Natural Resources Committee on Feb. 1st, 2018

[Greg Stewart, President, Sinclar Group Forest Products Ltd.]

Thank you for the invitation to testify before the standing committee.

I just want to confirm that I can be heard at this time.

[The Chair, Liberal, James Maloney]

Yes, we can see and hear you. It's all systems go.

[Greg Stewart]

Okay.

My name is Greg Stewart. I'm the president of Sinclar Group Forest Products and all of its related companies. I'm going to start by giving you a background on our company and then I'll discuss the conditions leading to our company's growth, followed by some considerations to promote growth in the value-added sector.

Sinclar Group was starting in 1962 by my grandfather, Bob Stewart, and his partner Ivan Andersen. Over 55 years later, the Stewart and Andersen families are still working together to provide quality wood products to the market. Initially, the company was started as a lumber wholesale office. At the time Sinclar was one of 20 wholesale offices in Prince George, British Columbia. This drove Bob and Ivan to develop strong relationships with both lumber suppliers and customers. Through those strong relations, Bob and Ivan approached the partners in a number of lumber operations in B.C.'s central interior and had the opportunity to acquire Apollo Forest Products, Nechako Lumber, and Lakeland Mills between 1969 and 1972. All of these operations are still operating today and are focused on producing stud lumber primarily for the United States, Japanese, and Canadian markets.

The family also acquired The Pas Lumber, which was later renamed Winton Global Lumber. This was a dimension lumber operation, which unfortunately had to close during the downturn of 2008.

In total, our current lumber operations produce over 550-million board feet of lumber and employ over 400 employees in Fort St. James, Vanderhoof, and Prince George.

While our company remains primarily focused on the primary lumber industry, one of our driving principles for our business has been to maximize the value of the forest resource that we handle. In 1985, Sinclar, through its Lakeland operation, became one of the first companies to deploy an energy system to capture the heating value of wood fibre. Previously lumber was dried by natural-gas-heated kilns. Through our conversion to woody biomass, it is estimated that the Lakeland operation reduced its greenhouse gas emissions by 90%. Shortly after the implementation, the other Sinclar operations were then converted.

In Vanderhoof, our Nechako operation was producing a lot of shavings and sawdust. To capture those residuals, the company identified that wood pellets would be viable. In 1997, we opened Premium Pellet. At the time, with a capacity of 180,000 metric tonnes of wood pellets, Premium was the largest pellet plant and was one of three companies leading the North American wood pellet industry. The other two B.C. companies were Pinnacle and Pacific BioEnergy. Today Premium employs 22 employees, purchases the residuals from regional mills, and ships 90% of its product to Europe. Currently the product is being used by utility companies to generate electricity, but in the past we've also supplied European companies to provide heat for homes. Aggressive European policies aimed at reducing greenhouse gas emissions have played a big role in enabling the export of Premium pellets.

Remaining focused on the energy applications of the industry's woody biomass residues, Lakeland has supported the University of Northern British Columbia's Nexterra gasification system by providing hog fuel, which is essentially bark and other wood residuals from our operations.

In 2011, Lakeland partnered with the City of Prince George to further capitalize on the waste heat generated from our energy system. Through the system, Lakeland heats glycol, which is pumped to a heat exchanger where it heats water for the City of Prince George. That water is then pumped to 11 buildings in downtown Prince George, including the courthouse, city hall, the Four Seasons pool, and the Wood Innovation and Design Centre, providing heat for all those buildings.

Going back to the mid-1980s, our company acquired Winton Homes, which was formerly known as Spruce Capital Homes. Winton Homes produces structural building components, including roof trusses, panelized walls, and floor trusses. These components are supplied to contractors within a 400-kilometre radius of Prince George. The contractors use the products for home construction, but we've also helped design and supply hotels, apartments, office buildings, hospital buildings, and restaurants. Just last month Winton supplied our Winton-wall passive panel to the Wood Innovation and Design Centre lab to help it achieve its passive house standard.

Winton also supplies structural home kits to first nations, do-it-yourself homebuilders, remote builders, and under-manned contractors. For these customers, we amalgamate all the products required to get the home to a locked-up status. Winton Homes during the peak production season employs up to 70 people.

Sinclar has also had success in the finger-jointed lumber market. Until recently, our Apollo operation had a joint venture with the Nak'azdli Band. Tl'oh Forest Products, founded in 1995, was a viable operation for over 20 years, primarily producing high-quality finger-jointed lumber. The operation produced 25 million board feet annually, and approximately 90% of its 50 employees were first nation.

Sinclar has been driven by a sense of responsibility to extract the full value of the fibre resource it processes; however, our willingness to try new approaches and produce new products has been supported by the communities and the strong relationships we've been able to build over our 55-year history.

Underlying each of these business ventures were strong economic fundamentals allowing us to invest. There was either market access or demand to facilitate product flow or there was initial abundance of resource materials to supply the venture. In each of the value-added businesses, their addition to our operations strengthened the company. They relied on the raw material our products supplied from the primary lumber industry. As the businesses have grown, they now rely on supply from other primary manufacturers in the region. I believe our value-added operations are playing a role in making the overall sector stronger.

