Global Methanol Demand Growth Driven by Methanol to Olefins as Chinese Thirst for Chemical Supply Grows, IHS Markit Says

By 2021, nearly one in five tons of methanol will go to MTO production

Monday, June 12, 2017 2:18 pm EDT

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HOUSTON
"The impact of Chinese demand growth for methanol cannot be overstated, since we at IHS Markit forecast that Chinese demand growth is expected to increase very rapidly at around 7 percent per year, such that, by 2021, without additional Chinese capacity, net imports will double in volume from their 2016 level"

HOUSTON (June 12, 2017) – Methanol, a basic chemical used to produce fuels and other traditional chemicals, is increasingly used in China to produce olefins in a process called methanol-to-olefins (MTO). By 2021, nearly one in five tons of global methanol production will utilized for MTO production to satisfy expanding Chinese chemical demand, according to new analysis from IHS Markit (Nasdaq: INFO), a world leader in critical information, analytics and solutions.

In 2010, global methanol demand reached 49 million metric tons (MMT), but by 2021, according to the IHS Markit World Analysis—Methanol 2017, demand will surpass 95 MMT, with China boasting 54 percent of world capacity and 46 percent of global production. In 2000, China represented just 12 percent of global methanol demand, while North America and Western Europe represented 33 percent and 22 percent, respectively. By 2021, IHS Markit said Northeast Asia (dominated by China), will account for nearly 70 percent of global methanol demand, followed by North America at just 9 percent and Western Europe at 8 percent.

“China has quickly become the dominant force in the global methanol market, and continues to be the focal point with its coal-based production setting the global market price,” said Mike Nash, global director of syngas chemicals at IHS Markit, and one of the authors of the IHS Markit World Analysis—Methanol 2017. “The impact of Chinese demand growth for methanol cannot be overstated, since we at IHS Markit forecast that Chinese demand growth is expected to increase very rapidly at around 7 percent per year, such that, by 2021, without additional Chinese capacity, net imports will double in volume from their 2016 level,” Nash said.

Chinese demand, Nash said, has grown significantly in traditional methanol derivatives, such as acetic acid and formaldehyde, the largest single methanol derivative and a key component for the production of construction and wood products, as well as high-strength engineering resins and a multitude of insecticide applications. However, newer end-uses such as light-olefins production and energy applications, such as direct blending into gasoline and the production of biodiesel and DME (dimethyl ether), are rapidly changing the methanol palette, the IHS Markit study said. 

DME is used primarily as an aerosol propellant in the West, which represents a relatively small market overall, but its primary use is in fuel applications—where it is mainly blended into liquefied petroleum gas (LPG). This application is widely used by Chinese consumers for home cooking and heating, which has helped drive methanol consumption into DME from virtually nothing in 2000, to the fifth-largest methanol derivative in 2017, IHS Markit said. 

China’s direct blending of methanol into the country’s gasoline pool is estimated at 7 MMT in 2017, and is estimated to grow to almost 10 MMT by 2026, as China seeks ways to supplement its gasoline pool. Growth in fuel production and gasoline blending now represents the second-largest methanol demand segment.

A newer and rapidly growing demand segment for methanol (exclusively in China) is in the production of light olefins using MTO technologies. In just four years, this end-use has driven staggering growth in methanol consumption and made MTO the second largest end-use for methanol globally.

The production costs of methanol-from-coal in China and from natural gas in the U.S. are not only competitive on a cash cost-of-production basis, but also even when we consider capital charges and a return on investment,” said Don Bari, vice president of IHS Markit, and co-author of the IHS Markit Process Economics Program (PEP) Methanol Process Summary March 2017.  “That said, the relative (cash) cost or production positions are dependent on the cost of coal and natural gas. Coal-based technology in China had a clear advantage most of the last decade, before the impact of shale gas feedstock was felt in the U.S. Then in 2008, the U.S. natural gas route moved to the most competitive position, owing to a drop in gas price in the U.S. as well as a rise in China feedstock, utility and fixed costs, on a U.S. dollar basis,” Bari said.

Feedstock costs for methanol comprise as much as 90 percent of the total cash-cost and, as such, access to low-cost feedstocks is key to methanol economics. The primary feedstock for methanol has been natural gas, representing as much as 55 percent of installed global capacity. Regions with access to low-cost natural gas have seen a surge in methanol capacity additions, including North America, the Middle East, Africa and South America. With the growth in Chinese methanol demand and the country’s rich coal reserves, the industry has seen a sharp rise in coal-based methanol production.

Uncompetitive feedstock economics led to capacity rationalizations in North America and Europe in the early 2000s, with North American methanol capacity all but extinguished by 2008. However, recent exploitation of unconventional natural gas supplies in North America has allowed this region to regain its position as a methanol production powerhouse.

“U.S. Gulf production economics, once the dominant driver of industry economics, are now beginning to exert significant influence once again as a significant number of new methanol units are being restarted, relocated or being built in the U.S. Gulf Coast region,” Nash said. “Producers are taking advantage of the cheap and abundant supply of U.S. shale gas.”

The sharp rise in North American production capacities and the cost position of these units has led to an increase in exports from the Americas that now ship product to both the European and Northeast Asian methanol markets. The expected growth in North American capacities will turn the region from a net importer to a net exporter during 2019, IHS Markit said.   

"Supply and demand pressures have always driven methanol pricing, but now that methanol has significant volumes of derivatives that compete as alternatives to crude-oil derived products, the picture becomes significantly more complicated, since affordability of some methanol derivatives  becomes heavily dependent on crude oil-price fluctuations," Nash said.

The continued price and market volatility for methanol will drive discussions at the upcoming 35th Annual World Methanol Conference Sept. 30, 2017, in Berlin. For on the conference agenda and registration information, please visit https://www.ihs.com/events/annual-wmc-2017/overview.html

To speak with Mike Nash or Don Bari, contact melissa.manning@ihsmarkit.com.

 

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IHS Markit (Nasdaq: INFO) is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 key business and government customers, including 85 percent of the Fortune Global 500 and the world’s leading financial institutions. Headquartered in London, IHS Markit is committed to sustainable, profitable growth.

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By 2021, nearly one in five tons of methanol will go to MTO production to feed Chinese demand, says IHS Markit