Market outlook: ‘Mega-mega’ methanol plants planned in US to feed China MTO

Author: Lane Kelley

2014/09/26

The first of two units by Connell Group would be 3.6m tonnes/year, almost twice as large as the world’s largest plant

A new narrative has taken hold this year in the ongoing US methanol mania: Size matters.

The latest proposed methanol plant would dwarf all previously announced projects, including those laying claim to building the largest one in the US, which now seems such a local concept.

 

 Mega projects will require huge construction efforts

Copyright: Rex Features

The plant to be built by Connell Group of China would be built either in Texas or Louisiana – no decision yet on the location – and would be the world’s largest methanol plant, even if only half of it gets built.

The first of two units would be 3.6m tonnes/year, which is almost twice as large as the current world record-holder for methanol capacity, the 1.9m tonne/year M5000 plant in Trinidad. And Connell wants to start on another plant that size after the first one is built. The two units combined would make more methanol than current US demand, which is roughly 6-6.5m tonnes/year.

And if the Texas City site wins the bid, it would hold the title of being a truly Texas-sized plant in Texas that would be built – or at least funded – by a Chinese company.

CHINA THE LARGEST CONSUMER
What one analyst described as a “mega-mega methanol project” has become symbolic of a geographic shift that has occurred in the US methanol plant mania.

The mega-mega part is for China, which is the world’s largest producer and consumer of the petrochemical. The idea is to build mega-mega methanol plants for China in the US – three in the Pacific northwest and two in the US Gulf at last count – which would be for export-only.

“It actually makes sense,” said Chi-Jen Yang, a research scientist at Duke University, who saw this geographic shift coming almost three years ago.

Yang co-authored a paper based on Nobel prize-winning chemist George Olah’s idea of a methanol economy that would replace petroleum-based fuels and chemicals with methanol and methanol derivatives.

Yang said in the 2011 paper that the first step in Olah’s vision appeared to be happening in China, where a huge industry of coal-based methanol plants had grown up in five years. But coal-based plants carry a big downside, Yang’s paper noted: water shortages, increased carbon dioxide emissions and added volatility to regional and global coal prices.

SHALE MAKES MORE SENSE
“Making methanol from cheap US shale gas makes a lot more sense than making it from coal,” Yang said recently, speaking by phone from his office at Duke.

Besides the environmental downside, there is another reason for building huge methanol plants in the US for export-only to China. China now produces over half of the world’s methanol production, but still needs more. A sub-industry of methanol-to-olefins (MTO) plants has grown up in China in recent years. A research report from MarketOptimizer.org says that there are currently five active MTO plants in China, plus 13 planned MTO facilities with a capacity of around 9m tonnes/year.

Add to that list the mega-mega plants on the drawing board in the US, which would export the methanol to China that will be used as feedstock for the MTO plants there. Methanex and OCI have said in recent filings that China is expected to import 5m tonnes of methanol a year to support its habit.

A veteran of the methanol industry recently said that the Chinese mega-mega plants had a good chance of getting built.

“The Chinese MTO guys are going to find ways to feed their plants,” he said. “Many of these companies are tied into the government, so they’re going to get the money.”

Maybe so, but thinking big requires being able to surmount big and even huge challenges. Methanex CEO John Floren has been sceptical about the chances of building new or greenfield methanol plants in the US, despite the fact that his company has two restart projects underway in south Louisiana.

CHICKEN-OR-THE-EGG?
Floren said recently in a conference call that the Chinese projects raise a chicken-or-the-egg possibility because they are being built to supply China’s MTO plants.

“The MTO, some of it won’t go forward without methanol supply,” Floren said, “and some of that methanol supply won’t go forward without having a customer for the MTO.”

Getting any one of the projects built seems wishful thinking at best, considering the multi-billion-dollar cost of any one proposal. But if the Chinese companies do find the money for the projects, they will also need to obtain the necessary permits and satisfy environmental objections to the projects. That’s no small hurdle because the US northwest is not as comfortable with smokestack industries and particularly those that make chemicals, as the US Gulf region.

But suppose that all of the announced Chinese projects get built in Texas, Louisiana and the Pacific northwest, yielding roughly 15m tonnes of methanol a year. The Chinese plants would carry more methanol capacity than was ever based in the US, and at least five times greater than current US plant capacity now. Most of the methanol that would be produced at the proposed US plants – probably 80-90% of it – would be exported to China.

So the Chinese are not trying to horn in on the American consumer market for methanol. Their object is cheap and abundant natural gas in the US, for conversion to methanol so it can be shipped to China. Three to four weeks later the methanol will become a feedstock for making a whole world of petrochemical products from ethylene and propylene.

China is increasingly looking to methanol as an alternative to traditional steam cracking for making olefins. MTO technology has not been developed in the US, but the idea already is running in China with more plants on the way.

OCI estimates that China methanol production will increase by more than 20% this year alone, to 35m tonnes. That works out to about 60% of global methanol production this year. Methanex said global production this year will be 57m, others say 60m or more. Before the end of this decade, China methanol production is expected to double or go even higher.

Yang said the mega-mega plants that would make methanol in the US for export to China seem logical, but the movement would have a downside for China.

“It probably will kill their coal-to-methanol industry, but that will take some time,” Yang said.

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