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September 2006 Headlines

Tight supply and demand conditions remain in effect across most regions, this as supply constraints that severely impacted some consumers are now just beginning to be resolved and improved methanol volumes are shipping. Spot values on forward October volumes are easing back slightly in both North America and Europe, this while Asian prices that lagged the rest of the world are still rising at a slower pace. Both of the "force majeure" contract methanol supply positions are lifting, but time is still required to fill lost volumes. The AMPCO plant returned to production on 23 September following another outage brought on by a lightening strike at the location and a compressor trip. As of 25 September, they were back to full 100%+ operations, requiring only a 10-day delay in the second vessel lifting. Pending Q4 MTBE production closures in North America should return methanol volumes to the market. However, these volumes will largely benefit just a small select group of marketers, temporarily minimizing the overall impact on the world market.

The US FERC natural gas index for September was fixed at $6.37 USD/MMbtu, up one cent from August's level. Declining crude oil pricing and record high natural gas stocks are pressuring natural gas prices to hold towards the lower levels. As of 12 September, spot cash Henry Hub natural gas prices closed at $5.55 USD/MMbtu, down some 10% from a few weeks ago. Forward winter gas prices are still holding a strong premium, but have also moved down over the past few months. Also as of this date, Nymex November, December and January natural gas prices closed at $7.274, $8.884, and $9.639 USD/MMbtu, respectively.

Reflecting strong availabilities and weaker spot pricing, the US FERC Houston Shipchannel natural gas index price rose only one cent from August to settle at $6.37 USD/MMbtu for September. The US EIA data recorded for the week ending 22 September 2006 showed US natural gas inventories are at 3254 billion cf. Total US natural gas stocks now rest just below the highest level in the 12-year history of record keeping. The inventory level has been holding near steady at 12.2% above the 5-year average and 13% above the level recorded for the same period last year. The refill period is just about to close, with gas drawdown to begin with the coming of colder weather patterns. Many individuals wonder if prices will elevate to the record winter levels witnessed in the last few years or if they will hold to the lower forward levels now witnessed. As of 28 September 2006, spot cash Henry Hub natural gas prices closed at $4.17 USD/MMbtu. Also as of this date, Nymex November, December and January natural gas prices closed at $5.392, $7.037, and $7.504 USD/MMbtu, respectively. These levels are significantly below the price ranges talked just one and two months ago.

Down since its second unexpected shutdown on August 19, MHTL's M5000 plant in Trinidad began restart on 8 September, with full rates reached on 12 September. With the unit now running at its full nameplate, MHTL has lifted its "force majeure" declaration, several weeks earlier than initially expected.

On 31 August, Atlantic Methanol Production Company - AMPCO's methanol unit at Bioko Island, Equatorial Guinea restarted after being down since 15 August with mechanical problems. The company elected to reinstall the unit's old compressor in order to get it back online faster, with the plant to produce at its old rated capacity. With the unit back online, AMPCO expected to begin exporting material, as well as lift their "force majeure" declaration. However, on 16 September, lightning struck the gasification unit at the facility and the compressor was also indicated to have tripped out. The unit resumed production on 23 September, with the company indicating they were back to full production by 25 September. However "force majeure" and sales control remain in place, with regular shipments not expected until mid- to late October.

On 8 September, the Methanol Holdings Trinidad Limited (MHTL) M5000 plant at Point Lisas, Trinidad resumed production and achieved full nameplate on 12 September. Once the facility hit full rates, the company discontinued its "force majeure" declaration as of 11 September, beating initial expectations of an early October restart. Southern Chemical Corporation, which markets product from M5000, still has "force majeure" in place, but announced that it will be lifted on 1 October for the US and Mexico and on 10 October for Canada.

Metanol de Oriente S.A. - Metor's plans to boost capacity at its Jose, Venezuela methanol facility moved forward a step this month, with the company now seeking a $50 million USD loan from the International Finance Corporation to help subsidize the complete financial package for the project. The second project will also be based on MGC/MHI technology. Total cost for the project has been estimated within the range of $450-525 million USD. The partners are understood to being reviewing the final EPC details and expect to have the full and final board vote before the end of this year. A tentative start-up schedule would have the new plant coming online in the second half of 2009 at the earliest.

As we go to press, there is still a standoff on the level and widespread acceptance of a quarterly European non-discounted contract price. Methanex Corporation made an early nomination for the Quarter Four European contract price, proposing €400 per tonne, an increase of €150 from Q3. As expected, this is a rather controversial pitch that has displeased some buyers. At the time of notification, it was felt the price might be too high, but as the month developed, the price was looking closer to being correct, with some comments heard that it might represent a floor level now rather than a ceiling. In the last week, there was a growing acceptance, with several marketers willing to readily accept this price, if customers agreed. However, customers did not agree. Some stated that they objected to the rapid run up in prices and would stand firm in seeking a lower settlement. Some buyers indicated that they were seeking contract fixtures from €350 up to levels approaching €385-390 per tonne.

