Nitrogen+Syngas 377 May-Jun 2022
31 May 2022
Methanol markets: chemicals to the fore
METHANOL MARKET
Methanol markets: chemicals to the fore
For some years the fastest growing sector of the methanol market was Chinese olefins production. However, with growth there flattening out, it is traditional chemical uses which are taking over again as drivers of demand growth, with, longer term, a major prospect from fuel and energy applications.
While ammonia continues to be the largest syngas derivative by tonnage, reaching 180 million t/a in 2021, methanol consumption has grown at a far more rapid rate, more than doubling over the past decade to reach 110 million t/a in 2021. Almost all of this growth has been driven by Chinese demand, as China took the strategic decision in the 2000s to try and use coal-based methanol production to reduce imports of oil-derived products from overseas. This began with methanol being used in some cities and provinces as a blendstock in gasoline, followed by use of methanol derivative dimethyl ether (DME) as a blendstock in liquefied petroleum gas (LPG), often used for domestic heating or cooking. Around 9% of China’s vehicle fuel is provided by coal-based methanol. However, large scale demand really took off with the development of domestic technology to convert methanol into propylene and ethylene and hence downstream polyolefins for plastics production, replacing olefins derived from oil or gas conversion.
The first large-scale methanol to olefins (MTO) plant became operational in 2010 at Baotou in Inner Mongolia. It was followed by another two dozen units over the next decade, with total capacity close to 20 million t/a of olefins, representing nearly 40 million t/a of methanol demand equivalent. Collectively around 20-25% of China’s polyolefin production comes from MTO units. Around 70% of this is in integrated facilities where the full production cycle of coal gasification, methanol production and olefins manufacture were present, mainly in the northeast of the country; the majority of coal production lies in the northern provinces of Inner Mongolia, Shanxi and Shaanxi, responsible for over 60% of domestic supply. However, the remainder depends upon ‘merchant methanol’, and are often in coastal locations, buying methanol either from other producers within China, or on the international market, and these plants are responsible for China’s rising tide of imports of methanol from overseas.
As Table 1 shows, MTO has come to be the largest single demand sector in the methanol market, representing over 30% of consumption, all of it in China. Fuels and energy uses, mostly (though not exclusively) in China, have come to represent a similar slice of the market, while traditional chemical uses, which until around 2000 were 95% of methanol use, now only account for 45% of methanol demand. This rapid growth in Chinese consumption has not only led to huge methanol capacity building – indeed, over-building – within China, but has also meant that China has come to dominate the traded methanol market, which stood at a total of 30 million t/a in 2021, of which China represented 13 million t/a, or 43%.
China’s change of tack
The past decade has been a dramatic time for the methanol market, so much of which has come to depend upon Chinese government policy. But China’s appetite for MTO is slowing rapidly, for a variety of reasons. One short term factor has been the lockdowns in Shanghai, and now spreading to other Chinese cities to combat a fresh covid outbreak. MMSA suggests that Chinese methanol imports are down 16% in 2022 and that this year could see the first ever year on year fall in Chinese methanol demand, albeit only by about 3%.
Against this, MTO production has so far held up well this year. MTO’s economic viability depends upon the relative prices of oil and coal (and imported methanol, in some cases), and MTO producers had suffered over the past few years by the development of ethylene steam cracker capacity that was able to operate more cheaply than domestic Chinese MTO plants. This has been the main reason for the slowdown in new MTO plant construction – poor or negative margins for MTO mean that major investors are no longer interested in MTO projects. However, the current crisis in Ukraine has pushed oil back up to prices above $100/ bbl, making methanol-based olefin production cheap by comparison once more, at least for the time being. MMSA sees Chinese MTO production accounting for around 35 million tonnes of methanol demand this year, around the same as 2021.
But perhaps the greatest factor for future MTO demand is changing Chinese environmental policy. This affects MTO producers in two ways. China is trying to cut down on pollution from industrial plants, as well as use of water in areas suffering from shortages, such as the dry northwest of the country where many of the coal to olefins plants are based. But longer term, the country is also trying to shift itself away from coal burning in order to meet targets for reducing CO2 emissions. China has already moved coal’s share of China’s energy provision from around 70% in 2005 to about 55% today (even though the total has actually increased), by rapidly expanding renewables capacity and forcing consolidation in the coal industry. However, this led to two power crises last year, in May and then August-October, when domestic electricity demand outpaced supply and China was forced to ration power. One of the effects of this was to force a temporary shutdown of much of the country’s coal to olefins capacity, as well as a large tranche of methanol capacity. For example, methanol plants in Yulin cut operation rates by 50% in 4Q 2021, reducing supply by 1.3 million tonnes.
