar, because it has not taken much from Northeast this season except for the recent 50-ton shipment.
UMFK Interim President John Murphy said the biomass plant hasn’t been used as much this season as it has in the past.
“Consumption of wood pellets at the University of Maine at Fort Kent is down considerably this heating season because of the warmer weather, some planned maintenance to our pellet storage at the sports center and because of our contractual obligations for heating oil consumption,” Murphy said.
Carter Vaillancourt, a manager with Daigle, said the company isn’t necessarily benefiting from the favorable Canadian exchange rate and that its purchasing processes haven’t changed.
“The pellet supply pricing was fixed at the beginning of the contract period in 2014,” Vaillancourt said in an email. “Therefore, no currency exchange rate fluctuations were involved over the period of time of the contract.”
In June 2013, UMFK and Maine School Administrative District 27 built a $4 million biomass plant with a $2.7 million federal grant at the site of the former Fort Kent Armory to provide heat and hot water to the UMFK and high school campuses.
“With this project, UMFK will complete the conversion of the entire campus from foreign oil to local biomass alternative” then-UMFK President Wilson Hess said.
Nearly 10 years after Northeast Pellets started production, the business of the biomass fuel may be getting harder overall and growing more competitive, said William Strauss, the president of FutureMetrics, a pellet research firm.
Until recently, wood pellets have been cheaper than heating oil. But with oil $1.65 to $2 per gallon, wood pellets aren’t really cost-effective at their current prices, Strauss said.
“It’s a problem that hasn’t occurred in Maine for a long time,” he said. “Most of those pellet producers haven’t experienced a drop in demand.”
Last winter, Mainers had trouble getting enough pellets. This year, some may have stocked up early — only to let them sit and instead heat with cheap oil, Strauss said.
“We’ve got all these garages with 4 to 6 tons of pellets in them,” which people can save until oil prices rise, he said.
If Maine’s four pellet makers “want to keep the wheels turning, they may have to lower their prices,” Strauss said. The question is how much they lower their prices while still being sustainable as a business.
Strauss said he thinks lower oil prices could be a benefit to pellet-makers if they can get savings from the lower diesel prices, which can account for half the costs of wood.
“The cost of getting that wood should be less, so that means their input costs should be going down — or maybe it’s not and somebody else is getting a windfall,” Strauss said.
Bell, who also serves as vice president of the Maine Pellet Fuels Association, said wood fiber costs have not come down.
Strauss said he also sees consolidation coming for the U.S. pellet industry, which is made up of many small manufacturers serving local markets that all are experiencing pressure to lower prices.
In October, Geneva Wood Fuels of Strong was acquired by Idaho-based Lignetics Inc., the country’s largest wood pellet maker and owned by Taglich Private Equity.
“I think come spring we may see more of this activity,” Strauss said.
