Future global methanol supply-demand balance appears delicate

09 December 2009 00:00  [Source: ICIS news]

MIAMI (ICIS news)--Global methanol supply and demand fundamentals will remain in a delicate balance going forward despite significant capacity growth, Dewey Johnson, global business director at CMAI’s Syngas Chemicals, said on Tuesday.

Speaking at the 2009 World Methanol Conference in Miami, Johnson said price uncertainty and oscillation were likely to be prominent features in the methanol industry of the near future.

The global methanol capacity is expected to grow by 34m tonnes from 2009 to 2014, while demand is forecast to increase by only 24m tonnes, Johnson said, meaning the industry will be oversupplied on a nameplate basis.

However, he noted several factors that could upset market fundamentals, the first being if demand forecasts underestimate the impact of methanol fuel applications.

The use of methanol as a fuel additive, including direct gasoline blending; dimethyl ether (DME) for use in light propane gas (LPG); and methyl tertiary butyl ether (MTBE), is expected to grow to at least 27m tonnes, or 45% of total methanol demand by 2014, up from 12m tonnes or 30%.

However, an additional 20m tonnes of methanol demand could be seen if methanol penetration in blends of gasoline and LPG were to reach levels of around 20%, Johnson said. This would likely happen if oil prices rise and blenders look to methanol as an inexpensive blending agent.

Johnson also said China could also destabilise methanol supply because of the higher cost of natural gas there than in the Middle East.

This means the production of a large proportion of China’s capacity is only economically viable if the market value is at a certain level. As the price of methanol fluctuates, this volume could swing in and out of the market, exacerbating the price oscillations.

Furthermore, as new global capacity comes online in the form of larger plants, the quantities moving in and out of the market will too be larger, increasing the lag time between oscillations.

An analyst at the conference also pointed out that the increasing size of methanol plants would increase market risk on a global level. With larger and larger plants, the consequence of one encountering problems and going offline unexpectedly will be more severe, and the tightening effects on the market more pronounced, the analyst said.

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By: Ross Yeo
+44 208 652 3214

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