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November 2006 Headlines

The world balance appears to be in a holding pattern at present. Supplies are still stressed in select regions to select producers/marketers due to continued maintenance in November. Europe and Asia appear to be slightly affected by the recent outages, but spot prices that had previously moved up rapidly are slowing in further escalation. Many European players are out of the office and at meetings at month's end, which have focused on negotiations for the first quarter European contract methanol price. While buyers are fighting to hold current contract pricing stable going forward, sellers are seeking nominated increases of 10-15%. In Asia, the majority of spot and contract prices are either holding or slightly rising.

The current balanced market and high prices have individuals focusing on the longer-range future, evaluating the impact and timing of new methanol capacity starts in 2007 and the surge in new builds for the 2009-2011 period. Also being analyzed are the developing trends in demand from the traditional end use sectors to new uses in gasoline blending in China, DME production, co-feed in bio-diesel production and other energy applications.

For those remaining methanol producers in Canada and the US Gulf, the production margin is quite positive due to "reasonable" gas pricing and the high methanol price. After dropping to $4.00 USD/MMbtu in October, the US FERC Houston Ship Channel natural gas index rebounded hard in November, up 71% to $6.83 USD/MMbtu. As of the close of business on 13 November, spot US Gulf Henry Hub natural gas was priced at $7.28 USD/MMbtu. As of close of the same business day, the forward Nymex natural gas price was holding near $8.334, $8.394 and $8.249 USD/MMbtu for January, February and March 2007, respectively. US natural gas stock levels peaked on refill volumes during the week ending 20 October 2006. After two weeks of withdrawals, stocks have adjusted downward only slightly, mostly due to the warmer weather patterns across much of North America. As of week ending 3 November, levels are now only 7% above the prior year and approximately 7.7% above the 5-year average.

The US FERC Houston Ship Channel natural gas index for November was announced at $6.83 USD/MMbtu, up 71% from October. As of the close of business on the 28 November, the cash spot Henry Hub natural gas price was $7.59 USD/MMbtu. As of this same close date, Nymex January, February and March natural gas prices were $8.559, $8.606 and $8.476 USD/MMbtu, respectively. The US EIA data recorded for week ending 24 November showed US natural gas inventories are beginning to slowly drop and now rest at 3417 billion cf. The inventory level is now about 7% above the 5-year average and 6% above the level recorded for the same period last year.

In a recent presentation to investors, Eastman Chemical Company outlined its strategies and plans for the future, including their intention to expand the volume of products derived from coal by 50%. Senior Vice-President of corporate strategy and marketing Mark Costa commented that this will "enable Eastman to achieve low, stable cost positions and capitalize on the crude-to-coal spread." As part of this focus, Eastman is working on two projects that would use methanol produced from coal gasification. The first would produce methanol that would then be converted to olefins for use as raw materials for their coatings, adhesives, specialty polymers and inks (CAPSI), performance chemicals and intermediate product operations. Eastman is aiming to have the coal gasification and olefins units on-line in 2011. The second project would produce methanol that would be used captively to produce ethylene glycol. Eastman stated that they have several interested strategic and financial parties for both projects.

After initially being slated to shut down by the end of this year, the Celanese Edmonton, Alberta methanol got a temporary reprieve this month. On 9 November, Methanex Corporation announced a three-month offtake agreement with Celanese, starting 1 January 2007, for 2350 MT/day of methanol from the Edmonton facility. Methanex also has the option to extend the agreement for an additional three months. John Floren, Methanex's Senior Vice-President of Global Marketing and Logistics, commented, "The global methanol market continues to experience a shortage and we believe that entering into this agreement will provide much needed supply to the market." Financial details of the deal were not announced. To help maintain continued operations, Celanese shut the methanol plant down for approximately one week, 19-25 November, for maintenance to some reformer tubes and safety inspections for government certification. Celanese is still in the process of reviewing final sale details and potential buyers of the Edmonton site for probable closure by mid-year 2007.

The sale of the Methanor methanol assets to consortium BioMethanol Chemie Holding was finalized early this month, with the new owners looking to restart one production train using traditional natural gas feed just after mid-November. The new group is seeking to restart a single 475,000-tonne/year methanol production train. The company also plans over the next nine months to make modifications to the second train so it can produce bio-methanol. Partners in BioMethanol Chemie Holding include energy holding company Econcern, European investment firms NOM and OakInvest and individual parties Ir. Sieb Doorn and Ir. Paul Hamm. Another unnamed partner in the project is expected to be revealed soon.

Another new methanol plant may be in the works for Venezuela, with Iran's National Petrochemical Company (NPC) and Pequiven partnering up on the project. The joint venture company, Veniran Petrochemical, is conducting a feasibility study on a 1.0 million-tonne/year methanol plant to be built in Guiria, Venezuela. The facility will also produce ammonia and urea. Initial project cost is estimated between $1.3-1.6 billion USD, with start-up anywhere from 2010-2012. In NPC's comments on the joint venture, the company mentioned the possibility of a second methanol unit, but no further details were given.

Methanex Corporation announced on 1 November that the company had secured additional natural gas feedstock to keep its Waitara, New Zealand plant in production until the end of March 2007. Further details of the arrangement were not released. After initially being shut down at the end of September 2005 due to poor plant economics, Methanex restarted production at the site in early January 2006. The unit underwent maintenance in July, resuming output again in August when methanol supplies became tight due to two major "force Majeure" declarations. The company has always maintained that the Waitara plant is a flexible asset, with operations dictated by the health of the market.

On 21 November, Finland's Dynea announced the sale of its North American operations, which includes 13 production units, to Teacher's Private Capital, a private investment branch of Canada's Ontario Teachers' Pension Plan (OTPP). In its statement, Dynea asserts that the divesture will help them "focus on growing markets in Eastern Europe and Asia." OTPP's Senior Vice-President Jim Leech commented that, "Dynea North America is a market leader in an attractive industry, and we are excited about supporting its strong management team as it grows and develops the business as an independent company." The financial details of the sale were not released.

Methanex announced a long-term methanol supply agreement with China's XinAo Group, with Methanex to provide approximately 300,000 MT/year of methanol feedstock to be used at a 200,000 DME unit being developed near Shanghai by XinAo. Methanex also has the option of acquiring an equity stake of up to 20% in the DME unit. The supply agreement will commence in late 2007, with the methanol price to be linked to energy prices.