Energy’s Role in Transforming the Forest Industry Argentina:

1. Energy’s Role in Transforming the Forest Industry Argentina: Forest Sector Investment and Financing Forum & Bioenergy Seminar Palacio San Miguel – Buenos Aires November 16, 2010 Don Roberts Vice Chairman, CIBC World Markets Inc. 613-564-0827 don.roberts@cibc.ca

2. Outline The Global Market for Bioenergy A Latin American Perspective What are the Emerging Bio-technologies? Fast Pyrolysis: A Case Study in Commercializing An Emerging Bio-technology

3. Bio-Energy in the Overall Energy Mix . Share of Bioenergy in the World Primary Energy Mix Today’s biomass supplies ~50 ExaJoules (EJ) globally, which is ~10% of global annual primary energy consumption. Source: based on IEA, 2006; and IPCC, 2007.

4. Bio-Energy Markets Share of the Biomass Sources in the Primary Bioenergy Mix Fuelwood is the main source of bio-energy, and is used for cooking and heating. It is typically >20% of the total primary energy mix in developing countries. In industrialized countries, modern bio-energy is typically <5% of the mix, and is mostly for heat-only and heat & power applications. Source: based on data from IPCC, 2007.

5. Energy Outlook Globally, even under a “business-as-usual” scenario. The use of biomass in heat industrial energy applications is expected to double by 2050 Electricity production from biomass is expected to grow 5-6%/year by 2030. Transport fuels are currently the fastest growing bioenergy sector, and biofuel production is expected to increase by 10 to 20 fold by 2030. However, most of the feedstock will come from agricultural crops or residues.

6. What Drives The Economics of Bio-Energy? • Five key variables shape the economics of investing in bio-energy: • The price of fossil fuels (the main substitute) • The price of carbon • The conversion technology • The cost of the feedstock (50%-80% of the variable cost) • Public Policy • Given the trends in these key variables, the long-term outlook for bio-energy is positive. However, there is also considerable uncertainty.

7. Global BioEnergy Investments (2005-2009) U.S. and Brazil have dominated the global investment in biofuels (liquid), almost all of which is either corn or sugar-based ethanol China and Europe have dominated the investment in biomass-based (solid and gas) energy. This is our focus today since it is more relevant for the forest industry. Latin America ~7%. Biofuels Biomass

8. Global Bio-Energy Investment(Project Finance, Public Markets, VC/PE capital) The economic crisis had a major impact on the level of investment in the global bioenergy sector. After exceeding $12 billion in 2008, it fell by ~25% in 2009. It is now rebounding. Biofuels have historically accounted for the bulk of the global investment in bioenergy, but biomass-based energy has been more important since 2009. Source: New Energy Finance, CIBC World Markets Inc.

9. Bioenergy Policy • Most bio-energy investments would not be undertaken without government support. • In 2009, the whole renewable energy sector received an annual subsidy of ~US$50 billion. However, this is less than 1/10th the ~US$550 billion received by the global fossil fuel industry. • The EU, U.S. and China are all providing strong support to their domestic bio-energy sectors.

10. Bioenergy Policy • Even if Latin American countries were not pursuing similar policies, they would be affected by these international measures. • eg., EU Renewable Energy Target for 2020: • If target is binding, estimated that EU will have to import ~200 m3 of biomass in 2020 (greater than the annual harvest in Canada). • Just in the UK, there are 28 biomass projects at various stages of planning & development, with feedstock requirements corresponding to ~ 10% of current European wood demand, from energy, sawn timber, pulp, etc. • Given the inflexible supply situation, this could put significant upward pressure on biomass pricing.

11. Global Trade in Bio-Energy is Growing Rapidly Main International Biomass for Energy Trade Routes Biggest growth in the future trade flows? Likely pellets from L. America, Russia, Africa and Australia; and palm oil from Africa. But lots of potential for local consumption. Source: Junginger and Faaij, 2008. . Intra-European trade is not displayed for clarity.

