A Review of Aspen / Hardwood Resources in Northeast British Columbia - Northern Rockies ...
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A Review of
Aspen / Hardwood Resources in Northeast
British Columbia
April 2018
Prepared for
[Potential Investors in the Northern Rockies Regional Municipality]
Prepared by:
INDUSTRIAL FORESTRY SERVICE LTD.
1595 Fifth Avenue
Prince George BC
V2L 3L9
250 564 4115
EXECUTIVE SUMMARY
Industrial Forestry Service Ltd. (“IFS”) of British Columbia (“BC”), Canada was retained by
the Northern Rockies Regional Municipality (NRRM) to conduct an analysis and produce
a report describing the aspen / hardwood resources in the Fort Nelson Timber Supply
Area (TSA). This report was expanded to include a description of the forest tenure system
in BC, how access to fibre is acquired, the competitors and potential customers of milling
by-products and incidental softwood logs. The report was also expanded to provide an
assessment of delivered log costs. Each section of the report identifies key conclusions
or facts. These key points are described below:
The Forest Industry in BC
• Access to timber is facilitated through agreements (tenures) with the Provincial
government. There are several forms of tenure that vary with respect to duration
and responsibilities. Each tenure is specific to one management unit, such as a
Timber Supply Area.
• The primary unit of log measurement is the cubic metre. Cubic metre
measurements are adjusted for decay, waste and breakage. The weighted-
average adjustment for deciduous trees in the Fort Nelson Timber Supply Area is
34% (i.e. each cubic metre of standing hardwood timber in a stand is reduced
34%, on average, to derive net merchantable volume).
• The BC Timber Sales program exists province wide and auctions compose
approximately 20% of the Provincial Allowable Annual Cut (AAC).
• Open log markets exist in BC and information regarding volume and price is
provided to government. The average BC interior log price for hardwoods has
ranged from $35 to $40 per cubic metre in the past 10 years.
• The AAC is determined and regulated by government.
• AACs across most of the BC interior are declining.
• Stumpage for deciduous timbers are $0.50 per cubic metre for Grades 1 and 2
(higher quality) and $0.25 per cubic metre for lower quality logs.
Industrial Forestry Service Ltd., Prince George, BC, Canada
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Log Supply and Apportionment
• The AAC for the Fort Nelson TSA has been 1.625 million cubic metres for the past
11 years. A new AAC Determination is overdue, and should be completed in early
2019. There is some downward pressure on the AAC as a result of caribou habitat
concerns. Still, there is also considerable opportunity to increase the AAC if
performance in higher cost stands is proven.
• Two initiatives in development that will reduce the TSAs AAC are a new
Community Forest Agreement (CFA) and a First Nations Woodland Licence. While
collectively these licences would reduce the TSA AAC by 210,000 cubic metres,
this volume would remain within the region and may be available through
negotiation with the licence holders.
• Canadian Forest Products Ltd. (Canfor) is the primary licensee in the region
possessing a Replaceable Forest Licence for 553,000 cubic metres per year and
a Pulpwood Agreement for 610,000 cubic metres per year. The Pulpwood
Agreement expires in December 2019.
• The volume associated with Canfor’s Pulpwood Agreement effectively has no
value, since the Province has indicated that it will not be renewed. Any new
development initiative should engage with senior BC government officials, as they
have considerable flexibility in regard to new licences through the current
accumulated undercut and expiry of the Pulpwood Agreement.
• The BC government agency BC Timber Sales (BCTS) has the ability to auction
approximately 300,000 cubic metres per year of fibre from within their operating
areas. Since there are virtually no forestry operations occurring in the region,
timber auction prices should be very favourable to a new investor.
• Government is in the process of completing a Timber Supply Review (TSR) of the
Fort Nelson TSA. This information will be used by the Provincial Chief Forester
when deciding on the next AAC levels.
Log Processing Industry
• There have been no forest processing operations occurring in the Fort Nelson area
since 2008.
Industrial Forestry Service Ltd., Prince George, BC, Canada
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• There is still an extensive and diverse log processing industry in areas south of
Fort Nelson, the closest of which include a conifer sawmill and an OSB plant 390
kilometres south of Fort Nelson.
• Since 2010, BC Regulations have prohibited burning of sawmill waste by-products
(i.e., sawdust, shavings and bark) in bee-hive burners. Hence the development
and expansion of pellet plants and bioenergy plants throughout the BC interior.
• When logs are harvested and then moved on public roads in BC, they are allocated
a timber mark and subsequently scaled. Scaling determines log volume, grade,
and owner, which is used to determine stumpage.
• For deciduous species, Grade 1 and 2 logs have $0.50 per cubic metre stumpage
applied, Grade 4 and 6 (pulpwood) are set at $0.25 per cubic metre. The majority
(82%) of deciduous logs harvested in the Fort Nelson TSA have been Grade 4.
• In the early 2000’s, 61% of the volume harvested in the TSA was aspen. Spruce
trees were 29%.
• Due to extensive oil and gas activity, the eastern part of the region has an
integrated network of all-season roads. However, soils are generally unfavorable
for road construction (clays and muskeg) and new construction costs are
expensive. As a result, most forestry operations have occurred during winter
months when construction on frozen ground, or across frozen rivers, kept
development costs to a minimum.
Hardwood Resources
• The TSA is 9.9 million hectares in area. Within this area, approximately 5.7 million
hectares is productive forest, and 4 million hectares is the timber harvesting land
base that is supporting the current AAC.
• The current mature merchantable land base from within the Timber Harvesting
Land Base (THLB) contains 248 million cubic metres of fibre. Aspen is estimated
to be 47% of this volume or 116 million cubic metres (net).
• The amount of merchantable volume in pure aspen stands (where the conifer
component is
• The amount of merchantable aspen close to Fort Nelson (< 3-hour cycle time) and
in high volume stands (>300 cubic metres per hectare) is estimated to be 10.7
million cubic metres.
