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December 2004 Headlines

At the end of November, the Organization for Economic Cooperation and Development announced the preliminary release of a revised economic outlook for OECD countries, showing a less optimistic near-term view, but a more hopeful long-term forecast. Citing an "uncertainty" spawned by increased oil prices reducing overall confidence, the OECD revised their GDP forecasts down for many of its member countries for 2005. However, increasing business investments and the recent reduction in oil values, which should bolster household spending, are expected to fuel growth going forward. This trend is reflected in OECD's total member country GDP data, reported at 3.6% in 2004, dropping to 2.9% in 2005, then rising to 3.1% in 2006. Further information is available at www.oecd.org.

The December natural gas monthly indexed contract price was fixed nearly $1.00 USD lower than last month. At that time, above normal weather patterns in much of the US, combined with the declining price of crude oil and high gas stock levels, helped push down daily cash and forward futures natural gas pricing. The perception of a rapidly firming natural gas price to levels above $7.00-8.00 USD/mmbtu has not yet materialized on a consistent basis, but with cold weather patterns developing here, the future is still being debated. The December FERC US Gulf - Houston Ship channel natural gas Index settled at an elevated level of $6.33 USD/mmbtu.

The Q1 2005 contract price is fully accepted by all at a rollover price of €230 per tonne or a USD level of $304 per tonne at current exchange rates. Several domestic European producers and a Russian supplier led the eventual agreement with major contract customers. Several formaldehyde consumers were key to the agreement. A major marketer had nominated an increase of +€15 per tonne to a level of €245 per tonne. This was supported by talk of further price support discussions by some suppliers that indicated the increase might rise by some +€20. However, prior to this announcement, consumers had been positioning themselves for a potential rollover in price. Despite higher contract nominations in both Asia and North America going forward and tight supplies to Europe from Russia, the shift lower in crude oil pricing offered a bit of relief in the average feedstock-linked cost to some domestic methanol producers, reducing the impact of part of their discussions. Added to this was the surging weakness in the US dollar during the past week or so, which further reduced the competitiveness of derivative offshore sales, but also improved the USD return to those methanol producers who were based offshore.

It was announced in December that Toyo Engineering has finished the design of Oman Methanol Company's (OMC) proposed methanol facility. The unit, to be located in Sohar, Oman, will use Johnson Matthey's Low Pressure Methanol Process and Toyo's steam reforming and syn-gas generation technology. Projected methanol capacity for the unit is 1.0 million tonnes/year. Partners on the joint venture project include Methanol Holdings (Trinidad) Limited, Oman Methanol Holding Company and MAN Ferrostaal Aktiengesellschaft.

National Petrochemical Company (NPC) announced that, due to increased natural gas supply, the No. 2 methanol unit being constructed on Kharg Island will produce 1.4 million tonnes/year and not come online until 2008, a year later than originally proposed. Initially, the unit was to have a capacity of 660,000 tonnes/year.

MTBE data tracked by the Energy Information Administration, Department of Energy (EIA DOE) showed US MTBE output increased slightly, up 2% from September to 521,000 tonnes or 4.41 million barrels in October. More dramatic was the increase in inventories from month to month, with October reported at 535,000 tonnes/4.52 million barrels, up nearly 23% from the previous month. US MTBE demand decreased 12% from September to 496,000 tonnes/4.19 million barrels for October. This trend is anticipated to hold going forward.