Information | Analytics | Expertise

OCTOBER 23, 2014

CAN AMERICAN METHANOL

CAPACITY CONTINUE TO
GROW?
Marc Laughlin, Director: Methanol & Acetone - Americas
+1 281 752 3271
Marc.Laughlin@ihs.com

© 2014 IHS / ALL RIGHTS RESERVED

Overview

• South America

• Capacity and Supply

• Demand and Trade

• North America

• Changing Landscape

• Projects

• Demand and Trade

• Regional Economics & Price

• Conclusion and Questions

South America
South America Capacity Review

South America
Average Annual Capacities (-000- Metric Tons)
Country 2014 2015 2016 2017 2018 2019
Argentina 450 450 450 450 450 450
Brazil 353 353 353 1,074 1,074 1,074
Chile 840 840 840 840 840 840
Trinidad 6,722 6,722 6,722 7,472 7,722 7,722
Venezuela 2,550 2,550 2,550 2,550 2,550 2,550
South America 10,915 10,915 10,915 12,386 12,636 12,636

• Trinidad – natural gas constraints

• Venezuela – economic and social constraints

• Brazil – import duty suspension

• Chilean – plant relocations and natural gas availability

© 2014 IHS
South America Methanol Supply & Demand

Million Metric Tons Operating Rate

16.0 100%
95%
12.0 90%
85%
8.0 80%
75%
4.0 70%
65%
0.0 60%
09 10 11 12 13 14 15 16 17 18 19 24

Production (-3.9/2.9) Total Capacity (-1.9/1.5) Operating Rate

(% AAGR = 09-14/14-24)

© 2014 IHS
South America Methanol Derivative Demand

Million Metric Tons Operating Rate

3.0 100%
2.5 80%
2.0
60%
1.5
40%
1.0
0.5 20%

0.0 0%
09 10 11 12 13 14 15 16 17 18 19 24
Formaldehyde (2.0/3.8) Acetic Acid (0.0/0.0)
MTBE/TAME (-3.1/0.5) Methyl Methacrylate (25.5/8.4)
Biodiesel (21.7/4.4) Dimethyl Ether (0.0/0.0)
Methylamines (0.0/0.0) Solvents (3.5/3.2)
Others/DMT (21.1/2.3) Operating Rate
(% AAGR = 09-14/14-24)

© 2014 IHS
South America Methanol Trade

Million Metric Tons Percentage

10 100%

8 80%

6 60%

4 40%

2 20%

0 0%
09 10 11 12 13 14 15 16 17 18 19 24

Imports Exports Net Exports as % of Total Demand

© 2014 IHS
North America
 Changing Landscape: US Natural Gas

Lower 48 Marketed Gas Production by Type

• Natural gas production from shale
Bcf Per Day
140 gas and tight oil fields has
exceeded 40% of total Lower 48
120
gas production.
100
• Production from unconventional
80 sources will continue to expand
60
rapidly as production from
conventional sources declines.
40
• By the end of the forecast period,
20
gas production from shale gas and
0 tight oil plays will represent over
2000 2005 2010 2015 2020 2025 2030 2035 2040 80% of total gas production.
Other supplies Key shale gas & tight oil plays

Source: EIA, IHS Energy

© 2014 IHS
2008 World Methanol Industry Production Cash Cost

Dollars Per Metric Ton

2008

NAM Avg

WEP Avg
NEA Avg
ISC Avg
SEA Avg
CIS Avg
MDE Avg SAM Avg
AFR Avg

0.0 50.0
Cumulative Production - Million Metric Tons

Price Basis = IHS, Cost Basis = Plant Gate, Operating Rate Basis = IHS Baseline

© 2014 IHS
2014 World Methanol Industry Production Cash Cost

Dollars Per Metric Ton

2014
ISC Avg

NEA Avg
NAM Avg
WEP Avg
SEA Avg
CIS Avg
MDE Avg SAM Avg

AFR Avg

0.0 Cumulative Production - Million Metric Tons 70.0

Price Basis = IHS, Cost Basis = Plant Gate, Operating Rate Basis = IHS Baseline

© 2014 IHS
2018 World Methanol Industry Production Cash Cost

Dollars Per Metric Ton

2018

ISC Avg
NEA Avg
NAM Avg WEP Avg
SEA Avg

SAM Avg
MDE Avg CIS Avg
AFR Avg

0.0 90.0
Cumulative Production - Million Metric Tons

Price Basis = IHS, Cost Basis = Plant Gate, Operating Rate Basis = IHS Baseline

© 2014 IHS
The Shift in North America

Million Metric Tons

28
24
20
16
12
8
4
0
09 10 11 12 13 14 15 16 17 18 19 24
Natural Gas (32.2/24.0) Coal to Methanol (0.7/0.1)
Total Capacity (21.9/23.0)
(% AAGR = 09-14/14-24)