• Additional hardwood volume exists in mixed-wood stands. However, some
commercial outlet for the non-aspen trees would be required.
• Risks to timber supply include Acts of God, land base withdrawals for social,
economic or biologic reasons, First Nation Land Claims and errors with the forest
inventory. Although all of these are difficult to quantify, the risks are somewhat
controlled through activities that the BC government attempts to proactively
manage.
• Natural pests affect about 6% of the area. Wildfires affect about 1% of the total
land base.
• Caribou habitat strategies may cause the availability of fibre to drop by 15 to 20%.
• First Nation land claims are addressed through Treaty 8; a long-standing
agreement between First Nations and the Canadian government.
• The forest inventory in some parts of the TSA is old. This places some uncertainty
around the amount of deciduous-leading area that may have transitioned to
conifer-leading. The level of risk is mitigated in part by the fact that the old inventory
exists in parts of the TSA where forestry operations are forecast to be minimal (i.e.,
the mountains to the west of Fort Nelson).
Delivered Log Costs
• The total cost of log delivery is the sum of administration, planning, road
construction, road maintenance, logging, processing, trucking, silviculture, camp
costs and stumpage. These variables remain relatively constant, but their
attributes will vary from location to location.
• An analysis of delivered log costs in the Fort Nelson TSA suggests that the
weighted-average cost of deciduous logs (across the entire current mature
merchantable land base) would be $50.80 per cubic metre from pure deciduous
stands, and range from $32.33 per cubic metre to $82 per cubic metre.
Industrial Forestry Service Ltd., Prince George, BC, Canada
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• Analysis of the volume in pure deciduous stands having less than or equal to a
delivered log cost of $40 per cubic metre reveals that 15.4 million cubic metres
meets this criterion.
Considerations for Economic Development
• Although access to fibre in the Fort Nelson TSA is relatively straight forward, the
disposal of undesired tree species and sawmill or board plant by-products should
be a consideration.
• The reduction in AACs in central interior BC TSAs will result in increased demand
for conifer sawlogs. Similarly, the closure of sawmills will increase the demand for
sawmill residual by-products.
• Rail rates and truck haul rates from Fort Nelson to markets to the south are quite
high. Much of the profit from the sale of incidental conifer harvesting or pulp chips
would be consumed by the transportation costs.
• Transportation costs currently exceed the value placed on sawmill residues
(sawdust, shavings and hog fuel). Alternative disposal arrangements will need to
be considered.
Summary
• The Fort Nelson TSA has a large, underutilized supply of coniferous and deciduous
fibre.
• Though most of the Allowable Annual Cut has been allocated, flexibility exists
within government to immediately allocate additional volume on a short term basis,
and on a longer term basis within a few years. Access to fibre is also currently
available through the BC Timber Sales program via market auctions.
• The eastern half of the TSA is well-roaded, primarily as a result of oil/gas
development. However, the soils are such that forestry operations are typically
restricted to winter months.
• The current AAC is 1.625 million cubic metres per year. There are over 248 million
cubic metres of mature merchantable volume in the TSA. Approximately 118
million cubic metres (47%) is aspen, on a net volume basis.
Industrial Forestry Service Ltd., Prince George, BC, Canada
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• The BC government adjusts the whole stem volume of deciduous trees by an
average of 34% downwards to arrive at net merchantable volume. The adjustment
of 18% for decay provides opportunities for incremental increases in the total
volume available, depending on the log specifications of the manufactured product.
• The cost to deliver hardwoods to Fort Nelson averages about $50 per cubic metre
when weighted against all of the merchantable stands. However, considerable
volume exists below $45 per cubic metre. This distribution of merchantable volume
in deciduous-leading stands and the estimated delivered log cost is shown in the
Figure below.
18
16
Current Mature Merchantable timber
14
12
(cubic metres)
10
Millions
8
6
4
2
0
$31
$36
$42
$48
$54
$60
$66
$72
$78
$84
$90
Delivered log cost ($/m3)
Pure Deciduous Deciduous Mixedwood
Industrial Forestry Service Ltd., Prince George, BC, Canada
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Contents
EXECUTIVE SUMMARY .................................................................................................................. II
1.0 INTRODUCTION........................................................................................................................ 1
1.1 SCOPE ............................................................................................................................... 2
1.2 QUALIFICATIONS ................................................................................................................. 2
1.3 DATA SOURCES .................................................................................................................. 3
1.4 TERMINOLOGY .................................................................................................................... 4
2.0 THE FOREST INDUSTRY IN BC IN GENERAL .............................................................................. 6
2.1 LAND OWNERSHIP / FOREST MANAGEMENT UNITS ............................................................... 6
2.2 REGULATORY ENVIRONMENT .............................................................................................. 7
2.3 TENURE SYSTEM ................................................................................................................ 7
2.4 THE “OPEN MARKET” - BC TIMBER SALES ........................................................................... 8
2.5 LOG MARKETS.................................................................................................................... 9
2.6 REGULATING THE HARVEST...............................................................................................10
2.7 GOVERNMENT FEES (STUMPAGE) .....................................................................................10
2.8 ALLOWABLE ANNUAL CUTS ...............................................................................................12
2.9 CLARIFICATION OF VOLUME MEASUREMENTS .....................................................................13
2.10 CONCLUSIONS REGARDING THE FOREST INDUSTRY IN BC ..................................................15
3.0 FORT NELSON TSA LOG SUPPLY AND APPORTIONMENT .........................................................15
3.1 THE FORT NELSON TSA - AAC .........................................................................................16
3.2 APPORTIONMENT OF THE FORT NELSON AAC ....................................................................18
3.2.1 BCTS APPORTIONMENT ............................................................................................19
3.2.2 CANFOR’S PULPWOOD AGREEMENT...........................................................................21
3.2.3 RECENT DEVELOPMENTS WITH REGARD TO APPORTIONMENT......................................22
3.3 CONCLUSIONS - LOG SUPPLY AND APPORTIONMENT ..........................................................23
4.0 NORTH-EASTERN BC LOG PROCESSING INDUSTRY ................................................................24
4.1 HISTORIC LOG UTILIZATION ...............................................................................................26
