global methanol outlook: capacity calling

Mark Berggren – Methanol Market Services Asia (MMSA)

16th IMPCA 2013 Asian Methanol Conference

Global Methanol Outlook: Capacity Calling

Prepared forPrepared for

16th IMPCA Asian Methanol ConferenceOctober 30 – November 1, 2013

Singapore

By:Mark Berggren

Methanol Market Services Asia Manhattan House, 151 Chin Swee Road

Level 9‐07, Singapore 169876Phone: +65 6465 2720

E‐mail: [email protected]

Methanol Market Services Asia (MMSA)

Today’s Topics

• The Global Methanol Balance to 2018– Main Drivers – China and Energy Intermediate Use– Regional Balancesg

• Asia ex China• Middle East• Europe• North America• South America • Russia• Africa

• Methanol Use and EconomicsA i A id O i

16th IMPCA 2013 AMC © MMSA Pte Ltd. All Rights Reserved.

– Acetic Acid Overview– MTO, gasoline blending

• Methanol Pricing and Margins



Today’s Takeaway Points

• Methanol markets remain globally connected, driven by Chinese behavior

– Use as an “energy intermediate” supported by “low coal, natural gas, high crude” economics

• MTO, gasoline blends, DME in China todayMTO, gasoline blends, DME in China today• MTG gaining interest• Even power generation shows economic promise

• New markets eventually dwarf current sizes– Impacts everyone in the global industry from hydrocarbon owners to methanol

consumers• Marginal buyer increasingly MTO vs DME• Conventional methanol derivatives will need to absorb cost increases

• Must think differently, critically, and about scale and efficiency– Must locate and persuade “right” hydrocarbon owners to participate

• North American opportunity based on shale gas


pp y g• Coal remains abundant in China• Middle East focusing on downstream integration• Southeast Asia and Africa offer opportunity and challenge

• More capacity to produce needed to foster energy applications• Methanol margins will support investment despite being bounded on

top by energy demand

MMSA – Global Insight, Asian Perspective™

• 10th Year of Operation, based in Singapore– Employee owned, Independent– Dedicated Consultants with over 45 years of

Methanol industry experience– Over 200 Client relationships globally

• Multi-Client Services– Methanol & Derivative Analysis

• Methanol, Formaldehyde, Acetic Acid, MTBE, MMA, Energy Use in global detail

– Methanol Notes™• Topics of relevance in brief, weekly

– MMSA Weekly Methanol Analysis• Global market analysis and price assessment every


• Global market analysis and price assessment every Friday Singapore time

– China Monthly Methanol Analysis (CMMA)• Project Services

– Market and Technical Due Diligence Support– Bankable Project Assessments, Valuation

• IMPCA Asian Methanol Conference



Methanol Supply and Production

• Methanol is almost exclusively made in regions where low cost feedstocks are available

– The result of a strategy to maximize competitiveness and ensure cashThe result of a strategy to maximize competitiveness and ensure cash flow at cycle bottoms

• China developing industry on higher cost, but competitively priced coal feedstocks

– Demand for methanol beyond capability/willingness of international community to supply

– Demand into applications which can bear the cost (energy)

• A mini-renaissance in North America


– Natural gas in abundance– First signs of energy based demand

• Long Term – Need More Projects

China clearly leading global additions to methanol capacity

70,000

80,000

Supply Capacity for Methanol by Region 2008 - 2018E

30,000

40,000

50,000

60,000

70,000

-000

-ton

nes


-

10,000

20,000

2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

Asia North America South America Europe Rest of World Middle East



Chinese need Methanol for Gasoline, Olefins


Methanol Demand

• Demand remains separated geographically from supply centersChi th i li ti d fi ROW• China growth in energy applications dwarfing ROW

• Needs becoming more diverse as scale increases– Integration– Logistics– Specifications

• Long Term – China and India traditional derivatives, China and US energy use have potential


China and US energy use have potential



Asia (China, then India) Remains the Source of Most Growth in Methanol Demand

70,000

80,000

Demand for Methanol 2008 - 2018E

30,000

40,000

50,000

60,000

-000

-ton

nes


0

10,000

20,000

2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

Asia North America South America Europe Rest of World China

MTO, Gasoline blending changing the profile of methanol demand

Methanol Use - WorldBy Derivative

2018E95.59

million metrictons

201260.60

million metric tons


Formaldehyde Acetic Acid Methyl tert-Butyl Ether (MTBE)Methyl Methacrylate Dimethyl terephthalate (DMT) Methanethiol (Methyl Mercaptan) Methylamines Methyl Chloride (Chloromethane) Gasoline Blending & CombustionBiodiesel DME Fuel CellsMethanol-to-Olefins Others



Methanol Trade

• Deep sea methanol trade connects continents, markets– Limits price excursions via arbitrage

