Russian Methanol Market DevelopmentsCREON ENERGYCREON ENERGY

Russia. Methanol Production Capacities

CommentsProduction capacities 2008-2014, ktpa Comments

• As of 2014, there are 9 producers of methanol in Russiawith total installed capacity of 3977.5 ktpa.

• In 2010, ‘Novocherkassk Plant of Synthetic Products’turned bankrupt As a result total installed capacity in

Production capacities 2008 2014, ktpa

turned bankrupt. As a result, total installed capacity inRussia that grew to 4007.5 ktpa after renovation andmodernization in 2008, reduced by 30 ktpa in 2010.

• In spring 2010, NOVATEK launched second methanolunit with a capacity of 40 ktpa (UPM-40) atYurkharovskoye gas field. The first unit with a capacityof 12.5 ktpa (UPM-12.5) had been launched in autumn2007. Thus total capacity increase made 52.5 ktpa.

• In late 2011, Shekinoazot launched a new methanol unitwith a capacity of 450 ktpa and simultaneously shutt a capac ty o 50 tpa a d s u ta eous y s utdown obsolete unit with a capacity of 360 ktpa. Thustotal capacity increase made 90 ktpa.Production capacities on the map of Russia

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Russia. Methanol Production

CommentsMethanol production 2008-2013, ktpa and 9M 2013-2014 Comments

• Methanol as a major product is produced only byMetafrax and Sibmetachem. Other producers are in thefirst place manufacturers of mineral fertilizers and areproducing methanol in addition to major product which isammonia These include Togliattiazot NAK Azot Acron

Methanol production 2008 2013, ktpa and 9M 2013 2014

9 months 2013 vs 20142% growth

ammonia. These include Togliattiazot, NAK Azot, Acron,Nevinnomysk Azot, Shekinoazot. With respect toNOVATEK-Yurkharovneftegaz, this enterprise usesmethanol in technological process for gas treatment.

• In 2013, production of methanol exceeded the level of2007 (a record for Russia at 3.53 mln tons) and reached3.56 mln tons.

• Over 70% of all Russian production in 2013 fell on thethree largest producers (Metafrax, Sibmetachem andTogliattiazot).og att a ot)

• Operation rate in Russia was 89.6% in 2013, which is4.8% higher than in 2012.

• The best operation rates are at Metafrax (101.6%) andSibmetachem (99 3%)

Methanol production by companies, 9M 2014*, %

Sibmetachem (99.3%).

Metafrax 26%

Sibmetachem 23%

Togliattiazot (Tomet) 21%Togliattiazot (Tomet) 21%

Shekinoazot 13%

NAK Azot 9%

Nevinnomysk Azot 3%

* - without NOVATEK-Yurkharovneftegaz

Acron 2%

Angarsk Petrochemical Company <1%

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Russia. Methanol Consumption 2013

Methanol consumption for in-plant use vs supply to the market CommentsMethanol consumption for in plant use vs supply to the market Comments

• Demand in Russia is fully met by local production.

• In 2013, local demand significantly grew, while exportvolumes decreased. Production growth rate slowed, butremained positiveremained positive.

• Russian methanol market is far from saturation. Methanol ismainly used as feedstock for petrochemicals and gasprocessing.

U t 30% f th l ti f ll t i l t• Up to 30% of methanol consumption falls to in-plant use.

• Main methanol consumption segments in Russia areformaldehyde, isoprene, MTBE and application in oil & gasindustry.

Methanol consumption structure in Russia, %• Formaldehyde (formalin, UFC) is the key and actively

developing consumption segment with the largest volume ofdemand at approx. 757 thousand tons in 2013.

• MTBE is the second largest and consistently developingapplication of methanol with demand at 416 thousand tonsapplication of methanol with demand at 416 thousand tonsin 2013.

• Oil & gas industry consumes a 14% share (300.5 thousandtons in 2013).

• Preliminary data for 9 months of 2014 show that MTBEproduction has slowed.

• At the same time, production of formaldehyde and urea-formaldehyde resins has grown.Formaldehyde (formalin, UFC) 34% Chemical industry 5%

• Total consumption of Methanol in Russia is lower by -2.5% Jan-Sep 2014 to 2013 (-40 thsnd tons)

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MTBE 19% Acetic acid 4%

Oil & gas industry 14% TAME 3%

Isoprene 12% Other 9%

Russia. Methanol Consumption 2013. Formaldehyde

Formaldehyde Production in Russia, thousand tons Comments

• Total formaldehyde production (recalculated to 37% watersolution) grew by almost 20% in five years and reached 1.4million tons in 2013.1400

1600

1163.61246.2 1262.9

1395.6

• More than 15 producers operate in Russia with total capacityof about 2,500 ktpa. The largest are Metafrax, Togliattiazotand Acron.

