Highlights

As one of the world's leading producers and exporters of oil and gas, biofuels have an insignificant share in the overall energy production matrix of Russia, with an estimate of only 1.2 percent, and biomass accounting for only 0.5 percent. While there are no official statistics that measure what share of total energy production biofuels account for, it is estimated that biofuels make up 5 percent of Russia's heating energy and 1 percent of its electrical power. The development of the biofuels sector has never been a priority for the government in the past, and currently with the strong focus on development of the import substitution program, it will be even less of a priority. No major breakthrough is expected at least in the short-term. Wood pellet production and exports will likely continue to grow, driven primarily by increasing demand from Europe and Asian markets, soft ruble and increasing local consumption.

Executive Summary

Since the August 2014 food embargo, one of the major focuses of the Russian government is to further develop the agricultural sector. The goal is not only to cover the gap of imported products, but also to increase local production to the levels outlined in the Russian Food Security Doctrine by 2020. The development of the biofuels sector has never been a priority for the government in the past, and currently with the strong focus on development of the import substitution program, it will be even less of a priority. There are government measures in place to support local agricultural producers and infrastructure to increase the volumes and quality of locally produced food products. Development of the bioethanol and biodiesel sectors is a low priority for the government.

No major breakthrough is expected at least in the short-term. The production of biofuels still remains small and has almost no impact on Russia's overall domestic grain and oilseed prices.

The Federal Forestry Agency considers biomass production as the main alternative for Russia's developing biofuel sector. Russia has huge potential for biomass production; however, due to the large supply of high-value fossil fuels, and lack of government incentives for businesses to utilize wood waste, only large wood processing facilities are interested in the commercial production of biomass. In addition, due to the Russian government's focus on import substitution and investing into production agriculture and infrastructure, experts do not anticipate an increase in development of biomass production in the near-term.

The European Union's growing interest in biofuels is increasing demand for wood pellets. This will continue to be a major incentive for Russia to increase production of wood pellets. Currently, Russia is the third largest exporter of wood pellets to the EU, after the United States and Canada.

Since late 2014, following the drop in world oil prices and changes in Russian domestic monetary policies, the ruble depreciated sharply and has been volatile. This resulted in annual consumer price inflation of 12.9 percent in 2015. In response to accelerating inflation, the Central Bank of Russia (CBR) changed the key interest rate eight times between November 2014 and August 2015. The key rate peaked at 17 percent in December 2014, and has been kept at 11 percent since August 2015. Despite some positive signs[1], CBR kept the key rate at 11 percent in March 2016. Russian fiscal and monetary authorities consolidated their efforts in pursuing the mid-term goal of 4 percent annual inflation in 2017. Also, the Government of Russia (GOR) has struggled to keep the 2016 budget deficit within the target of 3 percent of GDP. The GOR is currently reviewing the fiscal plan, which was based on projected revenues from oil exports at a price of 50 US dollars per barrel. According to the Finance Ministry the nation's main export blend averaged 31.99 US dollars in the first three months of 2016. Given the current economic conditions in Russia, development of the biofuels sector is not likely to get much attention or resources from the Government of Russia.

The Russian government has outlined as a national objective the goal of Russia becoming 40 percent more energy-efficiency by 2020. While there have been previous attempts at the federal level to promote the production of biofuels, there are also a small number of activities at the regional level. The number of innovative projects aimed at production of alternative energies has increased in the past years, such as those from plant cellulose (including wood or oilseeds) and agricultural wastes, along with production of biofuel raw materials for export (including fuel pellets, rapeseeds, and rapeseed oil) supported by the regional administration and investors.

Due to its abundance of petroleum and natural gas, Russia produces a small amount of biofuels and has minimal domestic demand. According to experts, Russian biofuel production will not be fully developed in the next 10 years, as the sector is not considered as a national priority. Different sources estimate that renewable energies, including biofuel, represent 1.2 percent of Russia's total energy production, with biomass consisting 0.5 percent. While there are no official statistics that measure what share of total energy production biofuels account for, it is estimated that biofuels make up 5 percent of Russia's heating energy and 1 percent of its electrical power.

The Russian Ministry of Energy reports that the volume of technically accessible renewable sources of energy in Russia is estimated at 24.2 Btoe. The share of electricity generated by renewable sources accounts for only 1 percent, while the share of thermal energy generated from renewable resources represents 5 percent or 3000 million Gcal. At present, Russia utilizes only 30 percent of its economically viable hydro-energetic resources.

