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November 2005 Headlines

The bullish price ideas in the last week of November have carried forward, with price hikes for December and hints of further firming in Q1 2006. Supply outages in the Persian Gulf and Trinidad have reduced inventories and excess spot volumes. Demand is strong to steady, with overall offtake better in November than October. Entering the New Year, further capacity rationalization will impact the tighter balance. The list of new projects is solidifying. The PCI - Ockerbloom & Company Global Methanol Trend Value rose 2% month-to-month, with a Q4 forecasted increase of 4% from Q3.

The recovery from the hurricanes' impact on natural gas and oil production continues in the US Gulf. Improved natural gas gathering and production, along with warmer than usual weather, are resulting in strong stock levels and a slight price decline. The US Gulf Houston Ship Channel Natural Gas FERC Index price rose only slightly from last month to $10.92 USD/MMbtu in November. As of the close of business on 11 November, the spot prompt cash Henry Hub gas price was $9.15 USD/MMbtu. Forward month prices are still showing a strong premium, with Nymex gas for December 2005 and January, February 2006 posting an elevated price of $11.712, $12.236 and $12.261 USD/MMBtu, respectively. The US Energy Information Administration's latest Short Term Energy Outlook projects spot natural gas pricing to be at or above the $9.00 USD/Mcf level for 2006.

The US Gulf Houston Ship Channel Natural Gas Index increased only marginally from October to November's level of $10.92 USD/MMbtu. Despite a mixture of winter weather patterns over the past week, pricing is still exceptionally strong. The Henry Hub cash gas price, as of 28 November, was $11.00 USD/MMbtu. As of the close of business on 28 November, January, February and March 2006 were posting a Nymex gas price of $11.634, $11.739 and $11.554 USD/MMBtu, respectively.

To-date, the continued mild start to the US winter weather pattern has allowed natural gas inventories to recover, despite the large number of production issues still existing in the US Gulf. These hurricane-related natural gas production outages are partially responsible for the bullish gas price trend going forward. US natural gas stock levels have only just begun to show a mild draw down underway. As of the 23 November 2005 report for 18 November data, US natural gas stock levels were at 3274 Bcf (Billion cubic feet), 6.3% over the 5-year average, 4% above the level witnessed in 2003, but now only 1% below the level for the same period in 2004.

On 21 November, Terra Industries announced that it had halted all production at its Woodward, Oklahoma methanol and ammonia facilities indefinitely. Mechanical issues, as well as high feedstock prices and low margins, prompted the shutdown. The company was readying the site for scheduled repair, equipment inspection and to make catalyst changes. Should production economics allow, output could resume as early as the second half of December. Terra will meet nitrogen supply commitments using production from its other locations. The methanol production was covered under a marketing/operations arrangement with Methanex and lost volumes will be sourced from alternative supply and locations.

The Methanol Holdings Trinidad Limited (MHTL) M5000 unit restarted during the first week of November, after being down for nearly ten days to address usual new plant start-up issues and perform an inspection of the facility prior to the extended proving production run. The 1.8+ million tonne/year facility is now running in excess of nameplate capacity, indicated to be producing volume in excess of 6,000 tonnes/day. Meanwhile, an unplanned production issue necessitated the shutdown of Trinidad's Titan Methanol plant for ten days at the start of the month. The plant was indicated to be returning to production at the end of last week. The Atlas Methanol facility was also heard to be evaluating a shutdown in early December due to problems with the facility's associated oxygen plant. At this time, there are indications that the plant will move this shutdown forward, likely to the end of this week for an estimated ten days.

Plans for a methanol unit in Brunei Darussalam appear to be moving forward, with a joint venture agreement signed by Mitsubishi Gas Chemical (MGC), Itochu Corporation and Brunei National Petroleum Company on 21 November. The 850,000 tonne/year unit, to be built at Sungai Liang, Brunei, will use the Mitsubishi Methanol process. MGC will hold a majority 50% stake in the project, with Itochu and Brunei National Petroleum each holding 25% shares. Output from the unit is targeted for the Asian region. On the same day, the partners also signed a memorandum of understanding for marketing, as well as an MOU for gas supply with Brunei Shell Petroleum Company. After a feasibility study and basic engineering are completed, a final decision on the project will be made during Q3 2006, with production slated to begin in Q4 2008.

After securing a firm offer on financing in October from the EIB - European Investment Bank, the EMethanex project in Damietta, Egypt moved closer to reality, with natural gas supply and technology/engineering contracts signed in November. Joint venture partners Egyptian Petrochemicals Holding Company (ECHEM) and Methanex Corporation announced an agreement with Egyptian Natural Gas Holding Company (EGAS) for "key commercial terms for gas supply," however they did not provide details on the arrangement. Meanwhile, Johnson Matthey Catalysts and Davy Process Technology have signed a licensing agreement on technology for the 1.3 million tonne/year project, with Davy also to provide front-end engineering and design. Methanex will hold a majority stake in the project (60-76%), with ECHEM to hold the remainder. EMethanex held its first shareholder and board meeting on 16 November.

New Chinese methanol production capacity is anticipated to be coming online and impacting shortly. The Lutianhua facility (400,000 tonne/year) in Luzhou is now coming online. The small Kingboard 120,000 tonne/year methanol coke oven gas project has been running for over a month, while the Shaanxi Shenmu Chemical plant of 200,000 tonnes has also completed construction and is in the commercial startup phase. Meanwhile, another new methanol plant may be in the works for PR China, this time spearheaded by industrial conglomerate The YaSheng Group (Redwood City, California). The group has been awarded the 500,000 tonne/year project by Gansu Province officials, and has already secured feedstock supply arrangements with China National Petroleum Corporation and Jiuquan Steel Company. Further details on the project, including a possible online date, were not available.

With the US Energy Information Administration's release of September data, third quarter numbers for MTBE supply/demand are now available. Production for Q3 was down 9% compared to the previous quarter, while 2005 year-to date production was up by slightly over 2% from 2004's YTD totals. Imports for the year 2005 thus far show a remarkable decrease of nearly 30% from year-to-date 2004, while exports are up 47%. As expected, demand is decreasing in 2005, down almost 11% from the Q1-Q3 2004 period. Notable in the monthly numbers for September 2005, MTBE production was down approximately 34% from August, reflecting the effects of Hurricanes Katrina and Rita on Gulf Coast production. As a result, import totals for September were up substantially, rising 81% from August's reported level.

Showa Denko K. K. announced this month that it will increase acetic acid and VAM production at the Oita Petrochemical Complex during a maintenance outage sometime in the first half of 2006. The company plans to use improved catalysts and optimize operating conditions to increase acetic acid output by 30% to 130,000 tonnes/year. Meanwhile, debottlenecking and improved catalysts will boost VAM production by 46% to 175,000 tonnes/year.

Georgia-Pacific Corporation is set to become a privately held, wholly owned subsidiary of Koch Industries, which agreed to acquire GP for $21 billion USD in total. Approximately $13.2 billion USD will be through a share repurchase, with Koch tendering $48.00 USD/share, while $7.8 billion USD will be incurred through the assumption of Georgia Pacific's debt. The deal received unanimous approved from each company's board of directors. Georgia-Pacific will retain its company name and headquarter location.