Nitrogen+Syngas 382 Mar-Apr 2023
31 March 2023
Future methanol supply challenges
METHANOL
Future methanol supply challenges
Continuing growth in energy uses indicate robust demand for methanol over the coming years, but the current slate of new projects does not look sufficient to meet it. Is methanol approaching a supply crunch?
Methanol continues to be a fast growing use for syngas. In the 1970s and 80s, methanol was almost exclusively used for downstream chemical production, mainly formaldehyde for resins, acetic acid, methyl methacrylate, methyl chlorides and other solvents. Because it was easily transported, as a bulk liquid at room temperature and pressure, production migrated to ‘stranded’ gas locations as a use for gas reserves that could not otherwise find a market, in places such as the Middle East, Trinidad, and at the tip of Chile. There was a brief boom in the 1990s in its use as a precursor for ether additives for gasoline, such as MTBE and TAME, particularly in the United States, but poor environmental husbandry allowed MTBE to leak into aquifers from ageing gasoline storage tanks, and led to a virtual ban in the US. There was some talk of it being a fuel for cars, and California tried to pilot a methanol fuelled vehicle programme, but it suffered from a lack of distribution infrastructure. In New Zealand, several plants converted methanol to gasoline, but the process was too expensive and the plants eventually switched to only making methanol, and suffered from shortages of feedstock gas.
However, there as a major step change in the methanol industry in the 1990s, with the development by Davy Process Technology (now part of Johnson Matthey) and Lurgi (now owned by Air Liquide) of large scale methanol flowsheets. The move to 5,000 t/d and up plants allowed for economies of scale in methanol production which brought the cost down, and allowed it to compete with oil and gas derivatives both as a fuel and as a feedstock for olefins production. The methanol to olefins (MTO) process was developed by Union Carbide in the 1980s and commercialised by UOP in the 1990s, and Lurgi developed its own parallel methanol to propylene (MTP) process at the same time.
The impact of China
These new processes and uses did not catch on immediately around the world, but they were given a massive boost by the decision of the Chinese government to use methanol as a bridge from coal – of which it had an abundance – to fuels and olefins, which China otherwise had to import. Methanol derivative dimethyl ether (DME) became a widely used blendstock in liquefied petroleum gas (LPG), used for domestic heating and cooking in China, and methanol was also blended directly into gasoline at up to 10% to eke out gasoline supplies. In the 2000s, this was followed by methanol to olefins plants, either using domestic coal-based methanol, or even buying methanol on the open market.
China’s move to methanol allowed these technologies to mature and develop, in spite of issues such as LPG explosions caused by DME corroding rubber seals, and led to Chinese domestic versions of western MTO processes licensed by Sinopec and others. Chinese methanol production and consumption came to dominate the global methanol market, with China representing almost all incremental growth and coming to represent around 55% of demand and 45% of production by 2015. The gap between those two led to increasing imports of methanol into China, mainly from the Middle East, but Chinese companies also began to look further afield to source methanol, with an attempt to develop large scale methanol projects on the west coast of North America or the Gulf of Mexico for shipping to China. Most of these projects ran into permitting problems, however, and did not come to fruition.
But over the past few years things have begun to change significantly in China. Coal prices have risen, and oil prices have fallen, making coal-based MTO plants less competitive. The methanol fuel and DME blending markets have reached saturation and China’s refiners have managed to slow the adoption of national fuel methanol standards, meaning only certain provinces permit it. There has been a large scale build of domestic steam crackers to produce ethylene, in competition with olefins from MTO plants, and the Chinese government has begun to crack down domestically on polluting industries at the same time that it tries to pivot away from a dependence on coal in order to achieve carbon emission targets. Finally, the slowdown in the Chinese economy has throttled back the need for ever-increasing volumes of plastics and other olefin derivatives, though demand from traditional chemical uses continues to rise. Nevertheless, all of this has slowed the increase in China’s methanol demand and production to a crawl, and it is becoming clear that the bull run in Chinese methanol may be over for now.
America’s methanol renaissance
At the same time, the US methanol industry has had a remarkable turn of fortune, thanks to abundant and cheap shale gas. During the 1990s US capacity closed and production shifted to Trinidad and Venezuela where gas was cheap, the methanol being exported back into the US across the Caribbean. The availability of cheap natural gas has turned that around, and US methanol production finally exceeded demand last year for the first time in decades, turning the US into a net exporter for the first time. Recent plant start-ups have included Koch’s 1.7 million t/a YCI Methanol One plant in Louisiana, and two 1.0 million t/a plant relocations by Methanex of plants from Chile, where gas supplies have been curtailed. This year, Argus forecasts that the US will produce around 9 million t/a of methanol, against domestic demand of around 7 million t/a, and this will increase with the completion by Methanex of the new 1.8 million t/a Geismar 3 plant at the company’s site in Louisiana, due to be up and running by 4Q 2023.
At the same time, Venezeula’s descent into economic basket case status and Trinidad’s problems with sourcing sufficient natural gas to feed its ammonia and methanol plants have reduced supply from those sources.
Europe and Ukraine
There has been a major impact upon methanol markets due to the war in Ukraine. Europe is a major consumer of methanol – the second highest region after Asia – and also a large importer of methanol, and Russia is a major exporter. Russia exported 2 million t/a of methanol in 2021, and Europe imported most of that. Europe has not completely banned imports of Russian methanol, but only contracts concluded before October 2022 are still valid, and all imports will stop from June 2023. While the high natural gas prices in Europe at the end of 2021 and most of 2022 caused some shutdowns of European methanol capacity, it has not had the same impact as it has upon ammonia, purely because Europe operates from a much lower production base. Fortunately, Europe has been fortunate that, as well as its methanol imports from North Africa and Trinidad, it has had the new US export volumes to be able to draw on.
