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March 2006 Headlines

Except for the recently announced second quarter methanol price hike on Europe's contract posting, the global market has settled into a stable holding pattern. Spot methanol prices in the US Gulf have been slowly easing down and are holding stable lately with a significant reduction in the number of visible trades. Consumers and producers are in a standoff on ideas for near-term price trends. North American consumers feel the posted high barge price scenario is not justified when the discount of spot to contract (15%) has grown to the current large differential. Some marketers recognized this trend and have begun to slowly decrease prices, opting for a slow and orderly decline rather than a future rapid and significant drop. Other marketers note the "not-so-tight market factors" seen today, but are suggesting to consumers to hold at current price levels, rather than lower prices now, only to see prices rise a few months away if the market should firm again on supply limitations. The debate point is the significant number of planned maintenance stops and the final European closures, with these potentially being offset by the declines in methanol demand from closing MTBE units. Of course it's easy to say consumers want price reductions, while suppliers would like to hold prices up. The tight supply and demand balance has certainly eased off lately, but new factors will be developing. In the short term, with the number of production issues to start the quarter and the increase in North American MTBE closures, the next 2-3 months are a critical transitional period.

The US Gulf-Houston Ship Channel Natural Gas FERC Index dropped a further $0.57 USD (-8.0%) to $6.66 USD/MMbtu for March. Despite a recent cold weather spike, current weekly natural gas stock levels are among the highest witnessed in years. Prompt spot natural gas prices are still declining due to the rapidly approaching end of the heating season. Forward monthly Nymex natural gas prices are recorded at higher levels, prompting gas suppliers to add to inventory. As of data for the week ending 3 March 2006, US natural gas inventories are at 1887 billion cubic feet, 54% above the 5-year average and 28% above the level recorded for the same period in 2005. As of 9 March, spot cash Henry Hub natural gas prices closed down at $6.31 USD/MMbtu. Also, as of this date, Nymex April, May and June natural gas prices closed at $6.601, $6.801, and $6.991 USD/MMbtu, respectively.

On 8 March, Trinidad & Tobago's Ministry of Energy announced that site work has begun on Methanol Holdings (Trinidad) Limited's ammonia/urea/melamine (AUM) facility at the Point Lisas Industrial Estate. The $1.2 billion USD project, which involves the construction of seven individual plants, is one of five energy-related projects that the government has endorsed and expects to break ground this year. According to the Ministry's press release, the AUM venture furthers MHTL's "long-standing intent to move further downstream," as well as "to exploit a market opportunity resulting from the shutdown of petrochemical plants in North America." Construction on the AUM facility will begin at the end of April, with completion targeted for Q1 2009.

In a related development, Methanol Holdings Trinidad Limited (MHTL) held a customer outing in mid-March, during which they presented a brief project review on their future expansion plans for methanol. This included an update on their latest expansion in Oman. The Oman Methanol Company MI project is presently on schedule in Sohar, Oman. Using a site plan similar to that in Trinidad, they have already formed the base foundation, are putting finishing touches on the office building, and are planning for construction to be completed in mid-Q3 2007. The 1.0-million tonne/year project will target the Asian market with assistance by joint venture partner Helm. Product is expected to reach the market by late Q3/early Q4 2007. A second phase expansion is presently under review.

On 7 March, Methanex announced that they secured 6 petajoules of natural gas feedstock to maintain production at the Waitara, New Zealand methanol facility at full rates through June 2006. According to company estimates, this equals approximately 230,000 tonnes, which will be used to supply customers in the Asia Pacific region.

On a related note, the President of Chile announced this month that new natural gas reserves have been found in Magallanes, southern Chile. A definitive volume was not quoted, but reports have stated that the discovery could provide up to a quarter of the country's needs. This news is in line with past statements from Methanex that additional local supplies of natural gas were being evaluated and in the long-term could help cushion against future disruptions in supplies from neighboring Argentina.

Just after mid-March, the market got word of a rapid settlement by several marketers and domestic European producers with some German buyers at a new non-discounted Q2 contract methanol price of €285 per tonne or $346 USD/tonne based on current exchange rates. The two leading German consumers, BASF and Celanese, received some criticism due to the fact that both are also methanol producers, BASF in Germany and Celanese in Canada. The initial settlement was reached with a large offshore producer and two European producers. Following initial discussion price points in the €290-310 per tonne range, the rapid settlement at a lower level might suggest some success by buyers in reaching a compromise. There was disagreement voiced by some formaldehyde-based consumers that, due to the fragile nature of their market, their ability to pass along the margin increase would be a struggle at any level but a rollover. In the current high priced market, a rollover would appear to be nearly impossible to maintain. Some buyers contend that, despite methanol supply restrictions and pending closures, volumes appear to be improving. In fact, one marketer was said to suggest that the minor improvement in stocks did partially allow for the lower settlement. Another factor behind the lower fixture was the strengthening Euro, allowing for a higher US Dollar return when compared to competing offshore markets for methanol.

Statoil recently announced their participation in an innovative joint venture with Shell using carbon dioxide in enhanced offshore oil recovery. The project would also involve methanol production, leading the company to reveal that this would alter the timeline on their previously proposed methanol expansion at Tjeldbergodden, Norway, delaying it from the initial 2007 date to late 2008.

