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May 2006 Headlines

During the last month, spot prices have stabilized and appear to be holding. In several regions, the market is described as very quiet. Certainly, buyers are concerned about margins and price adjustments, as well as the fact that methanol contract prices in North America are lagging downward adjustments in spot prices. Spot prices in North America are still at nearly a 20% discount to posted barge pricing. However, in today's environment, it's the marketers and producers who are very active, quietly meeting supply agreements at this time of heavy maintenance outages and balancing of global volumes. A significant number of production outages have been occurring and are ongoing, keeping suppliers active in order to meet consumer offtake obligations. The prompt market appears to still be in balance. Despite the number of shutdowns, inventories appear to be adequate, rated as being medium to high in some cases. Some marketers and producers are taking a stand on contract pricing, linked to the perception that the market might yet firm again as the balance tightens due to feedstock reductions in Chile, rationalization of capacity in Europe and the large number of outages.

The May US Gulf-Houston Ship Channel Natural Gas FERC Index saw only a 6-cent increase from the prior month, settling at $6.88 USD/MMbtu. The end of the traditional heating season, more moderate temperatures and higher forward market values are contributing to the US natural gas inventory rebuild. As of the week ending 5 May 2006, inventories are at a record 1989 billion cf, 56% above the 5-year average, 32% above the level recorded for the same period last year and 53% greater than the same week in 2004. Despite near record inventories, prices are holding at elevated levels based on their relationship to crude oil and future demand/value trends. As of 10 May, spot cash Henry Hub natural gas prices closed at $6.51 USD/MMbtu. Also as of this date, Nymex July, August and September natural gas prices closed at $7.144, $7.454, and $7.834 USD/MMbtu, respectively.

The US Gulf-Houston Ship Channel Natural Gas FERC Index saw only a minor increase in May to $6.88 USD/MMbtu, up six cents from April. With the heating season over and temperatures warming up across the nation, US natural gas stocks are rebuilding. Due to the already high inventory level, the refill pace is proceeding at a slightly lower rate than in years past. As of week ending 19 May 2006, US inventories are at 2163 billion cf, 50% above the 5-year average, 28% above the level recorded for the same period last year, and 46% greater than the same week in 2004. Both prompt and forward natural gas prices are declining slightly, hovering on either side of $6.00 USD/MMbtu. As of 26 May, spot cash Henry Hub natural gas prices closed at $5.77 USD/MMbtu. Also as of that date, Nymex July, August and September natural gas prices closed at $6.154, $6.419, and $6.699 USD/MMbtu, respectively.

This month, it was announced that FirmGreen Energy Inc. (FGE) has been given approval by the Ohio Environmental Protection Agency for the construction and operation of a landfill gas processing center located adjacent to the Solid Waste Authority of Central Ohio (SWACO) Grove City, Ohio landfill. FGE is seeking to process landfill methane gas (LFG) for use in electrical production, CNG and methanol production. The current permit will allow methanol production up to an annual level of 20 million gallons or 60,150 metric tonne/year. The methanol will be used for local bio-diesel production by FGE, with Mitsubishi Gas Chemicals America (MGCA) contracted to purchase an agreed portion of the remaining volume. FGE had been seeking to build a new grass roots methanol plant, but is understood to be negotiating the purchase of the shuttered Praxair methanol facility formerly operating in Geismar, Louisiana.

This month, the significant news in the Caribbean was the early shutdown in Trinidad. On 15 May, Methanol Holdings Trinidad Limited's M5000 plant was shut down unexpectedly due to mechanical issues. The company initially expected the plant to return on 20 May. MHTL then announced on 19 May that they opted to move forward the unit's turnaround, originally scheduled for June, with the plant to remain down for another two to three weeks. Later, on 2 June, it was announced that the plant will be down an additional two weeks, but no specific details were given.

Europe remains focused on the pending contract talks and covering lost supply volumes. Methanol reductions are linked to the current AMPCO turnaround, supply restrictions from Chile and Trinidad, pending reductions due to the shutdown in The Netherlands, and maintenance stops at Mider-Helm's Leuna and the outage in early Q3 to Metafrax. The weaker US dollar from mid-month is resulting in a lower Euro return to export derivative businesses. As the Euro strengthens, the T2 value is pushed lower with a constant US dollar. Spot T2 prices have bee drifting lower, leading to the expectation of some relief in the contract price for Q3.

New developments on two methanol projects were revealed at a the recent IMPCA Methanol Conference in Singapore. Petronas announced that construction work began in April 2006 on its 1.7 million-tonne/year unit in Labuan, Malaysia. Commissioning is expected sometime between February and June 2008, with commercial start-up in July 2008. Three months before this unit comes online, the company plans to boost capacity at its 660,000 tonne/year methanol unit at the site by 15%, and is in the process of evaluating potential downstream projects, including DME, formaldehyde and methylamines. Also announced at the conference, it appears that the Oman Methanol project (1.0 million tonnes/year) at Sohar may come online earlier than scheduled. The contractual start date for the unit was set for September 2007, but the company says it may be able to bring that forward by three months. Already, the company has its first contract in place to supply methanol to Oman Formaldehyde Chemical. Two other methanol projects in Oman are being discussed, including a second phase production facility at Sohar and an independent project proposed for Port Salalah. Financial closure and EPC contracts are not yet fully in place.

Methanol production in PR China continues at a record pace, +40% year-over-year, with exports averaging the same percentage. Export volumes through the first four months of 2006 are approximately 29,000 tonnes, nearly equal to the entire volume exported by China in 2004 and over one-half the volume exported for all of 2005. Import volumes are up only slightly at 5%, with the majority of volume still moving under contractual arrangements. Domestic producers and sellers are still keen to undercut prices in specific locations in order to gain business.

Full MTBE production and trade data for the first quarter of 2006 is now available, showing the onset of the latest changes in supply and demand. The month of March 2006 showed US MTBE production ran at a rate of approximately 98 thousand barrels per day. The figure appears correct when compared to known operating production, as several facilities were still running then, but are not running now. Q1 2006 production was down 17% from Q1 2005, while net availabilities decreased 16.5%. Stocks for the first quarter of this year were down drastically, off nearly 48% from the same period last year. Meanwhile, both imports and exports for Q1 2006 are up approximately 45% compared to Q1 2005. Despite these substantial changes, estimated demand for Q1 2006 is only down about 8% compared to Q1 2005. Volumes of imported MTBE into the US are expected to show strong declines, which will be reflected in future data releases.

MTI MicroFuel Cells Inc. announced this month it will join Samsung Electronics Co., Ltd. in an exclusive partnership to develop next generation fuel cell prototypes for Samsung's mobile phones. The alliance will use MTI Micro's patented Mobion® direct methanol fuel cell technology for the prototypes. Upon successful completion of development, testing and evaluation, the two companies plan to continue their work together by entering into a product commercialization agreement.