Two methanol majors see methanol supply tightening in the next few years and a positive market outlook

Recently, major global methanol producers OCI Netherlands and Methanex expect the global methanol market fundamentals to keep developing in the medium to long term, driven by strong demand growth and limited capacity additions, but supply will tighten. Demand for methanol will rise further sharply as the low-carbon hydrogen economy develops, the companies said.

Methanol market has a positive medium-term outlook

Despite significant increases in methanol production costs due to record high European natural gas feedstock prices and a pessimistic short-term outlook for methanol prices, OCI said methanol prices are supported by high oil prices because it is much cheaper than LNG and gasoline and can be used globally as a lower-cost, cleaner alternative fuel. OCI shut down its methanol plant in Delftzell, Netherlands, last June due to high natural gas feedstock costs in Europe and has not yet announced a date to resume production. in its recently released second-quarter earnings report, OCI said the long-term fundamentals of the global methanol market are supported by strong demand from downstream and high crude oil and coal prices.

Methanex said the global methanol market has tightened going into 2022, with supply still constrained by low industry starts. Higher energy prices due to the Russia-Ukraine conflict, combined with a 3% increase in global methanol demand in the second quarter compared to the first quarter, provided further support for the methanol cost curve, said John Florent, chief executive officer of Methanex, in a recent second-quarter earnings release. Methanol-to-olefin (MTO) plants continued to run at high capacity and demand for methanol in traditional chemical applications rebounded in the second quarter, Florent said. Methanol prices remained strong in the second quarter, but fell slightly sequentially due to increased supply and short-term bearish sentiment. Methanex realized an average methanol price of $422 per tonne in the second quarter, down $3 per tonne from the first quarter. Our demand outlook remains stable going into the third quarter despite global economic uncertainty," said Florent. We believe that even with lower than expected GDP growth, methanol's medium-term demand growth will outpace supply growth and the market outlook is positive."

Tight supply fundamentals to persist

OCI expects methanol market fundamentals to tighten from 2022 to 2027, with new demand expected to outpace new supply by 7-8 million tons per year and no major new capacity expected to come online globally this year, OCI said, giving the firm strong visibility into the methanol medium-term pricing environment. The company added that methanol demand expectations do not include substantial additional growth from hydrogen fuel demand, particularly from road and marine fuel applications. oci said methanol demand growth in the near to medium term is expected to be supported by a rebound in fuel consumption levels in China, with higher oil prices supporting methanol substitution for other fuels. In addition, traditional demand for methanol will remain firm, and high energy and olefin prices in China support MTO start-ups above 80%.

Methanex expects that in the long term, demand for methanol from traditional chemicals, which account for more than 50% of total methanol consumption, will be influenced by the strength of global and regional economies and the level of industrial production. We believe that demand for methanol in energy-related applications will be influenced by energy prices, end-product pricing and government policies," said Florent. Government policies are playing an increasing role in encouraging new applications of methanol due to its emissions benefits as a fuel." Florent noted that demand for methanol as a marine fuel will continue to grow, with more than 80 methanol dual-fuel vessels currently in service or under construction worldwide. This represents a potential demand of 1.7 million tons/year of methanol. Methanex said that future MTO producer start-ups and methanol consumption will depend on a number of factors. These factors include the pricing of the company's various end products, the degree of integration of MTO units with downstream product production facilities, and the relative competitiveness of feedstock costs for the olefins industry.

Methanex expects the majority of methanol capacity additions in the coming years to occur in North America, the Middle East and Asia. Methanex is building a new 1.8 million tons/year methanol plant in Geismar, Louisiana, USA. This will be the company's third methanol plant there and is expected to be ready for production in the fourth quarter of 2023. In Iran, Methanex is continuing to advance its 1.8 million mt/year Tina methanol plant. The plant is scheduled to be completed in the next few years. Methanex said, "The completion of major methanol projects in Iran and current plant start-ups continue to be impacted by sanctions, plant technical issues, and natural gas restrictions, particularly during the winter months." In addition, there is a 1.8 million mt/year methanol plant under construction in Malaysia, scheduled for completion and commissioning in 2024, and some additional methanol capacity in China in the near to medium term. Florent said, "We expect the new capacity in China to be consumed domestically."

Soaring natural gas prices

With natural gas prices expected to remain high for the remainder of this year and into 2023, both Messenius and OCI announced that both companies have hedged a significant amount of their natural gas feedstock requirements.

In North America, Messenius has hedged 85 percent of its natural gas requirements for next year at prices significantly below current spot prices and 65 percent for the remainder of the year in order to be able to continue operating methanol plants in the event that U.S. spot natural gas prices make methanol production uneconomic. Florent said, "Natural gas is our largest input cost, accounting for 50% of our cost structure, and we expect natural gas supply and prices to be stable, either on a fixed or hedged basis."

OCI has locked in 50 percent of its natural gas needs in the U.S. for 2023 to 2029 at $4.30 per million British thermal units. This gives the company strong price stability for more than 90 percent of its long-term natural gas needs. This includes the natural gas supply contract for Fertiglobe, OCI's ammonia and urea joint venture with Abu Dhabi National Oil Company. Currently, less than 10% of OCI's natural gas supply is subject to European market fluctuations.