Driving Global Methanol Marine & Land Transportation

Developments

Dom LaVigne, Director of Public & Government Affairs –Asia Pacific/Middle East, Methanol Institute, Singapore

HKJB / HKIMT / HKIE MMNCHong Kong, November 16, 2015

SINGAPORE

WASHINGTON

BRUSSELS

BEIJING

Overview

About MI

Marine Fuels

Methanol in Land Transport Applications

What is Methanol?

About MI

Marine Fuels

Methanol in Land Transport Applications

What is Methanol?

About MI

• World’s leading methanol producers

• Distributors

• Technology companies

MEMBERS INCLUDE:

• Government advocacy

• Market development

• Product stewardship

PROVIDES MARKET SUPPORT:

2015 Members

Strategic Partnerships• American Chemistry Council (ACC)• Fuels Institute• Consumer Energy Alliance• Asian Clean Fuels Association (ACFA)• China Nitrogen Fertilizer Industry

Association (CNFIA)• Chinese Association of Alcohol &

Clean Ether Fuels & Automobiles (CAAEFA)

• Peking University Center for New Global Energy Strategy Studies

• Global Petrochemicals and Chemicals Association (GPCA)

• International DME Association (IDA)• International Methanol Producers &

Consumers Association (IMPCA)• European Chemical Industry Council (CEFIC)• Formacare• German Regenerative Methanol Network

About MI

Marine Fuels

Methanol in Land Transport Applications

What is Methanol?

Polygeneration

Natural Gas

Coal

Synthesis Gas

Methanol

Methanol

Gasoline

Fuels DME

Chemicals Formaldehyde

Acetic Acid

Olefins

Chemicals

MTBE

Fuels

CO2

Biomass Ethanol

Physical Properties of Methanol

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• Name: Methanol• Chemical Family: Aliphatic Alcohol• Synonyms: Carbinol; Methyl

Alcohol; Wood Alcohol; Wood Spirits

• Formula: CH3OH• CAS #: 67-56-1• Form: Colorless Liquid• pH: 7.2• Solubility: 100%

• Odor: Faintly sweet alcohol

• Boiling Point: 148o

• Freezing Point: -144o

• LEL/UEL: 6% and 36% by volume in air

• Vapor Density: 1.11 (@60o)

• Vapor Pressure: 1.86 psia (@68o)

• Density: 6.63 lb per gallon

• Flammable

Methanol’s Benefits

1. Safe• Methanol biodegrades quickly• Soluble in water• Can be washed off with soap/water• Harder to ignite than petrol, burns with

1/8 the heat

2. Economical• Economically competitive, non-subsidized• Produced from variety of feedstocks• Complex infrastructure, handling not needed

3. Proven• 70 MMT worldwide demand forecasted for 2016• 470,000 vehicles in China using methanol fuel• Stena Germanica, Methanex new-build tankers

Methanol Basics:

Chemical Applications

Source: Methanex

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

Chemical MTBE/TAME Fuel DME MTO/MTP (Merchant)

Strong Global Demand Growth

Source: IHS Chemical 2014 Update – April 2014. Excludes integrated methanol demand for methanol to olefins and propylene12

(000s tonnes)

2003 – 2013 CAGR:Energy: 10.8% Total: 6.0%

2013 – 2017 CAGR:Energy: 12.7% Total: 8.1%

Methanol is a Global Energy Resource

Out of the ~64 million metric tons (80 billion liters) of methanol sold globally in 2014, energy and fuel uses represent ~40% of total demand.

• MTBE• TAME• Low blends• High blends• Biodiesel• DME• MTG/MTO• Diesel blends• Fuel cells

From 2009-2014, direct methanol fuel blending has increased at an annual rate of nearly 23%.

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Where is Methanol Produced?

• China accounts for 50% of the world’s methanol production and consumption.