Elsewhere
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.
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, in spite of some research and pilot programmes, so far nothing has progressed in terms of actual plant building.
“Methanex and OCI NV put methanol demand for shipping in 2027-28 at 3 million t/a.”
Indonesia likewise is looking at converting its plentiful coal into methanol and dimethyl ether in order to reduce imports of methanol and LPG. Two projects are under development, one in conjunction with a Chinese partner, the other with Air Products, Bakrie Capital Indonesia, and Ithaca Resources, which between them could produce 2.4 million t/a of methanol and some downstream DME
Shipping fuel
In terms of methanol demand, two developments now look like having a major long-term impact. The first is the potential uptake of methanol as a fuel for shipping. Methanex has used methanol as a 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. While there are numerous rival fuels, including low carbon ammonia, low carbon 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.”
Stena Line has also been an early adopter, with the Stena Germanica car ferry operating in the Baltic on methanol. In 2022, the Proman Stena bulk joint venture vessels Stena Pro Patria and Stena Pro Marine became the first ships to bunker methanol in South Korea. Two more methanol powered bulk carriers: Stena Promise and Stena Prosperous, were completed in 2022, and two further vessels will be built by Q1 2024. Japanese shipbuilder Tsuneishi Shipbuilding is building a 67,500 dwt Ultramax bulk carrier capable of running on either methanol or conventional marine oil, with delivery planned in 2025. Mitsui E&S will provide the dual-fuel engine, expected to reduce emissions of NOx by 80%, sulphur dioxide by 99% and carbon dioxide by 10% compared to existing bunker fuels. Tsuneshi is also building two methanol-fuelled Kamsarmax bulk carriers for US-based trading firm Cargill. Maersk is building eight large container ships that will 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. The speed of adoption is striking. In 2022 there were 22 methanol powered or duel fuel vessels operational, but Methanex estimates that by the end of 2026, that total will have reached 80 ships, accounting for around 1.7 million t/a of methanol demand. Both Methanex and OCI NV put methanol demand for shipping in 2027-28 at 100120 vessels and 3 million t/a of potential demand.
Blue and green methanol
Much of the impetus behind the move by Stena, Maersk and others to methanol as a shipping fuel is predicated on using low carbon methanol. A few plants around the world already use low or lower carbon sources, including biofuel-based production in Sweden, waste gasification in Canada and a plant using geothermal energy to electrolyse water to hydrogen in Iceland. But the rapidly falling cost of electrolyser capacity and the push for low carbon hydrogen sources, as well as the opening up of large potential markets like shipping for low carbon methanol, are collectively leading to a rapid proliferation of blue and green methanol projects. There are around 80 projects already announced, according to the Methanol Institute. Some are already up and running, including a 110,000 t/a blue methanol plant in China using carbon capture co-designed by Carbon Recycling International, owners of the Iceland geothermal facility. Others are smaller scale pilot units or use waste or biomass gasification. There is also a proposal for 500,000 t/a of blue methanol capacity on the US Gulf Coast. It is expected that this sector will start to see increasing growth as the market for low carbon methanol expands, especially in the light of increasing carbon taxes in Europe and the huge boost to green/blue hydrogen production represented by the Inflation Reduction Act in the US. However, it may be towards the end of the decade before low carbon capacity begins to make its presence felt on the methanol market in any major way.
A shortage of methanol?
Methanex estimates that global methanol demand increased slightly to approximately 88 million tonnes in 2022. Of this, about half (44 million t/a) was represented by traditional chemical uses for methanol, which continue to see steady growth, perhaps 3-4% year on year, in line with global GDP growth. Another 16 million t/a (18%) came from MTO plants in China. This segment of demand is fairly stable, but MTO is not running at anywhere near capacity in China at present because of the affordability of methanol compared to end product prices. The remainder of demand, 28 million t/a, or about 32%, comes from fuel-related applications, including esters for gasoline additives, dimethyl ether for LPG blending, and methanol as a direct fuel blend in Chinese vehicles and in some ships. It seems to be this segment that has the largest potential for growth over the medium to long term, particularly the estimated 3 million t/a of extra demand for shipping fuel over the next five years. For the time being, Methanex puts 2027 demand at 102 million t/a, up 14 million t/a on present demand and representing an average annual growth rate of 3% – relatively modest compared to the growth methanol has seen over the past three decades.
Even so, there are concerns that the current project slate may not be enough to meet this demand. Plants in China, Iran and Trinidad are all impacted by feedstock restrictions, especially in winter for China and Iran, when gas is diverted to power production, as well as Chinese environmental regulations. New methanol capacity, shown in Figure 1, includes the 1.8 million t/a Geismar 3 plant in Louisiana, a 1.8 million t/a plant in Iran (but Iranian plants are subject to project delays because of sanctions and, as noted, gas restrictions), and a new 1.8 million t/a plant for Petronas at Sarawak in Malaysia which will almost double the company’s current capacity when it starts up in 2024. There are incremental capacity additions at Chemanol in Saudi Arabia (200,000 t/a), and a number of low carbon plants based on waste or biomass gasification and the 50,000 t/a FlagshipONE green methanol plant in Sweden which collectively could add another 1.0 million t/a out to 2026-7. The Indonesian coal gasification plants are another 2.4 million t/a. There are some planned capacity additions in China over the short to medium term, but these are likely to be the closure of some small-scale, inefficient and older plants. All of this added together represents only around 9 million t/a, leading to a potential shortfall of 5 million t/a of methanol by 2027-8 unless new plants begin to be developed and built soon.
