Methanol Woes As MTBE Goes

The outlook for producers of metha­nol and methyl tert-butyl ether (MTBE) appears increasingly grim

as the federal government seeks to ex­pand a phaseout of the gasoline ad­ditive because of concerns about groundwater contamination. At first, it appeared that MTBE might only disappear in California, which accounts for about a third of U.S. and about a quarter of global use. Now, the Clinton Administration is proposing changes in regula­tions that might significantly re­duce or eliminate MTBE nation­wide (C&EN, March 27, page 6).

If a substantial phaseout of MTBE occurs, methanol produc­ers will be hard hit. MTBE ac­counts for about 27% of methanol use worldwide and nearly 40% in the U.S. The MTBE market has been a main driver for methanol demand growth in the past de­cade. The industry already faces overcapacity and low prices and would be harder hit by a drop in MTBE demand.

"With the onslaught of new, lower cost offshore production, U.S. methanol production is a primary target for ratio­nalization," says Marybeth Maloy Gebau-er, senior market analyst with DeWitt & Co., Houston. "Higher feedstock costs in the U.S.—namely, volatile and relatively expensive natural gas—put our production costs among the highest in the world."

To deal with the market situation, four U.S. producers idled plants during 1999, and Georgia Gulf decided to exit the busi­ness altogether. Cytec Industries sold its interest in a joint-venture plant to its part-

U.S. dominates global MTBE use

ner, Methanex of Vancouver. Nearly 70% of U.S. production is sold on the mer­chant market. Producers with captive use may be less likely to need to shut plants.

MTBE is second largest methanol end use

Still, many will face serious "make-versus-buy decisions," Gebauer notes.

With rising natural gas prices, U.S. methanol producers—which include Lyondell Methanol, Millennium Chemi­cals, Borden Chemicals & Plastics, Ter­ra Industries, and Celanese and its Clear Lake Methanol joint venture with Valero—are barely covering their costs. Even Methanex, the world's leading methanol producer, faces problems.

Last year, Methanex idled its plant in Medicine Hat, Alberta, and agreed to sell its Kitimat, British Columbia, plant for $1.00 to Acetex Corp. A nearly $70 million writeoff for the Kitimat plant contributed

to a $150 million loss on the firm's 1999 revenues of $695 million.

Most new methanol production is being added in areas that have low production costs, primarily in­expensive and plentiful natural gas feedstock. Major new plants were started in 1999 by Methanex in Chile, QAFAC in Qatar, and Saudi Methanol in Saudi Arabia. Start-up of a plant in Iran, expected in 1999, has been shifted to this year, and Titan Methanol is still trying to start its plant in Trinidad.

"Additional rationalization at some level is likely in the U.S. methanol market, regardless of the MTBE situation," Gebauer says. "Many U.S. merchant meth­

anol producers are simply not competi­tive long term." She notes that there is a "shortlist of less efficient and smaller methanol plants" around the world that may be forced to close. Gebauer and oth­er market analysts do not expect to see an impact from California MTBE phase-

out scenarios before 2002 or 2003 and even longer term on a federal level.

Late last month, as part of the industry's restructuring and its own plans to shift toward lower cost production, Methanex agreed to acquire Saturn Methanol, King-wood, Texas, for $28 million. Through Saturn, which is a part­ner in Titan Methanol, Methanex will get marketing rights to pro­duction from—and a 10% interest in—the 267 million-gal-per-year Ti­tan plant in Trinidad.

The supply-and-demand situa­tion for methanol currently is tight to balanced. Other than MTBE, most major end-use markets look strong, according to DeWitt Form­aldehyde, used in adhesives and

construction materials, continues to do well. Domestic acetic acid demand is steady, but exports to the Asia-Pacific re­gion are expected to decline dramatically when BP Amoco and Celanese start major plants there in the next few months.

A possible new market is in using methanol to produce olefins. "Tlie tech­nology is there," according to Jim Jordan, DeWitt's senior vice president for fuels and energy. "It becomes a question of economics and scale." At least two major methanol producers are looking at deals with olefins producers, he adds.

And MTBE demand growth is still likely to occur outside the U.S., particu­larly in Europe and Asia, where they have avoided problems with leaking gasoline storage tanks, consultants say. As these regions try to meet their own air quality goals—phasing out lead, sulfur, benzene, and other aromatics—they continue to turn to MTBE for use in fuels.

An MTBE phaseout may affect other chemical markets as well. Refiners are expected to look differently at propylene production if its value as an alkylation feedstock in gasoline increases. The re­sulting pressure on propylene prices could make market conditions difficult. Yet ethanol producers and corn growers look forward to their sales doubling or tri­pling if ethanol is deemed the MTBE substitute.

Ann Thayer

APRIL 17,2000 C&EN 2 5

Global 1999 demand = 8.94 billion gal

Source: American Methanol Institute

1999 demand = 7.04 billion gal Source: DeWitt & Co.