• Current market situation exemplifies several prior precedentsCurrent market situation exemplifies, several prior precedents

• Patterns are dynamic– Hindered, unavailable capacity– Iranian sanctions– Protectionism– Investment in downstream applications


MeOH Made in Low Cost Feed Zones

EuropeCanada

Russia

Middle East

ChinaEurope

Egypt

UnitedStates

Trinidad&

VenezuelaEquatorial

Guinea

Libya

SoutheastAsia


Chile NewZealand

Bubble Size Proportional to 2013E Capacity to Produce Methanol



Much meOH demand remains apart from supply

Russia

Europe

Middle East

ChinaUnitedStates

SoutheastAsia

Europe

JapanKorea

India


Bubble Size Proportional to 2013E Methanol Demand

2010, 2011, 2012 Methanol Trade Flow(Bubble Size Proportional to Capacity to Produce Methanol)

381 231,146, 1,133, 925 From

North10 30Canada

1,486, 1,342, 1,436 Russia

56, 104, 163

4,361, 4,644, 4,450

384, 366, 358513,588

635

381, 23,20

1,107, 1,048, 841

7,153, 7,642, 6,692

752, 687, 867

191, 19, 0

NorthAmerica

58, 28, 0

10, 30,60

1,033, 1,389, 1,429

ToNortheast

AsiaFromChile

EquatorialGuinea

Libya

9, 1, 41,047, 1,055, 1,308

ChinaMiddle East

Trinidad&

Venezuela

SoutheastAsia

436, 647Egypt 1,257, 1,470,

1,565


* Americas Supply * Persian Gulf Supply * Other Supply

38, 21, 0

Chile NewZealand



Methanol Supply and Demand

• Markets should be oversupplied on paper, but are tight in practiceE h i h i h t i ti• Each region has unique characteristics


Global Operating Rates: Rising after 2013, “hindered” capacity masks effective run rates

95%

100%

120 000

140,000

Methanol Supply and Demand - World4Q2013 Update

Forecast

70%

75%

80%

85%

90%

40,000

60,000

80,000

100,000

120,000

Thou

sand

Ton

nes


60%

65%

-

20,000

2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

Total Demand ProductionProduction Capacity (Actual) Production Capacity (Effective)Op Rates (Based on Eff Capacity - Right Axis) Op Rates (Based on NP Capacity - Right Axis)



Broad Asia ex China Next Largest and Most Swiftly Growing Region

• Most growth by investment in conventional90%

100%14,000

Methanol Supply and Demand - Asia (Less China)4Q2013 Update

Forecast conventional methanol derivative production

• Upside should certain countries mimic and/or embrace Chinese energy use of methanol

• Region less self sufficient than China due to higher 20%

30%

40%

50%

60%

70%

80%

90%

4,000

6,000

8,000

10,000

12,000

Thou

sand

Ton

nes


overall feedstock cost

• One new facility is anticipated in global balance

0%

10%

-

2,000

2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

Total Demand ProductionProduction Capacity (Actual) Production Capacity (Adjusted)Net Trade Op Rates (Based on Adj Capacity - Right Axis)

Middle East to Remain Export Focused

• Natural gas values prevent

i f90%

100%20,000

Methanol Supply and Demand - Middle East4Q2013 Update

Forecastconstruction of export oriented methanol facilities

• Trend towards downstream integration will continue

• Iranian production will recover eventually, 20%

30%

40%

50%

60%

70%

80%

90%

(5,000)

-

5,000

10,000

15,000

Thou

sand

Ton

nes


yhowever new projects in pipeline face delays0%

10%

(15,000)

(10,000)

2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E




European Demand Increasingly Reliant on Imports

• Most production high cost, supply options eventually90%

100%

9 000

10,000

Methanol Supply and Demand - Europe4Q2013 Update

options eventually lead to low operating rates, further rationalization possible

• Economic problems in southern Europe not expected to derail growth in20%

30%

40%

50%

60%

70%

80%

90%

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Thou

sand

Ton

nes

Forecast


derail growth in other regions, although overall demand growth miniscule

0%

10%

-

1,000

2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E


North America Demand Grows More Slowly than Supply

• Projects in TX, LA to increase US self sufficiency

120%

9 000

10,000

Methanol Supply and Demand - North America4Q2013 Update

• Investment in derivative capacity plus slowly improving economy to drive growth

• South American production to provide checks on US exports of

20%

40%

60%

80%

100%

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Thou

sand

Ton

nes

Forecast


methanol• Domestic

demand, export growth imperative

0%

20%

-

1,000

2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E




South America Supply Growth Stunted

• Chile and Trinidad lead chorus of f d k l90%

100%15,000

Methanol Supply and Demand - South America4Q2013 Update

Forecastfeedstock supply blues

• “You get what you pay for” – cheap gas no more

• Brazil? Perhaps, but likely past 2018

• Future downstream20%

30%

40%

50%

60%

70%

80%

90%

(5,000)