• Methanol production markets include: Azerbaijan, Brunei, China, Equatorial Guinea, Iran, Kingdom of Saudi Arabia, Malaysia, New Zealand, Oman, Russia, Trinidad & Tobago, United States, Uzbekistan

• Significant new US capacity in the coming years

About MI

Marine Fuels

Methanol in Land Transport Applications

What is Methanol?

Three “Driving” Forces Behind Methanol Fuels

Public Policy

Fuel Demand

METHANOL

Methanol Supply

Public Policy

Global Trends Set the Scene

• Environment (air quality, emissions, sustainability)• Economy (trade balance, job creation, taxation)• Energy (renewable, independence, security)

Methanol Supply

Fuel Demand

• US capacity investments • Impact of Iran trade embargo• Development of renewable methanol• Mega vs mini facilities

• Diesel: Gasoline imbalance• Shift toward low carbon alternatives (EV, H2, LNG)• Consumer awareness• Price developments

Commercial Gasoline Blending & Trial Programs Globally

Courtesy: Methanex

Transportation Fuel Applications

DIMETHYL ETHER (EITHER DME OR BIODME)

BIODIESEL

• Blended with gasoline (M3 – M100)

• 8 million metric ton annual demand

• BioMethanol is 2nd Generation biofuel

• 4.7 million ton methanol demand (6 billion liters)• Can be used neat or blended with propane for cooking/heating

applications• Low-carbon, no-sulfur, diesel replacement

• Key ingredient in esterfication• 1.3 million ton methanol demand (1.6 billion liters)• Renewable methanol can make ultra-clean biodiesel

DIRECT FUELING

Gasoline Blend Options

M3 – M15• EU allows M3 (EN228)

UK and NL blending

• China uses M15 7MMT blended)

~75% of cars built by international firms

• Trials in Australia, Israel

M20 – M30• US automakers: higher

octane to facilitate greater engine efficiency

(higher compression, turbocharging, downsizing)

• Fit with ethanol industry drive towardE20 in Europe

M51-100• ASTM D5797 standard

revision

• M100 dedicatedvehicles (e.g. Geely)

• Use of SI technologies in light and heavy duty vehicles

• US$100 incremental costs to modify vehicles

Energy & Chemical ApplicationsMTBE

METHANOL-TO-OLEFINS

METHANOL-TO-GASOLINE

• Extensive world markets remain for MTBE

• 7 MMT methanol demand used in MTBE production

• Up to 15% MTBE content allowed in EU, compliance with Renewable Energy Directive with BioMTBE attractive

• A 600,000 tonnes/year MTO project requires 1.8m tonnes/year of methanol

• 6 million ton methanol demand (7.6 billion liters)

• ExxonMobil and Haldor Topsoe offer MTG technology producing sulfur-free Octane drop in gasoline

• Better yields than Fischer-Tropsch fuels at lower costs

Low-Level Gasoline Additive

• In 2014, China used ~7 MMT of methanol in existing vehicle fleets (i.e., M15)

• Cars built by international automakers running on M15; domestic automakers supply less than 25% of vehicles sold in China

• Anecdotal use of M3 and lower blends in Europe

Mid-Level Mixed Alcohol High Octane Fuels

• Methanol and ethanol have high blending octane (anti-knocking)

• Increasing octane from alcohols allowsautomakers to use:

• Higher compression ratio engines

• Greater turbocharging• More direct fuel injection• Engine downsizing

Driving the Economics

• Methanol = 50% energy content of petrol• Ethanol = 66% energy content of petrol

• Fuel Market Blend Values (Road Octane Number/RON):

• Methanol: 129-134• Ethanol: 120-135• MTBE: 117-121• ETBE: 119• Toluene: 112-115• Xylene: 111-114• Alkylate: 92-96

• Methanol does not require subsidies

Global Methanol Fuel DevelopmentsAustralian Methanol Fuel Blending Background

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GEM Cars

• Tri-flex-fuel vehicles (GEM cars)

• Ethanol is a good co-solvent for methanolfuel blends.

