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Methanol
– energy carrier and feedstock for olefins
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The
global methanol market has seen significant change in recent times. New uses
have emerged for the commodity chemical, even as usage in long-established
ones have moderated; production is now centred in areas well endowed with
competitively priced feedstock (mainly natural gas and coal); and volumes
shipped across the high seas is rising as production and consumption centres
have become polarised. The scale in which methanol is now produced is now
unsurpassed and growth rates are surprisingly high for a large-volume
commodity. China is the dominant player – both as a producer and as a
consumer – and determines the fate of methanol markets globally.
Feedstock shifts to gas and coal
Methanol
is produced from synthesis gas – a mixture of carbon monoxide and hydrogen –
in turn produced from any hydrocarbon (oil, natural gas or coal) or even
biomass. The availability of low priced natural gas, first in the Middle
East, and later in pockets in Latin America, the Caribbean and North Africa,
changed the fundamentals of the business, and large methanol plants came to
be set up as a way of monetising the gas at a time when it had little or few
alternate uses. Producers using liquid feedstock – such as naphtha – were
soon edged out of the market – including several in India.
A
new dimension to methanol production emerged later in China, based on a
production technology that leveraged a cheap, locally available resource,
coal. A rapid build-up of coal to methanol plants in the coal-producing belts
in northern and north-eastern parts of the country, sharply drove up methanol
capacity and production. By 2014, global methanol capacity had increased to
113-mtpa, which figure is expected to rise to a staggering 275-mtpa by 2030.
By that time, China could account for about 63% of global capacity – a
significant ramp-up from the 55% share now.
Variable cost positions
The
cost position of methanol manufacturing is diverse, depending on the
hydrocarbon feedstock used and the geographic location. Feedstock costs
typically account for nearly 90% of the cash cost of producing methanol, and
holds the key to competitive production. While natural gas has been the most
important feedstock – historically accounting for about 85% of global
installed capacity – this figure has now declined with the emergence of
sizeable coal-based methanol capacity in China. In 2015, coal-based capacity
accounted for about 35% of the global installed capacity and all of this was
in China.
Producers
in the Middle East, having access to cheap gas, are at the bottom of the cost
curve for methanol, followed by producers in the North America. Production in
North America has seen a remarkable resurgence thanks to the availability of
cheap shale gas; nearly all methanol units had shut down by 2008 due high
prices for gas. The capacity build-up now taking place will turn the region
from a net importer to a net exporter even before the end of this decade.
Producers
in Western Europe cracking liquids such as vacuum gas oils or naphtha are at
the high end of the curve, and are increasingly meeting their requirements by
imports from the Middle East and from Africa. The Chinese producers using
coal as raw material come somewhere in between on the cost curve, but face
the handicap of high freight costs to move methanol to coastal locations for
further processing, and from tariffs imposed by importing countries.
Trade flows
Methanol
trade flows have remained largely unchanged in recent years, though the quantities
have grown. The major exporting regions today are South America, the Middle
East and Africa, and their share of exports is expected to rise by 2030.
China is set to remain a net importer of methanol, despite the build-up in
capacity there; import volumes are expected to rise from about 5-mt now to
about 30-mt by 2030. Nearly every exporting region will be eyeing this
market!
Producers
from the Middle East and Africa are well placed geographically to serve South
Asian and South East Asian methanol demand and are benefitting from the low
costs of shipping.
Changing demand profile
China’s
impact on the methanol markets can also be gauged from the fact that it
currently accounts for a little over half of global demand, which share is
expected to rise to 70% by 2020. In contrast, the share of mature markets of
North America and Western Europe are likely to remain more or less flat, at
about 10% each.
For
a large volume commodity chemical, methanol is showing high growth – faster
than GDP growth – mainly due to non-conventional applications in China. This
includes use as gasoline blend, and for the production of olefins through
technologies commonly described as methanol-to-olefins (MTO), or more
specifically as methanol-to-propylene (MTP). According to estimates made by
Nexant, a consultancy, global methanol demand is expected to grow at a CAGR
of about 7% between 2013 and 2030, with China the primary driver, at least in
the near term.
Use as energy carrier…
The
high growth comes from a fundamental transition ongong in the methanol
business – from a feedstock used for making a handful of chemicals, methanol
is now an energy carrier and feedstock for olefins.
The
classical applications for the manufacture of formaldehyde, acetic acid and
methyl tert-butyl ether (MTBE) – to name the three largest –
continue to be relevant, but their growth rates are modest – at or below GDP.
In contrast, methanol’s use as a direct energy carrier – as a blend into
gasoline – is already the second largest single application (after use for
making formaldehyde) and accounted for about 12% of global methanol demand of
71-mt in 2014. China’s use of methanol as a blend in gasoline has seen an
average growth of 25% annually between 2000 and 2015!
Use
for making dimethyl ether (DME) – which can be blended into diesel or used as
an alternative to LPG – now accounts for about 10% of global methanol use.
Again, China leads on this front. In the western economies, DME is used in a
limited manner, mostly as an aerosol propellant, but in China it has
penetrated markets for home heating and cooking. DME is now the fourth
largest end-use for methanol globally.
To
a smaller extent, methanol is also used to make fatty acid methyl esters –
better known as biodiesel – from vegetable/animal fats/oils. This use
accounted for about 3% of global methanol demand and is expected to rise to
4.5% by 2030 in the wake of environmental mandates to use fuels with a lower
carbon footprint.
…. And as a feedstock for olefins
The
demand for methanol to make olefins is unique to China, but such is the pace
of investments in MTO/MTP projects that it is now globally the fastest
growing application of methanol – rising 15% annually. In these units,
merchant methanol – either domestically produced or imported, depending on the
location of the MTO/MTP plant – is converted to much-needed olefins,
by-passing availability constraints posed by lack of adequate steam cracking
or refinery processing capacity. At the end of 2015 China had seven MTO units
in operation, each consuming about three tonnes of methanol to make one tonne
of olefins. By 2017, it is expected that methanol use for this application
will surpass that for making formaldehyde – a remarkable achievement
considering this end-use was unforeseen just a decade ago.
Possible uses
There
is a possibility of using methanol as a bunker fuel, in the wake of the
MARPOL Convention, which mandates measures for control of sulphur and
nitrogen oxide emissions. The regulations require bunker operators to either
use alternate fuels or build abatement systems that reduce emissions of
noxious gases. While some companies have switched to methanol-fuelled
vehicles, wider adoption faces hurdles including investment in new engines
and competition with other clean-burning fuels such as LNG.
The
use of methanol to make aromatics (benzene, toluene and xylene) is still in
R&D stage, and if commercialised could open a sizeable demand outlet.
With the world moving to cracking lighter feedstock, such as gas,
availability of aromatics – particularly p-xylene required as a
feedstock for polyester – could be a constraint. The economics will depend on
methanol and coal prices (patented processes consume 4.5-tonnes of coal to
produce one tonne of aromatics), but high capital costs and technical risks
could stymie development. Any which way, this is not expected to
be a major outlet for methanol in the near term.
Remarkable growth story
The
frenetic pace of growth in methanol markets is unsustainable and will surely
abate over the next few years as fuel blending plateaus to more sustainable
levels in China and the rush to build MTO/MTP plants slows down given the new
realities of oil based petrochemical production.
But
overall demand will still see growth of about 7% annually – a remarkable
number for a commodity having an installed base of more than 100-mtpa!
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- Ravi Raghavan
CHWKLY25APR17
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