Winds of Change in the Methanol Industry?

It has already been well documented by many industry commentators and indeed this publication that due to the huge amount of investment in methane crackers on the back of the US Shale Gas phenomenon, the US will become self-sufficient in methanol production and will no longer need to rely on imports. Currently the US imports approximately 90% of its methanol (around 5 million tonnes) annually. As a result of cheaply derived methane from shale and the announcements from Methanex, OCI, G2X, Lyondell, Valero, South Louisiana Methanol and most recently NWIW, methanol production is now expected to increase by 26% by 2020 according to IHS Chemical and the American Oil and Gas Reporter.

Global demand for methanol is increasing year on year particularly in China where demand is expected to increase to 50 million tonnes by 2016 from the 30 million tonnes in 2013 according to an industry consultant and so it seems natural that new vessels will have to be built to service this demand as China invests billions into MTO (methanol to olefins) technology. The importance that the Chinese have attached two servicing this methanol demand cannot be clearer than in their current plan to develop to 1.8 million capacity plants on the US west coast through a joint venture vehicle called NWIW. A huge investment which although some way off shows the lengths China will go to. Either way producing methanol within China is currently deemed too expensive due to a lack of infrastructure and currently that the industry is based on CTO (coal to olefins) technology.

Whilst almost all of this is a known quantity it is only recently that the supply side of the methanol market has reacted. It seems obvious now that with the huge capacity due to come online that the US will have a lot of volume available for export and so some sort of fleet expansion of the methanol carrying fleet was bound to happen. In terms of this we have seen three of the major producers enter into long term time charter agreements with owners to build a total of 12 new vessels. These include six 50,000 DWT MRs for Methanex with dual fuel engines, two 50,000 DWT MRs for the Atlantic Methanol Company and four Handy’s for MHTL. This is a clear sign that there is a firm belief amongst producers that current methanol carrier supply will not meet the demand in the future, and with the new volume being comparatively cheaper to produce it would be wasted opportunity not to capitalise and challenge the traditional producing region of the Middle East.

What is less clear is quite whether this new supply will be able to keep pace with demand from China. Could it be that even larger sized vessels are needed on the transpacific route? It is certainly possible but as some producers already know from previous experience the larger the ship the greater the costs and so will it actually be cost effective? All we know for now is that this market is developing fast and the next few years will be exciting for all involved!

SP blog 28 Mar

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