Uses

Methanol is one of the top five chemicals shipped around the world and is used mainly to make three derivatives: formaldehyde, methyl tertiary butyl ether (MTBE) and acetic acid.

Methanol is also used to produce adhesives for the lumber industry, such as for plywood, particle board and laminates; for resins to treat paper and plastic products; and also in paint and varnish removers; solvents for the textile industry and polyester fibres for clothing and carpeting.

Outside of the US, methanol is used as fuel for auto engines, as a fuel blended with gasoline and as an octane booster in reformulated gasoline.

Supply/demand

In the aftermath of Hurricane Ida in late August, US methanol was left in a tighter position. With soaring feedstock natural gas prices, the market has come under added pressure.

Hurricane Ida took down 33% of US production, all located in Louisiana. Since then, production sites have restarted, and shipments of methanol have resumed from the terminal and along the Gulf Intracoastal Waterway and the Lower Mississippi river.

February’s Winter Storm Uri took down 62% of US methanol production as it hit Texas, where much methanol production is located.

Emerging signs of supply availability has been seen in Q4. In October, Methanex restarted its 830,000 tonne/year Chile IV plant in Punta Arenas which was idle for 18 months.

Methanex’s Titan plant in Trinidad and Tobago was also idled in 2020 and remains idled indefinitely.

Meanwhile, methanol consumption in traditional chemical applications continue to improve. While downstream acetic acid remains extremely tight on supplies amid production issues, there is still strong demand for the product, which is likely to continue well into 2022 as inventories are replenished.

Downstream demand in energy-related applications, such as MTBE and biodiesel, were hit hardest since 2020 and despite some seasonal increases, remain slow overall.

Prices

Both spot and contract prices for US methanol have had strong gains in since the start of Q4, and that may continue given the position of markets globally.

November contracts reached a near 14-year high as they moved above the $2/gal mark. Much of the market was not expecting this large increase that has pushed the buying advantage back on the side of spot buying.

While spot activity has been quite slow for much of 2021, deals were seen done at higher levels once Q4 began. Spot prices have gained 10% since the end of Q3 and about 54% year on year, amid rising natural gas prices and volatility in the European market.

Feedstock natural gas prices have hit record highs and continue to show volatility.

“Cash costs to make methanol are increasing. In a year where methanol production has been curtailed by both planned and unplanned outages, this also likely means that methanol prices will increase,” said Josh Dillingham, director of Intermediate Chemicals at Chemical Data (CDI), part of ICIS.

Technology

The majority of methanol produced today comes from natural gas, naphtha or refinery light gas used in large-scale, low-pressure processes. This has replaced the older, less efficient method of distilling wood for alcohol that was then converted to methanol.

In a typical methanol unit, natural gas and water are converted to synthesis gas (syngas) which consists of carbon monoxide, carbon dioxide and hydrogen. The syngas is then converted into methanol in a high-pressure process using a catalyst made of copper, zinc and aluminum.

Outlook

While tightening supply availability and soaring natural gas prices have been the biggest factor in rising methanol prices globally, the demand recovery outlook lags a bit behind.

Global methanol supply issues are not expected to be resolved in the near term.

“There’s still a really high cost curve that’s underpinning methanol pricing,” said John Floren, CEO of Methanex during the company’s recent earnings call. “So, we don’t expect additional supply to come on in the next few quarters.”

On the regional supply side, idled capacity in 2020 is slowly returning to fuller production levels, led by the recent announcement by Methanex on its Chile plant restart.

Additional US supply has increased from the recently started YCI Methanol One plant in Louisiana. The plant continues to be the major focus for the market.

At the same time, increased export consumption is still a major factor for the US moving forward, but it may take more time for global markets to take in significant product. ■