Times are tough in the methanol market. Posted and spot prices for methanol have continued falling (to levels not seen since 2010). New methanol capacity, planned during the good ol’ days, has been coming online, further depressing prices. And while more methanol-to-olefins (MTO) plants are starting up in China—the product’s biggest market—they are running at far less than full speed. But one bright spot for U.S. methanol producers is dirt-cheap natural gas, providing U.S. plants a competitive advantage versus those in the rest of the world. Today, we examine recent developments in the methanol market and consider what may be coming next.
We begin with a brief recap of what methanol is, and how it’s produced and used. As we said more than two years ago in Cheap Trick, methanol is a basic chemical feedstock. It looks like clear water (if only we could have worked that into today’s CCR-related blog title!) and it’s produced primarily from natural gas using a steam methane reformer process (though it also can be made from coal and other hydrocarbons). About two-thirds of methanol’s worldwide demand is tied to its traditional use in the petrochemicals market, making formaldehyde, acetic acid and petrochemical intermediates that, in turn, are used to make plastics, synthetic fibers, paints, resins and solvents, among many other things. The balance of the methanol produced annually is used either in MTO plants (most of them in China) that directly convert methanol into ethylene or polyethylene; in methanol-to-propylene (MTP) plants; as a fuel (again, mostly in China); or as a fuel additive. For example, methanol can be blended into gasoline. It also can be used to produce dimethyl ether (DME), an alternative motor fuel and sometimes replacement for propane; methyl-tertiary-butyl ether (MTBE), an octane booster (banned in U.S. markets); or tert-amyl methyl-ether (TAME), a fuel oxygenate.
The chart in Figure 1 shows historical and forecast methanol consumption by demand sector from a recent Methanex Investor Presentation (Methanex is the largest methanol producer). Chemical feedstock use (blue bars) and MTBE/TAME (light gray bars) dominate prior to 2010 but use in fuel (dark grey bars) and DME (purple bars) expanded significantly between 2010 and 2014. Consumption in new MTO plants (and, to a lesser extent, MTP plants; (yellow bars) took off in 2015 and is expected to continue growing through 2019 as more new plants come online in China. Overall methanol demand grew at a 7% compound annual growth rate (CAGR) between 2006 and 2015 and Methanex expects that growth rate to be maintained through the end of 2019 (though that optimism is contingent on a number of factors).