The Russian Ministry of Energy also reports that there are no government-backed biofuel projects in operation at this time. The majority of biofuel ventures in Russia are supported by regional governments or financed by foreign investors. In most circumstances these projects are in the pilot phase and produce just enough biofuel to generate heat/electricity for their own facility, or for the production of organic fertilizer from agricultural waste. Currently, there is no industrial production of either bioethanol or biodiesel in Russia, except for several facilities that are operating in the regions and are supported by the regional administration or private companies.

Policy and Programs

Russia is making continued efforts in the developing regulatory norms for bio-energ development and standards for biofuels. Trade sources indicate that without governm and other development policy measures the sector is unlikely to develop.

Currently the development of the Russian bioenergy industry is outlined in the follow documents:

  • Energy Strategy of Russia until 2030 (approved by Government resolution # dated November 30, 2009);
  • State Program of the Russian Federation “Energy savings and increasing effi electrical power generation until 2020" (approved by Government resolution dated April 8, 2010);
  • State Program “Industry Development and Increasing Competitiveness until (approved by Government resolution on December 27, 2012);
  • State Program “Development of Agriculture and Market Regulation of agric products, raw material and food for the period 2013-2020 (approved by Gove July 14, 2012);
  • Roadmap for the Development of Biotechnology Gene Engineering until 202 by the GOR in 2013).
  • An action plan aimed at transferring from old inefficient technologies to intro the best available technologies.
  • Roadmap “Introduction of Innovative Technologies and Modern Materials in Energy Sector" for the period till 2018."

The Russian Unified Energy system consists of 69 regional energy systems that in tu united energy systems of the Eastern region, Siberia and Urals. Middle Volga, south north western electrical energy complex of Russia includes 700 electrical stations wi over 5 MWh. Total installed capacity of electrical stations in Russia is estimated at million kWh. The percentage share of stations, by type of electrical generation, are a thermal power stations 68.4 percent, hydraulic 20.3 percent.

Currently, the situation with energy supply in rural areas in inconsistent. The southe western and central parts of Russia mostly have centralized energy supplies, while th Siberia and Far Eastern regions have low energy security, with both centralized and decentralized systems. According to a publication in the “Malaya Energetika" 2014, seventy percent of the territory of Russia, with 20 percent of the total populati for a zone of decentralized energy supply, mostly in rural areas. According to the sa gas supply provisions in populated areas (urban communities) accounts for 63 perce percent in urban and 47 percent in rural communities). According to the Russian Ministry of Energy, renewable energy should be considere important element for sustainable development of rural territories. The forecast of th sets the following objectives for the installed capacity of Russian energy sector by 2 Wind power – 15 GWh; biomass – 7 GWh; tide water power stations – 6 GWh; geot energy – 4 GWh; small hydrostations – 2 Gwh, and solar energy - 1 GWh. Russia has a high potential for development of domestic hydropower. Nine percent world's water resources are concentrated in Russia. To date, total hydro energy pote estimated at 2,900 billion KWh per hour of annual electrical power production or 17 Kwh/hours for 1 square kilometer of the territory. However, only 20 percent of this being utilized. The major obstacle in developing local hydro energy is remoteness ( potential is located in eastern and central Siberia and the Far East) with development far from the major consumers of electrical power.

Russian hydroelectric power stations provide annual saving of 50 MMT of condition whereas potential savings may go up as high as 250 MMT. Currently hydro stations educe CO2 emissions in the atmosphere up to 60 MMT. This provides Russia with a unlimited potential to build power facilities even with strict requirements on restricti emissions of greenhouse gases.

There are 102 hydroelectric power stations with capacity of over 100 MW in operati The total installed capacity of hydrounits on hydroelectric power stations in Russia i about 46,000 MW (the 5th place in the world). Annually, Russian hydroelectric pow produce 153,300 billion kWh of electric power. The share of hydropower stations in production of electrical power in Russia is accounted for 15.2 percent.

Development of geothermal energy in Russia also has strong potential. Currently th natural thermal waters. The total electrical potential of all thermal fields is estimate however, only 80 MWh is being utilized. All operating geothermal stations are locat Kamchatka peninsula and Kurils.

