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June 2007 Headlines

The US Houston Ship Channel FERC monthly natural gas index for June is posted at $7.51 USD/MMBtu, up 15 cents from May's number. As we go to press, prompt cash Henry Hub gas is priced at $7.58 USD/MMBtu, and forward month October natural gas has sold at $8.279 USD/MMBtu.

Faustina Hydrogen Products LLC announced this month that it was granted preliminary approval of $1 billion USD in financing by the State Bond Commission for a proposed coal-based petrochemical project in the St. James Parish, southern Louisiana. Along with ammonia and carbon dioxide, the unit will produce approximately 200,000 MT/year of methanol. Faustina already has offtake agreements with Mosaic Fertilizer LLC and Agrium Inc. for the ammonia output and expects to soon complete long-term agreements for the methanol production. Construction on the $1.6 billion USD project could begin later this year, with output targeted for 2010. Faustina Hydrogen Products LLC is a subsidiary of U.S. TransCarbon LLC.

On 11 June, Methanex Corporation released an update on operations at their Chilean units, noting that they were now only running one out of the four plants at the location due to natural gas supply issues. The company noted that a labor dispute at one gas supplier and technical testing being done by another were behind the curtailment of supplies to their plants. In early May, Methanex had halted output at one of the units to optimize operations in the face of reduced feedstock. According this latest press release, production from 1 April 2007 to 10 June 2007 was 520,000 tonnes or 70% of nameplate capacity. Methanex stated that it expected gas supply to improve the following week and, accordingly, would resume producing out of the three units.

After the 1 May takeover of operations in the Orinoco River region of Venezuela, it is being reported that four of the foreign companies affected have signed memorandums of understanding with Venezuela and PDVSA regarding continued participation, share structure and compensation for their oil projects. On 26 June, BP, Chevron Corporation, Total SA, and Statoil signed agreements, while ExxonMobil and ConocoPhillips were not able to come to terms with the Venezuelan government. Press releases from Total and Statoil detailing the status of their Sincor heavy oil operations in the Orinoco Belt outlined the new structure of the joint venture, with Total now taking a 30% share (down from 47%), Statoil at approximately 10% and PDVSA 60%. Commenting on the situation, ConocoPhillips noted that, "pursuant to the (Venezuelan) decree, Petroleos de Venezuela S. A. or its affiliates will directly assume the activities associated with ConocoPhillips' interests in the Petrozuata and Hamaca heavy-oil venture and the offshore Corocoro development project." The company also stated that negotiations with Venezuela over appropriate compensation for the company's interests are ongoing. ExxonMobil has yet to issue a statement on the situation.

Supply and demand issues remain at the forefront, but with a seemingly near-balance and quiet spot pricing, the main focus this month was on Q3 contract talks, with two agreement levels emerging. On 22 June, Methanex Corporation officially posted their Q3 European Posted Contract Price at €220 per tonne, down €30 from their Q2 posting. Since then though, several buyers and sellers have agreed to €218 per tonne for their Q3 contracts. While very close in value, the two divergent agreements reflect differing opinions on the absolute level, the suppliers and contract consumers having the discussions and the method of fixture.

Over the past month, there have been several reports of new Chinese methanol projects entering the construction phase. China National Coal Group Corp. is said to have begun expanding its production base in Yilan, Heilongjiang, increasing its coal-based output there by 140,000 tonnes/year to a total 480,000 tonnes/year of methanol. Work is expected to be complete next year. Another coal-based project, this a joint venture of China's University of Mining and Technology and Hebei Xin'ao Group, broke ground in late May in Northern Inner Mongolia. The JV's proposed underground coal gasification (UCG) project will include syngas production of 1.5 million cubic meters/day and 100,000 MT/year of methanol output. Start-up is targeted for 2010. Xinjian Union Chemical has begun work on a natural gas-based complex in Kuche County, Xinjiang, China. Along with 100,000 mt/year of methanol, the site will produce 120,000 mt/year of formaldehyde and 40,000 mt/year of polyoxymethylene (POM). The start date for methanol production was not released.

The United States Senate has approved a bill that would increase the required yearly amount of renewable fuels in the nation's gasoline pool, altering the levels initially mandated by the Renewable Fuels Standard in the Energy Policy Act of 2005. Instead of the 7.5 billion gallon level for 2012, the Senate is proposing that 13.2 billion gallons be in use by 2012, with the amount to increase to 36.0 billion gallons by 2022. The House of Representatives has been at work since April 2007 on similar energy legislation.

Production at Celanese's acetic acid plant in Clear Lake, TX is still at a standstill, sending ripples through the global acetic acid market. Earlier attempts to restart the plant this month failed, necessitating further repairs, which the company anticipates will keep the unit offline until possibly mid-July. As a result, Celanese was forced to extend its force majeure declaration on acetic acid, VAM and other acetyl derivative products, with no indication on when it would be lifted. Acetic acid supplies and deliveries have been on 50% allocation since the unit originally went down unexpectedly in mid-May. As the outage has been prolonged, the allocation level is said to have reached as low as 10-20%.

It was formally announced on 29 June 2007 that two UK-based companies, BP and D1 Oil plc, have formed a joint venture with the goal towards the substantial planting of sustainable, large-scale bio-diesel feedstock via the oilseed of the Jatropha curcas tree. The new company D1-BP Fuel Crops Limited intends to invest about $160 million USD over the next five years. The project is targeting the initial planting of over one million hectares in a four-year period, with additional plantings extending beyond. The group already has access to existing land and plantations in India, Southern Africa and Southeast Asia. They are seeking to add additional plantings in the Central and South America regions.

The goal of the project is to grant exclusive access to the large reserve of oilseed stock and process it through D1 Oils' plant science production program. The subsequent oil produced will be used in the production of bio-fuels for both regional domestic markets near plantations and for the developing European demand. A spokesman for BP said that, once all projects are established, the group could be producing up to 2 million tonnes of jatropha oil per year.

This news follows the 26 June 2007 announcement that a $400 million USD investment was being planned in a UK-based bio-ethanol production facility. Involvement and ownership in the wheat-based feedstock bio-ethanol plant would be divided between BP Plc (45%), Associated British Foods (ABF - 45%) and DuPont (10%). The group will target building a 420 million-litre production facility in Saltend, Hull, UK to come online in approximately late 2009. The initial production would target bio-ethanol, but the jv will continue to study the feasibility of converting technology to manufacture bio-butanol.