28 February 2014 09:51 [Source: ICB]
With 10 new methanol “mega plants” being planned in the US, the world may be seeing the first phase of the Methanol Economy as imagined by George Olah
The first phase of Nobel prize-winning chemist George Olah’s big idea about methanol began materialising a few years ago in Canada, when Methanex restarted a mothballed plant in Medicine Hat, Alberta.
About the same time, US natural gas prices dropped below $2/MMBtu. A few more plant announcements appeared, and talk started about the renaissance of the US methanol industry, which had shut down in 2004-2005 because of high natural gas prices.
Then came what seemed like a land-rush of chemical producers, suppliers and energy companies, each with a press release touting a plant that would cost $1bn or more and produce 1m tonnes of methanol a year or more, or so it seemed.
Each announcements promoted the lure of cheap gas from the North American shale boom, and skyrocketing methanol prices provided some urgency to the boom.
The shale gas boom has put the Methanol Economy on the fast track Copyright: Rex Features
Olah referred to such activity, albeit very briefly, in his 2006 book, The Methanol Economy (co-authored by Alain Goeppert and G K Surya Prakash, fellow chemists with Olah at the University of Southern California).
The shale gas boom has put the Methanol Economy on the fast track
Copyright: Rex Features
Olah’s big idea is that methanol could become the ultimate feedstock for practically everything that keeps the world running, from the gasoline that fuels our cars to the chemicals that go into the clothes we wear, and the walls and floors of the houses we live in.
Even more enticing, Olah explained how methanol could be made – theoretically, at least – without any fossil fuels. Hence the book’s subtitle, “beyond oil and gas.”
Yet the problem with such game-changing solutions, as Olah noted in a recent update, is money.
Big energy and chemical companies could lead the way in developing the Methanol Economy, Olah said, but they are not motivated to get beyond oil and gas – far from it, in fact.
During an historic shift in global energy production, with the US and North America set to become a global energy powerhouse again because of the shale boom, chemical and energy producers are revelling in the thought of monetising cheap natural gas from shale formations.
THE PROJECT BOOM
Olah alluded to the methanol plant boom in a preface to the book’s second edition, noting large million-tonne per year “mega plants” being developed using natural gas as a feedstock. This is the first phase, as Olah sees it.
The US and North America could become import-free zones for methanol in this phase, within just a few years. Three plant announcements in 2013 would more than triple current US capacity. Assuming that all of the proposed methanol projects are built – a huge assumption, say industry sources – the new plants would represent capacity more than double current US demand.
In fact, the methanol mega-plant boom has now reached the point where some big names want to back a few export-only plants in the US.
No one is beyond oil and gas yet, but they are already thinking beyond America for ways to capitalise on its cheap gas. An announcement in January that called for two 1.6m tonne/year methanol plants in the Pacific Northwest on opposite banks of the Columbia River, is by far the largest project yet. The plan is to ship all of the methanol made there to China.
However, the methanol plant mania is not an isolated phenomenon. The race to monetise cheap US natural gas has also produced a comparable number of new plant announcements for ethylene plants, with 10 projects so far that would increase US ethylene capacity by 51% if all are built – also a big if, according to industry sources.
HOW MANY PLANTS?
The methanol proposals make for intriguing bar talk and lunch chatter, that of wondering which projects make it to the ground-breaking stage.
A stock analyst last year said that only 60% of the methanol projects would be built, and that was before four plants were added to the list. It’s not hard to believe him, considering what it would take now to make the country methanol self sufficient.
The US imported 5.5m tonnes of methanol in 2013. Any five of the 8-10 announced methanol projects that have been announced would cover all of the imports and then some, and that’s not counting the three North American plants that are already running.
Some methanol observers laugh when asked about the announcements, and there are those who think the phenomenon could be evidence of a game change at work. One change obviously would be a methanol-to-gasoline shift. G2X and Southern Chemical are working on a methanol to gasoline plant at Lake Charles, Louisiana and there are other similar projects said to be in the works.
Olah co-authored an editorial in the Wall Street Journal in October 2013 explaining that converting natural gas to methanol “can be a game changer, because shale gas can immediately be put to use as liquid transportation fuel”.
Another obvious idea, suggested by the recent BP-China announcement backing plants in the Pacific Northwest, is exports.
Say the US builds enough capacity to where it no longer needs to import methanol – an end that seems to be within reach in the next 2-3 years – and say an extra methanol plant or two gets built. That would leave enough material for a substantial export market to be developed. This would, of course, put the US in competition with its current top sources of methanol imports, Trinidad and Venezuela.
BUILD IT AND THEY WILL COME
And then there is what might be called the “build it and they will come” theory, previewed by a savvy methanol source recently.
More capacity could create its own demand, provided that methanol prices do their part and take a swan dive down to $1/gal or so, a falloff of about 40% from current spot prices. Lower methanol prices will make chemical producers happy – or at least those who use methanol as a feedstock. “The demand will change if that happens,” he said.
But those who ponder such possibilities should heed the warning of Methanex CEO John Floren.
In a January conference call, Floren said Methanex was seeing some cost-creep for the two plants the company is moving from Chile to Louisiana by ship. The project originally was estimated to cost around $1bn, though Floren would not provide specifics on the latest estimate.
Regarding the lengthy list of methanol plant proposals, though, Floren said it would be tough to build any of them because of a looming labor shortage in the US and the high cost of such projects.
Floren said the cost of building a new plant now is approaching $1,000/tonne – or $1bn for a 1m tonne/yr plant. “I think we’re going to be in a very difficult environment for newbuild projects,” he added.
Additional contribution by Joseph Chang
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