Methanol is a simple molecule, trading almost exclusively on a single product specification. It is a liquid, relatively simple and cheap to transport

Transcription

1 This presentation looks at the importance of the fast-growing MTO (methanol-to-olefins) segment in driving methanol demand growth over the next few years. It analyses the different downstream product slate of the existing MTO facilities, and assesses the historical affordability of methanol into MTO and three other key derivatives in China. It highlights two applications which have the potential to be game-changers in terms of radically reshaping methanol demand. It examines the growth of shale-gas inspired capacity in the US, which is rapidly becoming a methanol production powerhouse again. The region is forecast to become a net exporter of methanol in late This has significant implications for tradeflows out of both North and South America. China s fast-growing methanol demand, especially into MTO, will result in ever-larger volumes of methanol imports into the country. It also examines the permanent lifting of the Iranian sanctions and the short-term and long-term implications for the methanol market. Finally, it forecasts the other locations where new methanol capacity is likely to come onstream in the next 10 years. It briefly looks at a production trend that flies in the face of established industry wisdom namely the growth of small-scale methanol units, some utilising waste streams or bio-based feedstocks, serving very local markets. Finally, it analyses historical regional prices, explaining some of the unusual differentials, and forecasts the evolution of these prices in a world of suspended international sanctions on Iran, a significant import requirement from China, and a renaissance in North American methanol production turning it from a net importer to a net exporter in late

2 With almost 1 in 5 tons of methanol being consumed into MTO by 2021, olefins and polyolefins demand is becoming increasingly important for the methanol industry. The affordability of methanol into MTO has historically dictated the ceiling price of methanol in China and the world, but has also shown that at times of challenged MTO economics, it can influence the methanol floor price. Conversely, with MTO units in the fourth quartile of the ethylene and propylene cost curves, the fastgrowing MTO capacity in China has the ability to influence the ethylene and propylene floor price in China. 2

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4 Methanol is a simple molecule, trading almost exclusively on a single product specification. It is a liquid, relatively simple and cheap to transport inter-regionally. It is mainly manufactured from natural gas and coal, but can be produced from a variety of carbon sources including coking gas, refinery waste streams, petroleum coke and biomass. 4

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6 In 2010, methanol demand was dominated by traditional derivatives and fuels applications. Traditional derivatives include formaldehyde, acetic acid, methyl methacrylate (MMA), methylamines, chloromethanes as well as various solvent applications. Fuels uses include the direct blending into gasoline, biodiesel, MTBE and DME. (Fuels applications are shown in different shades of blue to make the contrast clear). Other uses for methanol include methanol-to-gasoline (MTG), de-icer, natural gas processing, wastewater treatment, screenwash and cleaning chemicals applications. Note that MTO does not feature as an end-use for methanol in 2010, as the first MTO unit in China did not start up until late

7 11 years later, by 2021, although formaldehyde is still the largest single end-use for methanol, almost 1 in 5 tons of methanol globally are now forecast to be consumed into MTO. The percentage share of other methanol-consuming applications has decreased as a result. It is worth emphasising that when we refer to MTO, we are talking about the facilities that consume merchant methanol, NOT the integrated coal to methanol to olefins facilities that we call CTO, where methanol is purely an intermediate step in the process and very little if no product emerges onto the market for reasons of product quality and lack of methanol logistics. 7

8 This graph shows methanol demand from 2011 through to 2026, divided into the three main groups: traditional chemical intermediates, energy products and olefins. Traditional derivatives products such as formaldehyde, acetic acid and MMA are growing at levels at or below GDP. Fuel uses for methanol DME, direct blending of methanol into gasoline, biodiesel and MTBE are growing at levels slightly higher than GDP, although growth levels will be dependent upon crude oil prices. MTO refers only to those units purchasing methanol as a feedstock, as opposed to the integrated CTO facilities which go from coal through methanol to olefins as part of an integrated process. CTO units are of a very similar size to MTO units. CTO capacity is currently very similar to MTO capacity, but is forecast to grow at a much faster rate than MTO capacity from 2017 onwards. The first MTO unit came onstream in late 2011 in China; there are now 10 units in operation, with a capacity to consume methanol of around 9 million metric tons p.a. In December 2016 alone, two MTO units started up, with a combined capacity to consume methanol of over 5 million metric tons p.a. Between January 2017 and the end of 2020, a further 6 units are forecast to start up, adding another 8.8 million metric tons of capacity to consume methanol. It is this dramatic growth rate in MTO which is driving global methanol demand growth over the next few years. 8