12. Levelised Cost of Energy Q4 2009 ($/MWh, by Type of Energy) As of now, Bioenergy is not the lowest cost source of renewable electricity. ….and we think bioenergy will become relatively more expensive over time due to differences in variable costs. Source: New Energy Finance, CIBC World Markets Inc.

13. What to Produce? • Depending on the local conditions, it can make sense to produce electricity from biomass. • However, do not just limit yourself to producing “commodity electrons”. • Exploit biomass’ unique features: • Dispatchability (peak pricing, complement intermitant sources like solar and wind) • Optionality (transport fuels, green chemicals)

14. Situation in Latin America? • .

15. New build asset finance of biomass projects in LATAMQ1 2005 – Q2 2010 ($bn) Source: Bloomberg New Energy Finance Note: Total values include estimates for undisclosed deals Although there has been considerable volatility in investments due to the global recession, the bulk of the investment since 2008 are for plants that registered to participate in Brazil’s 2008 power auction.

16. New build asset finance of biomass projects in LATAMQ1 2005 – Q2 2010 ($bn) Source: Bloomberg New Energy Finance Note: Total values include estimates for undisclosed deals Argentina has captured only 3%.

17. Biomass availability per country by feedstock, 2008: m tonnes Source: FAO, Cenbio, GTZ, Bloomberg New Energy Finance. Note: Only considers existing residues; does not consider native forests or degraded areas. Woody biomass is only a fraction of the total biomass available in Latin America. Break out of your “forestry silo” when thinking about bio-energy

18. Should the Forest Sector Invest in Bio-Energy? Lessons Learned from the Canadian Future Bio-Pathways Project WARNING! Generalizations are difficult…location matters

19. Alternative Pathways to Bio-Energy Thermo-Chemical Bio-Chemical Physical 9 No Air Excess air Partial air Combustion Gasification Pyrolysis Hydrolysis & Fermentation Pelletization 1 8 Heat & Power Heat & Power Fuel Gases (CO + H2) Char & Liquids 2 5 6 7 Heat & Power 3 4 Heat & Power SNG, Hydrogen Liquid transport fuels Liquid transport fuels

20. Solid Energy Products • What form of solid-biofuel is best? • Desirable to increase energy density in order to decrease the effective cost of transportation, so consider moving beyond regular pellets. • Utilities like the fact that torrefied pellets and biocarbon do not decompose when exposed to water. • Bio-carbon requires a significant amount of energy in the manufacturing process. Only makes sense if biomass is very cheap. • Torrefied Pellets will be the preferred form of solid biofuel in the future. However, will they be able to pay the most for the biomass compared to alternative uses?

21. Do We Need To Change? ROCE Traditional Technologies BC Central Interior Cost of Capital = 11%

22. Are The Emerging Options Any Better? ROCE Emerging Technologies BC Central Interior Cost of Capital = 11%

23. What Is The Best From Both Worlds? ROCE Traditional + Emerging Technologies Earning Their Cost of Capital BC Central Interior Cost of Capital = 11%

24. Who Would Win The Auction For Residual Fiber? EBITDA $/ODT Residual Fiber Users BC Central Interior The traditional users of residuals (eg., MDF) are expected to lose the auction going forward, with the strongest potential bids coming from from bio-energy and bio-chemical producers. However, torrefied pellets not high.

25. Who Would Win The Auction for Chips and Pulpwood? EBITDA $/ODT Chips + Pulpwood BC Central Interior NBSK pulp mills (with H&P) have historically won the auction for chips/pulpwood. However, Full Fractionation bio-refineries, OSB and LWC are generally better positioned. Newsprint, BCTMP and NBHK pulp, and pellets would generally lose the auction for chips/pulpwood.

26. Conclusions? • If we look at the “best” of both the traditional and emerging biomass-based technologies in terms of ROCE, all of the top ten produce some form of bio-energy/bio-chemicals. • Many of the traditional users of wood will “lose the auction” for fiber (eg., MDF, newsprint, smaller scale pulp mills). • We think solid wood mills which also produce some form of energy are the most interesting types of forest product complexes. • In terms of emerging bio-energy technologies, we are most interested in: • Fast-pyrolysis • Small scale gasification • Torrefaction • If you are in the forest industry and you are not involved in the production of bio-energy, you are not maximizing your profit.

