The shot made me flinch...

I was going up a flight of metal stairs in the mill when a worker drove a bolt into the outside wall of the building. The loud noise startled me and I ducked under my hardhat. A plant engineer was showing me around. He noticed me flinch and smiled...

"It can get pretty noisy in here," he said.

Last week, I toured the world's largest wood-pellet mill. It's in the Florida panhandle. The mill is still under construction, so lots of banging and welding was going on while I was there. The plant is in the testing stages right now. The engineer hopes to begin production in March...

Pellet mills turn pine logs into wood pellets. First, they remove the bark and turn the log into wood chips. Then they grind the chips into dust and extract the moisture. Finally, they compress the dust into millions of little eight-millimeter pellets.

Every day, this pellet plant will process 120 truckloads of pine logs.

The pellets will leave the plant on railcars... 20 railcars every day. The pellets will travel 60 miles to the Port of Panama City, on the Gulf Coast, where they will be loaded onto ships and sent to Europe.

Green Circle Bio Energy – which owns this plant – is a Swedish company.

Power plants in Denmark, Holland, and other European countries will buy the pellets. They'll crush the pellets up, mix them with coal dust, and turn them into electricity. Green Circle's engineer tells me power stations can burn up to 10% wood in their coal plants without making any modifications to the equipment.

European countries signed the Kyoto Protocol, so they need to reduce greenhouse gas emissions. Politicians bribe the owners of power plants with millions of extra dollars to reduce carbon emissions at their plants.

Burning wood pellets is one way the power plants can reduce their carbon emissions. The scientists consider wood "carbon neutral" if it comes from a sustainable forest. The southeastern corner of the United States has the largest sustainable forest plantations in the world.

There are two angles to this story that I find interesting:

Firstly, wood is the new coal. I'm seeing evidence all over the world. The Chinese want to burn wood in their coal plants. So do the Europeans. In New England, people are starting to use wood-pellet furnaces to heat their homes since heating-oil prices have quadrupled. In November, the British government announced the largest bio-energy power plant in the world. It will generate 350 megawatts of power. The plant will run on American wood chips.

Secondly, North America has the cheapest wood in the world. I know a scout from Britain's new wood-chip power plant came to Florida a few weeks ago to secure wood-chip contracts. The Europeans are buying 120 truckloads of American logs from Green Circle Bio Energy every day. Two more giant pellet plants are under construction in Alabama and Georgia right now.

My advice: Invest in the North American timber and forestry industry. Demand for American wood is just getting started. Imagine what would happen if American coal plants started burning wood pellets? Timber would become the next alternative energy boom... and Georgia would be the new Iowa.
 
The assets are cheap right now. As Green Circle's engineer told me, "The local timber industry has been depressed for quite a few years now. They're happy we came to town..."

Good investing,

Tom