UPDATE (4 October): It appears that an agreement has been reached between several parties at €395 per tonne. At today's exchange rates, this is equivalent to approximately $501 USD/tonne.

On 1 September, Methanor v.o.f. in The Netherlands formally announced intentions to sell its methanol production assets to a recently formed consortium comprised of Econcern, NOM, OakInvest, and individual principals Ir. Sieb Doorn, and Ir. Paul L. A. Hamm. Under the name of Methanol Chemie Nederland (MCN), the group intends to produce bio-methanol at the Delfzijl location for fuel use to "help meet the target set by the European Union and adopted by the Dutch government of 5.75% biofuel share of total transport fuel by 2010." There are indications that one production line could possibly restart soon, using natural gas feedstock, a move that would take advantage of the current tight supply/higher pricing situation. The second production train would then likely be retrofitted to burn alternative feedstock to produce bio-methanol. The sale is targeting a formal completion in October, leading to the restart of the idled methanol production train prior to the approach of winter.

BP Refining and Petrochemicals (BP RP) methanol operations at Gelsenkirchen, Germany has just had its force majeure lifted following a successful restart of full production. The plant had been suffering reduced operating rates during the prior two months, which came to a head when the entire site was hit with a power outage on 31 August.

Russia's Sibur Holding announced that it, Tomskneftekhim LLC and Metanol CJSC are being united under the name OOO Siberian Methanol Chemical Company (Sibirskaya Metanolnaya Khimicheskaya Companiya, LLC). The three companies will each have an equal share in the new entity, which is being created to "concentrate all Gazprom methanol assets under the single management."

Atlantic Methanol Production Company - AMPCO's Bioko Island, Equatorial Guinea methanol facility resumed production on 31 August. In order to speed up the recovery from the recent production problems, the facility's owners reinstalled the unit's old compressor and restarted the plant at it old rated capacity (850,000 tonnes per year). With stock levels at the unit now recovering, the first exports parcels are now being loaded for shipment. AMPCO is anticipated to shortly readdress their force majeure situation.

Trial production runs at the new 660,000 MT/year CNOOC Kingboard methanol unit were reported to have been successful earlier this month, with mass production not scheduled to begin until January 2007. However, commercial production is now underway, with partner Kingboard already offtaking methanol for internal consumption. On a side note, CNOOC Kingboard partner and CNOOC subsidiary China BlueChemical Ltd. raised $2.66 billion HK or $342 million USD in its initial public offering (IPO) this month. Proceeds from the IPO will help fund a polyoxymethylene project at Tianye, Inner Mongolia, as well as reduce company debt and provide working capital.

The US Environmental Protection Agency (EPA), following the directive of the Energy Policy Act (EPACT) of 2005, proposed guidelines for the nation's Renewable Fuels Standard. Under the EPA's suggested program, the agency will announce an annual percentage factor each November. Refiners, importers and blenders will then use this factor to calculate their renewable volume requirements by multiplying their annual gasoline production by each year's announced percentage. The EPA has already proposed 3.71% for 2007. The agency's draft of the program also covers definitions and equivalence values for renewable fuels, a system of credits, and methods for recordkeeping, reporting and determining compliance for the program. Ultimately, the RFS will result in 7.5 billion gallons of renewables being used in the nation's gasoline pool by 2012. A public comment period on the program will run until 11 November 2006.

As expected, methanol's high price and strained availability are affecting pricing and operations in the derivative sector. On 1 September, Celanese released their proposed increases for Q4 2006 acetic acid and VAM list and off-list prices. For the US, Canada and Mexico, they are seeking a 10-cent/pound increase in acetic and VAM, with South and Central America to see a $220 USD/MT increase, Europe a boost of €100/MT, the Middle East and Africa a $125 USD/MT hike, and Asia a $100 USD/MT increase. These increases are effective 1 October or as contracts allow. At mid-month, BP announced increases for acetic acid for the Americas, with North America to see a 6-cent bump and South and Central America a $130 USD/tonne increase, effective 1 October or where contracts allow. Dow Chemical Company is proposing increases in their off-list VAM prices, effective 1 October or as contracts allow. For Canada and the US, Dow's prices will rise 10-cents/pound, while values will increase $220 USD/MT in Latin America, €100 per tonne in Europe, $125 USD/tonne in the Middle East and Africa, and $100 USD/tonne in Asia Pacific. Whether these increases are successful remains to be seen.