9 The increase in global methanol operating rates, , is mainly down to the growth in MTO demand. Average global operating rates in the timeframe are 5% higher than those in the previous 5 years. We track operating rates as a percentage of both nameplate and effective capacity as there is a significant portion of methanol capacity globally which is not capable of running at 100%: - Natural gas restrictions in Saudi Arabia, Trinidad, Chile - Seasonal natural gas restrictions in China, Egypt - Coking gas capacity in China, which depends primarily on steel manufacture for feedstock availability - Ammonia/methanol swing plants in China 9

10 The purple bars show the capacity of MTO units to consume methanol. The numbers above the bars show the number of major MTO facilities operating in China. (This does not include the smaller MTP units, which are less economic and tend to run at significantly lower rates than the much larger MTO facilities). We are now in the very steep part of the curve, with 2 MTO units having started up in December 2016 including one massive facility with a capacity to consume methanol of 2.3 million metric tons. There is a further MTO unit scheduled to start up in mid-2018; these 3 units together have a capacity to consume methanol of 5.2 million metric tons. By the end of 2013, there were 3 MTO units operating in China: Zhongyuan PC (600 Kta maximum methanol consumption), Fund Energy (1.8 million metric tons) and Nanjing Wison (900 Kta). During the course of 2015, a further 4 new China MTO units came onstream: Shandong Shenda (1.2 million metric tons), Zhejiang New Energy (1.8 million metric tons), Shandong Hengtong (900 Kta) and Shenhua Xiwan (1.8 million metric tons). Between March and December 2016, 3 additional units came onstream, adding another 5.3 million tons of capacity to consume methanol: Fund Energy Changchou (1 million metric tons), Zhongmei Mengda (1.8 million metric tons) and Jiangsu Sailboat (1.8 million metric tons). Between January 2017 and December 2020, a further 3 MTO units are forecast to come onstream, adding another 4.5 million tons of capacity to consume methanol: Jiutai (1.8 million metric tons), 10

11 Connell Chemical (900 Kta) and Tianjin Dagu I (1.8 million metric tons). 10

12 There are currently 10 major MTO facilities operating in China; 3 in Jiangsu province, 2 in Shandong province, 2 in Zhejiang, and one each in the coal-rich provinces of Shaanxi and Inner Mongolia. Those units in East China have tended to purchase a mixture of domestically-produced and imported methanol. All of them are downward-integrated into ethylene, although the ethylene capacities range from 100 to 355 Kta. 11

13 All 10 current MTO units are downward-integrated into propylene, although propylene capacities range from 100 to 400 Kta. 12

14 7 of the 10 MTO units use their propylene feedstock to manufacture polypropylene. 13

15 5 of the 10 MTO units utilise ethylene to produce one or more grades of polyethylene. 14

16 In addition to polyethylene and polypropylene, many MTO facilities manufacture other ethylene and propylene derivatives. Four facilities manufacture ethylene oxide (EO); two produce MEG and two ethylene vinyl acetate (EVA). There are 6 other derivatives produced on MTO facilities. This diverse downstream product slate makes it difficult to make a comprehensive and accurate assessment of methanol affordability into MTO. 15

17 This chart summarises the product portfolio of all 10 major operational MTO units in China. It is relatively simple to analyse methanol affordability into MTO at the monomer level, as all MTO facilities produce ethylene and propylene, with a relatively limited flexibility in terms of the ratio of output between the two products. To go one step further downstream would be to assess affordability down into polyethylene (6 units) and polypropylene (6 units). In addition to these derivatives, however, there are a further 9 products manufactured at MTO facilities utilising ethylene and propylene feedstocks. It is therefore easy to understand why it is a complex task to assess the affordability of methanol into MTO, as this calculation almost needs to be done using separate models for each major MTO facility. 16

18 This cost curve shows the forecast relative cash cost position of all ethylene units in Northeast Asia in 2019, with the majority located in China. The MTO facilities are highlighted in yellow, demonstrating a relatively consistent grouping in the fourth quartile of this cost curve. 17