Communal service of the Russian Federation reports that for heat supply system it sp than 82 million tons of oil equivalent (toe) annually. Of the total, natural gas accoun percent, coal for 27 percent, residual oil for 7 percent, and woodfire and wood waste percent. Other types of oil, including diesel oil, peat, electricity for heating, account percent. Forty-one regions of the Russian Federation use residual oil as the main typ heating. Of these forty-one, 28 Russian regions could potentially cover 100 percent demand from residual oil generated from wood production and processing. In additi regions can generate up to 50 percent of residual oil locally. Experts calculate that t savings on expenditures on the difference in cost between residual oil and oil genera wood processing is 16 billion rubles annually (about $250 million).

Currently, Russia utilizes only an approximately 3.5 percent of its potential renewab resources. Of total power generation in Russia, renewable resources' share accounts one percent. Of heat energy, renewable resources' share accounts for 5 percent.

The Russian Government is also discussing a draft program on modernization of ele energy through 2020. The Program outlined as its objective to make Russia 40 perc energy-efficient by 2020 and to develop different types of renewable resources for e generation, including wind power station, electricity station on biomass, and small h stations. This program's objective is to construct facilities with biomass utilization t will generate 580 MWh electrical powers; and biogas facilities for generation 330 M Experts from the Ministry of Energy estimate the potential market for renewable res Russia at $20 billion.

However, according to recent rules approved by the Government, in May 2013 the s government financial support will be extended only to facilities operating on sun, with hydro.

Future objectives for the gas and oil sectors are outlined in the Energy Strategy of R 2030. The priority objective is modernization and reconstruction of the oil processin increasing the processing rate (depth) of crude oil from 75 percent in 2010 to 80 per The document stipulates that this is the major condition that will allow transfer the i a new technical level and will be able to supply Russia with local high quality oil inc diesel, gasoline lubricants and other products for oil chemistry industry. The increase efficiency in processing oil will allow an increase in exports of motor oils by 20 percent. The Energy Strategy also foresees an increase in production of oil products from the 210 MMT to 210-235 MMT by 2020. The Strategy has an increase in production of diesel and jet fuel from 110 MMT up to 130 MMT by 2020.

The Energy Strategy also foresees a number of measures and targets for developing The priority for the government includes developing infrastructure and competition i markets, support to development of independent gas producers, as well as cautious a rising prices for gas and developing law and regulation in the gas sector.

The Russian Transport Strategy until 2030 was approved by the government Resolut dated November 22, 2008. The document establishes the objectives and priorities fo development of the transportation sphere in Russia as well as programs and financial According to the latest available data for CY2014 from Rosstat, the length of total ra in Russia is reported at 86,000 km, 1.3 million km of automobile roads, 101,000 km water ways, 7,300 km of trolley and tramp tracks, 500 km of subway tracks.

Gasoline and Diesel

Russia's abundant resources of petroleum and natural gas (and subsidized natural ga have removed most incentives for both more efficient use of fuel and any developme alternative energy sources. Russia owns 23 percent of global natural gas resources, global coal resources, and 4-5 percent of global resources of petroleum. Russia prov percent of the total world trade of coal. Russia accounts for 13.1 percent of world pr oil and 17.9 percent of world production of gas. According to Russian Customs Stati 2015 Russia produced 533 MMT of oil, including gas condensate, 1.3 percent highe 2014. Natural gas production slowed to 554 billion cubic meters in 2015, a 2.5 perc 2014. Russia's nuclear energy accounts for 5 percent of total world nuclear electricity gener percent of the nuclear reactor industry, 45 percent of the world market of uranium enr provides for 8 percent of the world production of natural uranium.

Large companies as Rosneft, LukOil, SurgutNeftegas, Gasprom Neft, Tatneft , Slavn Russneft account for 87 percent of total production of oil, the remaining share is tak independent companies.

In 2008, the Russian government adopted the Technical Regulation on Fuels. In 2011 amended the document in reference to the requirements for gasoline, diesel, shipping fuel and residual oil, and stipulates a smooth, staged, transfer to production of oil pro will comply with world ecological standards.

