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January 2007 Headlines

The International Maritime Organization's revised shipping regulations for oil, vegetable oils and chemicals became effective on 1 January 2007. Changes include a new category system for noxious liquid substances carried in bulk and lower permitted discharge levels, as well as stricter guidelines for transport by sea of bulk chemicals and ship construction under the International Bulk Chemical Code. Further information can be found at the IMO web site at www.imo.org.

UThe US Houston Ship Channel FERC natural gas index was announced at $5.74 USD/MMbtu for January, down nearly 20% from December's index. Recent cold weather has resulted in renewed natural gas demand that, in turn, has driven the daily spot price back up. The current cash Henry Hub spot gas price was $7.36 USD/MMbtu as of close of business on 29 January. As of the same date, Nymex natural gas futures were trading at $6.937, $7.012 and $7.084 USD/MMbtu for March, April and May, respectively. For the week ending 19 January, the Energy Information Administration (EIA) reported current US natural gas stock levels at 2,757 billion cubic feet (Bcf). Withdrawal rates have been slow due to the warmer weather patterns, but have escalated in the past few weeks. Stock levels are now running about 20.7% ahead of the 5-year average and nearly 11% ahead of this time last year.

In their recent quarterly earnings release, Methanex Corporation outlined developments in the ongoing situation in Argentina with regard to natural gas supply. As reported in July 2006, the government of Argentina announced plans to assess an increased export duty tax of $2.25 USD/MMbtu on natural gas sales, starting in October 2006. Methanex sources approximately 60% of its natural gas supply for the Chilean operations from Argentina. At the time, the company commented that it had protection from these duties and would work with suppliers to address the situation. For Q4, that strategy involved interim agreements with its suppliers to share responsibility, with Methanex shouldering an estimated 50% of the export duty. As a result, the company accrued "an additional $26 million USD to record the estimated cost of sharing of export duties for natural gas consumed in 2006." Most of the accrued duty would be reflected in Q1 2007 earnings. Methanex is stressing that this is only an interim arrangement, and they are working with their multiple suppliers to reach longer-term agreements, as well as exploring alternative sources of supply.

At the end of December, the partners involved in the Metor II expansion formally announced that full funding for the project (850,000 tonne per year) is now in place. The full turnkey construction contract has been concluded with Mitsubishi Heavy Industries Limited for the Mitsubishi Methanol Process. Construction is currently scheduled for completion in the third quarter of 2009, with commercial production from Q4 2009/Q1 2010.

The debate over Europe's Q1 2007 contract methanol price dragged from early December into mid-January, with much contention between buyers and sellers. Having extremely limited spot sales at elevated pricing with which to align ideas, sellers indicated they would seek increases up to levels of €440-460 per tonne, non-discounted. A major offshore supplier then made the first move by announcing and posting their referenced European Posted Contract price at €440 per tonne in early January. A major formaldehyde producer took a strong position with their suppliers over the idea of any increase, strongly arguing that the €410+ per tonne spot prices that were debated and referenced were not an accurate gauge. A large portion of consumers sought to hold the price at Q4's level of €395 per tonne, or at the very least they showed a willingness to accept a minor increase. Finally, just before mid-month, a settlement between the largest European producer and a major formaldehyde producer was reached at €420 per tonne non-discounted or approximately $543 USD per tonne on current exchange. A number of other marketers and consumers were quick to reach agreement in support of this level, leading to its widespread acceptance. Methanex Corporation has since revised its European posting to the €420 per tonne level for Q1.

Davy Process Technology and Johnson Matthey Catalysts announced this month that they were awarded the contracts for a new natural gas-based methanol unit in PR China. JM and Davy will supply technology, basic engineering design and catalysts for Qinghai Zhonghao Natural Gas Chemical Co. Ltd.'s proposed 2000 MT/day (approx. 680,000 MT/year) methanol unit to be built in Geermu City, Qinghai Province. Chengda Engineering Corporation of China will provide detailed engineering.

In the company's recent earnings conference call, principals at Lyondell Chemical Company noted that the Channelview, Texas MTBE unit underwent work in Q4 to give the unit flexibility to produce either iso-octene or MTBE. The plant produced iso-octene for one week, before problems forced the unit to shut down. Lyondell restarted the plant to produce MTBE in early January, while the company's technical staff work to resolve the iso-octene production issues. The spokesman also commented on Lyondell's European MTBE operations, stating that the Rotterdam unit will be converted in Q1 2007 to ETBE production. The unit in France, which is already able to produce either MTBE or ETBE, will continue to be campaigned flexibly, but ultimately the company envisions that their European units will produce ETBE exclusively by the end of the year.

EHaldor Topsoe announced they have secured contracts to supply technology for two separate DME projects in China. The first is a coal-based complex for Guishou Tianfu Chemical Co. Ltd. to be located in the Guizhou province. Topsoe technology will be used at the ammonia and methanol units planned for the site, with the methanol to be used to feed a proposed 180,000 MT/year DME plant. The other project, for Yunnan Riches Chemical Industry Co. Ltd., is for a 167,000 MT/year DME unit to be built in the Yunnan Province. Both units are slated to begin production in 2009, with the DME intended for the domestic fuels market.