19 A relatively recent development in methanol demand has been the use of methanol as a marine bunker fuel. This has been driven by low-sulfur emissions regulations; there are many Emission Control Areas (ECAs) in force globally, with 3 new zones in China the Pearl River Delta, Yangtze River Delta and Bohai Bay. The number of these zones is likely to continue increasing. There has been recent legislation from the International Maritime Organisation (IMO) stipulating a very low level of sulfur emissions in various shipping zones around the world. Methanol is zero sulfur and the low-sulfur emission marine legislation means that shipowners have 3 options: 1) Use low-sulfur fuel (but there simply isn t enough) 2) Use scrubbers 3) Use a different fuel e.g. LNG or methanol Methanol has a low energy density so takes up twice the space onboard as conventional marine fuels, meaning it is not suitable for long-haul voyages but instead for short-haul or inland voyages: coastal tankers, ferries, barges, pilot ships etc. Recent developments in this space are: 18

20 The European ferry company Stena has converted the fourth and final engine on the world s second largest roll-on, roll-off passenger ferry, the Stena Germanica: this ferry now has the capability to run exclusively on methanol. It has a methanol demand of c. 25 Kt per annum. If Stena converted its whole ferry fleet, this company alone would have a methanol demand of 1 million tons p.a. Methanex solution: 7 flex-fuel vessels were delivered to Waterfront Shipping in Waterfront Shipping, wholly owned by Methanex, now has 7 flex-fuel vessels in its fleet, capable of operating on gasoil, diesel or methanol. Overall: the size of the marine fuels market and the growth of the ECAs mean that this application has the potential to be a game-changer but in the longer term. 18

21 The perceived wisdom is that methanol can be blended into gasoline at a level of up to 15% before automotive engine parts require modification due to methanol s corrosive nature. This is an area where methanol relies on government support in the form of tax incentives, quotas and mandates. Currently, the only country which uses methanol as a gasoline blendstock in significant volumes is China, where around 7 million tons of methanol go into China s gasoline pool, either legally or illegally. There are provincial specifications for gasoline incorporating methanol as an octane booster, but as yet there is no official national standard. From a perspective of both economics and energy security, it makes sense for countries such as China to replace a portion of its gasoline demand, based on imported oil, with methanol that is largely produced domestically from coal. Several other countries have initiatives to blend methanol into the national gasoline pool, the most recent of which is Israel, which adopted a national M15 (15% methanol) standard in late Methanol is often viewed as a direct rival to ethanol as a gasoline feedstock. In fact, this does not have to be the case: methanol and ethanol can be used as effective co-solvents in gasoline, in socalled GEM fuels (gasoline, ethanol, methanol). As the US becomes a major net exporter of methanol, it may make sense for methanol to be added to the US gasoline pool, although clearly this will require political will and will be opposed by the powerful US corn lobby. 19

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23 In the late 1990 s, North America was a major methanol production region, with the global methanol floor price being set by the cash costs of a North American producer. In the early 2000 s, however, rising US natural gas prices made methanol production cash costs uncompetitive, and most of the regional units were shut down and, in some cases, subsequently transported to other countries such as Azerbaijan. By 2011, there were only 5 relatively small North American methanol units in operation, with a combined capacity of around 1.4 million metric tons. Cheap, abundant shale gas then radically changed the picture, however; there are currently 11 regional methanol facilities in operation, with a nameplate capacity of around 6 million metric tons. By 2026, around 17 methanol plants are forecast, with a regional capacity of almost 14 million metric tons, representing around 9 percent of global nameplate capacity. The majority of these units have natural gas as feedstock, although there is one existing coal-based unit, and one facility planned based on petroleum coke feedstock, subsidised by the US government as it has a carbon capture scheme. 21

24 There have been at least another 15 methanol production sites proposed with a combined capacity of over 32 million metric tons on top of the capacity already shown. However some of these have been cancelled while others appear to be delayed indefinitely. This list is non-exhaustive: there are some other, confidential projects not included. Just because a project appears on this list does not mean it will or will not go ahead. Many of these projects are simply less advanced than those in the definite list. These are NOT included in our methanol Capacity Database but some Hypothetical capacity is included in the supply-demand balances beyond Note the cancellation of the Valero project and also the decision to cancel one of 3 possible locations in the Pacific Northwest for Northwest Innovations. This was ostensibly due to adverse public reaction in this part of the US that is not chemicalsfriendly. 22

