In this blog post we explore the feasibility of manufacturing Oriented Strand Board (OSB) in Northern California. The blog is timely in the wake of the Carr, Camp, and Mendocino Complex wildfires that struck the region in 2018. Combined the three fires affected nearly 850,000 acres, destroyed nearly 21,000 structures, and tragically claimed nearly 100 human lives. OSB raw materials can include small diameter trees and OSB plants are large. Thus, developing a plant in Northern California would provide a cost effective means of carrying out wildfire hazard reduction and forest health management treatments on many thousands of acres each year.
OSB Industry Overview
In 2017, North American Oriented Strand Board (OSB) demand was about 23.1 billion square feet (note all references to OSB panel square footage in this blog have been normalized to a 3/8” thickness basis). Beck’s analysis of OSB end-use markets found that the 2017 demand for OSB within 500 miles of Northern California was about 2.8 billion square feet, or about 12 percent of all North American demand. As the map figure shows, there are more than 50 OSB plants in North America, but all are more than 1,200 miles away from the large California OSB market. In the next few paragraphs we briefly explore why this situation exists and then outline the business case for developing an OSB manufacturing facility near the large California market.
Why No OSB in the Western US?
Quite frankly, we’re not totally sure. The most likely reason is that in much of the Western US a relatively high percentage of the timberland is under control of federal and state government agencies. Greatly reduced timber harvests on public lands over the last 30 years and the trend of increasing average OSB plant size have combined to reduce the certainty of a cost-effective raw material supply. Indeed, during the early days of the OSB industry, when harvest levels on public lands were higher and the average plant size was much smaller, there were OSB plants operating at various locations throughout the US West.
The Business Case for a Northern California OSB Manufacturing Facility
In 2016 and in later work completed early in 2018, The Beck Group, KTC Industrial Engineering, and an OSB industry member all worked together to assess the feasibility of developing an OSB plant in Northern California. The key factors evaluated included raw material supply and cost; market related issues including product mix, finished panel transportation cost advantage, and product sales values; Capital and operating costs; siting considerations; and importantly for locating in California - permitting and regulatory issues.
A critical decision early in the process was establishing the size of a prospective plant. As our analysis evolved, we moved from a relatively small plant of about 475 MMSF/year (MMSF = million square feet) to a larger plant with a capacity of about 750 MMSF/year. The larger plant would consume about 550,000 bone dry tons of raw material annually. Our raw material supply analysis found that topwood from ongoing sawtimber harvests, small diameter trees from forest health treatments, and sawmill by-products such as lumber trim ends, slabs, and edgings could supply nearly 2 times the prospective plant’s annual raw material requirement. As mentioned in the introduction, the recent wildfires in California, while unfortunate, and tragic may have created a situation where community and political leaders are ready to fully support a large wood products manufacturing facility that can utilize the fuel that has built up in the region’s forests.
Regarding markets, we modeled a plant that would produce a mix of commodity OSB sheathing and underlayment products. However, there would be considerable upside if the plant were designed to also produce some value-added, specialty products (e.g. custom size panels for export to Asia and panels with overlays like flame resistance or thermal heat shield barriers). At a production volume of 750 MMSF per year we estimate the nearby annual OSB market size is nearly 4 times larger than the capacity of the plant. We also estimate that a Northern California OSB plant would enjoy an average of about a $35/MSF freight cost advantage over other North American OSB producers when shipping product to market. That amount is about 15 percent of the long-term average OSB sales value.
Our research also found that regulatory and permitting issues are notoriously difficult processes in California. One strategy identified for mitigating these issues was to utilize natural gas for the process steam used in the manufacturing OSB. While this approach creates higher operating costs than the more traditional practice of combusting by-products (bark, fines, etc.), it is offset by the ability to operate a competitively scaled plant in California with emissions that are well within allowable levels. We also believe there are opportunities for strategic partnerships that may allow for more flexibility in the navigating the permitting process and allow for utilization of by-products.
We also developed a comprehensive financial model of the prospective plant. Our analysis indicates, that while building a plant is a significant capital investment, the project would have solid financial returns. There is also potential for upside to financial performance through strategic partnerships to reduce operating costs, leveraging incentive programs (tax breaks, low-interest loans, etc.), and diversifying the product mix to include some higher value items.
We would love to hear your thoughts about this article, please comment below. Also, for anyone interested in pursuing this concept as a developer of an OSB plant, please call or email to learn more.
The Beck Group is a forest products planning and consulting firm based in Portland, Oregon. We take a results-oriented, practical approach to helping clients make better decisions and improving their financial and operational performance. We offer a variety of services and we operate throughout North America and overseas. Our blog posts highlight work from recent consulting assignments and feature topics relevant to anyone interested in forest products. We welcome your feedback and comments.