4.2 ROAD NETWORK...............................................................................................................30
4.3 CONCLUSIONS - LOG PROCESSING INDUSTRY ....................................................................32
5.0 FORT NELSON TSA HARDWOOD FOREST RESOURCES ...........................................................33
5.1 PURE VERSUS MIXEDWOOD ..............................................................................................34
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5.2 HARDWOOD AREAS AND VOLUMES ....................................................................................35
5.3 RISKS TO FIBRE SUPPLY ...................................................................................................39
5.3.1 INSECTS, PATHOGENS AND IMPACT ............................................................................39
5.3.2 CARIBOU HABITAT .....................................................................................................41
5.3.3 FIRST NATIONS LAND CLAIMS ....................................................................................42
5.4 FOREST INVENTORY .........................................................................................................42
5.5 CONCLUSIONS - HARDWOOD RESOURCES .........................................................................43
6.0 DELIVERED LOG COSTS ........................................................................................................45
6.1 ADMINISTRATION AND PLANNING .......................................................................................45
6.2 ROAD CONSTRUCTION AND MAINTENANCE.........................................................................45
6.3 LOGGING AND PROCESSING ..............................................................................................46
6.4 TRUCKING ........................................................................................................................46
6.5 SILVICULTURE ..................................................................................................................48
6.6 CAMP COSTS ...................................................................................................................48
6.7 STUMPAGE .......................................................................................................................48
6.8 CALCULATED DELIVERED W OOD COST BY STAND TYPE .....................................................49
6.9 CONCLUSIONS - DELIVERED LOG COST .............................................................................51
7.0 CONSIDERATIONS FOR ECONOMIC DEVELOPMENT ..................................................................52
7.1 CONCLUSIONS - CONSIDERATIONS FOR ECONOMIC DEVELOPMENT .....................................53
8.0 CONCLUSIONS ......................................................................................................................54
List of Figures
Figure 1: BC Interior Deciduous Log Market ................................................................................. 10
Figure 2 BC Interior Historical Harvest and Forecast AAC ........................................................... 13
Figure 3: Fort Nelson, Historic AAC, Species Partition and Potential Future AAC ....................... 18
Figure 4: Log Harvests from within the Fort Nelson TSA .............................................................. 28
Figure 5: Historic Grades Harvested by Species .......................................................................... 29
Figure 6: Species Harvested from within the TSA – 2001 - 2017 ................................................. 30
Figure 7: Species Distribution in the Current Mature Merchantable Land Base ........................... 34
Figure 8: Deciduous Volume by Cycle Time ................................................................................. 37
Figure 9: Fort Nelson TSA – Historic Wildfires .............................................................................. 40
Industrial Forestry Service Ltd., Prince George, BC, Canada
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Figure 10: Delivered Log Cost of Deciduous Leading Stands ...................................................... 50
Figure 11: Delivered Log Cost of Coniferous-Leading Stands ...................................................... 50
List of Tables
Table 1: Access to Crown Timber ................................................................................................... 8
Table 2: Conversion from Whole Stem to Merchantable Volume ................................................. 14
Table 3: Fort Nelson TSA – 2018 Harvest Apportionment ............................................................ 18
Table 4: Regional Fibre Processing Facilities ............................................................................... 26
Table 5: Area and Current Mature Merchantable Volume within the TSA .................................... 33
Table 6: Pure Deciduous – Species, Volumes, and Cycle Time to Fort Nelson ........................... 36
Table 7: Mixed Deciduous - Species, Volumes, and Cycle Time to Fort Nelson .......................... 37
Table 8: Pests and Natural Disturbance Affecting the Fort Nelson TSA in 2015 .......................... 40
Table 9: Fort Nelson, Estimated 2018 Delivered Log Costs ......................................................... 49
Table 10: Transportation Costs ..................................................................................................... 52
List of Maps
Map 1: General Location of the Fort Nelson TSA ........................................................................... 1
Map 2: Fort Nelson TSA .................................................................................................................. 6
Map 3: Location of Fort Nelson TSA and Licensee Operating Areas ........................................... 20
Map 4: Northern Timber Processing Facilities .............................................................................. 27
Map 5: Existing Road Network ...................................................................................................... 31
Map 6: Leading Deciduous Stands and Cycle Time ..................................................................... 38
Map 7: Age of the Original Forest Inventory .................................................................................. 43
Industrial Forestry Service Ltd., Prince George, BC, Canada
x of xiiiA Review of the Aspen / Hardwood Resources
in the Fort Nelson TSA
1.0 Introduction
The following report describes the results of an analysis and review of the forest resources
in BC generally and the hardwood resources in the Fort Nelson Timber Supply Area (TSA)
specifically. The general location of the Fort Nelson TSA is shown in Map 1. The report
was prepared by Industrial Forestry Service Ltd. (IFS) for the Northern Rockies Regional
Municipality. Its intention is to provide information for potential forest industry investors
into the region on the opportunities, challenges and costs associated with log processing
generally and with specific focus directed towards the utilization of hardwood species. To
facilitate understanding of Fort Nelson hardwood fibre, an overview of the BC Forest
industry regulatory structure is provided, along with specific details regarding the
hardwood resource with respect to volumes, costs and availability.
Map 1: General Location of the Fort Nelson TSA
Industrial Forestry Service Ltd., Prince George, BC, Canada
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1.1 Scope
Recognizing that foreign investors may be interested, but are unfamiliar with forestry and
forest resources within BC, the scope of this report includes:
• A general description of the forest industry in BC.