© 2014 IHS
 North American Projects

Average Annual Capacities (-000- Metric Tons)

COMPANY LOCATION FEEDSTOCK 2014 2015 2016 2017 2018 2019 2020
Methanex Medicine Hat, Alta NG ---- ---- ---- 550 1,100 1,100 1,100
Geismar, LA NG ---- 1,000 1,000 1,000 1,000 1,000 1,000
Geismar, LA NG ---- ---- 500 1,000 1,000 1,000 1,000
Celanese Mitsui JV Clear Lake, TX NG ---- ---- 1,300 1,300 1,300 1,300 1,300
OCI Beaumont Beaumont, TX NG ---- ---- ---- 1,750 1,750 1,750 1,750
Pampa Fuels Pampa, TX NG 17 65 65 65 65 65 65
S. Louisiana Methanol Convent, LA NG ---- ---- ---- 930 1,860 1,860 1,860
Total 17 1,065 2,865 6,595 8,075 8,075 8,075

Valero St. Charles, LA NG 1,600 1,600 1,600

Celanese Bishop, TX NG 1,300 1,300 1,300
Northwest Innovation Works Kalama, WA NG 1,800 1,800 1,800
Clatskanie, OR NG 1,800 1,800 1,800
Port of Tacoma, WA NG 1,800 1,800 1,800
Yuhuang Chemical St James Parish, LA NG 1,500 1,500 1,500
St James Parish, LA NG 1,500 1,500 1,500
Fund Connell USA Shoal Point, TX NG 7,200 7,200 7,200
Plaquemines Parish,
Castleton Commodities International NG 1,800 1,800 1,800
LA
Total ---- ---- ---- ---- 20,300 20,300 20,300

TOTAL - North America Projects 17 1,065 2,865 6,595 28,375 28,375 28,375
TOTAL - North America Capacity in
3,127 4,358 6,158 9,888 12,648 15,648 17,648
Supply/Demand Balances
Hypothetical Capacity 3,000 5,000

© 2014 IHS
New Demand?
Methanol-To-Gasoline is not exactly “new”
as it was created by ExxonMobil in the
1970s and was commercially deployed in
the mid 1980s in New Zealand.

• G2X Energy is working to build an MTG unit in Lake Charles,

Louisiana with start up estimated for 2018

• ZeoGas also working on MTG for startup estimated in 2018,

final location to be determined

• Associated methanol units will be 1.4-1.8 million metric tons

per year

• From this they will be able to produce around 12,500 barrels

per day of low benzene, non-sulfur gasoline

• Both will have the ability to sell gasoline or methanol, though

this is not expected to occur
© 2014 IHS
So What Does North American Demand Look Like?

Million Metric Tons Operating Rate

12.0 100%
10.0 90%
8.0 80%
6.0 70%
4.0 60%
2.0 50%
0.0 40%
09 10 11 12 13 14 15 16 17 18 19 24
Formaldehyde (3.3/2.7) Acetic Acid (-1.0/3.8)
MTBE/TAME (3.6/1.1) Methyl Methacrylate (6.5/5.5)
Biodiesel (24.8/2.4) Dimethyl Ether (0.0/1.1)
Methylamines (2.8/0.5) Chloromethanes (-1.3/0.0)
Solvents (12.2/3.1) Others/DMT (2.2/4.0)
Operating Rate
(% AAGR = 09-14/14-24)

© 2014 IHS
A Shift in Trade is Necessary

Million Metric Tons

15.0

12.0

9.0

6.0

3.0

0.0
09 10 11 12 13 14 15 16 17 18 19 24
Imports Exports

© 2014 IHS
Regional Trade, Economics &
Price
 Global Methanol Price Mechanism

West Europe
•ME Price to Europe = China
North America price + Freight differential +
•ME price to North America
duties + handling China
= China price + Freight •W. European producers
marginal cost may force •Global marginal cost
differential + Duties
upward adjustment production block
•Global price setter

South America
•South American producers
price to N. America at a price
to discourage ME imports to
N. America
Middle East
•Global price taker
•Balances exports to regions
for highest netback (NB)
•NB ME China = China price
less freight ME to China
•Incremental cost to deliver
to WE vs. China
•Incremental Cost to deliver
to NA vs. China

The global equilibrium price setting mechanism is driven by Middle East producers seeking the optimum
netback value. Regional adjustments may occur due to transient regional Supply/Demand imbalances.

