US methanol boom in billion dollar investment phase

17 May 2018 16:02 Source:ICIS Chemical Business

Recent announcements by US methanol producers show that the boom in North American plants that began seven years ago has reached a new plateau – the most expensive level.

Gone are the days when new methanol capacity could be brought online in the US for tens or even hundreds of millions, as happened between 2011 and 2015. The first wave of US methanol plants in 2011-2015 rolled in on the back of mostly cheap restarts.

So the cost was lower then. Before long, there was talk that the US methanol industry would bring back what had moved offshore for so many years.

US demand has increased 20% in the seven years since Canada-based Methanex restarted a mothballed unit in Medicine Hat, Alberta, which amounts to almost 3% a year – mature growth, to be sure, but growth nonetheless.

The buildout now leaves the US one plant away from being a net exporter and no longer dependent on imports from Trinidad and Venezuela. Since 2011, imports have steadily declined while exports have increased. The next level for the US methanol buildout is the billion-dollar phase. Consider the OCI Natgasoline plant in Beaumont, which the company recently said is mechanically complete and set to start up in the second quarter. This plant, at 1.75m tonnes/year, will be the largest US methanol plant in operation, and will definitely be the most expensive one so far. It already has a cost of $1.7bn according to corporate documents, and other estimates put the Texas plant cost around $2bn.

The OCI Natgasoline unit provides a clear comparison of the rising cost of methanol plants. In 2004, a plant that is roughly the same size as the new Texas plant went online in Trinidad and Tobago, just off the coast of South America, with the attraction also cheap natural gas as it is today in the US. The Atlas plant, at 1.8m tonnes/year (63% owned by Methanex), started up in early 2004 at a cost of $400m.

US methanol table

Two methanol plants roughly the same size, starting up more than a decade apart – Atlas in Trinidad with a per-tonne cost of $235/tonne in 2004, compared to OCI Natgasoline in Texas with a cost of well over $1,000/tonne and, according to market talk, probably running closer to $1,200/tonne. Economists say the cost of living doubles every 20 years or so. But the cost of a new 1.8m tonne/yr methanol plant, the latest one about to start up in Texas, has almost quintupled in price in 14 years.

The big jump in plant prices stems from rising construction costs, especially as economic activity has increased, said ICIS senior consultant James Ray. “This is driven by land, steel and labour costs,” Ray said, adding that the US is not a low-cost region in terms of construction cost. The price of building a new US plant can run as much as 40% more than other low-cost regions, he said. “But the low cost natural gas and tax structure gives the US a lower operating cost,” Ray added.

Maybe the low operating cost is offsetting the worry of rising plant costs for those who release multi-billion dollar plant announcements. The latest, from IGP Methanol announced earlier this year, involves building a four-plant methanol complex that would be larger than total US methanol capacity now, with the plants in Louisiana each producing 1.8m tonnes/year – four Natgasolines, in other words.

22 PLANNED PROJECTS

PLG Consulting compiled a list of 22 methanol projects in the US, with twice as many of them considered “not likely” compared to the ones classified as likely, and a few others classified as 2nd wave projects. Of the likely projects, three are small and three are huge projects – two with Chinese backing and one backed by the parent company of Southern Chemical.

Of the announcements PLG classified as not likely, four would be larger than the soon-to-start OCI Natgasoline project and two would be twice as large. IGP was classified as 2nd wave.

Methanol is not the only industry long on ambitious plant announcements but short on actual construction projects. PLG chief executive Taylor Robinson said the fertilizer and nitrogen industry has had a few dozen plant announcements with a lot of projects lingering in the “not likely” stage. He said lack of funding is a problem, as well as lining up a large customer. “If you don’t have a guaranteed takeaway agreement, the banks aren’t going to talk to you.”

GEISMAR PROJECT

Methanex provides another coordinate for the methanol boom moving into the more expensive billion-dollar phase. The Canada-based producer said recently it has acquired land for a third plant in Geismar, Louisiana, where it already has two units operating.

The third Methanex plant there – still in the discussion phase and a year away from a final investment decision – would be roughly the same size as the OCI Natgasoline plant, though at 1.8m tonnes/year Geismar 3 might be a little larger.

The new Methanex plant would most likely be in the same ballpark cost-wise as OCI Natgasoline, though Methanex officials have said otherwise.

A Methanex plant manager told a Louisiana town council earlier this year that the company estimates the new plant would cost $1.0-1.6bn to build.

Methanex might end up near the low end of that range if it finds a partner on the project, as Methanex chief John Floren discussed recently, but the higher figure seems more realistic. Floren said the company will try to bring the plant in under $1,100/tonne, which would still be close to $2bn.

Methanex’s Geismar 1 and Geismar 2 plants had a combined cost of $1.4bn, both essentially the same size at 1m tonnes/year each, so figure the cost of those units at $700m each. Maybe Geismar 3 will only cost twice as much as either one of the first two, but it seems unlikely considering the size of the project.

Methanol plants are by no means the only chemical units getting dearer. A recent PLG study that focused on 224 US plant projects found the cost of the latest ones will be a little more than $1bn each, roughly double what it cost to build the first 79% of the projects studied.

By Lane Kelley