© 2016 IHS

METHANOL

FEBRUARY 2016

Marc Alvarado –Associate Director, 281-752-3271, Marc.Alvarado@ihs.com

© 2016 IHS

AGENDA FEBRUARY 2016

2

• Demand

• MTO

• US

• Supply

• North American projects

• Tradeflows

• Iranian Sanctions

• Pricing and Margins

• Methanol and Crude Oil Current Conditions

Q&A

© 2016 IHS

Methanol Demand

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FEBRUARY 2016

© 2016 IHS

2010 Global Methanol Demand By End-Use

4

Formaldehyde 34%

Acetic Acid 11%

MTBE/TAME 12%

MMA 2%

Gasoline Blending

7%

Biodiesel 4%

DME 9%

Methylamines 4%

Chloromethanes 3%

Solvents 6%

Others 8%

FEBRUARY 2016

© 2016 IHS

2015 Global Methanol Demand By End-Use

5

Formaldehyde 27%

Acetic Acid 9%

MTBE/TAME 8%

MMA 2%

Gasoline Blending

9%

Biodiesel 3%

DME 8%

Methylamines 3%

Chloromethanes 2%

MTO 18%

Solvents 4%

Others 7%

FEBRUARY 2016

© 2016 IHS

Strong Demand Growth into MTO - Existing Plants

MTO/P Company Location Time on stream Max. Methanol

Consumption Methanol Source

Zhongyuan PC Puyang,

Henan

Oct. 2011

600

Long term contract

with plants near by

and merchant market

Fund Energy

(Ningbo)

Ningbo,

Zhejiang

April. 2013

1800

Contract and merchant

market

Nanjing Wison Nanjing,

Jiangsu

Oct. 2013

900

Self supply and

merchant market

Shandong Shenda

(Levima Group)

Tengzhou,

Shandong Dec. 2014 1200

Long term contract

with nearby plants and

merchant market

Zhejiang New

Energy

Jiaxing,

Zhejiang

April. 2015

1800

Contract and merchant

market

Shandong

Hengtong

Tengzhou,

Shangdong July. 2015 900

Long term contract

with nearby plants and

merchant market

Shenhua Xiwan Yuli, Shaanxi Dec. 2015 1800

Long term contract

with nearby plants and

merchant market

Total Max.

methanol demand 9000 Kt

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FEBRUARY 2016

© 2016 IHS

New US Methanol Demand

• Thus far, basically only fully integrated projects that consume methanol:

- ZeoGas – MTG

- EmberClear – MTG

- BASF – GTP

• Only exceptions are:

- Momentive adding 90 Kta of methanol demand in formaldehyde

- Mitsubishi potentially adding 170 Kta of methanol demand in MMA

- Celanese adding 75 Kta of methanol demand in acetic acid

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FEBRUARY 2016

© 2016 IHS

Methanol Supply

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FEBRUARY 2016

© 2016 IHS

Improving Methanol Operating Rates

40%

55%

70%

85%

100%

0

40

80

120

160

10 11 12 13 14 15 16 17 18 19 20

Demand Total Capacity Operating Rate Effective Operating Rate

$/ M

etr

ic T

on

Op

era

tin

g R

ate

Global Methanol Supply Demand

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FEBRUARY 2016

© 2016 IHS

Changed Landscape: US Natural Gas

10

0

20

40

60

80

100

120

140

2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

Associated gas Coalbed methane Conventional Shale Tight sands

US Natural Gas Supply

Bc

f P

er

Da

y

Source: EIA; IHS Energy

• Production from unconventional sources will continue to expand rapidly

• By the end of the forecast period, gas production from shale gas and tight oil plays

will represent over 75% of total gas production

FEBRUARY 2016

© 2016 IHS

2019 World Methanol Industry Production Cash Cost

11

AFR Avg

MDE Avg

NAM Avg

NEA Avg

SAM Avg

SEA Avg

0 20 40 60 80 100

Do

lla

rs P

er

Me

tric

To

n

World Cost Curve: Methanol

(Price Basis = IHS, Cost Basis = Plant Gate,

Operating Rate Basis = IHS Baseline)

