Methanol Overcapacity in the U.S. – An Opportunity for Buyers?
The U.S. methanol market has been under severe pressure over the last few years due to a significant increase in capacity; thus transforming itself from a net importer to a net exporter. The shale gas boom in the U.S. has kick-started a resurgence in petrochemicals and has resulted in massive expansions in methanol production which, in turn, is impacting the domestic and global markets significantly. Methanol production has more than doubled since the beginning of 2015 and has become a pivotal point of the global industry.
Many more expansions are in the pipeline on the back of abundant availability of low-cost natural gas. Before 2015, the U.S. imported nearly five million metric tons of methanol every year from Trinidad & Tobago and Venezuela. However, these days, many major market players are relocating their plants to the United States to take an advantage of the low-cost natural gas situation. Methanex, a global leader in methanol production, relocated two of its plants from Chile to Louisiana during 2015. Moreover, there were a number of joint ventures and new independent projects started during 2015, almost doubling the domestic methanol capacity. U.S. methanol capacity stood at around 5.75 MMT as of January 2016ꟷalmost twice the January 2015 levels, and expected to further expand and hit 15 MMT by 2022.
South America has largely been exporting methanol to the U.S. and Europe and, after all the major projects become operational across the U.S., its U.S. market is expected to disappear, as the U.S. is forecast to export more than 50% of its domestic product to China and other Asian markets. Thus, the South American product will need to find alternate markets across Asia as well as penetrate deeper into Europe. The demand for methanol from China is expected to breach 20 MMT over the next five years, resulting in increased imports. Demand for methanol in China from the olefins and polymers segment is expected to remain robust in the next few years, on the back of a number of new projects in the MTO/MTP segments. 2015 saw nearly 5 MMT of methanol hitting Chinese shores, and this number is expected to double by 2017.
For international buyers of methanol, this provides an excellent opportunity to source methanol strategically from the U.S. market. However, apart from the pricing aspect, other factors such as logistics need to be considered before making an informed decision. Methanol shipping costs spiked during Q1 2016 due to an upsurge of exports from the Americas to the Asian markets. All of these market movements are bound to have a significant impact on methanol pricing. Firm supply levels, dwindling global prices and augmented capacity levels will be the major themes controlling the market over the next three years. Apart from the U.S., Iran will also play a major role in the international methanol market since all sanctions have been lifted. Apart from China and India, Koreaꟷfollowed by Taiwan, Mexico, and the Netherlandsꟷwill be a major market for U.S. and Iranian methanol moving forward. The above-mentioned factors will result in different and expanded trade flows, varied pricing and differentiated economic dynamics, adding further complexity for suppliers and varied options for buyers in the market.