• A review of existing and former forest industry activities specific to northeast BC.
• Statistics regarding the existing hardwood forest resources in NE BC, with specific
attention given to location, area, volume, delivered log costs, and log quality.
• Considerations for economic development
• Analysis of risks
• Our opinions and conclusions.
1.2 Qualifications
The author of this report is a natural resource consulting firm (Industrial Forestry Service
Ltd.) that was established in Prince George, British Columbia in 1952.1 Employed by a
wide range of clients within the BC Interior, the foresters and technicians at the firm are
responsible for the pre-harvest planning and development of approximately five million
cubic metres of logs per year. The author has extensive experience conducting analyses
of timber supply in forest management units throughout BC, with recent analyses of
biomass fuel supply plans in support of investments in bioenergy production. Specific to
this assessment, the author has outlined all relevant experience:
• Completed three assessments of the forest industry in Fort Nelson and potential
for economic development, prepared between 2010 and 2017 for BC Hydro, to
facilitate future estimates for the demand for incremental electrical power.
• Completed a review of the birch resource for a First Nations client in 2015/2016,
to assess utilization feasibility.
• Completed a review of the birch resource near Fort Nelson in 1995 and again in
2003 for confidential clients.
• Completed a timber supply analysis of the deciduous resources in the Fort Nelson
TSA in 1993 in support of the development of a Chopstick Manufacturing facility.
1 http://www.industrialforestry.ca
Industrial Forestry Service Ltd., Prince George, BC, Canada
2 of 54Review of the Aspen / Hardwood Resources within the Fort Nelson TSA
• Completed a delivered log cost analysis of the forest resources in the Fort Nelson
TSA in 1991 and again in 1998 for the BC Ministry of Forests.
• Completed a 20-year harvest plan of BC Timber Sales operating areas within the
Fort Nelson TSA in 2008, to facilitate forest development planning.
• Completed timber supply analyses of the forest inventory in the Fort Nelson TSA
for government and industry between 2001 and 2010.
• Managed and provided annual updates to software used by the forest industry and
BC Government in Fort Nelson, to determine pre-harvest timber volumes (Cruise
Compilations) and to calculate government stumpage.
• Contracted by government to conduct aerial overview surveys of the Fort Nelson
TSA for forest health, annually between 2011 and 2017.
1.3 Data Sources
To prepare this report we reviewed the following material:
• BC Ministry of Forests, Lands, Natural Resource Operations and Rural
Development (“FLNRORD”) web site and publicly available data. Most of this data
is publically available at https://catalogue.data.gov.bc.ca/dataset/
• Industry publications and data.
• FLNRORD analysis reports specific to the Fort Nelson Region, available at
http://www.for.gov.bc.ca/mof/branches.htm
• Media articles.
• Company web sites and annual reports.
• Industrial Forestry Service Ltd. internal models and reports.
Additional independent work was completed by Industrial Forestry Service Ltd. to clarify
and verify data. This work involved:
1. Creation of a spatially explicit Geographic Information System computer model to
assess forest inventory attributes that currently exist within the Fort Nelson TSA.
2. Utilized FLNRORD reports and additional forest inventory data to program and
spatially recreate the timber harvesting land base for the Fort Nelson TSA.
3. Utilized cycle time information developed by IFS in 1998 at the region compartment
level to facilitate development of a delivered wood cost model to determine the
weighted-average cost to deliver logs to Fort Nelson.
Industrial Forestry Service Ltd., Prince George, BC, Canada
3 of 54Review of the Aspen / Hardwood Resources within the Fort Nelson TSA
4. Reviewed ministerial documents that pertained to the probable future direction of
government policy regarding hardwoods in the Fort Nelson TSA.
1.4 Terminology
The following abbreviations and industry terms are used in the report:
AAC - Allowable Annual Cut – the maximum annual harvest for a TSA set by the Provincial
Chief Forester every 5 to 10 years, after consideration of social (i.e., visual quality and
recreation), economic and biological concerns. In this report AAC is also used in reference
to the annual apportionment of Crown Timber volume in a TSA to the holder of a forest
licence.
BC – British Columbia.
BCTS - British Columbia Timber Sales – a Crown corporation mandated with the sale of
public timber for consumers in order to help establish a market price for the sale of logs to
all tenure holders in a given TSA. Approximately 20% of the BC harvest is auctioned by
BCTS each year.
BC Hydro - British Columbia Hydro and Power Authority (a Crown utility) - the majority of
electricity in BC is generated at hydroelectric dams.
Crown Licence - A legal agreement between the BC Government and an individual or
company to harvest timber on public (Crown) lands.
Cycle Time - The total time required to travel from the mill site to the harvesting site, load
a truck with logs, return to the mill site and unload the logs.
FLNRORD - BC Ministry of Forests, Lands, Natural Resource Operations and Rural
Development – also called the Forest Service, this is the BC Government agency
responsible for forest management.
Hectare - a metric unit of area equal to 2.47 acres.
Hembal - Balsam fir and hemlock tree species commonly found together on the BC Coast
Hog Fuel - a term used to describe tree bark that has been processed through a "hogger",
which grinds the wood into uniform chunks.
IFS - Industrial Forestry Service Ltd., the author of this report.
Km - Kilometre. a metric unit of distance equal to 0.62 miles.
Lumber - The final sawmill product.
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m3 - Cubic metre. A common metric volume measure used to quantify the harvest of logs
in BC. There are 423.7 board feet and 35.3 cubic feet in one cubic metre.
Merchantable Timber - trees of a size suitable for the production of lumber. In BC the AAC
is based upon the harvest of merchantable timber.
MFBM - Thousand foot board measure – industry measurement used to quantify lumber
production.
MPB - Mountain Pine Beetle - an insect that kills lodgepole pine trees, which are a principle
commercial tree species found in the BC interior.
