Methanol Pricing Outlook

A Statoil Executive suggested at the September 2010 World Methanol Forum that "There are more surprises out there than supply/demand balances indicate." Industry analysts agree. Despite the current over capacity in the methanol supply, and constrained demand due to weakened activity in the construction and manufacturing sectors, if high oil prices are factored into the methanol pricing equation pricing looks firm. On the market side, world methanol prices look to the East where China's methanol demand is expected to equal the rest of the world combined by 2015, due in part to China's impressive economic expansion and increased methanol use in the LPG fuel blend dimethyl ether (DME).

However, millions of tons of capacity that feed the market are considered unreliable or uncertain. China's domestic producers employ coal-based methanol plants requiring regular shutdowns for maintenance. Methanol supplies from Russia are considered unstable, and Iran is constrained by tightening international sanctions, making it difficult to place material in most global markets. Eliminate this capacity from the market and factor in the potential use of methanol in fuels on an international basis, and suddenly pricing looks firm to bullish. The historic view of methanol contract prices below clearly illustrates how fluctuating capacities and feedstock limitations—whether caused by accessibility or feedstock pricing—improve methanol prices.

Prices Trends with Crude
Methanex, the world's largest distributor of methanol is also taking notice of the pricing disparity between natural gas and oil. Because the primary feedstock for North American methanol is natural gas, methanol prices closely follow crude oil. However, using the 6:1 rule of thumb for oil to gas price, natural gas prices in North America should be around $12.50/MMBtu. Instead, due to this near record disparity, Methanex has been able to secure a year's supply of gas for their Medicine Hat plant at under $4/MMBtu. Idled in 2001, Medicine Hat is scheduled to reopen in Q1 2011.

Historic Contract Price Methanol