27. . Ensyn Corp: A Case Study in Commercializing the Fast-Pyrolysis Technology

28. Ensyn Technology: Pyrolysis (Rapid Thermal Processing – converts soild biomass to a liquid in less than 2 seconds. Eight small scale pyrolysis plants in operation Largest under construction uses 400 ODMT/day of biomass (~$50 million for 14 MW of power, 585,000 GJ of steam) Principal Products: • Food flavouring - commercial • Fuel oil substitute - commercial • Electricity Production (Orenda turbine) - commercial • Electricity Production (Cummins slow speed diesel) – 2010 • “Drop-in” gasoline, diesel, jet fuel – 2012 target

29. Ensyn Strengths: • Clear leader in a platform technology • Credible strategic technical partners for growth • Already commercial in some applications, with good value proposition. • Significant potential for higher value-added products. • Can handle a range of homogeneous feedstocks.

30. Ensyn Pyrolysis oil economics when producing electricity: • Contains 55% of energy content of fuel oil, by volume. • Currently estimated to be 25-30% cheaper than #2 Fuel Oil on an energy basis. • With feedstock at $60/ODMT, breaks even with #2 Fuel Oil @ ~$70/barrel. If feedstock is free, breaks even with oil at $28/barrel.

31. Ensyn Compared to a Combustion Boiler/Steam power plant, an RTP advanced cycle power plant is expected to: • Produce ~70% more power from the same amount of biomass • Use ~70% less biomass for every kWe produced • Have a capital cost ~20% lower per unit of electricity produced.

32. Ensyn • Joint Venutre Partner is Honeywell, and strategic investors include Chevron. • In the process of transforming from a bio-technology company to a bio-energy/chemical operating company. • Sold the rights to Ivanhoe Energy (for $100 million) to use the technology to upgrade oil sands to light oil • Sold the rights to Red Arrow to use the technology to produce food chemicals • JV with Tolko Industries to produce power and chemicals from forest biomass in Canada

33. Ensyn Guarantees for the pyrolysis plant by Honeywell • Uptime of the plant (>90%) • Percent liquid yield from the particular feedstock used (22 examined) • Quality of the pyrolysis oil (ASTM D7549-09 standard, plus 6 months shelf life).

34. Ensyn • Joint Venture with Premium Renewable Energy to produce power and transport fuels from oil palm biomass in Malaysia • Roughly 60 million tonnes of biomass is produced yearly by the Malaysian palm oil industry: • 32 million tonnes is in the form of empty fruit bunches and fiber: • This could produce 11 million tonnes of pyrolysis oil/year; • Equivalent of 41 million barrels of crude oil; • Annual revenue of ~$3 billion at today’s prices.

35. Central to all bio-energy strategies is a competitive price for delivered biomass……. True regardless of the type of bio-energy being produced – or where.

36. Appendix C: Bio Of Don Roberts • Mr. Roberts is a Vice Chairman and Managing Director with CIBC World Markets. In addition to leading the Bank’s Renewable Energy and Clean Technology Group, he also provides senior coverage for the global forest industry. • In addition to his work with CIBC World Markets Inc., Mr. Roberts is also • An Adjunct Professor in the Department of Forest Resource Management at the University of British Columbia (Vancouver); • On the Board of Directors of the Rights & Resources Institute (Washington, D.C.) and • Serves in an advisory capacity for a range of government, industry, and NGO groups. • Mr. Roberts has a Bachelor’s degree in Agricultural Economics from the University of British Columbia, a Master’s degree in Forestry Economics from the University of California at Berkeley, and both an MBA and doctoral studies in International Finance and Economics from the University of Chicago. He is also a certified Corporate Director through the Institute of Corporate Directors.