The Russian Ministry of Energy reports that production of high octane gasoline in Ru increased recently. In the period between 2011 and 2014, share of Euro-5 increased f percent to 75 percent, while the share of Euro-4 and Euro-3 decreased from 26 percen percent and from 41 percent to 11 percent, respectively. The change in production fuels was due to the on-going renovation of oil production facilities and g excise taxes that has encouraged companies to increase production of gaso to the Technical Regulation on Fuels, starting from 2016, all oil processin should start producing gasoline and diesel of class “Euro-5" only. However producers with conversion, trade of diesel Euro-4 will be allowed until July. Post revised the “Fuel Use" table to reflect official, published historical us historical fuel use data was sourced from the Russian Statistical Committe fuel use projections are based on a variety of industry.

Bioethanol/Biodiesel Projects

In March 2015, the Ministry of Economic Development of the Russian Federation (MED) approved amendments to Federal Law “On State Regulation of Production and Turnover of Ethyl Spirt, Alcohol Products Containing Spirt and Limitations of Consumption of Alcohol Products," developed by the Federal Service for Regulation of Alcohol Market. MED supported the idea of defining bioethanol and motor bioethanol as an individual product. The documents include a more specific definition of bioethanol identifying that motor oils that contain no more than 10 percent of bioethanol are not subject to regulation as products containing spirt. Also, it exempts the production of bioethanol as an additive to motor oil from excise taxes. The Russian bioethanol community has been lobbying for many years for this exemption. However, so far the amendments have not been approved and there is no indication of when they may get final approval from the government. According to the Russian Biofuels Association, if enacted, the potential for expansion of bioethanol production in the near term will increase up to 2 million MT. This expansion would be primarily for use as an additive. And, the potential for expansion for the use of bioethanol production for blending with 95 percent fossil gasoline (B5) could increase up to 5 percent. However, without strong support from the federal level, these targets are unlikely to be achieved. Experts estimate potential production capacity of the bioethanol market in Russia at 850 million liters.

The demand for ethanol to be used as a gasoline additive is estimated at 320,000 MT (including 200,000 MT of hydrolysis ethanol and 120,000 MT of synthetic ethanol), or about 1 percent of the total volume of gasoline production in Russia.

Currently, “bioethanol" is classified in the general category as “ethyl spirt from all types of raw material" and is not considered as a product of specific intended use. High excise taxes for ethanol in Russia (23.5 rubles per 1 liter), coupled with high production costs and other increasing uses for grain, are the major obstacles for the evelopment of the bioethanol industry.

According to experts the following steps from the government could facilitate the development of the biofuels sector:

  • The government should approve a Resolution that will abolish excise taxes for the production and marketing of “Dehydrated denaturated ethyl spirits with a minimum share of ethyl spirt of 99.5 percent volume" including further processing in ethyl tert-butyl ether (ETBE).
  • In an effort to improve the quality of life in rural territories and ecology in the cities, add construction of bioethanol plants to the National Priority Project
  • “Development of Agriculture and Industrial Sector," providing 100 percent compensation of interest rate credits from the federal budget.
  • Decrease the excise tax for automobile fuel that contains components from renewable raw material.
  • Initiate construction of a bioethanol plant in one of the provinces with annual production capacity of 120,000 MT.
  • Provide subsidies for producers of raw material for bioethanol and diesel production calculated as per MT of agricultural production.

Develop a regulation that sets mandatory requirement for automobile fuel containing not less than 2 percent oxygen, to decrease environment pollution in large cities.

Ethanol used as a fuel and other industrial chemicals

Calendar

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Beginning Stocks

0

0

0

0

0

0

0

0

0

0

Fuel beginning stocks

0

0

0

0

0

0

0

0

0

0

Production

72, 000

71, 000

68, 340

80,000

85, 080

107, 620

107, 950

107, 575

109, 10

110, 300

Fuel Production

120

150

175

200

210

Import Fuel

Import

Export

26,000

25, 860

22, 340

32, 890

39, 680

61, 000

59, 300

58, 100

58, 800

58, 800

Fuel Export

0

0

0

0

0

0

0

0

0

Consumption

46, 000

45, 140

46, 000

47, 110

45, 400

46, 500

48, 500

49, 300

50, 100

50, 500

Fuel Consumption

120

150

175

200

210

Ending Stocks

Fuel ending stocks

Total Balance check

0

0

0

0

0

0

0

0

0

0

Fuel Balance check

0

0

0

0

0

0

0

0

0

0

The government of Russia has identified the development of Russia's domestic forestry sector as a necessity, and production within this sector is expected to substantially increase by 2020. While not a priority, the Federal Forestry Agency considers biomass production as the main alternative for Russia's developing biofuel sector. Russia has huge potential for biomass production; however, due to the large supply of high-value fossil fuels, and lack of government incentives for businesses to utilize wood waste, only large wood processing facilities are interested in the commercial production of biomass. In addition, due to the Russian government's focus on import substitution and investing into production agriculture and infrastructure, experts do not anticipate an increase in development of biomass production.