In their annual financial results for 2005, Kingboard Chemical Holdings provided updates on its methanol projects. Their joint venture plant with CNOOC's chemical division (600,000 MT/year) in the Hainan province is set to begin trial production in Q3 2006, while construction on their Chongqing plant in Huizhou, Guangdong is proceeding, with the unit to start in 2007. The company also stated that they are "exploring the opportunity to utilize our know-how of coke-based methanol production process to manufacture methanol in Shanxi province." The Hainan Methanol facility is presently evaluating the potential for marketing a share of the production volume outside of China. No decision has been reached on the potential outcome, but a number of regional marketers have approached the group with offers to represent them.

WorldStar Energy Corp recently announced that it has decided to shelve an Indonesian methanol project that was being spearheaded through subsidiary PT MubaStar International, in which it owns an 80% share. The proposed 1.25 million tonne/year unit was to be built in South Sumatra, Indonesia, with construction time estimated at three years. Despite the fact that several MOUs were in place on the project, including those with jv partner PT Muba Chemicals, as well as a feasibility study with Lurgi, WorldStar decided to halt the project due to lack of local funding and its own inability to acquire financing.

As the US EPA's proposed 6 May expiration date of the oxygenate requirement approaches, there appears to be mounting concern over what will happen when MTBE is suddenly removed from the nation's gasoline, especially during the busy summer driving season. This month, Lyondell Chemical Company is voicing its own concerns, as seen in comments the company has submitted to the EPA regarding the direct rule the agency issued last month on the elimination of the oxygenate requirement. In its observations, Lyondell states that, without the oxygenate rule, refiners and producers feel exposed to liability lawsuits, especially since no protection was provided in the Energy Policy Act of 2005. To avoid being subject to legal action, refiners and producers are driven to drop MTBE by the 6 May date. However, as a result of this, US consumers may be subjected to supply disruptions and price spikes ranging anywhere from 5-10 cents/gallon to as high as 30-57 cents/gallon. According to Lyondell, the EPA's action runs counter to Executive Order 13211, which "requires that rules of regulations not significantly affect energy supply, distribution or use." Instead, the company is proposing that the EPA issue a transition rule that would encourage oxygenate use through the spring/summer period, as the industry transitions toward ethanol. Also, the company is calling for a full notice-and-comment review on the price and environmental effects of eliminating oxygenate use.

It seems that the refining industry is not the only one that's worried. The US Senate Committee on Environment and Public Works held a full committee oversight hearing on the impact the elimination of MTBE for 29 March. Among the witnesses giving presentations at the assembly were representatives from the EIA, the EPA, and the Renewable Fuels Association. In the testimonial it submitted to the hearing, the National Petrochemical and Refiners Association (NPRA) reiterated the industry's commitment to meet the government's new fuel requirements and provide steady, secure gasoline supply to consumers, but their efforts "may be complicated by Congress' failure to include limited liability relief for MTBE as part of last year's comprehensive energy legislation." NPRA also called on Congress to be mindful of other issues and developments that may affect the nation's gasoline supply, including the RFS ethanol credit trading program and state MTBE bans. While several members of the Senate committee expressed concern over the impact of removal of the oxygen requirement, they were also quick to point out that making a provision for liability protection was not an option.

On 26 March, Neste Oil announced that it has agreed to sell its 10% stake in the Saudi European Petrochemical Company's Ibn Zahr operations to SABIC for $120 million USD. Ibn Zahr's facilities at Al Jubail produce polypropylene and MTBE. The sale, to be completed at the end of Q2 2006, will increase SABIC's majority stake to 80%, with the remaining 20% held in equal shares by Apicorp and Ecofuel SpA. In his comments, Neste Oil's President and CEO, Risto Rinne praised Ibn Zahr, yet noted that its growing focus on petrochemicals was diverging from Neste Oil's own fuels-oriented mission, thereby prompting the sale.

Meanwhile, SABIC Europe announced this month that production has begun at its bio-ETBE unit (140,000 MT/year) in Geleen, the Netherlands, with commercial deliveries to customers to begin in early April. SABIC noted that the facility not only gives them entry into the bio-fuels market, but also is in line with the EU's European Bio-Fuels Directive. The Geleen facility formerly produced MTBE, but was converted by SABIC for ETBE output.

At least one global producer/marketer has nominated an acetic acid price increase for the second quarter. Acetic acid price hikes have been nominated at +$60 USD/tonne (+$0.0275 USD/pound) and €50 per tonne in Europe. Weak PTA demand and pricing in the Asian market have resulted in some minor spot price weakness, but acid sellers are planning on improving Q2 demand and higher feedstock prices to support their move. Higher methanol prices, linked to the chance that regional formula methanol prices might rise further under the influence of an increase in Q2 European methanol contract, are being used as a reason to seek the acetic price increases.

This month, Celanese nominated increasing its Africa/Middle East acetic acid pricing by +$60 USD/tonne (+$0.0275 USD/pound) and its European price by €50 per tonne, effective 1 April. The company is also proposing a $90 USD/tonne hike in VAM for the Africa/Middle East region and a €75 per tonne increase in Europe, as of 1 April. To-date, Celanese has not made acetic or VAM price announcements for any other global regions. Dow has announced VAM increases for 1 April as well, with Europe to rise €75 per tonne and the Middle East/Africa and Asia Pacific to see a $90 USD/tonne hike. In other pricing news, the Q1 acetic acid contract price in Europe is said to have settle at a roll from Q4, as buyers and sellers were unwilling to give each other any ground.