Fully Integrated Agricultural & Forest Products Biorefinery in Southeast Arkansas

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ARKANSAS GENERAL ASSEMBLY JOINT INTERIM COMMITTEES

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Tommy Smith, Cypress Bend Mill Manager

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Potlatch Corporation

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February 27, 2006

Potlatch 1

Fully Integrated Agricultural & Forest Products Biorefinery

in Arkansas

Meeting Objectives

• Enhance attendees understanding of – The fully integrated agricultural and forest products biorefinery – Potential opportunities and benefits for Arkansas • Next Steps • Partners and Supporters Potlatch 2

Background

The Energy Policy Act of 2005 has provisions to encourage the annual production of 1 billion GPY of biofuels from cellulosic sources by 2015. – Primary feedstocks - forest and agricultural residues and energy crops – Thermochemical (gasification) technology can effectively process biomass feedstocks, be built on a large scale, achieve high conversion efficiencies, and be rapidly replicated nationwide. – Working together, the agricultural, petrochemical, and forest products industries have the resources, infrastructure, and technical skills needed to produce, collect, and convert the target biomass at commercial scale.

Potlatch 3

Background

(Continued)

• Technologies currently exist to build a fully integrated biorefinery capable of producing transportation grade fuels from untapped sources of biomass. • Using thermochemical (gasification) technologies, virtually any biomass feedstock can be converted to higher value products.

• Sufficient low cost biomass exists (agricultural residues, forest residues, pre-commercial thinnings, woody debris, and black liquor) to support numerous biorefineries in Arkansas and the U.S.

• In addition, many more could be deployed in areas such as the Delta region using dedicated energy crops.

4

Agenda 2020: Integrated Forest Products Biorefinery (IFBP) Concept

Forest Building Products Mill

Chips

Pulp Mill

Energy

Recovery/ Power Plant

Pulp Black Liquor

Paper, Board,

Energy

Other Mills Optimized Plantations Fuels/ Chemicals Hemi Extraction and Conversion Fuels/ Chemicals Gasifier Biomass

Boards, Paneling, Etc.

Ethanol, Polymers, Etc.

Ethanol, DME, Others Paper, Boxes/Cartons, Tissue/Diapers,

National Perspective

Integrated Forest Products Biorefineries

• Fully developed and commercialized, IFPB technologies have potential for significant national benefits: – Diversified, more secure national energy supply – Significant rural economic development – Geographically distributed supply source – Reduced environmental impacts – Improved energy efficiencies Potlatch 6

National Perspective

(Continued)

• Quantified Potential Benefits – $9 billion/year new revenues throughout industry – 175 MM bbl/year in energy savings – 150 MM tons/year positive impact on carbon balance – 165,000 new jobs in primarily rural communities Potlatch 7

Arkansas Perspective

Fully Integrated Agricultural & Forest Products Biorefineries (IAFPB)

• Fully developed and commercialized, IAFPB technologies have potential for significant statewide benefits: – New markets for existing industries – Additional revenues for business and state – Improved economics for existing agricultural & forest industry – Significant rural economic development Potlatch 8

A Fully Integrated Agricultural and Forest Products Biorefinery (IAFPB) at Cypress Bend

• The thermochemical (gasification and gas-to liquids technologies) and bioconversion (fermentation) pathways would be used to process biomass and black liquor.

• The eventual biorefinery would be sized to convert up to 8,000 dry TPD of forest and agricultural residuals and 1,300 dry TPD of black liquor solids into higher value biofuels. • It is anticipated that the biorefinery would eventually include the equipment needed to extract hemicellulose from the wood chips prior to pulping and convert it to ethanol.

Potlatch 9

Fully Integrated Agricultural & Forest Products Biorefinery (Possible Mill Configuration) Conc.

of Sugars

Flow Diag.

Conversion to Ethanol Ethanol

Wood Chip Storage

Agri. Residuals Forest Residuals Energy Crops Hemicellulose (Sugar) Extraction Drying

Black Liquor

Gasifier (Reformer)

Pulping Pulping & Paper Manufacturing Low Pressure Steam Stm Turb High Pressure Steam Gen

Heat Recovery Gas Cleaning Gas To Liquids

Gen Gas Turb Flare Gas

Biofuel & Other Chemicals

10

Potential Biorefinery Products

• The fully developed biorefinery could produce up to 10,000 barrels/day of transportation grade biofuels (eg. FT diesel, ethanol, others). • Most of Cypress Bend’s energy needs would be met from biorefinery waste heat. • Some of the syngas would be used in the plant’s existing lime kiln. • This project would also indirectly reduce green house gas emissions by an estimated 2MM TPY.

