METHANOL, MTBE SUPPLIERS WILL LIKELY KEEP UP WITH RISING DEMAND

March 29, 1993
A primary and basic question prevails in the methanol industry-"What will be the global demand for methanol, for the expanded production of methyl tertiary butyl ether (MTBE), during the next few years?" James R. Crocco, president of Crocco & Associates Inc., Houston, addressed this question at the company's 1992 World Methanol Conference, Dec. 8-10, 1992, in Monte-Carlo. His response was that MTBE will continue to be the fastest growing petrochemical in the world, pulling ahead of

A primary and basic question prevails in the methanol industry-"What will be the global demand for methanol, for the expanded production of methyl tertiary butyl ether (MTBE), during the next few years?"

James R. Crocco, president of Crocco & Associates Inc., Houston, addressed this question at the company's 1992 World Methanol Conference, Dec. 8-10, 1992, in Monte-Carlo. His response was that MTBE will continue to be the fastest growing petrochemical in the world, pulling ahead of methanol which will be number two. But after the near-term explosive growth, demand will begin to level out.

Crocco listed a number of questions that affect forecast demand for MTBE, including:

  • Can we quantify the impact of the ethanol lobby and politically inspired initiatives in the U.S.?

  • To what extent will refiners be able to increase their in-house production of C4 cofeedstock captively to produce MTBE and tertiary amyl methyl ether (TAME), thereby reducing the need to construct capital-intensive, world-scale merchant market MTBE plants (some in remote locations)?

  • Will subsidized ethyl tertiary butyl ether (ETBE) production result in a serious threat to MTBE and therefore methanol?

  • What is the best "guesstimate" for future MTBE/methanol demand for the U.S. oxygenated fuel program that began in November 1992, for the first phase of reformulated gasoline in 1995, the second phase in 1997, plus the potential of reformulated gasoline later in Western Europe and elsewhere?

  • To what degree will other ethers and oxygenates, such as diisopropyl ether (DIPE) and amyl and other alcohols, erode the potential of MTBE?

GLOBAL MARKET

The global methanol industry has historically tended toward extreme fluctuations. The present situation also appears to contain a great deal of volatility.

Throughout much of 1991, there was tremendous optimism in the methanol and MTBE industries concerning anticipated demand for products from 1992 onward. Since then, says Crocco, there has been an almost complete reversal of conditions and market expectations for both products.

There seems to be sufficient MTBE available for the U.S. oxygenated gasoline requirements, and the global methanol industry is experiencing no shortage of product. The MTBE industry can now take a "wait and see" attitudes luxury it may not be able to afford in 1993, when the buildup of oxygenate inventories will have to be accomplished in a shorter time period than the 1 1/2-year preparation period for oxygen-boosted gasoline.

Tremendous questions face the industry today concerning the quantity of MTBE and TAME that will be required for the second phase of the U.S. 1990 Clean Air Act Amendments, which will incorporate reformulated gasoline in 1995. By most estimates, according to Crocco, 400,000-700,000 b/d of oxygenates could be required.

This very wide range is enough to cause serious concern and confusion in both the methanol and MTBE industries. The global methanol industry has responded to the challenge by bringing on-line additional availability in the near term, including:

  • A number of current and planned debottleneckings in North America

  • The restart of some standby facilities in the U.S.

  • The construction of some small methanol plants in the U.S.

  • The announcement of some proposed methanol plants in the Middle East, North and West Africa, and Southeast Asia

  • The initial construction phase of worldscale methanol plants in Trinidad and Venezuela.

In addition, there are some proposals to increase methanol production capability in New Zealand and Chile in the next few years.

SUPPLY, DEMAND

Total methanol demand for formaldehyde production is expected to increase by about 7.2% for Crocco's entire 4-year study period-1991-95 (Table 1). But U.S. MTBE demand remains the wild card in the demand scenario.

According to most estimates, demand for MTBE could reach 24 million metric tons/year (mty), or 558,000 b/d, in 1995. There are, however, some viable alternatives to MTBE, including ethanol, ETBE, and DIPE, and recent legislative actions favor expanded use of ethanol.

Methanol demand in Western Europe for gasoline blending will remain essentially constant at about 50,000 mty. Methanol for fuels use in the U.S., on the other hand, is expected to increase rather dramatically, says Crocco, especially during the latter part of the study period.

A large number of flexible-fueled vehicles are being built for the State of California, among other locations. A number of diesel buses are also being converted to use methanol fuel.

Global methanol demand will increase about 8%/year from 1991 to 1995 (Fig. 1). Leading this growth is increased demand for MTBE production, which Crocco predicts will require an additional 4.8 million metric tons of methanol over the 4-year period-a total increase of 146%.

Global methanol production capacity is expected to expand by about 5,1 million metric tons, or 23%, during the study period. This increase in nameplate capacity will be created by:

  • Several plant debottleneckings in the U.S. and Canada

  • Conversion of at least one U.S. ammonia plant to methanol

  • Debottlenecking the Cape Horn, Chile, methanol plant

  • Adding distillation capacity in New Zealand

  • Building a few small methanol plants in the U.S.

  • Adding worldscale facilities in Trinidad, Venezuela, and Qatar.

Global methanol utilization vs. nameplate capacity is expected to remain less than 85% until 1995, when it takes a jump to 88%. Methanol prices tend to decline when utilization is at or less than 80%, and strengthen when utilization is at 85% or greater.

It is therefore easy to see that a more or less stable price condition is expected globally between 1991 and 1994 (Fig. 2).

NORTH AMERICA

Table 2 shows the current and predicted North American methanol supply/demand balance through 1995. Demand is expected to continue growing and, in 1995, surpass supply by 1,052,000 mty.

