Flambeau River Papers, LLC : Paper Money

Energy Executive Spotlight
Written by John Zorabedian
Thursday, 31 January 2008
Bob Byrne explains his plans to integrate a formerly bankrupt paper mill into a biofuel production facility, with a little help from the government. After Hurricane Katrina devastated Gulf Coast refineries in 2005, spiking natural gas prices contributed to the demise of the Smart Paper mill in Park Falls, Wis., putting more than 300 employees out of work and threatening the economic lifeblood of an entire town. Bob Byrne, President In stepped William �Butch� Johnson, owner of Johnson Timber Corp., who purchased the bankrupt company and reopened the mill as Flambeau River Papers, LLC (FRP), hired back 90% of its former workers, and placed control of the company under its new president, Bob Byrne. To keep the reborn company profitable, the new ownership implemented energy saving technologies that have cut the mill�s dependence on natural gas and coal by burning wood waste to create steam power and electricity. �Half of the steam energy and a quarter of the electricity that we use we produce from woody biomass�bark, sawmill waste, and wood that�s not merchantable for other reasons,� Byrne said. �We used to buy wood by the ton. But now we buy it by the net BTU (British thermal unit) value. We view it more like a fuel than refuse.� Eventually, the mill will run entirely on renewable energy sources, including a type of biofuel called Fischer-Tropsch liquids, which FRP hopes to begin producing as part of a new venture, Flambeau River Biofuels. If the company can secure the government grants and private financing for a proposed $200 million plant to convert biomass to liquid fuel, what was once a small paper mill on the brink could soon be integrated into a booming energy business. Government grants Two years ago, when FRP proposed reopening the paper mill, the state of Wisconsin jumped at the opportunity to save 300 skilled jobs and one of the largest employers in a town of 3,000 people. The state provided a package of $7 million in grants and loans to help FRP move the mill out of bankruptcy. The federal government provided an additional $5 million in grants to support FRP�s energy conservation efforts. FRP�s plan was to get into the growing ethanol business by fermenting the sugars from tree hemicellulose into cellulosic ethanol, with assistance from a US Department of Energy (DOE) grant program established in 2007. The company�s brain trust worked around the clock to submit an application for a $30 million grant. But when the government announced its six awards last August, FRP just missed the cut, coming in ninth out of 44 applicants. The DOE told FRP that it had lost points on its application because it did not indicate that it had a supplier of woody biomass. FRP is vertically integrated with Johnson�s timber companies, which supply the mill. But this minor oversight may have been a blessing in disguise, Byrne explained. In the process of putting together its grant application, Byrne said, the company discovered that the price of ethanol was falling. �The economics of the project went the wrong way,� he said. �As a result, we have put that project on the back burner.� Now the company is looking to secure a $30 million DOE grant for its plan to gasify woody biomass and use the Fischer-Tropsch process to create liquid hydrocarbons�a plan with many more upsides. �The fuel we will produce is actually cleaner and more uniform than what is currently made from crude oil,� Byrne said. �It�s sulfur free and has a higher hydrogen content, so it helps the local refiner in terms of capacity.� The plan is to co-locate the new plant at the site of the paper mill and use tail-gas from the biofuel plant to replace natural gas as an energy source for the paper mill. �By co-locating this project at the site of the paper mill, we help the economics of the project,� Byrne said. �We don�t have to put as much capital into the gas-to-liquids plant, and it provides a lower cost energy for the paper mill, so the economics are better than if it were a standalone project.� Lessons learned After the experience of its previous, rejected grant application, FRP hired a professional grant writer to detail the company�s plan to commercialize biofuel production. The application explains the company�s biomass source, the economics and energy-saving benefits of co-location with the paper mill, and FRP�s potential agreement to supply a local refinery with liquid biofuel. �We�ve been told that we passed the technical review,� Byrne said. �The next step would be a political review. If we get that grant, we feel very strongly that this project will be built.� Positive media coverage of FRP�s energy- saving program and its plans for a biofuels plant has attracted potential private funding to the project. �We get a lot of favorable press because of the good work we�ve done in reducing our carbon footprint.� Byrne said. �Most of the big investment banks have large alternative fuels groups to help put these deals together. As we get some press on the deal we are trying to put together, we get unsolicited offers of cash.� FRP has an arrangement with a large international investment bank to provide the remaining financing for the plant. The company proposes to build a small-scale demonstration facility before completing a full-scale plant that could eventually produce 40 million gallons of liquid biofuel annually. And by the way, the FRP paper mill is doing quite well. In 2007, the mill produced the most paper in its 100-year history, without depending entirely on costly natural gas. �The next step for us is energy independence,� Byrne said

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