Studying the Impact of the Dollar, Oil on the Biomass Industry

Biomass pellets are used for a variety of industrial and domestic purposes, especially in heating.  Over the years, as oil prices have risen, biomass pellets have increased in popularity thanks to their energy efficiency and their cost advantages.

Now, though, the price of oil has taken a tumble and has dropped from a peak of $114.77 per barrel to $49.21 per barrel as of the end of January – a price reduction of 57 percent. Simultaneously, the U.S. dollar has strengthened considerably over the past year, starting in July and continuing with increasing velocity to the present.

What implication do these developments have for the biomass industry?

Industrial Biomass Providers See Challenges

The rise of the dollar has posed a challenge for manufacturers of industrial biomass fuel sources.

One example comes in the area of industrial wood pellets. Most long-term contracts for industrial wood pellets in the U.S. are paid in dollars. Since the dollar has strengthened considerably relative to the euro and the pound, the overall cost for each ton of indust27rial wood pellets has increased.

The immediate concern is that a rising dollar will continue to make pellets more expensive, which could steadily eat into profit margins for producers. Additionally, a weakening pound will put pressure on both existing and proposed production projects in the U.S.

To compensate, producers will have to ensure that their processes are streamlined and designed with maximum efficiency in mind. ProcessBarron can help biomass producers with efficient guidance and design for new or existing projects, and can help mitigate the increased costs of doing business with a strong dollar.

Oil Prices Create Competition for Domestic Biomass Pellets

The dollar and oil have had an inverse relationship over the past six months. The dollar has gained, while oil has dropped dramatically in value.

The lower the price of the oil gets, the more competitive it is with domestic biomass pellet use for heating. Pellets haven’t cost more than oil since 2008; since then, heating oil has always been more expensive. But that is no longer the case, which means there could be increased demand for heating oil and decreased demand for heating pellets.

Of course, there is always the realization that current oil prices are depressed temporarily. Over the long-term, the price of oil will rise, meaning that producers should expect to weather the near term with the expectation that the situation will improve with time.

ProcessBarron can work with biomass producers to ensure that they are meeting their bottom line and operating as efficiently as possible. Contact us to learn more about how you can ensure maximum efficiency for your facilities and processes.