METHANOL STRATEGIC BUSINESS ANALYSIS
The methanol landscape has altered dramatically in the last decade as significant restructuring and price volatility have rocked the industry. Despite this upheaval and uncertainty, growth has continued apace. By the end of 2007, global capacity increased 41 percent over the 2000 total.
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A key driver of this frenetic activity has been the cost of feedstock. High gas costs in the traditional production centres of North America and Western Europe have put producers in these regions under severe pressure. In response, major developments in methanol capacities are being made in the regions with access to low cost natural gas. These regions usually have relatively low local market demand for natural gas. Access to low cost gas and technology allow the construction of plants with very large capacities (5 000 tons per day or more) compared with existing capacities (around 2 000 – 3 000 tons per day). Such large plants can take advantage of economies of scale and produce low cost methanol. The recent surge in capital costs, though, is impacting the methanol industry significantly.
Methanol is a key chemical intermediate and its major derivatives are formaldehyde, methyl tertiary butyl ether (MTBE) and fuels, and acetic acid.
Methanol Demand by End Use
(2007)
The methanol market is in a state of change with some derivatives declining, such as MTBE, whilst some are increasing strongly such as biodiesel. The new large-scale methanol plants and high energy costs have created opportunities for emerging applications, like gasoline blending, DME, Methanol-to-Olefins, Methanol-to-Propylene and fuel cells.
Demand potential into these new outlets will be highly dependent on the cost competitiveness of methanol against traditional alternatives such as LPG. This in turn will be determined by future developments in feedstock prices and the structure of the methanol production base.
These are dynamic and exciting times for the methanol industry that bring with them a wealth of opportunities for existing and prospective players in the methanol market. To succeed in capitalizing on these opportunities, it is crucial to understand the drivers and mechanisms that are shaping the changes in this industry. In particular, the previous global price-setting mechanism is breaking down and a new paradigm pricing mechanism is emerging.
The recent surge in LNG projects, driven by strong demand for gas in the major economies and a prolonged period of high crude oil costs leading to high natural gas costs in the major markets, is leading to a shift in the methanol industry. As more LNG is developed, more infrastructure is put in place, leading to the improved connection of producing regions and markets. The increasing amounts of LNG used to supply natural gas demand in the major markets means that the so-called “stranded-gas” regions are no longer stranded for large reserves (above 3-4 tcf), unless land-locked. Thus the value of the gas in locations such as the Middle East could be represented by the LNG netbacks afforded to competitively supply the major gas markets. Methanol producers then, will have to compete with profitable gas monetization options such as LNG.
Potential Cash Costs of Projected New Methanol Supply
This situation is not only affecting gas prices, but it is favouring the use of alternative feedstocks for methanol production such as coal. New developments on coal gasification technologies are taking place and significant volumes of new coal-based capacity being installed, particularly in China.
After feedstock costs, freight cost is the most important factor affecting the competitiveness of a methanol producer exporting deep-sea. Methanol capacity has migrated to lower cost “stranded gas” locations that are by their nature located a considerable distance from the major consuming markets. The shipping industry is pivotal in providing the link between the expanding production base and the key consuming regions – Asia, Europe and North America, with Asia offering the more dynamic growth. The interaction between the Middle East and Asia will see the establishment of trade “superhighways” offering the most competitive logistics bridge between producing and consuming regions.
New methanol capacity will be needed to meet demand which is expected to increase more than 20 million tons in the next five years. The question now arises over the competitive of this new capacity, and what will be the impact of coal?
Methanol Business Drivers
Nexant’s wealth of experience in the methanol sector, combined with our wider global presence in the upstream oil & gas, refined products, biofuel and petrochemical industries, provides us with a unique overview of all factors influencing the development of the methanol business worldwide. This new program distills the core issues and insights from our accumulated expertise to providing subscribers with a good understanding of not only the fundamental drivers but also likely future strategic direction of the methanol industry. We believe this is an invaluable source of insight and strategic business analysis for executives and managers at all levels of the business.
Nexant’s Unique Blend of Capabilities
This new analysis is presented in ChemSystems’ new Strategic Business Analysis (SBA) program – the first of which addresses key issues facing the methanol industry. A subscription to the Methanol Strategic Business Analysis program provides:
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Strategic trends and challenges facing the industry such as feedstock issues, logistics, capital costs, emerging demand drivers and new pricing mechanisms.
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Business fundamentals comprising market dynamics, profitability and pricing, a technology review including coal gasification and new developments, and delivered cost competitiveness.
If you have any comments on the analysis, please contact Graham Hoar at: ghoar@nexant.com . For details on how to access our detailed Strategic Business Analysis on Methanol please contact chemsystems@nexant.com
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©2009 Nexant, Inc.