While there are great additive effects the value-added industry can have on the existing primary manufacturers, the initial launch of these ventures depended heavily on three factors: market access and demand, resource availability, and government regulation. For example, the decision to build a pellet plant hinged largely on government regulation. First, regulation to eliminate beehive burners, which were used extensively in the industry, meant the sawmills had to address the hog, sawdust, and shavings from the operations. At the same time, we saw European countries enact legislation to displace coal for their heating needs. Europe was looking for an alternate fuel source that was able to provide stable baseloads while reducing the environmental impact.

At Tl'oh, the finger-jointed business was started because of the glut of trim ends being produced in the local mills. Through our primary lumber business, we were familiar with the markets, allowing us to sell all the finger-jointed materials through our existing distribution channels. However, the business has been adversely affected by government regulation. The punitive softwood lumber duties limited our ability to access the U.S. market.

I'm optimistic and excited about the potential for Canadian wood products. The primary forest industry has driven this sector's growth and infrastructure development. There are new and emerging uses for our value-added wood products, allowing the country to realize additional GDP per each cubic metre of harvested fibre.

Wood products, provided they are sourced or harvested from sustainably managed forests, are environmentally viable alternatives for energy production in construction. The sector is geographically diverse, employing Canadians from coast to coast. As the world grapples with how to reduce greenhouse gas emissions, wood products provide a naturally occurring renewable resource that has the ability to store and consume carbon dioxide. The ability to realize this potential today will depend on the factors mentioned above: market access, resource availability, and government regulation.

Market access is front of mind for many value-added operations due to the United States-imposed duties on the Canadian wood product sector. While I do not believe a negotiated settlement is imminent in the next few years, it is important that the country prepare for the eventual discussions. It is my understanding that quota was discussed as a potential resolution to the trade dispute. While the country scrambles to define what a quota system would look like in the short time available, I would recommend that the Canadian government and the ministry of natural resources continue to develop a potential quota system by working with the Canadian industry. Domestically, I strongly encourage the continued and possible expansion of support for the Canadian Wood Council and the Wood WORKS! program.

The use of wood products in construction projects beyond single-family homes requires further development. Architects, engineers, fire officials, building officials, developers, and contractors influence the decisions to build with wood. It is important that each of these influencers is familiar with the benefits of wood and how to build with wood. However, each of these groups has very different focuses, and the woodworks team has proven adept at being able to address these individual influencers.

Resource availability today, while important, is largely a provincial government issue. With respect to government regulation, there are two areas where I feel there is opportunity to influence the use of value-added wood products.

First, the building code requires buildings built with wood to have a 25% frontage. This requirement will limit when wood buildings can be used. I have been told it will also change the economics of proposed developments. This will have a significant negative impact on structural value-added wood products. Second, to address greenhouse gas emissions from power generation plants, I recommend studying the potential of coal fire in these facilities with wood pellets or other biomass products. As I mentioned earlier, Europe has been focused on this for a couple of decades, and as we've recently seen, Japanese legislation is also encouraging the adoption of wood pellets.

I see tremendous opportunity in the value-added wood market in Canada. I thank you again for allowing me to speak to you today.

[The Chair, Liberal, James Maloney]

Thanks, Mr. Stewart.

Now, Mr. Tan, you're going to start us off with some questions.

[Geng Tan, Liberal, Don Valley North, ON]

Thank you, Chair; and thank you, gentlemen, for being here today as witnesses.

My first question is for Mr. Minhas. Your product is very interesting. It is made from natural, renewable material and has great strength, and I assume that it will have wide application in the future.

Is your product still at the lab scale or industrial pilot scale, or is it already commercially available?

[Gurminder Minhas]

We had some field trials just last year of large quantities, several hundred kilograms going out to the field for trials. We also had smaller scale trials where, in the plastics example I gave you, we're actually generating several hundred kilogram batches of our material in a compound form. That's going to be made available to injection-moulding companies, automotive manufacturers, for trial of our compounded plastic in their processes.

[Geng Tan, Liberal, Don Valley North, ON]

In your statement you mentioned finance from the government and research at universities. From some short notes I have, not your statement, about your program or your joint venture—

[Gurminder Minhas]

I rarely go on script.

[Geng Tan, Liberal, Don Valley North, ON]

—you mentioned your collaboration with FPInnovations, but you don't mention much about the universities.

Do you really have any strong, direct collaboration with other universities, such as the University of Toronto? I know the University of Toronto's Faculty of Forestry has a long pilot scale or test plan, or whatever, sitting there. Do you have any collaborations with universities and academia?

[Gurminder Minhas]

We do not specifically with the University of Toronto, but we do actually work quite closely with universities. Our laboratories right now are located on the campus of the University of British Columbia. We have working relationships with the Faculty of Forestry at UBC, and the Department of Civil Engineering.

In the example I gave of the concrete, we don't have our own concrete lab. We actually rely on UBC Civil Engineering. We supply them with our material in various forms and they actually do the testing on our behalf.

We've also just started a project with Université Laval, where we are going to be incorporating our fibres as a reinforcing agent in thermoset foams.