NRFL – Non replaceable forest licence. A short-term licence, typically from 5 to 10 years
that provides a tenure holder with the right to harvest timber, subject to various conditions.
ODT - Oven dry tonne - equal to 1000 kilograms or 2,204 pounds of biomass dried to zero
percent moisture and approximately equal to 2.44m3 of timber.
Province - the Province of British Columbia.
RFL - Replaceable Forest Licence – a long-term perpetually renewable harvesting licence.
Sawmill Residues - Term used to describe Sawdust, Shavings, Chips, Trim Blocks and
Hog Fuel that are co-produced during the production of lumber from sawlogs.
SPF - Spruce, pine, fir - a term applied to lumber that is produced in Western Canada and
typically used for house construction.
Stem - The bole of a tree.
Stumpage - Revenue collected by the provincial government in exchange for a prescribed
amount of Crown timber that is “on the stump”. Stumpage does not include harvesting or
delivery costs.
TSA - or Timber Supply Area, a geographic administrative boundary (typically 1 million to
10 million hectares in size) and used to derive AACs and allocate Crown licences.
TSL - Timber Sale Licence - A timber licence issued under auction by BCTS.
Note regarding use of measurement: The most common units of volume measure used
throughout this report are cubic metre (m3) and oven dry tonne (ODT). Cubic metre is used
in BC to define the volume of standing timber that a company can harvest. ODT is used
in BC to define the weight of sawmill residuals such as Sawdust, Shavings, Chips and
Hog fuel.
Industrial Forestry Service Ltd., Prince George, BC, Canada
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2.0 The Forest Industry in BC in General
2.1 Land Ownership / Forest Management Units
Almost 60 million hectares, representing two-thirds of the land base in BC, is forested.
Most of this land (i.e., 94%) is publicly owned, which means that the lands are held by the
Government in the name of the monarch and are called Crown Lands. The Crown
transfers specific rights to tenure holders to use Crown forest land and its resources
through various tenure arrangements. The form, extent and duration of these rights and
attendant management responsibilities vary with each tenure agreement.
Timber tenure agreements prescribe how, and to whom, rights to timber will be awarded
and the related price(s) and responsibilities.
The Province of BC is divided into many distinct geographic units for forest management
purposes. All forest licences are tied to a geographic area. The largest of these
management units is a Timber Supply Area (TSA). There are 37 TSAs distributed
throughout BC. The Fort Nelson TSA is the northeastern most TSA within the Province.
Map 2 depicts some of the topography and location of communities within the Fort Nelson
TSA.
Map 2: Fort Nelson TSA
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2.2 Regulatory Environment
The right to harvest and extract wood from Crown Land in the Province of British Columbia
requires a timber tenure from the BC Ministry of Forests, Lands, Natural Resource
Operations and Rural Development (FLNRORD). Specific to Fort Nelson, a district office
is serviced by a small staff of government officials. The activities related to forests in BC
are controlled through several statutes and many regulations. Principle among these are:
(i) the BC Forest Act, which primarily describes the forest licence/tenure conditions and
general provisions associated with licences, such as payments, transfers, timber scaling,
cut control and regulations; and (ii) the Forest and Range Practices Act, which outlines
how all forestry practices are to be conducted on Crown Land in BC.
In 2018, the FLNRORD has a hierarchal structure with Forest Minister Doug Donaldson
currently the elected official leading the Ministry. Tim Sheldan is the senior Deputy Minister
dealing with forest policy. The province is divided into three areas of operation – Northeast,
Omineca and Coast. Karrilyn Vince is the current Regional Executive Director (RED) of
the Forest Service in the Northeast. Reporting to each of the RED’s are district managers
with staff responsible for the daily operations of the forest service. The Provincial Chief
Forester, Diane Nicolls, reports to the Deputy Minister providing guidance and direction
on forest stewardship and determining the level of harvest within each timber supply area.
2.3 Tenure System
Timber tenures can take the form of an agreement, a licence or a permit. Each is a legally
binding contract that provides the holder with specific rights to use the public forest over
a specified time period in exchange for meeting various government objectives (including
forest management) and payment of fees (including stumpage). There are over a dozen
different kinds of tenure, each having different terms, restrictions and contractual
obligations. The six primary timber tenures relevant to the Fort Nelson TSA are described
in Table 1.
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Table 1: Access to Crown Timber
Revenue to
Licences Rights Duration Responsibility
the Crown1
Grants the right to harvest
part of an AAC within a 20 years,
Replaceable Forest Protection, Forest
TSA. Typically must
replaced Stumpage, Stewardship Plan, operational
Forest Licence coordinate harvest with
other licensees also every 5 to 10 annual rent planning, road building,
(RFL) reforestation.
having volume rights years
within the same TSA
Grants the right to harvest
Non- part of an AAC within a
Up to 20 Stumpage, Forest Protection, Forest
TSA. Typically must
Replaceable bonus offer, Stewardship Plan, operational
coordinate harvest with years, not
Forest Licence other licensees also
bonus bid, planning, road building,
replaced annual rent reforestation.
(NRFL) having volume rights
within the same TSA
Grants a conditional right Up to 25 Operational planning,
to harvest “pulp quality
Pulpwood years BUT no Stumpage, obligation to maintain a timber
timber” where other
Agreement sources are insufficient or longer being annual rent processing facility,
issued reforestation
uneconomic.
Grants the right to harvest
a volume of timber from a Stumpage,
Timber Sale specified area within a bonus offer,
Up to 4 years Forest Protection
Licence (TSL) TSA. Issued only by BCTS bonus bid,
(government) under annual rent
auction.
