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October 2005 Headlines

Despite reductions and disruptions of natural gas supplies and record levels for daily spot price quotes, the US Gulf Houston Ship Channel Natural Gas Index jumped to only $10.46 USD/MMbtu in October, up 7.6% from September. Nearly 66% of the total natural gas production in the US Gulf is still reported as shut-in, a 15% improvement from the previous week. As previously reported, the Henry Hub natural gas collection center has been closed and under "force majeure" conditions since 22 September, with price quotes suspended during this period. On 6 October, the hub reopened for partial deliveries, and price quotes were resumed. As of close of business on 7 October, the spot prompt Henry Hub price was $13.74 USD/MMbtu. Forward months are still showing a premium, with November, December 2005 and January 2006 posting elevated Nymex gas prices of $13.226, $13.762 and $14.141 USD/MMBtu, respectively.

The US Gulf Houston Ship Channel Natural Gas Index increased by 7.6% from September to $10.46 USD/MMbtu in October. Some had expected the FERC Index to be higher in the face of the recent supply disruptions and record daily spot prices. With winter weather only now beginning to enter the mix, natural gas prices have firmed up. The Henry Hub cash gas price, as of 24 October, was $13.01 USD/MMbtu. As of the close of business on 25 October, Nymex posted gas prices for December 2005, January and February 2006 at $14.462, $14.779 and $14.614 USD/MMBtu, respectively.

The mild start to the US fall/winter period has allowed natural gas inventories to recover despite the still large number of production issues existing in the US Gulf. Production problems and rig damage remain in place following the two recent hurricanes. As of the 21 October 2005 reporting date, current US natural gas stock levels were at 3139 Bcf (Billion cubic feet), 2.8% over the 5-year average, 1% over the level witnessed in 2003, but 3% below the level for the same period in 2004.

For the current period, methanol production facilities in Chile, Trinidad and Venezuela are indicated to be running at full rates. Looking forward, the only turnaround noted is for the Chile I plant, scheduled for the start of the third quarter 2006. Late in September, Methanol Holdings Trinidad Limited (MHTL) formally announced that it had reached commercial production at their new M5000 facility. The plant was said to have reached full nameplate production levels from just prior to mid-October. In new project news, it has been indicated that further progress has been made in the planned Metor II methanol project under review in Venezuela. The venture had been stalled due to political and feedstock related issues, but these now appear to be resolved. The project has just begun to move forward, with final engineering and procurement contracts and financial lending arrangements.

At the end of last week, a German producer fixed with several major German consumers at a rollover of €220 per tonne for the fourth quarter. Meanwhile, Methanex has nominated a position to increase the Q4 contract price to €235 per tonne, while another marketer has been heard at both €235 and €240 per tonne for their contract position. Lastly, there is the Methanor €250 price reference. Thus far, we do not have direct confirmation from consumers who have said that they would be willing to formally accept this position. As of the close of business on 30 September, no further formal agreements have been heard, with the situation likely to roll into the first week of October. This rapid disagreement in the price and method of fixture has once again raised the issue of how the price is fixed in Europe and whether it should continue in its current form.

For the majority, the contract price was fixed and agreed by several at a rollover quarterly non-discounted price of €220 per tonne or approximately $266 USD/tonne at today's exchange rate. A slight recent shift in the exchange rate due to a weaker US dollar is resulting in a slightly higher US dollar value on conversion. At the end of September and entering early October, the European market was at the most active we have seen in some time. With Methanor's announcement that they would close a single production train due to economic factors, numerous marketers were quick to seek higher contract pricing in the fourth quarter, despite the lag in spot pricing. However, a number of final agreements by regional producers supported the €220 level in the end. Several sellers are still in disagreement with this fixture of the stable level. Methanex is posting their €235 per tonne reference price, independent of the accepted lower fixture.

The joint venture between Egyptian Petrochemicals Holding Company (ECHEM) and Methanex Corporation moved a step forward earlier this month, with the European Investment Bank (EIB - Luxembourg) announcing the review of a potential financing package of €170 million (approximately $200 million USD) toward the total cost. The $600 million USD "Egyptian Methanex Methanol Company" project will include not only a 1.3 million tonne per year methanol facility, but supporting utilities and associated infrastructure, to be built in Damietta, Egypt. Should the project proceed, the unit is tentatively targeting production in 2008. Methanex has indicated that they expect to reach a full official Board decision on the project's future in 2006.

Mitsubishi Gas Chemical has announced intentions to establish a joint venture company with Itochu Corporation and Itochu Chemical Frontier Corporation for a methanol derivatives project at Nanjing Industrial Park, PR China. The first stage of production at the site will include dimethylamine, dimethylformamide, and dimethylacetamide, with other derivative products to be added in a second stage. MGC will hold a majority share of 85.1% in the $19 million USD project, which is targeting start-up in late 2007. In its announcement, MGC stated, "our company is further planning the expansion/new construction of our methanol plants in Saudi Arabia, Venezuela, Brunei and Chongqing, China, having established our methanol operations as our core business."

On 25 October, National Petrochemical & Refiners Association responded to comments made by US Speaker of the House Dennis Hastert on the nation's uncertain gasoline supply. Notably, NPRA Chairman Bill Klesse points out, "We hope that the Congressional leadership and the Administration will continue to take note that the industry is challenged to provide ever-increasing supplies of fuel to consumers while at the same time complying with many contemporaneous requirements for billions of dollars of investments in cleaner fuels and facility improvements…It must be noted that the environmental programs result in cleaner, but reduced, fuel supply yields per crude input. An additional complication is Congress' failure to take action to encourage continued use of MTBE in gasoline at a time when fuel supply concerns should be paramount."

On 19 October, Dynea announced plans to build a formaldehyde and resins facility at Sexsmith, Alberta, Canada, with formaldehyde output projected at 50,000 tonnes/year. The unit will also produce phenol and urea formaldehyde resins. Pending Board of Director approval, construction could begin in early 2006, with production to start in early 2007.