Cumulative Production - Million Metric Tons

FEBRUARY 2016

© 2016 IHS

Methanol Tradeflows

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FEBRUARY 2016

© 2016 IHS

Global Methanol Trade Shift – South America

4.3 Mt 1.1 Mt

2014

13

FEBRUARY 2016

© 2016 IHS

Global Methanol Trade Shift – South America

4.3 Mt 1.1 Mt

2014

2015

4.0 Mt

1.8 Mt

14

FEBRUARY 2016

© 2016 IHS

Global Methanol Trade Shift – 2020 North & South America

0.98 Mt

5.0 Mt 1.2 Mt

15

FEBRUARY 2016

© 2016 IHS

Global Methanol Trade Shift – 2020 North & South America

0.98 Mt

5.0 Mt 1.2 Mt

+6.2 Mt 0.65 Mt

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FEBRUARY 2016

© 2016 IHS

An Update on Iranian Sanctions

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FEBRUARY 2016

© 2016 IHS

Iran: Sanctions Update

• Iran and the P5+1 countries reached a historic agreement on 14 July

2015 that curbs Iran's nuclear programme in return for sanctions relief

• The agreement has now effectively passed US Congress

• The US and Iran adopted the nuclear agreement on the official

“Adoption Day”, 18 October 2015

• “Implementation Day” is likely to be between in the first half of 2016, IF

Iran satisfies the IAEA it has fulfilled its nuclear obligations

• However, these are only part of a network of sanctions; earlier US

sanctions will remain in place, as will congressional restrictions on US

companies and their subsidiaries' ability to do business in Iran

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FEBRUARY 2016

© 2016 IHS

Iran: Impact on the Methanol Market

• Short-term:

• Rather than being mainly restricted to China and India, Iran could export to other

markets, maximising its netbacks

• This is likely to have the effect of minimising regional price differentials

• Plant reliability could improve if Iran has better access to items such as spare parts,

catalyst charges etc.

• Current margins are breakeven at best for importing into China at a price of $215 CFR

• Longer-term:

• Iran could add to its current 5m tpa methanol capacity

• Existing projects could be re-invigorated

• New projects, potentially with overseas finance and know-how, could be implemented

• By 2025-2030 Iran’s methanol capacity could grow by more than 10m tpa

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FEBRUARY 2016

© 2016 IHS

Methanol Projects Announced in Iran

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Company Project Capacity in Kta Timeframe

Kaveh Methanol Co New Facility 2,300 Medium Term

Marjan PC New Facility 1,650 Medium Term

Fanavaran PC Expansion 1,650 Long Term

Kharg Expansion 1,400 Long Term

Sabalan PC New Facility 1,650 Long Term

Siraf Energy Invest. New Facility 1,650 Long Term

FEBRUARY 2016

© 2016 IHS

Methanol Pricing and

Margins

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FEBRUARY 2016

© 2016 IHS

US METHANOL PRICING

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The 4Q 2015 US spot methanol price was $269 vs $415 in 4Q of 2014 and that is

approximately $80 lower than we expected six months ago.

Our outlook for 2016 pricing is $263 vs $327 in 2015.

In general the US methanol market came under significant pressure at the end of

2015.

• WHY?

• Planned: new capacity onstream in the US

• Environmental: further falls in the crude oil price

• Unplanned: postponement of some MTO unit start-ups in China

FEBRUARY 2016

© 2016 IHS

Global Methanol Demand Crude Derivatives vs.

