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May 2007 Headlines

Except for some minor price adjustments in select locations, the major markets remain very quiet. Spot sales have been light in all regions, with consumers largely covered. The large number of methanol production outages is limiting the pressure on producers to move material aggressively. Overall, stock levels are not yet low enough and demand not strong enough to result in a widespread price rebound. A number of differences exist between the current supply situation and the one that was present a year ago, including weaker Chinese imports, curtailed demand, outages being spread out between a larger number of smaller capacity facilities, and the availability of new methanol production volume.

Perhaps suggesting things to come, the US FERC Houston Ship Channel natural gas index continued to rise in May, being fixed at $7.51 USD/MMBtu, up 8.7% (+0.60 USD) from April's level. This is the highest level seen since January of 2006. Spot natural gas pricing was high at the end of April, reflecting the impact of the cold weather patterns on the market. Gas stock levels are rebuilding again. Inventories are actually above those reported at this time last year.

As first announced in February this year, the Venezuelan government took operational control of all Orinoco River oil projects on 1 May. Foreign companies BP, Chevron, ConocoPhillips, ExxonMobil, Total, and Statoil ceded operations to Petroleos de Venezuela (PDVSA), which will also take majority share ownership of at least 60% in the projects. Compensation for the takeover was under negotiation. After the takeover, Chevron and ConocoPhillips were hit with millions of dollars worth of tax bills from the Venezuelan government.

On 31 May, Methanex announced that financial close had been reached for its joint venture EMethanex project to be located at Damietta, Egypt. According to the company's press release, "The forward funding requirement for the Engineering, Procurement and Construction (EPC) and Owners' costs is approximately US$810 million; US$530 million of limited recourse project financing has been secured." The JV partners plan to build a 1.26 million tonne/year methanol unit, with Methanex to offtake 100% of the output. Techint will manage the project, with Egyptian firms ENPPI and Petrojet to handle engineering and construction, respectively. Methanex has a 60% stake in the venture, with Egyptian government partners Echem and EGAS holding 12%, Egypt's GASCO at 9%, and Arab Petroleum Investments Corporation (APICORP) having 7%. Commenting on the project, Methanex President and CEO Bruce Aitken noted, "The Damietta site also has the potential to add additional methanol trains in the future that would benefit from economies of scale and synergies from this first plant. We believe there are also some interesting opportunities for growth of methanol derivatives to supply the Egyptian market and we have recently signed an MOU to investigate the development of a dimethyl ether (DME) facility in Egypt."

The Brunei Methanol Company Sdn Bhd (BMC) project is progressing well, having secured financing early this month to fund the building of its 850,000 mtpy methanol plant in Sungai Liang, Belait District, Brunei Darussalam. Joint venture partners Mitsubishi Gas Chemical, Brunei National Petroleum Company Sdn Bhd, ITOCHU Corporation, and the venture's financial advisor Bank of Tokyo Mitsubishi UFJ, Ltd. signed financing agreements with the Japan Bank of International Corporation (JBIC) for approximately $400+ million USD, with the financing on a limited recourse "Project Finance" basis. BMC expects the plant to begin commercial output in 2010.

Dow Chemical Company and China's Shenhua Group signed a cooperation agreement on 14 May to conduct a feasibility study on a proposed coal-to-chemicals complex for the Shaanxi Province, PR China. The feasibility study is expected to take two years to complete, after which the companies will decide whether to submit a project application to the Chinese government. Initial plans involve the conversion of coal, using "clean coal" technologies, to methanol, which will be used to produce ethylene and propylene. Output will then be used as feed for a variety of other chemical products.

Thanks to a unanimous decision by the U.S. Court of Appeals for the Second District, the state of New Hampshire will try its lawsuit against oil companies for MTBE contamination at the state court level, where the suit was originally filed in 2003. New Hampshire is seeking full recovery for statewide contamination of drinking water supplies. The oil companies had requested the case be removed to federal district court, which denied the state's request to keep the suit in state court. However, the appeals court agreed with the state's assertion that there was no federal jurisdiction over the case, so the suit is now remanded to state court.

This month, Fluor Corporation announced they have been granted the engineering, procurement and construction (EPC) contract for SIPCHEM's proposed Jubail, Saudi Arabia acetyls complex, including acetic acid and VAM production, as well as a utilities plant. The contract is valued at $1.0 billion USD. According to Fluor's press release, construction on the project began this month, with completion slated for December 2008.

Hexion Specialty Chemicals announced on 16 May the formation of a joint venture with OAO Shchekinoazot to produce resins for the forest products and construction markets. Under the name Hexion-Shchekinoazot, the JV will construct a resin production hub, using Hexion technology, in Russia's Tula region. Initially, the unit will produce phenol formaldehyde resins, expanding later into urea formaldehyde resins and other thermoset formaldehyde derivatives. Production is slated to begin by the end of 2007. OAO Shchekinoazot will provide raw material UFC and formalin for the unit. Later in the month, Hexion announced it had reached a definitive agreement with Arkema GmbH to purchase their German urea formaldehyde and resins businesses based in Leuna. Financial details were not disclosed. Pending regulatory approval, the deal should be finalized in Q3 2007.