• Specifics of the Russian market is that new capacitiesproduce highly concentrated formalin and UFC which have

800

1000

1200

930.7

1118.5

ыс. тон

н

produce highly concentrated formalin and UFC, which havehigher concentration of formaldehyde. This is caused by fastdevelopment of wood processing (particle boards, woodlaminates, MDF and others).

• Margins of processing methanol to formaldehyde remainhi h ith id f d d t

200

400

600

Ты

high with a wide range of end products.

Formaldehyde Production Split by Companies in 2013, %

02008 г. 2009 г. 2010 г. 2011 г. 2012 г. 2013 г.

Metafrax 37.4% Metadinea 5.3%

5

Togliattiazot (Tomet) 15.2% Sibmetachem 4.0%

Acron 10.0% UralChemPlast 3.7%

Shekinoazot 7.0% Others 17.3%

Russia. Methanol Consumption 2013. MTBE

CommentsMTBE Production in Russia, thousand tons• Total MTBE production capacities in Russia are 1.2 million

tons, represented by 14 companies. The growth rate in thesegment is estimated at 27.3% in five years.

• Leaders in MTBE production are Sibur Holding with over800

1,000

1,200

889.4 929.6 916.01,031.4 1,085.5 1,131.9

н 39% of the market and Titan Group of Companies withalmost 20% share. Other enterprises are smaller-categoryproducers, but have regional significance.

• Introduction of new technical regulations of the CustomsUnion titled «Requirements automotive gasoline diesel and

200

400

600

800

Тыс. тон

н

Union titled «Requirements automotive gasoline, diesel andbunker fuel, jet fuel and heating oil» made the local marketmore lucrative compared to export.

02008 г. 2009 г. 2010 г. 2011 г. 2012 г. 2013 г.

MTBE Production Split by Companies in 2013, %

Titan 19.9% Moscow Oil Refinery 4.0%

Uralorgsintez 17.8% Ufa Oil Refinery 3.3%

Tobolsk-Neftekhim 13.5% Slavneft-YANOS 3.2%

EKTOSintez 11 8% Sibur Khimprom 2 7%EKTOSintez 11.8% Sibur-Khimprom 2.7%

Nizhnekamskneftekhim 9.6% TAIF-NK 2.2%

Togliattikauchuk 5.3% Sterlitamak Petrochemical Plant 2.0%

Omsk Oil Refinery 4.1% Angarsk Petrochemical Company 0.5% 6

Russia. Methanol Consumption 2013. Oil & Gas Industry and Acetic Acid

Methanol Consumption in Oil & Gas Industry, thousand tons CommentsMethanol Consumption in Oil & Gas Industry, thousand tons Comments

• Gas production industry in Russia consumes about 13-15%of all the methanol. Main consumers are gas E&Pcompanies in Yamalo-Nenets Autonomous Region that areapplying methanol to avoid hydrating and for gasdehydration250

300

245.9262 268.7 270.4 269.2 269.5

dehydration.

• Future methanol consumption in oil & gas sector directlydepends on the volumes of gas and gas condensateproduction. According to the plans of the Ministry of Energy,the long-term scenario is growing gas production which willt i d d f th l i thi t th

150

200

Тыс. тон

н

trigger demand for methanol in this segment, up more than25% by 2025.

• Acetic acid production is a relatively small consumptionsegment for methanol (about 4% share in 2013). There isonly one producer of methanol-based acetic acid in Russia,

0

50

100

Т

Methanol-Based Acetic Acid Production, thousand tons

y p ,Nevinnomysk Azot Company. Production capacities are at170 ktpa.

• At present acetic acid is mainly used for VAM, compoundesters of acetic acid and terephthalic acid. Growth inproduction of PTA has caused some increase in methanol

02008 г. 2009 г. 2010 г. 2011 г. 2012 г. 2013 г.

production of PTA has caused some increase in methanoldemand.

• Consumption volume of acetic acid and methanol in thissegment will not change significantly in future compared tomethanol market in general, despite announcements that120

140

160

180

140.1

166.5156.8 151.7 150.2 151.4

PTA production to grow by 1,050 ktpa (as only 26 tons ofacetic acid is used for production of 500 tons of PTA).

40

60

80

100

Тыс. тон

н

0

20

40

2008 г. 2009 г. 2010 г. 2011 г. 2012 г. 2013 г. 7

Russia. Methanol Export 2008 - 9M 2014

Methanol Export from Russia, thousand tons

9 months 2013 vs 20149% growth9% growth

Comments

• The share of export in production was 39% in 2013, lower by 3% compared to 2012.

• Traditionally, Sibmetachem and Metafrax exported their product mainly to Finland. Other producers worked with wider geography, includingsupplies to Slovakia, Romania, Turkey, Poland, Estonia and other countries.