Traditional

23

0

20

40

60

80

100

10 11 12 13 14 15 16 17 18 19 20

Traditional derivatives MTO/MTP Fuel

Millio

n M

etr

ic T

on

s

Global Methanol Consumption

FEBRUARY 2016

© 2016 IHS

0

20

40

60

80

100

120

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

WTI Brent

Energy Price Trends

US

Do

lla

rs P

er

Ba

rre

l

The crude oil supply glut is not expected to be absorbed

before late 2016

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FEBRUARY 2016

© 2016 IHS

Methanol vs Crude Oil

25

0

20

40

60

80

100

120

140

0

100

200

300

400

500

600

700

800

2000 2002 2004 2006 2008 2010 2012 2014 2016

Cru

de

Oil

, D

oll

ars

Pe

r B

arr

el

Me

tha

no

l, D

oll

ars

Pe

r M

etr

ic T

on

Crude Oil

Methanol

Methanol vs. Crude Oil Pricing

FEBRUARY 2016

© 2016 IHS

Lower Production Costs and Oversupply are Expected to

Keep Coal Prices Low

26

0

30

60

90

120

10 11 12 13 14 15 16 17 18 19 20

Do

lla

rs p

er

me

tric

to

n

FEBRUARY 2016

© 2016 IHS

Methanol Affordability Into DME

27

0

140

280

420

560

700

0

200

400

600

800

1,000

0 200 400 600 800 1,000

Me

tha

no

l, D

oll

ars

Pe

r M

etr

ic T

on

DM

E, D

oll

ars

Pe

r M

etr

ic T

on

Propane, Dollars Per Metric Ton

DME valued at energy

DME valued at volume

equivalence to propane

2016

NEA Forecast price

range for propane

Equivalent methanol

value based on 1.4

metric tons of methanol

per metric ton of DME

Global Dimethyl Ether Energy Value

FEBRUARY 2016

© 2016 IHS

Methanol Affordability Into Gasoline

28

0

100

200

300

400

500

600

700

800

900

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

Me

tha

no

l P

ric

e, D

oll

ars

Pe

r M

etr

ic T

on

Gasoline Price, Dollars Per Gallon

Equivalent energy

price for methanol

Equivalent

volume price for

methanol. One

gallon methanol

equals one

Forecast price range of

gasoline, 2016

Methanol Values Into Direct Gasoline Blending

FEBRUARY 2016

© 2016 IHS

Methanol Affordability

29

265

2,1

31

2,0

03

1,8

09

385

2,2

38

1,8

84

1,7

75

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

Acetic Acid Formaldehyde DME MTO

RM

B / m

t

December 2015 November 2015

China Spot Methanol December 2015 China Spot Methanol November 2015

Domestic Methanol Spot Affordability: December 2015 vs. November 2015 (based on

spot domestic derivative pricing)

China Spot Methanol:

December '15 - RMB 1767

November '15 - RMB 1885

Descriptor: Price in columns indicates what the maximum price is for methanol based on cash cost and price for each

derivative before consumers operate at a loss

FEBRUARY 2016

© 2016 IHS

Methanol Affordability Into MTO

30

100

200

300

400

500

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15

Breakeven Methanol Price Domestic Spot Methanol

US

D p

er

metr

ic t

on

-100

-50

0

50

100

150

200

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15

Marg

in In

dex

FEBRUARY 2016

© 2016 IHS

How has the low oil price affected methanol demand?

31

DME Gasoline blending

MTO/MTP MTBE

• Profitability poor

• 2015 demand

essentially flat

• Low growth

• But much blending on

a volumetric basis

• Issue of ongoing

profitability: may reduce

operating rates

• Especially for facilities

with no units downstream

of propylene

• Profitability eroded

• But gasoline demand

healthy given low oil

price

• Healthy growth 2014-15

FEBRUARY 2016

© 2016 IHS

Methanol prices 2010 - 2020

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FEBRUARY 2016

100

200

300

400

500

600

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Do

lla

rs P

er

Me

tric

To

n

US Spot, Gulf Coast Rotterdam Spot, T2 China Spot, CFR

Methanol Prices

© 2016 IHS

Conclusions

• Demand growth in 2016-2017 depends heavily on the MTO market:

• New MTO capacity start-up

• MTO Operating rates/profitability

• Prices forecast to recover slightly but stay in a narrow range in 2016-2017

• New North American projects announced but unlikely to come on stream

between now and 2020

• If the Iranian sanctions are permanently suspended:

• Iran will be free to export to countries other than China and this will reduce regional price

differentials

• Iran will progress its methanol projects and potentially develop new projects

33

FEBRUARY 2016

© 2016 IHS

Q & A

34

FEBRUARY 2016