Syngas

Projected growth in U.S. methanol production was based in large part on the expectation that domestic natural gas prices would remain significantly lower (on a per-MMBtu basis) than the price of crude oil, and that Asian demand for U.S.-sourced methanol would continue rising at a fast clip. Today both of those assumptions look dicey.  Natural gas prices remain low, but crude prices have languished below $50/Bbl for most of the past two months, and there are worries that China (by far the world’s largest methanol consumer) may be an economic bubble about to burst. Today, we consider recent developments that could slow the long-anticipated growth in natural gas use by U.S. methanol producers.

It seems like everybody and his uncle are planning new methanol production capacity in the U.S. The economics certainly are compelling. Low natural gas prices are attracting methanol projects like a magnet, especially to the Gulf Coast; domestic and foreign demand for methanol is rising; and methanol prices are as high as they’ve been in five years. But companies are always looking for an angle, a competitive edge, a chance to make their project the most cost-efficient—and profitable—of all. Today, in “Cheap Trick: ‘I Want You to Want Me(thanol)’”--we consider Valero Energy’s methanol initiative and its cheap trick: a plan to add 1.6 million to 1.8 million tons per annum (MMtpa) of methanol capacity for an investment of only about $700 million. That’s around half what it would normally cost.