© 2014 IHS
Global Prices

Dollars Per Metric Ton

600

500

400

300

200

100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

U.S. Contract Net Trans. U.S. Spot

WEP Contract T2 NEA Spot
WEP Spot T2
© 2014 IHS
But What About the Shift in Trade for North America?

Million Metric Tons

15.0

12.0

9.0

6.0

3.0

0.0
09 10 11 12 13 14 15 16 17 18 19 24

Imports Exports

© 2014 IHS
Global Methanol Trade Shift – 2014 South America

4.3 Mt 1.1 Mt

© 2014 IHS
Global Methanol Trade Shift – 2019 South America

1.5 Mt 2 Mt
4.5 Mt

© 2014 IHS
South American Methanol Economics to West Europe Market

Dollars Per Metric Ton Dollars Per MMBtu

700 20
18
600
16
500 14
400 12
10
300 8
200 6
4
100
2
0 0
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023
Margin to WEP Market WEP Spot T-2
SAM plant gate cash cost Natural Gas

© 2014 IHS
South American Methanol Economics to Northeast Asia
Market
Dollars Per Metric Ton Dollars Per MMBtu
700 20
18
600
16
500 14
400 12
10
300 8
200 6
4
100
2
0 0
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023
Margin to NEA Market NEA Spot
SAM plant gate cash cost Natural Gas

© 2014 IHS
Global Methanol Trade Shift – 2019 North America

1.5 Mt 2 Mt
4.5 Mt

© 2014 IHS
Global Methanol Trade Shift – 2019 North America

4+ Mt 1.4 Mt

1.5 Mt 2 Mt
4.5 Mt

© 2014 IHS
New US Price Level

• Existing Price Structure?

• Asia Less Freight?

• Reinvestment Level?

© 2014 IHS
US Methanol Price and Returns at Asia Less Freight

Dollars Per Metric Ton Dollars Per MMBtu

700 20
18
600
16
500 14
400 12
10
300 8
200 6
4
100
2
0 0
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023
US plant gate cash cost Margin
NEA Spot US at Asia less freight
US spot US nat gas
© 2014 IHS
US Methanol Price at 10 Year Investment Economics

Dollars Per Metric Ton Dollars Per MMBtu

700 20
18
600
16
500 14
400 12
10
300 8
200 6
4
100
2
0 0
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023
US plant gate cash cost Margin
NEA Spot US spot price to drive investment
US spot US nat gas
© 2014 IHS
US Methanol Price Boundaries

Dollars Per Metric Ton

700

600

500

400

300

200

100

0
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023

US Spot Price Range NEA Spot US spot price

© 2014 IHS
New Capacity? Northwest Innovations plans to build three
world scale methanol plants on the US
Northwest coast for the express purpose
of feeding MTO units in Dalian, China.
Other export oriented projects announced
in USGC.

© 2014 IHS
What About China MTO? Cash Cost to Polyolefins Compared

Dollars Per Metric Ton

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

China Merchant MTO China Integrated NAM MTO

China Naphtha Cracker
© 2014 IHS
What About China MTO? Cash Cost to Polyolefins Compared

Dollars Per Metric Ton

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

China Merchant MTO China Integrated NAM MTO

China Naphtha Cracker
© 2014 IHS
 Regional Price Comparison
Dollars Per Metric Ton Cents Per Gallon
650 195
600 180
Forecast
550 165
500 150
450 135
400 120
350 105
300 90
250 75
200 60
2009

2011

2013

2015

2019

2021

2023
2007

2017
Rotterdam Spot, T-2 China Spot, CFR WEP T2 Contract
US Spot, Gulf Coast US Contract
© 2014 IHS

© 2014 IHS
Global Implications

Million Metric Tons Operating Rate

200 100%

160 90%

120 80%

80 70%

40 60%

0 50%
09 10 11 12 13 14 15 16 17 18 19 24

Demand (8.6/5.5) Total Capacity (9.2/4.2) Operating Rate

(% AAGR = 09-14/14-24)
© 2014 IHS
Conclusion
Conclusions North and South American combined
methanol derivative demand is growing at
3.2% over the next 5 years, while total
capacity is growing 15.2%

North America will shift to a net export position

and with that will be a shift in the price
structure

Many of the announced projects will struggle

greatly with the finance aspect of building due
to cost escalations and returns

The resulting US price structure will depend

on who builds and where they plan on placing
their tons

Ultimately, the market will find a balance as it

has done time and time again
© 2014 IHS
Questions?