• Minimal cost changes to existing enginesfor higher MEOH fuel blends(HK$775/US$100 per vehicle)

GEM Blends in Australia

• Limited oil in Australia – heavy dependence on imported fuels

• Abundance of natural gas

• Methanol exempted from excise duties for 10 years

• Coogee Energy:GEM 8 targeted to be commercially introduced soonGEM 15/56 in coming years

ISRAEL Methanol Fuel Developments

• Energy security: Reduce oil consumption 60% by 2025

• Large offshore natural gas finds

• Pilot program by Dor Chemical / Israeli government

• Initial focus M15; next stage M56 in FFVs

• Goal: Introduce commercial methanol fuel blends soon

Expected penetration rate for alternative fuels in Israel (source: Fuel Choices initiative, Prime Ministers Office, Israel)

Provincial Standards Fueling Methanol Demand Growth in China

Province Local methanol gasoline standards

Implementedsince

Gansu M15 & M30 2009

Guizhou M15 2010

Hebei M15 & M30 2010

Heilongjiang M15 2005

Jiangsu M45 2009

Lianoning M15 2006

Ningxia M15 & M30 2014

Shaanxi M15 & M25 2004

Shandong M15 2012

Shanghai M100 2013

Shanxi M5, M15, M85 & M100 2008

Sichuan M10 2004

Xinjiang M15 & M30 2007

Zhejiang M15, M30 & M50 2009

Drivers: (1) emissions reduction, (2) energy security, (3) economics

Geely to Produce M100-Dedicated Vehicles

• Geely recommends methanol: safety, economics, and environmental

• Geely research on MEOH fuels since 2005, 27 patents

• 2014: Geely intends to produce 200,000 M100 cars annually (Jinzhong City)

China Methanol Fuel Status

M15 truck loading in Shaanxi province

• China adopted national standards for M85 and M100 issued in 2009.

• M85 MIIT Pilot Program launched in 2012, successful expansion in 2014

• 470,000 vehicles converted to methanol fuel, mostly taxis.

China Policy Challenges

• Methanol represents 7-8% of China’s fuel pool, but largely unacknowledged.

• M15 draft national standard pending for several years

• Methanol not considered a “New Energy” vehicle = reduced central government support and tax incentives

• Greater methanol branding needed

Level 1

EU Policy Drivers

• Fuel Quality Directive

EN 228 allows for 3% methanol fuels with stabilizer

MI technical liaison statuswith EU fuel standards committee.

FQD calls for 6% reductions in GHG intensity of fuels traded in the EU by 2020.

• Renewable Energy Directive

Renewable energy to represent10% of the energy used in transport by 2020.

May 2014 limit first generationbiofuels to 7%, with 0.5% non-binding goal for advancedbiofuels.

Jan 2015 ‘second reading’ for 6% cap in Parliament, with 374 amendments

US Methanol Resurgence

• Shale Gas Revolution

• Estimates that US methanol production could reach 14 million tons by 2018

• New methanol production: billions of dollars invested, thousands of permanent and construction jobs

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About MI

Marine Fuels

Methanol in Land Transport Applications

What is Methanol?

Marine Fuels Overview

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• Bunker fuel – usually made from diesel has been historically used in the shipping industry.

• Global marine fuel market size: 372 MM TPA for HFO/MGO

Marine Fuels Overview

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• 100,000+ ocean-going commercial vessels, primarily operating on HFO

• Sulfur emissions from five container ships = 11,000 TPA: great than emissions from all gasoline vehicles in the US

• Latest container ship can emit pollution = 50 million cars• 15 largest ships globally emit NOx+SOx = 760 million cars

Heavy Fuel Oil: 3.5% sulphur Methanol: No SulphurRoad Diesel: 0.0015% sulphurMarine Gas Oil: 0.1% sulphur

Images source: Methanex

SOx and NOx Regulations Driving Markets

• IMO regulations transforming the shipping industry.

