A new report on the mountain pine beetle epidemic describes it as one of North America's largest natural environmental disasters that will put an estimated 16 major sawmills out of business in B.C. and lead to long-term lumber shortages in the United States.

Canadian lumber production is not expected to recover for the remainder of the century, one of the report's authors said Thursday.

"We sort of think lumber production has peaked forever, at least relative to our lifetimes and our children's lifetimes," said Russell Taylor, president of the International Wood Markets Group. The Vancouver-based consulting company is one of three firms that prepared the report for lumber industry clients.

Interior sawmills are expected to start running out of good timber within three to five years, according to the report.

Coupled with reductions in the Ontario and Quebec timber supplies, the pine beetle epidemic is expected to reduce Canada's share of the U.S. lumber market by 50 per cent. Lumber prices are expected to soar.

However, lumber volumes in B.C. will never recover to 2005 levels, when a booming U.S. housing industry fuelled expansion in this province, Taylor said. The report forecasts a long-term sawlog supply from the B.C. Interior that's roughly equivalent to the volume harvested in 2009, a year full of market-driven sawmill closures that's widely considered to be the worst year in memory for the forest industry. Lumber production will pick up this year and continue to rise until 2013. But by 2015, it will have peaked, and begin falling again as sawlog-quality pine becomes scarce.

Taylor said the U.S. will face a lumber shortage that sends prices higher, benefiting those mills that survive as well as leading to previously marginal timber supplies, such as those in B.C.'s northwest, becoming economic to log.

The pine beetle is expected to kill a billion cubic metres of B.C. timber. An intense salvage program has been underway for 10 years, but the approaching end of sawlog-quality wood means the industry will be hit by supply curtailments at a time when the demand for lumber is climbing.

"After some expected gains in the lumber markets between 2010 and 2013, the B.C. Interior lumber industry will need to begin reducing production," Taylor said. "This impact on the U.S. market will soon be profound."

Jim Girvan, one of the study authors, said in a news release that sawlog shortages caused by the mountain pine beetle could trigger the permanent closure of about 16 large primary mills in the B.C. Interior by 2018.

While the salvage program has been underway, the economic impact has been forestalled until now. But eroding log quality, poorer conversion economics and shorter shelf life of the dead timber will all result in a much smaller B.C. industry.

Sawmill and plywood plant closures will have "significant and direct consequences expected for rural B.C. communities," the report says.

Quesnel Mayor Mary Sjostrom said Interior communities have been preparing for reduced timber supplies for several years.

"We are in the heart of pine beetle country," she said in an interview. "I think the shelf life of pine beetle wood is going to be significantly less than we expected."

The region has formed a pine beetle action coalition of local governments and stakeholders to develop alternative economic strategies.

"When you are challenged like this, you look for opportunities," Sjostrom said, noting that investments in bioenergy and agriculture are already coming into the region.

Further, the City of Quesnel has reduced its own budget and established a capital fund that will enable it to pay for needed infrastructure improvements as the community's industrial tax base shrinks.

In Prince George, similar strategies are being developed to deal with the economic aftermath of the beetle, specifically in bioenergy, to capitalize on the increased volume of deadwood in the bush. Most of the wood pellets produced in Canada already come from Prince George, said Katherine Scouten, vice-president of economic development at Initiatives Prince George.

At Canfor Corp., which has mills directly impacted by the beetle infestation, spokesman Dave Lefebvre said the company has been focusing on harvesting pine over other species, to ensure it has a supply of green timber in the future.

John Allan, president of the B.C. Council of Forest Industries, said the report's findings are valid, but are based on sawmill economics and fibre supply. A number of factors can extend or shorten the shelf life of beetle-killed timber. The price of lumber could change the shelf life, he said, by making it economic to harvest lower-quality wood.

Allan said the forest industry and provincial government are responding to the crisis by trying to "close the gap" between the projected decline in timber supplies and the industry's current capacity. Increased demand for bioenergy from the province's beetle wood is an example, he said.

"Between the government and the industry I think we can undertake quite a bit to extend the future of the forest industry until we can get some new growth."