-

5,000

10,000

Thou

sand

Ton

nes


downstream investment limited

0%

10%

(10,000)2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E


Russian Demand Growing Along with Production

• Russian archipelago has all ingredients for90%

100%

6 000

7,000

Methanol Supply and Demand - Russia4Q2013 Update

ingredients for globally competitive wood panel industry, though investment at deliberate pace

• Exports (mostly to Europe) will remain marginal given lower cost structures of Middle East and

20%

30%

40%

50%

60%

70%

80%

90%

(1,000)

-

1,000

2,000

3,000

4,000

5,000

6,000

Thou

sand

Ton

nes

Forecast


Middle East and Africa

• Nat gas at competitive rates imperative for project viability

0%

10%

(3,000)

(2,000)

2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E




African Methanol Production Offers Potential, With Risks

• Resource richness matched by geopolitical90%

100%4,000

Methanol Supply and Demand - Africa4Q2013 Update

Forecast geopolitical instability

• Projects proposed in Sub-Saharan Africa competing with LNG, power generation for resources

– Nigeria, Ghana, Mozambique

• Few plans for20%

30%

40%

50%

60%

70%

80%

90%

(1,000)

-

1,000

2,000

3,000

Thou

sand

Ton

nes


• Few plans for downstream investment0%

10%

(3,000)

(2,000)

2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E


“Energy Intermediate” Role now Commercial Reality

ApplicationCurrent Methanol

Demand Potential*

Methanol Demand

Developing Methanol Markets Summary

(2013E, -000- Tons) (-000- Tons)Alternative Fuels Gasoline Blending & Combustion 9224 40,000 - 50,000 Biodiesel 1218 25,000 - 40,000 Dimethyl Ether (DME) 4734 10,000 - 15,000 Power Generation & Others < 1 40,000 - 60,000

Fuel Cells 7 3,000 - 8,000

Methanol to Olefins 5886** 30 000 40 000


Methanol-to-Olefins 5886 30,000 - 40,000

Methanol-to-Gasoline 200*** 15,000 - 35,000* Rough estimates of peak demand calculated as replacement percentage of existing global demand as a substitute** Five commercial-scale MTO plants are operating in China as of April 2013. Several projects are still in the pipeline*** ExxonMobil MTG plant in China commissioned in 2009



MeOH Remains Competitive vs. Naphtha in Olefins Creation

3000

Ethylene Cash Cost vs. Feed Type Hypothetical Asia, 1.2 tonnes propylene/tonne ethylene

0

500

1000

1500

2000

2500

USD

per metric ton


‐1500

‐1000

‐500

0

Jan‐00

Jul‐0

0

Jan‐01

Jul‐0

1

Jan‐02

Jul‐0

2

Jan‐03

Jul‐0

3

Jan‐04

Jul‐0

4

Jan‐05

Jul‐0

5

Jan‐06

Jul‐0

6

Jan‐07

Jul‐0

7

Jan‐08

Jul‐0

8

Jan‐09

Jul‐0

9

Jan‐10

Jul‐1

0

Jan‐11

Jul‐1

1

Jan‐12

Jul‐1

2

Jan‐13

Jul‐1

3

CC via meOH CC via Naphtha CCmeOH‐CCNaphtha

Methanol Adding Value in Blends with Chinese Gasoline since 2008

9,000

10,000

Methanol Prices vs Methanol Energy and Volume Equivalences: Gasoline Blending

Methanol in Gasoline Blending: Volume-Equivalent Basis

3,000

4,000

5,000

6,000

7,000

8,000

Pric

es (C

NY

/ met

ric to

n)

Methanol in Gasoline Blending: Energy-Equivalent Basis


1,000

2,000

East China Domestic Price South China Domestic Price

Methanol Equivalent Price - Volume Basis Methanol Equivalent Price - Energy Basis



Scale of Consumers Increasing

End User Largest Single Site Annual RequirementAnnual Requirement,

‐000‐mt

MTO 1800

DME 280

Gasoline 300

Acetic Acid 600


Acetic Acid 600

Formaldehyde 75

MTBE 50

MMA 90

Methanol Prices Bounded

• Limited on high side by derivative affordability– DME is the “marginal buyer” of product

• DME economics related to crude via LPG link

– MTO increasingly important• Limited on low side by marginal cost of supply

– Firmly located in China, based on coal feed• Coal economics are less directly related to crude




Coal Prices in China Have Corrected as Supply Scale and Logistics Capabilities Increase

70

80

140

160

Premium Coal vs. Crude Oil (Monthly Prices to Oct'13)