Greater than
25 and less Forest Protection, Forest
Community Grants the exclusive right Stewardship Plan, road
than 99 yrs; Stumpage,
Forest to harvest an AAC within a building, strategic and
specified area replaced annual rent
operational planning, forest
Agreement
every 10 inventories, reforestation
years
Greater than
25 and less Forest Protection, Forest
First Nations Grants the exclusive right Stewardship Plan, road
than 99 yrs; Stumpage,
Woodland to harvest an AAC within a building, strategic and
specified area replaced annual rent
operational planning,
Licence
every 10 inventories, reforestation
years
Note: 1. A Bonus Offer is a lump sum amount, in addition to the total amount of stumpage that is tendered to acquire the
right to harvest Crown Timber under a TSL or NRFL. A Bonus Bid is a cubic metre amount that is tendered and is payable
upon the harvest of merchantable timber under the licence.
2.4 The “Open Market” - BC Timber Sales
BC Timber Sales (BCTS) is a division of the BC government that is mandated to provide
cost and price benchmarks for timber harvested from public land in BC. They accomplish
this through public auctions of Timber Sale Licences (TSLs) to the highest bidder after
performing the required administrative and pre-harvest planning. BCTS manages
approximately 20% of the provincial Crown Allowable Annual Cut that is distributed in
operating areas throughout the province. Each of these operating areas were selected
based on having characteristics that were representative of the larger Timber Supply Area
(TSA) within which they exist.
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The TSLs range between 10,000 and 200,000 cubic metres. The buyer of a TSL pays a
bid fee and earns the short-term (4 year) right to access this timber at the buyers
convenience.
2.5 Log Markets
The occurrence of private woodlots, Crown woodlots, community forests, First Nations
woodland licences, various forms of licence-to-cut tenures and BCTS means that a
substantial amount of the volume of logs harvested across BC is sold to sawmills and
pulp mills through arms-length transactions. The BC government requires that all
sawmills, pulp mills, plywood plants, OSB plants, pellet plants, and specialty mill log
purchasers report all arm’s length log purchase transactions for logs originating in the BC
Interior for consumption within the BC Interior. An “arm’s length transaction” is defined as
a sale involving two parties who are independent of each other. The purchase price is in
dollars per cubic metre (including stumpage, bonus and penalties) in Canadian dollars
FOB mill. This information must be submitted monthly. In the Interior, where private lands
and woodlots are relatively minor compared to the harvest by BCTS, most of the log
market purchases would have in fact been BCTS TSLs that a market logger bid on with
the intent to sell the logs to a log processing facility.
The government produces both Interior and Coastal log market reports on a monthly and
three-month basis. The reports detail volume (in cubic metres) by product (e.g. sawlog,
peelers, pulpwood) by tree species group (e.g. deciduous, SPF, hembal etc), and average
price ($/m3) for each product and species group.
The 3-month change in the historic price of deciduous logs sold and delivered in the BC
interior is shown in Figure 1. As can be seen in Figure 1, many periods have no data. To
ensure that individual company confidential information is not disclosed, the government
restricts publishing data when less than 3-companies report.
Also seen in Figure 1, the average price of deciduous logs for the past 10 years has been
between $35 and $40 per cubic metre.
The author speculates that the majority of these third-party transactions would have
occurred between private land owners and Louisiana Pacific in the Dawson Creek and
Fort St. John Timber Supply Areas.
Industrial Forestry Service Ltd., Prince George, BC, Canada
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Figure 1: BC Interior Deciduous Log Market
300000 50
Weighted-Average Selling Price ($/m3)
3-month Volume Sold (cubic metres)
45
250000
40
35
200000
30
150000 25
20
100000
15
10
50000
5
0 0
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Date
3-month volume $/cubic metre
Source: BC Interior Log Market Reports, www2.gov.bc.ca
2.6 Regulating the Harvest
British Columbia carefully regulates the amount of timber that may be harvested each
year. The amount of timber that can be harvested in a specified area of land is known as
the Allowable Annual Cut (AAC). Each TSA has a designated AAC that is determined by
the Provincial Chief Forester. After the AAC is determined, the Minister of Forests
apportions the volume to licensees operating within a TSA, such that the sum of the
apportioned volume does not exceed the AAC for that TSA. On an annual basis, a licensee
can exceed their annual apportionment subject to the terms of the Cut Control Regulation.
Typically, cut-control is measured over a 5-year period and a licensee’s cumulative
harvest should be within 10% of their 5-year apportionment, otherwise over-cut or
undercut penalties may be applied.
2.7 Government Fees (Stumpage)
Tenure related fees include: (i) annual rent, (ii) stumpage, and (iii) waste assessments.
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Annual Rent
Annual rent is $0.37 per cubic metre of AAC for Forest Licences, and must be paid
annually to the government.
Stumpage
Stumpage is a fee paid by forest licensees to the Provincial government for timber
harvested from Crown Land.
Stumpage rates for deciduous “sawlogs” within BC are fixed at a flat rate of $0.50 per
cubic metre and are payable to government only upon harvesting. Lower grade deciduous
logs are either $0.25 per cubic metre or have no stumpage applied.
Stumpage rates for coniferous species vary depending on the volume of deciduous within
the stand. If the coniferous volume comes from the harvest of stands where the volume is
incidental (i.e., less than 30% of the stand volume is coniferous and greater than 70% is
deciduous) then the conifer stumpage is a tabular rate that is updated periodically. At the
present time (March 2018) this rate is $4.14 per cubic metre of coniferous sawlog
harvested from the Fort Nelson TSA. In a strong competitive market, this rate could climb
to $25 per cubic metre.
Stumpage fees on coniferous sawlogs, where the deciduous volume is less than 70%, is
pre-determined and a reflection of many factors including market value, tree species,
wood quality and harvesting costs. Stumpage rates for conifer logs can range from $0.25
per cubic metre to $80 or more per cubic metre. Within the adjacent southern Fort St John
Timber Supply Area, conifer stumpage rates have varied between $0.25 and $65 in the
past 12 months. The average rate was $4.14 per cubic metre.
