Methanol Resurgence in the US

The US shale gas phenomenon has been talked about much of late and has led to a whole raft of new projects being announced in the region. The majority of such projects are new ethane crackers however a handful will be methane crackers and will be used to convert methane gas into methanol. Perhaps, the most important development in this area was the announcement from Methanex, the world’s largest methanol producer, that it would move not one but two plants from Chile to Louisiana (both with a capacity of 1 million tonnes per year) . This was a clear signal that methanol could once again be produced in the United States. Historically, the US has been a net importer of the chemical, which is a building block in petrochemical production, with around 90% (around 5 million tonnes) imported annually. As a result of cheaply derived methane from shale and announcements from Methanex, OCI and G2X amongst others, methanol production is now expected to increase by 26% by 2020 with capacity expected to rise by 3.48 million tonnes by next year, according to IHS Chemical and the American Oil and Gas Reporter.

The key driver behind this switch is price economics. Due to the abundance of gas it has outpaced demand and as such the price of gas has fallen to a level profitable enough for producers to start new projects and revive moth balled plants. Methanex and Chesapeake Energy announced in January that a ten year supply deal had been signed whereby Chesapeake will supply gas to the new complex at Geismar, Louisiana. The contract has measures included within it that link the price of gas to the price of methanol therefore protecting margins and prices for Methanex and providing a safety blanket from price fluctuations for Chesapeake. Despite this being a relatively new idea, it also shows the willingness of producers to collaborate in the growing downstream market. Indeed, in terms of Specialised Products naturally it means that shipments from Chile and Trinidad could be a thing of the past. However, there is the possibility in the future that the dogma of overcapacity may rear its head, much like in China, and that the US may become an exporter as well. However, should this end up being the status quo it will be in direct competition with the likes of the Middle East where productions costs are somewhat lower. Then again, Chinese demand for methanol is expected to increase to 50 million tonnes by 2016 from 30 million tonnes last year, according to an industry consultant. The point being is that Chinese methanol is manufactured from coal which is much more expensive than its gas derived cousin so reliance on imports might increase. As we move forward and methanol production develops in the US, it is clear that demand for this chemical will only increase due to its multiple uses. Particularly within the alternative fuels market, where along with traditional gasoline blending we are already seeing a handful of ships being developed to burn methanol as bunkers. Another new market is methanol being used as replacement for naphtha in olefins production –China has a whole raft of MTO projects coming online in the future. The main factor we can take away from this, is that the removal of US reliance on imports may create seaborne shift in the short term but the full range of uses for methanol and its derivatives means that in the long term various deep sea movements should continue.

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