25 There is potential for Iranian methanol capacity to rise from the current 5 million metric tons to 10 million metric tons capacity by This would take Iranian capacity from 5% to 10% of global methanol capacity. 2 projects made significant headway: Kaveh, 2.3 million metric tons capacity, start-up The latest published completion rate is over 90%, although work is still required on utility tie-ins. Marjan, 1.65 million metric tons capacity, start-up The latest published completion rate is 84%. The new Trump administration in the US has previously criticised the Joint Comprehensive Plan of Action (JCPOA), the nuclear agreement made with Iran in Policy proposals ranged from dismantling the JCPOA to renegotiating it a more restrictive agreement could hinder Iran s access to foreign goods and technology The Iranian government wants downstream capacity: it has said that it will restrict construction of new methanol projects which have no associated domestic downstream capacity, e.g. acetic acid/formaldehyde/mto units It remains to be seen whether the Trump administration will pursue a harder-line against Iran: there is some concern that if Iran brings on too much methanol capacity too soon with little or no derivative demand growth, they will effectively kill their own industry by depressing prices and margins. 23

26 Where will new methanol capacity be built: 1) US: on the US Gulf Coast and possibly in the Pacific Northwest or Canada too. 2) South America: a new Mitsubishi plant in Trinidad is due to start up after 2019; although there are lingering doubts about ongoing gas availability in Trinidad 3) Russia: various projects are looking to monetize cheap gas 4) Iran a long list of projects but not all will come to fruition and the timetable is likely to be later than many in Iran are stating 5) Africa: longer-term gas monetization into methanol in gas-rich countries such as Mozambique, Nigeria and Tanzania 6) China: new capacity is due onstream but it is likely to be at least partially offset by the closure of older, less efficient units 24

27 An interesting development that flies in the face of bigger and bigger methanol units is the rise in small-scale units: - Using waste or renewable feedstocks - Using very low-cost feedstock e.g. flared gas in the US shale areas - Serving very local markets, so low freight costs 25

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29 36% of methanol is shipped inter-regionally, with a significant portion of methanol capacity in out-ofmarket locations that take advantage of low-cost feedstock. This chart shows snapshots of methanol trade by region in 2016 and A value above the central white line indicates a net exporting region; a value under the central white line indicates a net importing region. The US has historically been a major net importer but switches to being a net exporter sometime during 2019, as more domestic capacity comes onstream, partially displacing imports and then also boosting exports. With a new unit due onstream in Trinidad in 2019, and little regional demand growth, South America becomes a bigger net exporter. It has to look to other export locations than North America, however, as increasing North American capacity will displace some of the existing imports from South America. In Northeast Asia, demand growth in China particularly into MTO outpaces supply growth during this period, resulting in a significant increase in net import demand. 27

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31 IHS Markit develops its methanol price forecast in an iterative, multi-step process. The China coal price is key, as the incremental ton of methanol globally is produced from coal in China. Any methanol price is therefore compared against the return that it would generate for a typical coal-based producer in China. Although methanol it not generally produced from oil or oil derivatives, the oil price has an increasingly close correlation with the methanol price, partly because methanol is consumed into fuels uses such as biodiesel, MTBE and direct methanol blending into gasoline, and partly because MTO is an increasingly important end-use for methanol, with the oil derivative naphtha having a significant influence on ethylene and propylene prices. Oil derivatives such as fuel oil and Northeast Asian gasoline are compared against the forecast methanol price, to check that methanol is neither too cheap nor too expensive versus these energy substitutes otherwise methanol demand as well as pricing will be affected. Another check is to calculate the return generated by a typical methanol plant on the US Gulf coast, using both domestic US prices and China CFR prices. The final check will be to calculate the affordability of methanol into MTO. Currently we estimate this at the monomer level only, into ethylene and propylene. Although MTO units have shown they can run at reasonably high operating rates for short periods, it would not be sustainable to have methanol prices over a concerted period above the level that MTO producers can afford to pay. 29

32 This chart tracks three regional spot prices: the US, Northwest Europe and Northeast Asia from 2010 to 2021, all in US Dollars per metric ton. The reason for the decoupling of the Asian price from the two western prices from mid-2012 is the imposition of the sanctions on Iran, which restricted Iran to selling most of its 3.5 million tons p.a. output into China and India while the US and Northwest Europe were left to supply themselves out of the Atlantic basin. In late 2015, the North American spot price structurally dipped below the NW Europe spot price as two units started up in North America in 4Q 2015: the 1.3 million ton Celanese-Mitsui JV in Clear Lake, and the second 1 million ton unit relocation by Methanex from Chile to Geismar, Louisiana. As more North American capacity comes onstream, the region is forecast to switch from being a major importer to becoming a net exporter of methanol during From this point if not before, it is forecast that the lowest spot price in the world will be the US spot price, with the China price higher to incentivise product to move from the Americas to China to satisfy the full China demand. 30

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