Waste Assessments
Waste assessments are payable to government when it is determined that merchantable
Crown timber (whether standing or felled and that is not reserved from cutting) remains
on site upon completion of logging a cut block. The fee is based on the grade and
stumpage value of the timber, had it been delivered at the completion date of primary
logging.
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2.8 Allowable Annual Cuts
The Allowable Annual Cut for each Timber Supply Area is determined by the Province’s
Chief Forester. The determination is made in consideration of: (i) the composition and rate
of growth of the forest, (ii) the short and long term implication to BC of alternative rates of
harvest, (iii) the economic and social objectives of the government, and (iv) abnormal
infestations and major salvage programs.
Many of the TSAs in the BC Interior have had AAC uplifts applied in the early and mid-
2000’s to facilitate the salvage of pine trees that were killed by a massive mountain pine
beetle epidemic. In almost all Interior management units this salvage program is effectively
complete and the AACs in most Interior TSAs are in the process of being reduced.
Figure 2 shows both the historic and forecast AAC for the BC Interior, as well as historic
sawlog utilization and forecast sawlog supply from within the AAC. As can be seen in
Figure 2, the Interior AAC has been declining steadily since 2010. The gold bars,
representing historic log harvests have been significantly below the AAC, in part due to
the recession commencing in 2008, and in part due to sawmills inability to process all of
the available timber resulting from the AAC uplifts. As the AAC continues to decline, the
future AAC will stabilize at about 40 million cubic metres. The green bars reflect the
coniferous sawlog component within the AAC, and the gap between the AAC and the
green bars reflects the availability of sawlogs. By 2028, sawlog availability is forecast to
be about 35 million cubic metres annually. This is below the 2017 utilization of BC Interior
mills, which consumed about 41 million cubic metres of timber in 2017.
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Figure 2 BC Interior Historical Harvest and Forecast AAC
Source: BC Fibre Model
2.9 Clarification of Volume Measurements
In BC, log volumes are typically measured in cubic metres (m3), and weights are in Oven
Dry Tonnes (ODT) or Bone Dry Tonnes (BDT). A cubic metre is 35.3 cubic feet or 423.8
board feet – assuming a straight solid wood conversion and ignoring lumber recovery
factors.
Although AACs are expressed in cubic metres, additional clarity is required since the cubic
metres assigned in an AAC are at a defined “close” utilization level and net of decay waste
and breakage. The close utilization levels of a merchantable tree are typically defined as:
• a 30 centimeter (cm) stump height.
• 17.5 cm or greater diameter out-side of the bark when measured 1.3 metres above
ground (“breast height”) for all species except pine. Pine diameters are typically
12.5 cm or greater at breast height.
• A 10 cm top diameter measured inside the bark.
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• Volume measurements associated with these utilization factors are described in
a program produced by the BC government. Volumes are derived using taper
equations and in consideration of stand basal area, stand height and average
diameter.2
Close utilization typically results in a 6% reduction from the whole stem volume. Additional
volume adjustments are subsequently applied in consideration for log decay, waste and
breakage. These adjustments vary by species, stem diameter, stand age, are based upon
historic measurements taken with a sawlog / lumber production objective in mind. The
volume-weighted average adjustments for decay, waste and breakage for mature aspen
(hardwoods) and mature spruce (softwoods) in the Fort Nelson TSA are shown in Table
2.
Table 2: Conversion from Whole Stem to Merchantable Volume
Weighted-average percent reduction to determine
Volume Measure merchantable volume
Aspen Spruce
Whole Stem 0% 0%
Close Utilization 6% 6%
Decay 18% 3%
Waste 5% 1%
Breakage 5% 1%
Total Adjustment 34% 11%
Understanding these adjustments is relevant to log utilization. Hardwood logs that are
consumed for lumber need to be of higher quality than logs consumed to make OSB
stands. An AAC of 1 million cubic metres of aspen, based on close utilization and volumes
net of decay, waste and breakage, would in fact yield more cubic metres equivalent of
OSB strands, under the assumption that the decay values overstate desired fibre quality.
2 See https://www2.gov.bc.ca/gov/content/industry/forestry/managing-our-forest-resources/forest-
inventory/growth-and-yield-modelling/variable-density-yield-projection-vdyp/growth-relationships-and-model-
components
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In this report, all volumes are reported as close utilization and are net of decay, waste and
breakage.
2.10 Conclusions regarding the Forest Industry in BC
• Access to timber is facilitated through agreements (tenures) with the Provincial
government. There are several forms of tenure that vary with respect to duration
and responsibilities. Each tenure is specific to one management unit, such as a
Timber Supply Area.
• The primary unit of log measurement is cubic metre. Cubic metre measurements
are adjusted for decay, waste and breakage. The weighted-average adjustment
for deciduous trees in the Fort Nelson Timber Supply Area is 34% (i.e. each
cubic metre of standing hardwood timber in a stand is reduced 34%, on average,
to derive net merchantable volume).
• The BC Timber Sales program exists province wide and auctions compose
approximately 20% of the Provincial Allowable Annual Cut.
• Open log markets exist in BC and information regarding volume and price is
provided to government. The average BC interior log price for hardwoods has
ranged from $35 to $40 per cubic metre over the past 10 years
• The AAC is determined and regulated by government.
• AACs across most of the BC interior are declining.
• Stumpage for deciduous timbers are $0.50 per cubic metre and for lower quality
deciduous logs, $0.25 per cubic metre.
3.0 Fort Nelson TSA Log Supply and Apportionment
In BC timber supply areas, log supply is determined by the Provincial Chief Forester
through the determination of an Allowable Annual Cut. This determination is made every
5 to 10 years. Once an AAC is determined, the Forest Minister apportions the AAC.