Crude Oil, Brent, USD/bbl

30

40

50

60

70

60

80

100

120

140

USD per M

MBtu

USD

per

ton

or p

er b

bl

Coal, Datong Premium Mix, FOB QHD Port

Crude Oil, Brent, USD/MMBtu

Coal, Datong Premium Mix, FOB QHD Port, USD/MMBtu

Natural Gas, NYMEX-Henry Hub


0

10

20

0

20

40

Jan-

03M

ay-0

3Se

p-03

Jan-

04M

ay-0

4Se

p-04

Jan-

05M

ay-0

5Se

p-05

Jan-

06M

ay-0

6Se

p-06

Jan-

07M

ay-0

7Se

p-07

Jan-

08M

ay-0

8Se

p-08

Jan-

09M

ay-0

9Se

p-09

Jan-

10M

ay-1

0Se

p-10

Jan-

11M

ay-1

1Se

p-11

Jan-

12M

ay-1

2Se

p-12

Jan-

13M

ay-1

3Se

p-13

Broad Spread of Costs in China

$500

MeOH Delivered Cash Cost ‐ Early Sep 2013 Coastal China Main Ports, 2013 Net Available Capacity*

China Adjusted Domestic Prices (Sep'13, Avg East/South China less VAT)

$200

$300

$400

USD

per

met

ric to

n

China Adjusted Import Prices(Sep'13, CFR plus duty, throughput)


$0

$100

0 5000 10000 15000 20000 25000 30000 35000 40000 45000 50000 55000 60000Cumulative Available Capacity*, -000- metric tons

2013E China Demand (Sep'13 Update)



Aggregate cost of delivered product rising, improving natural gas affordability ex China

$250.00

Weighted Average Cash Costs Delivered Coastal China Main Ports, USD per metric ton

$200.00

$210.00

$220.00

$230.00

$240.00


$170.00

$180.00

$190.00

Apr

-09

May

-09

Jun-

09Ju

l-09

Aug

-09

Sep

-09

Oct

-09

Nov

-09

Dec

-09

Jan-

10Fe

b-10

Mar

-10

Apr

-10

May

-10

Jun-

10Ju

l-10

Aug

-10

Se p

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11Fe

b-11

Mar

-11

Apr

-11

May

-11

Jun-

11Ju

l-11

Au g

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12Fe

b-12

Mar

-12

Apr

-12

May

-12

Jun-

12Ju

l-12

Aug

-12

DME affordability has large influence on China, global methanol prices

1400

1600

Methanol Volume vs. Value - ChinaMid to Late September '13

A P i f E t Chi E T k

400

600

800

1000

1200

Met

hano

l "Af

ford

abili

ty,"

USD

/MT MTBE

Methylamines

Average Price for East China, Ex-Tank,Average August '13; 1 USD = 6.12 CNY

Chloro-methane

Gasoline Blending

(equal energy)

Average Price for East China, Ex-Tank,Average Septembert '13; 1 USD = 6.12 CNY


0

200

0 6000 12000 18000 24000

M

Cumulative Consumption of MeOH in China, 2013E (June '13 Update),-000- tons, Select

AAFormaldehyde MMA

DME



Global Methanol Prices to Support Investment Projects in China, Elsewhere

500

600Global Methanol Pricing

Forecast

100

200

300

400

US Dollars per metric ton


02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

Delivered Cost Parity Imports to China

Methanol China Spot, Avg. CFR China Main Ports USD/metric ton

Methanol US Posted Contract Index, Avg Realized Price FOB USGC USD/metric ton

Methanol West Europe Contract (T2), Avg Realized Price FOB Rotterdam USD/metric ton

$40

$45

D Billions

Methanol Value Creation from 1997

17th Consecutive Year of Value Creation

$15

$20

$25

$30

$35USD

Gain


$0

$5

$10

Cumulative Estimate ‐ China Cumulative Estimate ‐Middle East

Gain Pain



MMSA Balances to 2030 – Projects Needed


Today’s Takeaway Points

• Methanol markets remain globally connected, driven by Chinese behavior

– Use as an “energy intermediate” supported by “low coal, natural gas, high crude” economics

• MTO, gasoline blends, DME in China todayMTO, gasoline blends, DME in China today• MTG gaining interest• Even power generation shows economic promise

• New markets eventually dwarf current sizes– Impacts everyone in the global industry from hydrocarbon owners to methanol

consumers• Marginal buyer increasingly MTO vs DME• Conventional methanol derivatives will need to absorb cost increases

• Must think differently, critically, and about scale and efficiency– Must locate and persuade “right” hydrocarbon owners to participate

• North American opportunity based on shale gas


pp y g• Coal remains abundant in China• Middle East focusing on downstream integration• Southeast Asia and Africa offer opportunity and challenge

• More capacity to produce needed to foster energy applications• Methanol margins will support investment despite being bounded on

top by energy demand

global methanol outlook: capacity calling

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