These targets for coal and energy use and intensity are operated by the powerful provincial governments. China currently implements a “dual control mechanism”, under which provinces are given targets for both total energy consumption and energy intensity (the amount of energy consumed for each unit of GDP growth) by the National Development and Reform Commission (NDRC). In January, president Xi indicated that this mechanism would eventually be extended to control CO2 emissions and carbon intensity, i.e. the volume of emissions per unit of GDP growth.
With growth in MTO demand slowing, and methanol’s use as a fuel in China seeming to have matured, most new demand for methanol in China is projected to come from traditional chemical uses. Formaldehyde for resin production is the largest sector of demand after MTO, as Table 1 shows, and China represents about 50% of all global formaldehyde demand. Other important industrial chemicals like acetic acid and methyl methacrylate are also continuing to show strong growth; overall demand for these sectors in China is projected to grow by around 5-6% year on year over the next few years.
North America
After China, the largest slice of methanol demand comes from North America. The region, if Trinidad is also counted, is also one of the largest concentrations of methanol production. The US in particular rapidly expanded methanol output over the past decade, as the boom in domestic natural gas production due to shale gas exploitation transformed the US chemical industry. This led to the reopening of shuttered capacity and the building of new plants, including Methanex’s relocation of 2 million t/a of capacity from Chile to Louisiana, and now – after a delay due to covid – the company’s decision to build a third, 1.8 million t/a plant at its Geismar site in Louisiana.
The rapid rise of US methanol capacity did lead a number of companies, often Chinese backed, to look at building export-oriented plants aimed at supplying Chinese MTO production. However, uncertainty over future Chinese MTO demand and local opposition have stalled or killed many of these projects, most notably the Chinese-backed Northwest Innovation Works (NWIW), which had aimed to build three 1.7 million t/a methanol plants in Washington and Oregon states.
US methanol demand was 9.4 million t/a in 2020, and production still ran below this, at around 7.3 million t/a, but new capacity is expected to turn the US into a net exporter over the next couple of years. Last year saw the start-up of Koch’s YCI Methanol One plant, adding 1.7 million t/a of capacity, and once Methanex’s Geismar 3 project is complete the US is expected to be a significant net exporter of methanol. Trinidad, conversely, has suffered from gas supply constraints on its own methanol production, in spite of the completion of a new 1.0 million t/a plant in 2020. The increase of US methanol production has also reduced Trinidad’s traditional market for its methanol, and it has had to look further afield, particularly Europe.
Middle East
The Middle East is the largest exporting region for methanol, with Saudi Arabia and Iran the largest producers. There is also capacity in Oman, Qatar and Bahrain. In all the region has over 20 million t/a of capacity, and with little domestic demand beyond some MTBE production for fuel blending, most of the region’s methanol production is exported, to India and especially China. Outside of Iran, however, new plant building has slowed down as gas supplies become more constrained, while Iran has faced sanctions which have slowed its new capacity additions and ability to sell its product overseas.
Russia
Russia is a major producer of methanol, with 8 million t/a of capacity, though production was only 4.4 million t/a in 2020. The country has ambitious plans to increase methanol production, though undoubtedly the sanctions regime imposed after Russia’s invasion of Ukraine will complicate that picture greatly. Russia exported 1.8 million tonnes of methanol in 2021, most of it to Europe, with Finland, Poland and Slovakia collectively accounting for 70% of that.
India
India, like China, is a coal-rich country, and there have been some investigations into the possibility at trying to emulate China’s move to domestic fuel and plastics production based on coal-derived methanol. In 2018, government think tank NITI Aayog launched its Methanol Economy initiative with the aim of increasing domestic consumption of methanol from its present 2 million t/a to 30 million t/a, and production from 250,000 t/a to many millions of tonnes, allowing a reduction in oil imports. However, ambitions have so far run far ahead of reality. A 15% methanol blend in gasoline is now being trialed in Assam, and there is a pilot plant for converting high ash Indian coal into methanol (see Syngas News, this issue), but no major project forthcoming as yet.
Sectoral demand
Outside of China, MTO has not caught on as an idea, with the sole exception of Uzbekistan, where the country is hoping to use MTO to monetise stranded natural gas resources. A $2.5 billion project to produce 720,000 t/a of polyolefins is under development, with a target onstream date of 2024. For the most part, though, it is now chemical uses which are likely to form the bulk of new methanol demand over the next five years. These tend to roughly follow growth in GDP, though in industrialising countries, especially in south, southeast and east Asia, above-trend growth rates are expected.
