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US methanol producers face higher feedstock costs, lower MTBE demand

David Nakamura
Refining/Petrochemical Editor
Oil and Gas Journal

HOUSTON, Oct. 19 -- The methanol industry is facing higher feedstock prices and reduced demand for its primary product, methyl tertiary butyl ether (MTBE), the annual DeWitt Global MTBE-Oxygenates Methanol Conference was told Wednesday.

Marybeth Gebauer, DeWitt & Co. senior market analyst, said, "The US methanol market has been facing the probable decline of its largest derivative during a period when already prohibitive natural gas feedstock costs soared to new highs. The global methanol industry is in the midst of an uncertain and complicated period in its overall evolution."

She said many of the key issues are centered in North America due to the volume use there.

"In recent history the US held the positions of both largest methanol producer and largest methanol consumer," Gebauer said.

However, since the late 1990s, the US position as the largest producer has been eroding. She said other regions of the world -- particularly the Middle East, the Caribbean, and South America -- have been building and will continue to build low-cost methanol production.

Also, nine North American methanol plants have closed in the past 2 years. North American capacity dropped in this period from well over 7 million tonnes/year to just over 4 million tonnes.

The shutdowns primarily were caused by relatively high and volatile natural gas prices.

"The fact is that US natural gas prices were causing pain for domestic [methanol] producers when they were much lower than they were in 2000-01," Gebauer said.

Methanol plants in Chile, Venezuela, and Equatorial Guinea have natural gas feedstock costs of 60¢/MMBtu or less, while US plants are paying over $2/MMBtu.

The secondary cause of methanol plant shut downs is the federal government's expected mandate to phase out MTBE in gasoline.

"MTBE is already showing a slight dropoff this year, and we expect this trend to continue," she said. "There are complex issues and obstacles associated with the phaseout of MTBE and we think that ... California will not be able to completely phase out MTBE before 2004."

Gebauer discussed two future scenarios developed by DeWitt. Their "low" case assumes a rapid elimination of MTBE in California and a total US elimination by 2010. Their "medium" case has some MTBE use in California through 2005, and some use in the rest of the US through 2010.

The demand for methanol by other chemicals, such as formaldehyde, will continue to grow steadily through 2005, with the additional demand met by imports.

Contact David Nakamura at Davidn@ogjonline.com


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