Industry experts also agree that individual regional plans aimed at increasing biofuel production should be considered. The only significant industrial biomass factory is the thermal electricity station “Beliy Ruchey" operating in the Vologda oblast. Its energy capacity is estimated at 6 MWh, which covers partially electricity needs in Vologda region and supplies electricity to the local forestry processing plant. The local administration in Komi Republic has stated that it is supportive of biomass development projects. In 2013, the International Co. Metso, was reported to have supplied technological equipment for wood waste utilization to a processing facility in Syktyvkar. Reportedly, the operation of the project started in the end of CY 2015. The capacity of the electrical station is 4 MWh with annual burning of forestry waste of 83,200 MT.

The Russian Forestry Agency sets total allowable cut at 670 million cubic meters, however only 203 million MT was actually harvested in 2015. The total annual volume of wood waste from logging in Russia is estimated at 14-15 billion MT, which is equivalent to 8 billion tons. Experts estimate that only 8 million m of non-commercial timber and wood waste is being used for biofuels in Russia. The majority of wood waste occurs due to limited access to special equipment and modern technologies, as well as a lack of interest from the Russian government and foreign investors in further processing. Current resources of fuel wood is estimated at 90 million cubic meters, including firewood – 51 million m3 (63 percent); crown, stumps, bark – 15 million m3 (15 percent); wastes from sawmilling – 12.7 million m3 (12 percent); wastes from veneer production – 4.1 million m3 (5 percent); wastes from cellulose and paper production – 4.2 million m3 (4 percent).

The “BioChemPlant" Co., Ltd., located in Kirov, is the only plant currently in Russia producing ethanol from nonedible raw material, such as waste from lumber production. In addition, the plant also produces wood pellets. The facility plans to start production of biomethane from the hydrogenation of the carbonic gas formed in the course of fermentation of yeast. This technology creates “green gas." The company "Biochemical plant" together with the Russian center of science «Applied chemistry» in St. Petersburg produces the technology for green gas, and in the near future is expected to produce 4 million м this fuel.

Biogas

Experts from the Institute of Energy Strategy estimate that due to vast supplies of agricultural wastes, food processing wastes and municipal wastes 66 billion m3 of biogas and 112 million MT of high value granulated fertilizer could theoretically be produced in Russia. In addition, experts estimate potential production of electricity from biogas is 121, 200 GWh, and heat – 169, 344 GWh. In 2012-2013 two large state corporations “GasEnergoStroy" and “BioGas EnergoStroy" were planning to build 50 biogas power stations in 27 Russian regions with total capacity of 120 MWh. However, so far there are four major biogas projects in 3 regions that are operating in Russia. Currently there is no government program to stimulate construction of biogas facilities in Russia.

Wood Pellets

While Russia's wood pellet production is relatively young, it accounts for a 6 percent share of world wood pellet exports. Russia ranks 8th in the world for total wood pellet production, with 3 percent of total world wood pellet production. According to FAOSTAT, production of wood pellets in Russia is forecast to increase significantly by 4 MMT by 2020, and 8 MMT by 2025. However, the Russian Ministry of Energy forecasts that production will increase at a lower pace, between 10 and 15 percent annually.

The growing interest from the European Union for biofuels, particularly wood pellets, will continue to be a major incentive for Russia to increase production of wood pellets. Currently, Russia is the third largest exporter of wood pellets to the EU, after the United States and Canada.

Russia produced 978,000 MT of wood pellets in 2015, a 10 percent increase from CY 2014. Sources report that production statistics for wood pellets are not accurate. The statistics primarily capture large-capacity factories, and mid-sized and smaller facilities which operate as part of larger wood processing plants, do not report their production. Inaccuracy of statistics for production of wood pellets also contributes to the high difference in production in CY2013 and CY 2014.

