Latvia has increased its own forested area from 44% to 55% in the last 10 years and therefore the crucial position of this renewable source in the energy strategy of the country appears evident. Latvian’s energy supply is based on a balanced mixture of energy sources, in which renewable sources are represented with circa 30% in the final energy consumption for the year 2007. The EU directive fixes the target of 40% share of renewable energy resources in the final consumption in 2020. In the light of a constant need to reduce the GHG emissions, with the consequent increase of use of renewable sources, the environmental sustainability is fundamental for future Latvian energy strategies. Life Cycle Assessment (LCA) is one approach that enables the energy requirements, GHG balance and other environmental impacts of bioenergy production chains to be accounted and accurately compared. Hence, LCA seems to be an appropriate tool to provide information on environmental repercussion for analysis regarding the global wood fuel flow chain. Under impulse of the previous statements the primary objective of the work is a study of the environmental impact of the entire Latvian wood fuel flow chain with focus on the woody biomass for final production of thermal energy. The production of thermal energy from wood pellets focusing on the complication derived from allocation and boundary assumptions will be discussed and presented in the paper. A number of different methods for co-product allocation can be found in the literature ranging from no co-product allocation, allocation by price, energy content, mass, or by substitution with the product they might replace. The choice of different wood flow boundaries could affect the precision and consistency of the analysis. The outcome of the sensitivity analysis is focused on how the use of different methodology for the allocation and boundary definition affects the final result.