Methanol as a fuel
The economies of scale provided by largescale (5,000+ t/d) methanol plants has pushed the cost of methanol down to levels where it can compete in some areas with oil-derived products like gasoline and LPG, and this has encouraged its use in fuel and energy applications. Within China, it is blended into gasoline at levels of 10-15%, as well as higher levels for specially adapted vehicles. It can also be used to produce DME for blending into LPG. Outside of China, though, methanol’s direct use as a fuel has been limited, although it is used for esterification of waste vegetable oils to produce biodiesel, which has had particular take-up in Europe, and it is also used in the production of ethers such as methyl t-butyl ether (MTBE), which is widely used as an oxygenate component of gasoline. Approval of methanol blends as vehicle fuels is gradually spreading, but widespread take-up of methanol as a gasoline blendstock outside of China is likely to be contingent on its green credentials (see below).
However, the most promising development for new large scale demand is in the realm of shipping fuels. Methanex has used methanol as a shipping fuel in its fleet of tankers (operated by subsidiary Waterfront Shipping) for some years, but interest in methanol has been galvanized by plans to decarbonise the maritime industry. The International Maritime Organisation (IMO), the UN body that regulates the shipping industry, has set the target of cutting the sector’s carbon emissions by 50% in 2050 compared to 2008 levels. Numerous ways of meeting this target have been suggested, including burning green ammonia, but methanol has started to gain momentum after shipping giant Maersk began to focus upon it, arguing that: “it is the most mature from the technology perspective; we can get an engine that can burn it.”.
Maersk announced in August last year that it would be building eight large container ships that would operate on methanol, with delivery in 2024-25. Each ship requires around 40,000 t/a of methanol, for a total of 500,000 t/a of new demand just from these eight ships alone, and where Maersk goes, many other shipping companies may follow.
Green methanol
Of course, as with vehicle fuels, Maersk’s move is predicated on using methanol from a low carbon source. Green methanol plants have hitherto been fairly few and far between. There is a biofuel-based plant in Sweden using waste from paper manufacture; Enerkem in Canada manufactures methanol from municipal solid waste in the city of Edmonton; and in Iceland, CRI uses geothermal energy to generate electricity to electrolyse water to produce hydrogen which it uses to reduce carbon dioxide to methanol. In the Netherlands, BioMCN used waste glycerol from biodiesel production to make methanol until 2013 when the process became economically untenable. It now has a biogas feed for some of its methanol production, but has been forced to move back to natural gas for most production, which the company is now hoping to replace with hydrogen from renewables. Even so, outside of these and a couple of other waste- or biogas-based plants, most methanol is still currently produced from natural gas or coal.
However, with the cost of renewable energy and electrolysis coming down, especially at a time like the present when oil and gas prices are high, there is increasing interest in using green methanol in a variety of ways. The key to methanol’s attraction is its versatility; processes already exist to convert it into gasoline, olefins, esters, glycols, etc. This means that if a low carbon way can be found of producing it, it can simply slot into existing end uses without the need to completely reorganise supply chains.
This magazine has covered lower carbon routes to methanol over the past few years; see e.g. Nitrogen+Syngas 363, Jan/ Feb 2000, pp40-53. Methanol even offers the prospect of being able to use CO2 recovered from industrial processes as a feedstock, making downstream products carbon negative or, if used as fuels, at least carbon neutral. The interest in green methanol now almost rivals that of green ammonia, and a number of major projects are now under development, some using biogas, others using electrolysis, still others waste gasification. Most are currently at the pilot or demonstrator plant stage, and no large scale green methanol plants are expected within the next 4-5 years. Longer term, however, if costs and incentives work out, there is almost limitless possibility for green methanol.
A shortage of methanol
For the short and medium term, however, new plants are likely to be gas-based or, in China, coal-based. There are still new methanol plant developments in China, even though there is a huge overhang of unproductive capacity that runs at low utilisation rates there, and more rationalisation of capacity is to be expected. Outside of China, though, new methanol projects are fewer and further between. Geismar 3 in the US will add 1.8 million t/a of capacity, and there are new large scale projects in Malaysia and Egypt, as well as an incremental increase in Saudi Arabia and Russia, and some smaller scale increases in India. Green methanol projects could collectively add another 1.0 million t/a out to 2026. However, Methanex, the largest single company producer, with 9.4 million t/a of capacity, calculates that projected growth in methanol demand over the next 4-5 years will still outpace current plants under construction, leading to tighter methanol markets going forward. Higher oil prices also bode well for methanol producers; methanol end use pricing is traditionally linked to oil pricing, and if oil prices stay ahead of gas costs in advantaged locations such as the US and Middle East, producers there will have a good few years ahead of them.