The top-10 producers of wood pellets in Russia include:

  • “Vyborg Forestry Industrial Corporation Ltd." (Vyborg Limited). The facility is located in Leningrad province and has been in operation since 2011. Its annual production is estimated at 400,000 MT, 50 percent of its projected capacity. Nearly 95 percent of the production is exported. Sources report that due to several legal claims regarding tax issues, the facility will not be able to increase production.
  • “SP Arkaim Ltd." in Khabarovsk province. The facility was built in 2011 to utilize wood waste from sawn timber and laminated panel production facilities in the area. Total annual capacity is at 70,000 MT.
  • JSC “LDK-3" in Arkhangesk province has been in operation since 2014. Annual production is 50,000 MT, with projected capacity of 100,000 MT. The company owns its pier, so most production is exported by sea to EU countries.
  • JSC “Lesozavod-25 (part of the State Corporation “Titan"). The plant sources low cost raw material from timber processing facilities of the Titan group, translocating pellets through its own port. The second facility of “Lesozavod-25" has been in operation since 2013.
  • The forestry company “NovoYeniseyevskiy" in Krasnoyarsk province has been in operation since 2010. Its annual capacity is 50,000 MT, however, in 2015 the company built a new production line for pressed fuel to utilize waste. The annual capacity is 80,000 MT.
  • “Mir Granul Ltd" is located in Leningrad province and started operations in 2004. The annual production capacity is 45,000 MT.
  • “DOK Yenisey" is located in Krasnoyarsk province. The facility increased its production from 6.3 thousand MT in 2010 to 45,000 MT in 2014.
  • “North Western Holding Ltd." is one of the largest wood pellet producers in Leningrad province. Its annual production is 50,000 MT which is mostly shipped to EU and Asian markets.
  • “SvedWood Tikhvin" Ltd. is part of the “Svewood" industrial group founded by IKEA in 1991. The facility has been in operation since 2002, an annual production estimated at 55,000 MT.
  • “Russkiy Pellet Ltd." in Republic of Mariy El started processing in 2013 and is currently mostly export oriented with annual production of 32,000 MT.

Group of companies “Russian Forestry Pellets" launched a wood pellet production facility in Penza oblast with annual production capacity of 80,000 MT.

A new facility with annual production of 90,000 MT plans to start operation in Bryansk oblast; 3 new pellet processing facilities were constructed in Irkutsk oblast. An Estonian company, Hekotek, is reported to supply equipment for the facilities. The plant “Magistral'ny" reportedly has an annual capacity of 30,000 MT and two other facilities, in the settlement of Novaya Igirma and Ust-Kut are planned to have annual production of 110,000 MT and 75,000 MT, respectively.

A number of large pellet production plants are reported in the construction phase and are scheduled to start operation in 2017:

  • three processing plants in Krasnoyarsk province: “Sibles Porject Ltd." with annual capacity of 17,200 MT; “Angara Paper Ltd." with annual capacity of 100,000 MT and JSC “KrasLesInvest" with production capacity 240,000 MT.
  • the company “German Pellets" announced the intention to finance construction of a new processing plant German Pellets Nizhniy Novgorod" in Nizhniy Novgorod with projected annual capacity of 500,000 MT of wood pellets.
  • “Group of Companies “ULK Ltd." started implementation of a new investment project on the construction of a modern small sized wood processing facility in Arkhangelsk province. The projected capacity is 120,000 MT per year. Wood pellets will be exported to the EU, however, if local demand for wood pellets increases, the facility will be able to supply the local boiler station for heat generation.

There are about 20 wood pellet facilities in Russia with production capacity from 30,000 to 70,000 MT that have had stable operations since 2010. Reportedly, they produce 50 percent of all wood pellets in Russia. However, analysts project a trend away from large facilities with an increasing number of facilities with smaller capacity, up to 20,000 MT. However, the share in overall pellet production from the smaller facilities accounts for only 14 percent. Given the current economic situation, the number of smaller-capacity facilities is forecast to increase because they have more mobility in sourcing raw materials and can easily market their production locally. About 55 percent of total Russian production of wood pellets is manufactured by 12 processing facilities.

