Rising spirit

06 June 2005 00:01  [Source: ACN]

The growing interest in large-scale methanol plants is expected to upset the global demand and supply balance. Can the potential of new applications be realised in time to avert this situation? A report by Malini Hariharan

Methanol production is projected to grow steadily over the next few years given the strong interest in building mega plants in gas-rich countries.

Despite predictions of an impending oversupply, most companies are moving ahead with their plans. Global methanol capacity is projected to rise from around 40m tonne/year to about 48m tonne/year by the end of this decade. Consumption during the same period is likely to grow from 33m tonne to around 35m tonne.

The new mega plants will put pressure on the smaller uneconomic capacities located in regions with high feedstock costs. Consolidation and rationalisation of capacities would be needed to keep the market as well balanced as possible.

Searching for new markets

But the story could be different if new applications for methanol take off quickly. A lot has been written about the latent potential of applications such as alternative fuels, fuel cells and methanol-to-olefins (MTO), although these currently account for a very small percentage of total methanol consumption.

According to Methanol Market Services Asia (MMSA), the current market size for methanol in gasoline blends is only 150 000 – 400 000 tonne/year. Biodiesel accounts for 200 000-250 000 tonne/year, while the dimethyl ether (DME) sector consumes about 50 000-80 000 tonne annually.

On the other hand, the potential is immense. The new uses for methanol could radically alter the demand landscape by requiring literally dozens of new worldscale production facilities.

A rough estimate, calculated by MMSA as a replacement percentage of existing global demand, indicates that 15m-35m tonne of methanol could be absorbed for gasoline blends. Biodiesel and DME could take 25m-40m tonne and 10m-15m tonne, respectively. Another promising sector is MTO which has the potential to absorb as much as 20m-30m tonne. However, a number of challenges will have to be overcome to reach anywhere close to these numbers.

Mark Berggren, managing director of MMSA, points out that blends of methanol with gasoline, usually about 10-15% of methanol by volume, are in use, particularly in China. The downside to this is that blends require their own distribution networks, and methanol in gasoline poses potential environmental legislation.

Growth in biodiesel and DME

Interest in biodiesel is growing in Europe, Asia and the US. Manufacture of this fuel involves the amalgamation of methanol with vegetable or other plant oils to give a form of diesel that contains no sulphur. However, Berggren points out that ethanol can be used at the expense of methanol in this sector. As with MTBE, one can expect ethanol interests to pursue this application diligently.

Currently, DME demand is mainly from the aerosol sector, but it could emerge as a replacement for liquefied petroleum gas (LPG) in the future. Other uses include power generation and as a transportation fuel.

The LPG market is said to be attractive to DME producers as it offers annual growth rates of 5-6%. According to the International DME Association, studies have shown that DME can be shipped from Australia to Japan at a cif price of US$3.70-5.00/mmbtu, much lower than local LPG prices.

With its huge energy requirement, China has the potential to consumer large volumes of DME. Shandong Jiutai Chemical Industry Technology Co, which manufactures DME, is confident of demand growth in the country from the aerosol and automobile sectors. The company’s vice general manager Zhang Jianping identifies DME as an ideal fuel for diesel and gasoline engines, as well as a replacement of Freon in aerosols.

Zhang expects Chinese demand in the aerosol sector to rise from 220 000 tonne in 2007 to 300 000 tonne in 2010. Consumption by the automobile sector is projected to increase from 3.73m tonne to 8.24m tonne during the same period. Use of DME as a household fuel is projected to rise from 12.26m tonne in 2007 to 19.23m tonne.

Ambitious plans

Such robust projections have spurred interest in new projects. Shandong Jiutai has an ambitious long-term plan to produce 1m tonne/year of DME and 1.5m tonne/year of methanol. Its first step is an integrated methanol and DME project in Erdos, Inner Mongolia, which will yield 300 000 tonne/year of DME when it comes on line at end-2006.

Other Chinese companies pursuing DME include the Xin Ao Group which hopes to commission a 600 000 tonne/year methanol and 400 000 tonne/year DME project in Dalategi, Inner Mongolia, in 2007-08.

The Yunnan Jiehua Chem Group recently revived its project in Yunnan, after successfully marketing product from a 5000 tonne/year unit. The 200 000 tonne/year methanol and 150 000 tonne/year of DME project is planned for start-up in H1 2007.

