Eastport hopes to step up wood chip exports



EASTPORT — The port authority for Maine’s easternmost deepwater harbor has taken a significant step towards exporting more wood chips with approval of agreements that will allow for the completion of equipment necessary to export into the European market.

According to the Quoddy Tides newspaper, the port authority board, at its Dec. 19 meeting last year, approved motions so that it will hold the license to new phytosanitation technology and be able to obtain $1.65 million in state financing to complete the shipboard heat-treating system used to kill pests. Financing for the equipment has been the missing link in proceeding with the project. With the board’s action, it’s expected that the first trial shipment will take place this spring.

The port authority will sign an agreement with Phyto-Charter LLC, which currently holds the license, for an exclusive license to develop, build and deploy the phytosanitation equipment at the port of Eastport. Under the agreement, the equipment cannot be used at any other location during a term that is the same length as the 10- or 15-year term for repaying the state’s loan to build the equipment.

Phyto-Charter will receive a royalty fee of 50 cents a ton when wood product is moved through the port using the equipment. The port authority also will buy the equipment that has been partially completed at Nyle Systems in Brewer for $50,000. The equipment is worth approximately $500,000.

While Phyto-Charter invested a considerable amount of money to develop the equipment, Chris Gardner, the executive director of the port authority, said it was “difficult to attract new capital into this, because it’s never been deployed full scale. It was hard to get a financing package.”

The delays that have been encountered in shipping wood chips for the past several years have occurred because of the difficulty in acquiring the funding to finish the project. “The design is already completed and perfected to get a passing grade from the USDA,” said Gardner. “This takes it out of the laboratory and puts it on the pier.”

Phyto-Charter’s shipboard heat-treating system operates as the vessel is being loaded. Gardner said the phytosanitation equipment provides the most cost-effective means of heat-treating wood chips, which is necessary to meet European Union requirements aimed at preventing the spread of the pinewood nematode.

“You’re just treating what you’re selling,” Gardner said. “Otherwise, you’re treating mass quantities and selling a portion. There’s a limit before it needs to be done again. This eliminates that rehandling of materials.”

According to Gardner, the Maine Department of Transportation agreed to provide a $1.65 million loan to finance the construction of the equipment because it “recognizes what this offers the forest products industry as a whole.” He praised MDOT Commissioner David Bernhardt and Deputy Commissioner Jonathan Nass for their assistance.

Gardner is proud that the port authority “has been out in front” in being able to ship wood chips, with the completion of the bulk conveyor system in 2012. “With the collapse of the forest products industry in Maine, if we were starting today, the industry couldn’t hold on.”

Nass said that MDOT tries “to make smart investments that help the economy of the state. We think this will help both the port and the region.”

Exporting low-grade wood will help the forest products industry because it makes the entire wood-harvesting process more economical. While the private sector will need to find the markets for the wood chips, Nass said that MDOT believes “there is an excellent chance they will do that. We’re just helping with the infrastructure.”

As for the port authority’s role, Gardner observed, “If we are going to take the risk, then we are going to own the technology.” The port authority will pay back the loan by assessing a $1 per ton tariff on chips that are phytosanitized and shipped through the port. The phytosanitation equipment should be ready to be deployed in March, but the state “has given us to March 2018 to actually start making payments,” Gardner said. “We should be able to pay off the loan in an accelerated fashion.”

At the Dec. 19 meeting, the board also approved four contracts with Player Design Inc. of Presque Isle to finish the construction and to deploy the equipment.

Gardner expects that the first trial shipment, of perhaps 5,000 to 10,000 metric tons, will take place in early April. Full-size vessels can carry 25,000 to 35,000 tons, and Gardner would be happy with five vessels the first year.

“Over 100,000 tons would be success,” he said.

He’s hoping the port will ship several hundred thousand tons a year. Gardner noted, though, that the port authority is mindful of the pressure on the local wood market and the supply needs of the Woodland Pulp mill.

“This has to be co-beneficial with the mill. It needs to be a symbiotic relationship. We’re very cognizant of that.”

The board also approved amending its lease with Costigan Chip LLC to reduce the wharfage rate from $1 to 50 cents a ton for all wood chips that undergo the phytosanitation process. The reduction recognizes the significant investment that the Carrier family, which owns Costigan Chip, already has made in the phytosanitation equipment.

The rate reduction will not mean that the port authority will lose any money, but rather the port authority is trying to reduce shipping costs.

“This is a large-volume, low-margin business,” he said.

Shipments will be to the European market, primarily for the biomass energy market in Ireland and other countries.

“There is a tremendous need” for chips in the European mid-range energy market, Gardner said. “The European market is being completely underserved” because of the European Union’s requirement that wood be heat-treated. “Nobody’s been able to figure it out to make it price competitive. We think we have done that.”

Obtaining financing to complete the phytosanitation equipment “is the step that has held us up for so long. We’ve never been able to clear that hurdle,” said Gardner. “This is the key that unlocks that door, for sure.” He adds, “I didn’t think the port authority’s place was to take a capital position, but we recognized that if we don’t do it, it may not get done.”

During the three- to four-years that the port authority has been trying to line up a market for wood chips, Gardner said he learned a great deal about the forest products industry in Maine. “We’ve been very methodical and very slow, which has been a source of frustration,” he said. “It’s been no small feat. We had to be very smart, we had to be very humble, and we had to be willing to learn.”

The shipments will be “a tremendous boon” for loggers and truckers within a 100-mile radius of Eastport and also will provide more work for longshoremen at the port. While truck traffic to the port will increase, Gardner noted that the port had previously shipped 450,000 metric tons of wood pulp in some years but is now down 30 percent to 300,000 tons.

“We anticipate the increase in traffic will still be under what we were at the height,” he said. “We need to diversify.”

The port authority appreciates the Woodland Pulp mill’s shipments, Gardner said, but “we can’t just depend on the mill to make our port work.” The larger picture, he said, is that “the forest products industry is suffering, suffering.”

Gardner said that the exported wood chips will come from low-grade wood that already was being burned in biomass plants in Maine. “Being able to have a market for the 70 percent that is low-grade wood makes it possible to have markets for the 30 percent that is high-grade wood,” he said. “We’re not taking our best asset and sending it overseas.”

Maine’s woods are currently being underharvested, Gardner said.

“If we don’t cut any, they’ll kill each other off. A wall of wood is coming at Maine. If we don’t find a market for low-grade wood, we’re doing a tremendous disservice to the forests.

“The real driver” for the port authority’s decision to go forward with the phytosanitation investment, Gardner said, is that “the impact on the forest products industry will be tenfold compared to our port. We’re helping the renewable energy markets in Europe, helping the forests here in Maine and doing it in a way that’s good for the economy.”

At its meeting, the board approved an operating budget for 2017 with $1,582,964 in income and $1,559,010 in expenses. Gardner said the budget is conservative but also fluid and will be adjusted after the first three months of the year.

Al Day, manager of Federal Marine Terminals’ operations at the port, reported that 306,000 metric tons was expected to be shipped through the port in 2016, with about 290,000 tons being wood pulp.