Table 2 estimates formaldehyde production to be rather flat in the near term but indicates it will eventually increase. The product by far outdistancing the rest is, of course, MTBE.

Methanol demand for MTBE production should expand by about 209% during the period, or almost 33%/year. This predicted MTBE demand for methanol could even be somewhat on the low side, says Crocco, as plants come on stream in 1993-94.

In total, a methanol demand increase of about 4.8 million metric tons can be expected between 1991 and 1995, This equates to 86%, or 17%/year. (It should be noted that the U.S. will likely import about 100,000 b/d of MTBE to meet demand.) Crocco notes that U.S. MTBE demand "could be eroded by politically inspired and highly subsidized ethanol and ETBE," although it is still too early to tell to what extent this will happen.

WESTERN EUROPE

Crocco predicts Western European methanol demand for formaldehyde production to increase by about 4.7% by 1995 (Table 3). Greater demand for formaldehyde in former East Germany and Eastern European countries is the primary reason for this increase.

Methanol demand for MTBE production is expected to grow about 10% over the 4-year period. Total methanol demand is expected to rise by 500,000 metric tons, or 10%, for the entire period.

Crocco says Western Europe's dependency on imported methanol will increase from approximately 2.5 million mty in 1991 to 3.0 million mty in 1995. This total increase of 20% results in the region importing 33% of its methanol in 1995.

Although Crocco's 4-year estimates for Western Europe are conservative, there is tremendous promise that West European industry, in general, will rebuild the economies of its eastern neighbors. This will not occur, however, until firm guarantees of minimum risk can be given to potential investors.

FAR EAST, ASIA

Fig. 3 shows Crocco's predictions for Far East and Asia methanol supply and demand by product group. Methanol demand for acetic acid alone is predicted to grow from 184,000 mty in 1991 to 385,000 mty in 1995-an increase of more than 100%.

As far as MTBE is concerned, Malaysia, Japan, Korea, and Singapore hold the only real expansion possibilities for the region. Overall, methanol demand is projected to increase a total of 24% for the period, or more than 4%/year. No new methanol capacity is expected to come on-line during the period unless Petrocorp decides to add additional distillation and storage capacity in New Zealand to "clean up" another 450,000 mty of crude methanol to produce chemical-grade methanol.

Methanol plants are under study for such locations as Malaysia and Indonesia, but the principals are having much difficulty lining up financing.

On the supply side, Crocco expects reduced methanol production throughout the Far East because of chronic production problems in Burma and Taiwan. The combination of greater demand and diminished production will make the region even more dependent on imports.

SOUTH AMERICA

The big impact on methanol demand in South America is the new requirement for blending it into gasoline in Brazil. In 1991, Brazil imported about 480,000 metric tons of methanol for automotive fuel purposes. Additional methanol was imported for MTBE production.

Crocco expects Brazilian methanol imports of MTBE to continue according to traditional patterns but sees a decline in imports for fuel purposes in the coming years.

New MTBE capacity will come on-line in South America by 1995. Despite an increase in demand for MTBE purposes and a decrease in demand for fuel-blending in Brazil, a net decrease in South American methanol demand of about 6% is expected for the period.

New methanol capacity will be coming on-line in Trinidad and Venezuela, as will a debottlenecking in Argentina. These changes will more than double production capacity in South America (Fig. 4).

At 90% utilization, the region will increase its quantity of methanol available for export, reaching almost 2.0 mty in 1995. Primary markets for the product will be in North America and Western Europe.

OTHER REGIONS

The first worldscale MTBE plant-a 500,000 mty facility operated by Sabic Basic Industries Corp.-came on stream in Saudi Arabia in 1988. Neste Corp., Finland, and Ecofuel S.A., Italy, are partners in the project.

A number of additional MTBE plants are scheduled for the Middle East and Africa regions. By the mid-1990s, these could total more than 3 million mty additional MTBE production, requiring 1.0 million mty of methanol. Fig. 5 shows the forecast supply/demand balance for the region.

Meaningful statistics and information are difficult to obtain for the central and eastern Europe-C.I.S. industry. Crocco believes previous information to be highly optimistic, however.

Making adjustments for that, and factoring in an assumed decrease in demand of about 218,000 mty, or 10%, between 1990 and 1991, methanol demand for the region is projected to increase by only 300,000 metric tons, or 14%, for the entire study period.

It should be noted that, with the current political and economic turmoil in this region, there is the real possibility that existing production expansion plans could be delayed because of difficulty in arranging financing, among other reasons. Fig. 6 shows the projected balance for the region.

UNCERTAINTY REMAINS

Table 4 is an update of Crocco & Associates' list of annual operating methanol plants. A 150,000 mty plant in Myanmar is excluded from the list because there have been indications that the facility has shut down. There have also been some indications that the plant might have restarted, but Crocco has no definitive information at this time.

(Crocco also suspects that Pemex's plant has slightly more than 200,000 mty capacity, although an official source has yet to confirm this information.)

Should MTBE demand expand further toward the end of the decade, new methanol plants will obviously be needed. MTBE demand, however, is expected to level out after Phase 1 reformulated gasoline standards come into effect in 1995. Phase 2 specifications in 1997 are not expected to increase demand dramatically, says Crocco.

Table 5 shows methanol plants currently under construction, or in the engineering phase.

Western Europe will continue its lead-phaseout program, which will increase MTBE demand somewhat in that region. Other areas-especially the Far East and Southeast Asia-are also phasing out lead, but their gasoline consumption is relatively small.

Therefore, Crocco anticipates MTBE to continue to be the fastest growing petrochemical in the world, pulling behind methanol as number two. But after the explosive growth of the next few years, demand will tend to level out. A stabilization or decline of this level, however, is not expected during the balance of this century.

Copyright 1993 Oil & Gas Journal. All Rights Reserved.