Most Russian pellet producers export wood pellets class ENplus A1, issued by AEBIOM - European Biomass Association that are in compliance with the EU standard. 16 large pellet producers were certified in 2016. Experts believe that smaller producers will not be able to complete certification due to the additional costs and may not be competing for export markets. Since 2015, about 8 Russian producers, including “Novoyeniseyskiy", “Dok Yenisey Ltd.", “NorthWestern Holding, and others, have been certified by a new industrial pellet certification system –SPB (Sustainable Biomass partnership).

Currently there are 6 major export oriented provinces in Russia that account for almost 88 percent of Russia's total wood pellet exports. In 2014, a wood pellet facility in Leningrad province accounted for 54 percent of total Russian wood pellet exports, followed by Krasnoyarsk (12 percent) and Arkhangelsk (10 percent) regions.

Although overall production is increasing, due to industry consolidation and rapid expansion of larger processers, the total number of processing wood pellets facilities in Russia has been shrinking recently. The number of pellet processing plants dropped from 145 in 2010 to 98 in 2014. The number of processing facilities will again start to grow, though at a lower pace. In 2017, the number of facilities is estimated to reach 120.

The majority of wood pellet facilities are located in the Northwest, Central and Volga regions of Russia. The North Western region is the leader in production, where 60 percent of the forests of European Russia are located. The top ten pellet production facilities have a 92 percent export share of the total Russia wood pellet industry, and the remaining 7 percent is destined for South Korea.

In 2016 and 2017, production of wood pellets is forecast to increase about 5-7 percent, due to mostly continued strong EU demand, interest from the Asian markets, competitive export prices, increasing local production, new processing capacity, as well as the Russian government's call for increased efficiency in the forestry sector. However, the lack of a domestic standard for pellets, poor transport infrastructure, a lack of warehouses, and the product's seasonality will all negatively impact the development of the wood pellet sector in Russia. Russia will require large investments in order to upgrade its facilities and expand its production capacity. Domestic demand can also absorb some of the increased, near-term production.

In the mid-term, domestic demand for wood pellets is forecast to increase at 10-12 percent annually. In the local market wood pellets are in demand by private heating stations and municipal housing, primarily in heavily forested areas where traditional sources of energy are not accessible. Production of wood pellets is, in most cases, cheaper than gas. According to the National Bioenergy Union, a number of regions, including Moscow oblast, Karelia and Nizhniy Novgorod, Republic of Mari El, and Arkhangelsk oblast, have implemented initiatives to transfer local heating stations from coal or residual oil to wood pellets.

The Russian Customs Service reports exports of wood pellets from Russia in 2015, at 934,000 MT, or more than 6 percent higher than in 2014. The leading export destination for these products was Denmark at 382,000 MT, followed by Sweden at 154,000 MT, and Germany at 73,000 MT, and South Korea at 72,100 MT (7.7 percent of the total Russia's exports of wood pellet). Europe will continue to be the largest importer of Russian wood pellets.

Near-term foreign demand for wood pellets is likely to increase by 10 percent. Russia has export potential and European pellet demand will continue to stimulate an increase in Russian production. Due to the ruble devaluation since 2014, a number of smaller wood pellet producers were able to start exporting their products to the EU, in spite of previous logistics barriers. However, exports from these facilities will be limited by increasing requirements from the EU in certification

PS& D for Fuel Pellets

Calendar Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Beginning Stocks

0

0

0

0

0

0

0

30

80

30

Production

400

570

620

718

935

1010

1185

1260

1330

1400

Imports

0

0

0

0

0

0

0

0

0

0

Export

280

405

430

520

730

750

895

930

1070

1100

Consumption

120

165

190

198

205

260

260

280

310

315

Ending Stocks

0

0

0

0

0

0

30

80

30

15

Production Capacity

Number of Plants

70

97

145

120

120

103

98

95

110

120

Capasity use %

55

67

75

75

78

80

80

85

85

87

Rapeseed Market

FAS/Moscow estimates exports of rapeseed in MY 2015/16 at 50,000 MT. From July 2015 through February 2016, Russia exported only 25,100 MT of rapeseed, including exports of 13,200 MT to China, 4,320 MT to Turkey, and 4,400 MT to Germany. At the same time, Russia exported 150,900 MT of rapeseed oil. Thus, the decreased export duty did not appear to influence exports. The domestic crushing capacity continues to grow, and exports of rapeseed oil are forecast to grow faster than exports of seed. FAS/Moscow forecasts exports of rapeseed in MY 2016/17 at 90,000 MT, due to increased production.