Methanol Projects Slide Even As Project Development Remains Optimistic
Methanol has been a star of the Chemical Processing Industry over the last several years, due to the tremendous levels of spending being designated for its production. The U.S. has an upper hand in methanol production because of the domestic availability of cheap natural gas feedstock.
In the U.S., methanol is primarily used as a stepping stone toward the production of other chemicals, although this sector has also seen the growth of varied applications overseas. The first application is in the market of China, where the methanol-to-olefins (MTO) process is gaining traction due to the country's shifting its dependence away from coal-to-chemicals manufacturing. In fact, several of the largest methanol facilities being planned in the U.S. are being funded by Chinese investors, with most of their production expected to be exported to China.
Another application that has been driving spend toward methanol is in its use as a supplement in blending gasoline in parts of both Europe and Asia (the U.S. primarily uses ethanol for this purpose). While there are fuels currently being blended with as much as 50% methanol, there are plans in place to continue experimenting to eventually reach levels of 80% or more.
The final application of note is in the development of methanol as a fuel for the marine industry. This industry has traditionally consumed high levels of diesel; however, the switch to methanol is quite attractive as the infrastructure conversion cost is reasonable and because it has considerably lower emissions for oceangoing vessels.
These developments have all been watched for several years now, with high hopes and projected spending to match. The question now at hand is whether some of this planning has been overly optimistic. While Industrial Info continues to track $18 billion in overall methanol capital project spending, equating to more than 18.4 million metric tons per year of new capacity, many of the proposed projects are being pushed out to future dates.
One primary reason for these delays is the reduced cost per gallon of methanol since the beginning of 2016, making it a less attractive option in the short term in the retail chemical market. New methanol capacity has to be competitive on a global scale, especially considering that most of the new capacity will be aimed at international export markets.
An additional complicating factor is the tentative status of the economy in China, which has seen a slowing of its GDP growth. As this is a primary destination for much of the new methanol capacity in the U.S., this development is causing reasonable hesitation for new project construction starts.
Even with these issues at hand, planned projects continue to swell for future years. Since January, the amount of planned methanol capacity by the end of 2020 has grown by another 10 million metric tons per year, to potentially reach a total installed capacity of just over 40 million metric tons per year if all projects move forward.
What has noticeably changed though is the probability and timing for these planned projects to move into engineering and construction. Many projects originally slated for 2018-19 have been moved out into 2020. This is not uncommon, as Trey Hamblet, Industrial Info's vice president of research for Chemical Processing, says "that only a small percentage of proposed projects actually move forward as originally planned and scheduled."
All appearances are that methanol will continue to be a driver of major spending in the Chemical Processing Industry, but it may end up being on an extended time horizon. These delays may provide the time necessary for worldwide methanol demand to catch up with the burgeoning supply.
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