China annual methanol demand to spike on MTO, MTP projects

By Heng Hui

SINGAPORE (ICIS)–China’s annual methanol demand for non-traditional uses is expected to grow by more than 20% in the next three years if all its projects that aim to derive olefins from the coal-based chemical start up as originally planned, industry sources said on Tuesday.

Sixteen methanol-to-olefins (MTO) and methanol-to-propylene (MTP) projects spread across the country with a total capacity of around 10m tonnes/year are due to come on stream from 2012-2015. (Please see tables below)

The country’s current methanol consumption for non-traditional sectors, which include MTO and dimethyl ether (DME), currently stands at more than 10m tonnes/year, about a third of China’s total methanol consumption at about 30m tonnes/year.

China is expected to require about 24m tonnes in additional supply over three years to feed into these mammoth MTO projects in the next three years, industry sources said.

By 2015, MTO/MTP is expected to account for more than 17% of China’s methanol demand, assuming all the other projects came on line as planned.

MTO and MTP, along with dimethyl esters (DME) and gasoline blending, are lumped together as the non-traditional uses of methanol.

From the traditional downstream sectors – such as acetic acid, formaldehyde, methyl tertiary butyl ether (MTBE), polyacetal (POM), methyl methacrylate (MMA) and methyl amines – methanol consumption is estimated to grow at a slower pace of 7-8%, largely in line with China’s economic growth that used to be in double digits.

Four of the 16 MTO/MTP projects – with a combined capacity of 1.76m tonnes/year have started production this year – but none of them could run at full capacity, partly because of the poor petrochemical markets this year amid the global economic slowdown, industry sources said.

Construction of the remaining 12 projects is ongoing, but industry players doubt their successful start-up in the near term.

An expected sharp increase in demand for methanol because of the MTO projects would help boost the prices of the chemical, market sources said.

Via MTO projects, methanol will serve as a cheaper alternative to naphtha as feedstock for polyolefins production, they said.

Methanol prices in China were assessed at $360-365/tonne (€281-285/tonne) CFR (cost and freight) China in the week ended 26 October, up $2/tonne from the previous week, according to ICIS.

On the other hand, Asia’s naphtha prices were at $960.50-963.50/tonne on Tuesday morning, rising $3.50-4.50/tonne from Monday because of tighter supply amid rising demand.

China, the second biggest economy in Asia, is solely pursuing MTO and MTP projects in Asia given its huge reserves of coal – the basic raw material for methanol.

Coal-produced methanol provides the country with a strong cost advantage over naphtha-based petrochemical production during times when oil prices are high.

But these projects entail heavy investments and the technology processes remain at a nascent stage, hence major hurdles to the industry’s development still need to be overcome, industry sources said.

China’s coal reserves, though huge, are being depleted fast and producers find that selling coal offers better profitability amid rising prices, industry sources said.

The Chinese government is also restricting granting approvals on new projects to ensure a more efficient use of resources and aimed at preventing methanol overcapacity in the country.

China’s National Development and Reform Commission (NDRC) set the minimum capacity of 500,000 tonnes/year for coal-to-chemical projects.

From the ecological point of view, coal-to-olefin projects spell heavy pollution in a period when economies are targeting to reduce their carbon footprint, analysts said.

Logistics wise, high costs in transporting the petrochemicals derived from coal are likely as project sites are too far away from major consumer markets, they said.

“It is a long way off towards mass scale development,” a trader in Singapore said.

Table 1 Existing methanol to olefins projects

Table 2 Upcoming MTO approved projects (planning projects excluded)

($1 = €0.78)

Rachel Qian contributed to this article

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections