Changing Dynamics of the Methanol Industry
The methanol industry has been undergoing a phenomenal transformation of double digit demand growth as new applications have penetrated the market. The scale of a ‘world-scale’ unit has been constantly increasing, but operating rates have been consistently tightening as incremental demand has outstripped incremental supply.
There will however be a reverse to this trend over the next three years to 2020; world scale capacity addition in the United States, Iran, the Caribbean and China will keep pace and exceed demand growth. Demand into olefins grew by seven percent in 2017, and will remain nearer this level. Non-integrated MTO units have been the focus of demand, but the next two years will see more CTO units, where methanol is captively used. Methanol of both MTO and CTO is captured in the capacity and demand in this report, as it is important to capture any outages in the CTO process, or imbalances in when respective units commence production. This can create spot price volatility, as was evident through the end of 2016 and during 2017.
Forecast demand growth of methanol into gasoline is lower than in previous years. Nationwide in China, methanol is estimated to account for less than five percent of the gasoline pool, as there are currently only three regions blending methanol on a commercial scale. A national M15 standard is now not expected in China in the medium term, which revises down the global growth forecast.
Bunker fuel is a hot topic within the methanol industry as the 2020 marine fuel sulphur deadline approaches. However this application faces a challenge to gain a place in the shipping market against compliant fuel oils and alternatives such as LNG. Demonstrations on select shipping routes are in operation, but the application is difficult to forecast.
Coal based methanol has surged in importance in the supply base. New large scale methanol capacities, often integrated into olefins or designed to feed certain olefin units, are reaching 1.8 million tons of methanol per year in China, replacing smaller scale units which are shutting down. By relying on larger methanol units, there will now be increasing demands on the merchant market should a coal to methanol suffer an unexpected outage.
Gas based capacity developments in other regions will alter trade flow dynamics. The United States will become a net exporter in methanol, causing South America to continue to divert exports currently supplying the United States towards China. The Middle East, led by Iran, will also export to China and also to India. The level of these exports will depend on investment into Iran following economic sanctions; over ten methanol projects have been planned, but it is likely that five will be realised over the next 15 years.
Find out more in Nexant's new report:
Market Analytics: Methanol and Derivatives - 2018
Jeremy Belbin, Consultant