[Geng Tan, Liberal, Don Valley North, ON]

In terms of the research or the joint venture program, currently the most popular model is the collaboration between the industrial producers and the research institute, either the industrial research institute or university, and the government partner.

There's another model in which the industrial company just works with another small group of researchers or another industrial company so that they can better protect their technology or patent in the future.

How do you compare these two models, and which is more promising in terms of promoting innovations in the industry?

[Gurminder Minhas]

I think the collaborative model has the most promise, but we actually have a unique model where we're not just collaborating as a company with universities and research organizations, but have brought two forest product companies together to collaborate.

Resolute Forest Products and Mercer International technically are competitors with each other in their general markets. When we created the joint venture, we actually carved out the market. In traditional paper and tissue applications where these two companies or parent companies are competitors, they are interacting, dealing, and developing those markets for cellulosic filaments independently of Performance BioFilaments. Our role is to create new applications and new markets where the current companies and current sector is not focusing. We have two companies that we've brought together, and they fund a separate company, Performance BioFilaments.

We in turn reach out to what I call “centres of excellence”, whether that's a research institution, a private contract lab, or a university, and we know which areas of the market we want to accelerate in. We find those experts, the expertise, equipment, and laboratories, and we actually do collaborative research work with them.

The question of intellectual property does come up and we deal with that on an individual basis. Some universities are very open, in particular if we're providing all the funding, to allowing us complete access to IP. Some are a little more closed with respect to allowing access to IP for research purposes. With each of those, we haven't come across a situation where we weren't able to address IP in a formal contract. We address those on a one-on-one basis, given the project they're undertaking.

[Geng Tan, Liberal, Don Valley North, ON]

A few days ago, we heard from another witness. He said that when launching a high-risk project, the university and government involvement adds external validation. I guess you must agree with this concept then?

[Gurminder Minhas]

External validation is key, yes.

[Geng Tan, Liberal, Don Valley North, ON]

Mr. Stewart, I have a quick question for you.

Also from the notes I see that some of your operations are done by a small, family-run venture. I don't know how big the scale is; it's probably on a smaller scale, compared to other competitors. For your small-scale facilities to survive, you have to be very innovative.

Innovation always costs money at the beginning. How do you compare or maintain your competitiveness with other competitors that have a larger scale or more money for innovation, probably with lower costs. How do you use your money, your capital, wisely?

[Greg Stewart]

Just to be clear, in terms of small-scale versus medium-sized, I would characterize us as more of a medium-sized forest business with a total of 550 employees in all of our operations. There are certainly smaller operations out there, which I think very much deal with the issue you're talking about, namely how one continues to innovate.

Going back to my initial comments, Mr. Tan, one of the areas we focus on is making sure we're that developing strong working relationships with communities, with various participants. The example is the City of Prince George in our renewable district energy system. By having those strong relationships with the City of Prince George and understanding what they were looking for as a solution to some of their heating needs, we were able to talk about and develop the project such that they installed an electrostatic precipitator on our site, and we are providing heat to the city of Prince George through that glycol I mentioned.

We've relied on strong relationships and all of these ventures started in partnership. Over time those partnerships either endured or sometimes people achieved their aspirations, but we look to try to find partners in a lot of the projects we initiate.

[Geng Tan, Liberal, Don Valley North, ON]

Okay.

[The Chair, Liberal, James Maloney]

Thank you.

Mr. Falk.

[Ted Falk, Conservative, Provencher, MB]

Thank you very much, Mr. Chairman.

Mr. Minhas, you talked a little about the polyfibre that you're developing for the concrete industry, and you say you've been conducting some tests already. Has this been accepted or adopted by folks in the industry?

[Gurminder Minhas]

We are still in discussion with industry. One of the reasons I'm back here east from Vancouver is that we just had meetings yesterday with two concrete producers, and we shared results with them from our latest study at UBC. I'll comment from this side as well that the nice thing about working with universities is that we're working with established professionals in centres of excellence, so when we have a professor, who is in essence world-renowned in this area, and who conducts research on our behalf, that credibility and expertise they bring to the table goes a long way.

Just in our call yesterday, the professor we're working with conducted... The call went through...the slides that he did for us. Some of the questions we asked of him were answered very well, so we're well on our way to getting this into field trials.

We do expect that by the end of this year, if not this summer, we will have field trials on a concrete site.

[Ted Falk, Conservative, Provencher, MB]

To ramp up to a commercial-scale production, you don't see that as a problem, or do think there are individuals or organizations that would do that?

[Gurminder Minhas]

Do you mean on a commercial-scale for producing our product, or getting it into concrete sites?

[Ted Falk, Conservative, Provencher, MB]

For producing your product.

[Gurminder Minhas]

Yes, we're developing our commercial plant. We've done the first engineering study, plus or minus 30%. We do expect the full engineering study and the capital costs to definitely be done by the middle of this year. We would build that plant ourselves.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Minhas.

Mr. Stewart, thank you for your testimony. I appreciate very much your providing the committee with that information.

I noticed that you're able to use a lot of biomass in your plant that produces heat for the municipality of Prince George. Are you able to find a market for all of the biomass your different organizations produce?