• The ash may be recovered and converted to higher value chemicals. Potlatch 11

Cypress Bend as the First Site

• Single line Pulp & Paper Mill • Produces 300,000 TPY of bleached coated food board • Consumes 550,000 dry TPY of wood chips • 350 employees • Two boilers • One gas-fired lime kiln • Technical skills exist to operate complex chemical processes • Potlatch has been developing and implementing energy conservation strategies to reduce costs.

Potlatch 12

Cypress Bend as the First Site

(Continued)

• The mill could utilize the waste heat from the biorefinery to reduce natural gas use.

• There is adequate agricultural and forest based biomass available within 100 miles to support a refinery at Cypress Bend.

• Cypress Bend is located on the Mississippi River in the Southeast corner of Arkansas, making fuel shipment and feedstock deliveries by barge possible.

• The mill is also located in a sparsely populated, economically depressed area where local and state governments are eager for industrial development.

• Cost models indicate ROI would be acceptable Potlatch 13

Risk

• Partners are needed to minimize financial and technical risk.

– This would be a first-of-a-kind plant. No one has attempted to marry biomass gasifiers to a gas-to liquid plant and integrate both units with a pulp mill. – Potlatch has limited expertise in operating gas-to liquid technologies.

– Potlatch has limited experience marketing liquid biofuels.

– The project would be large and technically complicated. Potlatch 14

Path Forward

• Validate the preliminary system design and assumptions (a detailed assessment is in process) • Break the project into three major phases – Phase I is focused on producing biofuel from biomass – Phase 2 would focus on producing fuels from black liquor – Phase 3 would focus on extracting the hemicellulose from wood chips prior to pulping and converting it to ethanol • Target support / partnerships: – A company that has gas-to-liquids expertise (in process) – A company that has liquid fuels marketing expertise • Government support needed to off-set first-generation risks – Grant to offset biorefinery capital cost – Loan guarantee(s) for other debt Potlatch 15

First Commercial Biorefinery Phase I Scope

• Gasification and gas-to-liquids technologies would be used to process the biomass.

• The gasifiers and GTL plant would be sized to significantly reduce the mill’s current consumption of natural gas.

• Up to 1,500 dry TPD of forest and agricultural residuals will be converted into higher value biofuels.

• Feedstocks analyses show agricultural residues could supply 40% to 50% of the feedstock. • The phase 1 plant could produce up to 2,000 barrels/day of transportation grade bio-fuels (e.g., FT diesel, ethanol). Potlatch 16

Potlatch’s Intention

• Potlatch’s full commitment to this initiative is subject to: – Positive outcome of the feasibility assessment – Engaging an experienced GTL partner – Identifying markets for biorefinery products – Securing funding to move forward • Including government support to off-set first-generation risks – Management approval Potlatch 17

Public Policy Considerations

• Incentives for landowners and farmers – energy crop production – field residue harvesting • Renewable fuel standard (state/federal) • Green power purchase incentives • Biomass transportation considerations • Strengthen SE Arkansas infrastructure – I-530, I-69, Great River Bridge, Yellow Bend Port, Wilmar Intermodal, Rail Options/Upgrades Potlatch 18

Feasibility Assessment Partners

• Potlatch • Arkansas Department of Economic Development • American Forest and Paper Association – Agenda 2020 Technology Alliance • Winrock International • University of Arkansas at Monticello • Price Industries Potlatch 19

Supporters

• Crossett Economic Development Foundation • Riceland Foods Foundation • McGehee/Dermott Industrial Corporation • Dumas Chamber of Commerce • Merchants and Farmers Bank of Dumas • McGehee Industrial Foundation • McGehee Bank • First National Bank of McGehee Potlatch 20

Letters of Support

• AR Congressional Delegation • Governor Huckabee • Delta Regional Authority • AR Farm Bureau Federation • Murphy Oil • Georgia Pacific, Crossett Operations • Chicot-Desha Metropolitan Port Authority • Pulp and Paperworkers’ Resource Council • Arkansas Association of Conservation Districts • Industrial Development Organizations – Bradley County – Monticello – Southeast Arkansas Cornerstone Coalition Potlatch 21