Natgas/oil gap revives Alberta methanol plant - Methanex CEO

16 September 2010 21:13  [Source: ICIS news]

Methanex CEO Bruce AitkenHOUSTON (ICIS)--The restart of a Methanex plant in Medicine Hat, Alberta, allows the methanol producer to take advantage of the disparity between oil and natural gas prices, its chief executive said on Thursday.

"I never dreamed in my wildest dreams that we would ever restart that plant," Methanex CEO Bruce Aitken said at a conference in New York.

Natural gas is the primary feedstock for most North American methanol plants. However, methanol pricing closely follows that for crude oil.

As a result, the current disparity between crude and natural gas makes reopening the Alberta plant a wise move economically, Aitken said.

"That's what we're doing at the moment, taking advantage of that arbitrage," Aitken said.

Already, the recent plunge in natural gas prices allowed the company to buy a year's supply for the plant at under $4/MMBtu, Aitken said.

In the past, crude oil and natural gas prices had not gaped so widely.

From 1995 to 2005, they tended to track each other, according to the Energy Information Administration (EIA).

As a general rule, a 6:1 ratio existed between oil and natgas prices, because a barrel of oil contains about six times the energy content of 1,000 cubic feet of natural gas.

Based on current oil prices of around $75/bbl, natural gas would be about $12.50/MMBtu under the 6:1 rule.

Yet natural gas is currently under $4/MMBtu, and the EIA forecasts that there will be a "persistent disparity" between the two commodities over the next quarter century.

Since crude peaked in July 2008, oil prices have dropped 48%, while natural gas has plunged 67%, according to ICIS.

The disparity has persisted so far this year, with crude futures at $74.57/bbl, down about 6% from $79.28/bbl at the end of 2009.

By contrast, natural gas futures have dropped more than 29% in 2010, from $5.71/MMBtu to $4.06/MMBtu.

($1 = €0.77)

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By: Lane Kelley
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