And the Lutianhua Group’s 400 000 tonne/year methanol and 100 000 tonne/year DME project in Luzhou, Sichuan, is slated for start-up in June.

Outside China, National Petrochemical Co (NPC) is building an 800 000 tonne/year DME plant in Iran. According to the country’s Research Institute of Petroleum Industry, DME is used in Iran for blending with LPG. The country plans to blend 20% of DME (400 000 tonne/year) with LPG.

While the potential for DME is very clear, there are many obstacles that need to be overcome first. Large integrated projects will be needed to meet the projected demand, and such projects would have to compete for capital. Use of DME or any other alternative fuels involves additional infrastructure and distribution costs.

Zhang is of the opinion that the cost of producing DME in China should not exceed Rmb3000 (US$362)/tonne for the product to be competitive with LPG.

Technology issues, such as development of reactors for large-scale production and new catalysts, will have to be resolved. Support from the Chinese government in the form of favourable investment and taxation policies will also be required. And public awareness about the product will need to be increased.

Other applications

Other promising applications are MTO and methanol-to-propylene (MTP). Two MTP projects are underway in Iran, one by Fanavaran Petrochemical and the other by Idro. Fanavaran’s plan is to build a 150 000 tonne/year propylene unit by early 2009. Idro plans to build a 1.6m tonne/year methanol and an associated MTO unit by 2008.

MMSA’s Berggren says that MTO processes have been developed on significant scales. But to be competitive, methanol prices could well be below producers’ expectations in today’s market.

And the economics of MTO/MTP plants have often been questioned because locating an olefins plant in a remote methanol production site would involve huge transportation costs.

Interest in new applications is certainly growing given the current environment of high-energy prices. But it is still difficult to predict when the volumes will start to flow.

As Berggren puts it: ‘Eventually significant development of these markets will have to come from efficiencies in the methanol-based processes relative to existing processes. This will require significant capital and resource outlay, and will also require a long-term strategic mindset.’

Until this happens, traditional applications such as formaldehyde and acetic acid will dominate.

METHANOL producers have traditionally hesitated to integrate downstream because of financial risks, and lack of adequate market knowledge. Derivative markets are also much smaller than methanol. But there are opportunities for integration, points out Mark Berggren of Methanol Market Services Asia,

The consultancy has estimated the affordability of methanol by various derivative applications, which show that methanol can be priced at significantly high levels without impacting derivative demand for a good number of applications. Simply stated, methanol provides significant value to its users, says Berggren.

Affordability refers to the price that methanol can reach, using typical pricing for derivatives and other raw materials, and reasonable values for variable and fixed investment costs with a margin for return on investment.

Berggren says a downstream integration strategy would enable producers to not only capture the value down the chain but also mitigate loss in margin when methanol prices fall from the current high levels.

Moving further down the chain offers even more value; for example, to formaldehyde resins, 1,4 butanediol or vinyl acetate monomer and acetate esters.

Developing methanol markets (’000 tonne)
Application Current market Potential market*
Alternative fuels
Gasoline blends 150-400 15 000-35 000
Biodiesel 200-250 25 000-40 000
Dimethyl Ether (DME) 50-80 10 000-15 000
Fuel cells 2-3 3000-8000
Methanol-to-Olefins 5-6 20 000-30 000
Direct combustion (eg power generation) 0 40 000-60 000
* Rough estimates of peak demand calculated as replacement percentage of existing global demand as a substitute, for discussion purposes SOURCE: MMSA
Downstream options

Methanol value by end use

Methanol Enduse ASP price range
Typical Other Prices Feeds (US$/tonne) Methanol affordability* (fob Persian Gulf) Methanol Consumption 2009**(’000 tonne)
Low High
Formaldehyde (37% aq, MeOH free) 140 550 240 air, steam 143 15 357
Acetic acid 285 810 430 carbon ?monoxide 203 3970
MTBE 170 780 390 n-butane 187 6620
Methyl methacrylate 900 1950 1200 Acetone cyanohydrin 570 1273
Methanethiol (methyl mercapatan) na na 1100 H2S 1025 528
Methylamines 850 1650 1060 Ammonia 893 933
Methyl Chloride (chloromethane) 550 1010 710 Hydrogen chloride 487 1859

* Affordability is a calculation of the price of methanol that would enable typical costs (using MMSA models) plus 12% return netback; actual affordability is variable and dependent on numerous factors ** Estimate SOURCE: MMSA

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