• ECAs: 1.0% to 0.1% -- Jan. 1, 2015

• Global: 3.5% to 0.5% -- 2020/2025

• Existing and new vessels

• HK & China / Pearl River Delta?

• Majority of HK air pollution from marine emissions (SOx)

• 60% of HK SOx emissions occur during berthing

Limited Compliance Options

• For SOx reduction ships can burn low sulfur marine gas oil (MGO) with significant cost premium.

• Or use selective catalytic reduction Or exhaust gas recirculation.

• With NOx reductions, low sulfur fuels not sufficient.

• Shipboard technologies must be deployed, either SCR/EGR or dual-fuel with diesel/LNG or diesel/methanol.

Benefits of Methanol as a Marine Fuel

• SOx, NOx, Particulates (Clean Air Benefits)• Renewable methanol / low CO2

• Economical• Fuel cost-competitive• Modest incremental vessel cost• Small infrastruture cost (liquid fuel)• Minor modifications (fuel system)• Flex-fuel option

• Proven

Methanol vs. LNGLNG

• 50-60 ships already use LNG as a fuel, while methanol is a cargo.

• LNG industry has head start in promoting the fuel for marine engine use.

• Medium speed LNG duel fuel engines can meet SOx/NOx requirements, but slow speed engines cannot meet NOx, and will need SCR or EGR.

Methanol

• Capital costs for ship conversion 1/5 that of LNG.

• Easily stored/traded at any port

• Does not require complex handling & crew-training

• Infrastructure costs fraction of those for LNG

• Methanol contains no sulfur/SOx emissions, NOx significantly reduced

Methanol Low Cost Option

Methanol Modifications Minor

Sources: Wartsila & Methanex

Methanol Bunker Solution

• Gothenburg: bunker station setup – two methanol fuel transfer pumps (capacity: 200 m3/h each) pump methanol from tanker truck to ship Germanica bunker.

• This “modular” approach can serve several vessels, and grow with demand.

• Cost is €5 million vs. an LNG terminal costing €50 million.

Commericalizing Methanol in Marine Fuels Globally

Source: Methanex

• Engine manufacturers (MAN, Wartsila) developing diesel engines compatible with methanol (flex-fuel)

• Standards and regulations under development

• Stena Germanica launched (March 2015); potential to convert 25 ferries to methanol in Northern Europe

• Methanex (Waterfront Shipping) taking delivery of seven new methanol ships, beginning in 2016

Commericalizing Methanol in Marine Fuels Globally

Source: Methanex

• MethaShip• Ship design for methanol cruise ship and ro-pax

ferry• German government-funded• Meyer Werft (shipyard), FSG (shipbuilder),

Lloyd’s, MAN, Caterpillar, HELM• MI to have advisory role

• LeanShips• European Commission sponsored • Promote more efficient and less polluting ships• Methanol 1 of 8 project streams (MX is a partner)• Target market is smaller-midsized ships for intra-

European waterborne transport, vessels for offshore operations

• Opens ups smaller-size engine market

MI Report: Methanol as a Marine Fuel

• MI commissioned report by FCBI Energy: “Methanol as a Marine Fuel”

• Authored by Prof. Karin Andersson, Chalmers University (Sweden)

• MI to release report / webinar

• Explores drivers for methanol marine fuels, current technology developments, CAPEX and OPEX

Methanol succeeding globally:

• Methanol sourced from many feedstocks; long-term sustainable fuel option

• No technical barriers to using methanol for marine/land transport

• Significant economic & environmental benefits

Conclusions

Thank You!

Dom LaVigneMethanol Institute10 Anson Road#32-10 International PlazaSingapore 079903DID: +65 6325 6302mobile: +65 9835 4092e-mail: dlavigne@methanol.org