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3.1 The Fort Nelson TSA - AAC
The Fort Nelson TSA’s AAC, from 1990 to 2017, is shown in Figure 3. Prior to 1995, the
AAC was 1 million cubic metres and contained a partition separating the utilization of
hardwood and softwood species. In 1995, the AAC was increased to 1.5 million cubic
metres with a reduction to the softwood partition and an increase in the hardwood partition.
In 2006, the AAC was increased to 1.625 million cubic metres and the partition was
removed.
The AAC has remained at 1.625 million cubic metres since 2006. As indicated previously,
AACs are due to be reviewed and re-determined every 5 to 10 years. The AAC
determination for the Fort Nelson TSA is overdue. It is the author’s understanding that the
government is currently conducting a timber supply analysis of the Fort Nelson TSA and
anticipates a determination in early 2019.
Figure 3 provides some magnitude of what a potential future AAC for the Fort Nelson TSA
may be. A high and low scenario are depicted in consideration of several factors:
1) In 2006, a timber supply analysis of the TSA suggested that the harvest level could
be increased to 3.1 million cubic metres (much higher than the historic level). The
2006 analysis suggested that a partition of 1.7 million cubic metres for conifer and
1.4 million cubic metres for deciduous species could be maintained indefinitely.
The Chief Forester did not increase the AAC to this level, due primarily to
uncertainty around (i) the extensive future utilization of lower volume deciduous
stands, and (ii) the future utilization of marginally economic stands located in the
western most portions of the TSA.
2) The Fort Nelson TSA, due to its location, lack of pine, and cold winter
temperatures, has not been impacted by the mountain pine beetle epidemic.
Barring the changes to the Fort Nelson TSA boundaries, it is expected that, unlike
many other TSAs in the BC Interior, the AAC for the Fort Nelson TSA should
remain relatively stable.
3) The TSA currently includes “core” caribou habitat areas. It is probable that future
harvesting in these areas will be prohibited. This would reduce the timber
harvesting land base by about 14% and likely have a similar impact on the AAC.
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4) The TSA currently does not have legislated direction regarding Caribou “range
management”. It is expected that harvesting restrictions may reduce the amount
of future harvesting that can occur in these range areas. The author’s professional
opinion is that these harvesting restrictions will constrain the AAC by an additional
12%.
5) The final AAC for the TSA will likely be reduced for the creation of a new community
forest and new First Nations Woodland licences. Combined these reductions
would reduce the TSA’s AAC by approximately 210,000 cubic metres. The areas
supporting this 210,000 cubic metres would be removed from the TSA and
allocated to two new forest management units. However, the wood supply would
still be contained within the region. It would just be apportioned to the community
and local First Nations and they would decide how to utilize the available harvest
volume (i.e. develop their own processing facility, or more likely, sell the volume
into the market).
As can be seen in Figure 3, there is considerable upside and some small downside to
future AAC determinations. Caribou habitat strategy development will reduce the operable
timber harvesting land base, whereas operational performance in high-cost, low-volume
deciduous stands, or high-cost stands located in the far west portion of the TSA have the
potential to significantly increase future AACs.
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Figure 3: Fort Nelson, Historic AAC, Species Partition and Potential Future AAC
3,000,000
2,500,000
Volume (cubic metres)
Post-2018 Potential
2,000,000 Future Fort Nelson TSA
AAC, high and low
1,500,000 scenarios
1,000,000
Tree species partition
500,000 removed after 2006
0
1990 1995 2000 2005 2010 2015 2020 2025 2030
Conifer Partition Deciduous Parititon
Historic AAC Future AAC high scenario
Future AAC low scenario
3.2 Apportionment of the Fort Nelson AAC
Table 3 describes the volume allocated to each licensee operating within the Fort Nelson
TSA in 2018. The current AAC for the Fort Nelson TSA is 1,625,000 cubic metres per
year.
Table 3: Fort Nelson TSA – 2018 Harvest Apportionment
Tenure Type Licensee Total (m3) Percent to Total
Replaceable Forest Licence Canadian Forest 553,716 34%
Forest Licences Non-replaceable Not assigned
Products Ltd 83,000 5%
BC Timber Sales BC Timber Sales 299,668 18%
Pulpwood Agreement Canadian Forest 610,000 38%
Community Forest Agreement Products
Not Ltd
assigned 18,000 1%
Forest Service Reserve Not Assigned 60,616 4%
Total All 1,625,000 100%
Canadian Forest Products Ltd. (Canfor) is the predominant licensee within the Fort Nelson
TSA. Canfor possessed volume-based Replaceable Forest Licence (“RFL”). This
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replaceable (i.e., renewable) form of tenure provides long-term timber security akin to a
perpetual lease. The term of the tenure is guaranteed and the licence will remain in good
standing provided Canfor pays the Crown its annual rent, any calculated stumpage fees
associated with harvesting, and fulfills all of its forest management obligations (e.g.
reforestation treatments).
Canfor also possesses a pulpwood agreement within the Fort Nelson TSA (described
further in Section 3.2.2). This form of tenure is no longer being issued within BC. The
Minister of Forests has indicated that Canfor will lose this tenure when it expires in
December 2019 and it will not be replaced or converted into another type of tenure.
The RFL held by Canfor provides access to 553,716 cubic metres of merchantable timber
each year in the Fort Nelson TSA. Under this licence there is no distinction between
softwood (coniferous) and hardwood (deciduous) utilization. The Pulpwood Agreement
held by Canfor provides access to 610,000 cubic metres per year of deciduous-leading
timber stands within the TSA.
3.2.1 BCTS Apportionment
BCTS has a current apportionment of just under 300,000 cubic metres per year in the Fort
Nelson TSA.
The BCTS operating areas closest to Fort Nelson are represented by the dark green color
in Map 3.
The presence of BCTS operating areas in close proximity to Fort Nelson provides a forest
licensee operating in the TSA with the opportunity to acquire timber supply through the
BCTS auction program.
Industrial Forestry Service Ltd., Prince George, BC, Canada
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