• Significant share of methanol export from Russia to Finland (320.8 thousand tons out of 745.1 thousand tons in 2012) is then delivered toother countries such as the Netherlands, Sweden, UK, France, Ireland, Belgium, Denmark, Germany.

• Russia does not export methanol to Asia-Pacific region, the world largest consumer. This market is untapped by Russian producers due tounfavorable transportation costs inside the country.unfavorable transportation costs inside the country.

• 2008-2009 crisis led to sharp decrease in demand and in pricing for all industrial products. As a result, average methanol price in Russia fellby 49.9%, while in Western Europe prices decreased by 41.1%, in China by 35.2%. In 2009-2013 prices rebounded in most markets.

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Russia. Methanol Export, 9M 2014

Methanol Export by Companies 9 months 2014 in thousand tonsMethanol Export by Companies, 9 months 2014, in thousand tons

Acron 5

NAK Azot 138NAK Azot

Acron

Togliattiazot (Tomet) 176

Metafrax 223

Shekinoazot 279

Sibmetachem 324Shekinoazot

Metafrax

Togliattiazot (Tomet)

Sibmetachem 324

Other 14

0 50 100 150 200 250 300 350

Other

Sibmetachem

Ukraine United KingdomAzerbaijan

LatviaItalyCzech RepublicBulgariaKazakhstan

Methanol Export by Destination, 9 months 2014, share by country

Finland 49 1% Ukraine 1 4%

0 50 100 150 200 250 300 350

FinlandTurkey

EstoniaPolandLithuania

IsraelUkraine United Kingdom Finland 49.1% Ukraine 1.4%

Slovakia 14.3% Kazakhstan 1.2%

Romania 9.2% Bulgaria 0.8%

Turkey 5.7% Czech Rep. 0.8%

Romania

Slovakia

Estonia 5.7% Italy 0.7%

Poland 5.7% Latvia 0.5%

Lithuania 3.0% Azerbaijan 0.3%

Israel 1.6% UK <0.1%

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Russia. Methanol Capacity Expansion Forecast

Methanol Capacity Expansion Forecast, ktpa for 2013-2035. Maximum Scenario.Methanol Capacity Expansion Forecast, ktpa for 2013 2035. Maximum Scenario.

Company 2013 2014 2015 2016 2017 2018 2019 2020 2021 2023 2025 2030 2035

Capacity expansion

Metafrax 1000 1000 1000 1000 1100 1100 1100 1100 1100 1100 1100 1100 1100

li i ( ) 000 000 000 000 000 000 000 2 0 2 0 2 0 2 0 2 0 2 0Togliattiazot (Tomet) 1000 1000 1000 1000 1000 1000 1000 1250 1250 1250 1250 1250 1250

Sibmetachem 820 820 820 820 820 820 820 820 820 820 820 820 820

NAK Azot 340 340 340 340 340 340 340 340 340 340 340 340 340

Shekinoazot 450 450 450 450 900 900 900 900 900 900 900 900 900

N i k A 130 130 130 130 130 130 130 130 130 130 130 130 130Nevinnomysk Azot 130 130 130 130 130 130 130 130 130 130 130 130 130

Angarsk Petrochemical Company 85 85 85 85 100 100 100 100 100 100 100 100 100

Acron 100 175 175 175 175 175 175 175 175 175 175 175 175

Novatek‐Yurkharovneftegaz 52,5 52,5 52,5 102,5 102,5 102,5 102,5 102,5 102,5 102,5 102,5 102,5 102,5

N itiNew capacities

Ammonia (Tatarstan) – – 238 238 238 238 238 238 238 238 238 238 238

UralMethanolGroup (Nizhny Tagil) – – – 600 600 600 600 600 600 600 600 600 600

Ricoal – – – 1730 1730 1730 1730 1730 1730 1730 1730 1730 1730

National Chemical Group – – – – 1000 1000 1000 1000 1000 1000 1000 1000 1000

YATEC – – – – – 1000 1000 1000 1000 1000 1000 1000 1000

Methanol Severny (MetaSev) – – – – – 1650 1650 1650 1650 1650 1650 1650 1650

Sayanskchemplast – – – – – – – 1000 1000 1000 1000 1000 1000

Comments

• Announced capacity expansions and new construction if implemented at maximum will increase total Methanol production capacity to over 10

* - Integrated facility with 100% use of methanol in-plant; not included in totalKhabarovsk Gas Chemical Complex – – – – – – – 830 830 830 830 830 830

Total Russia 3977,5 4052,5 4290,5 6670,5 8235,5 10885,5 10885,5 12965,5 12965,5 12965,5 12965,5 12965,5 12965,5

Announced capacity expansions and new construction, if implemented at maximum, will increase total Methanol production capacity to over 10million tons per annum. However, the ‘maximum’ scenario is unlikely, while the total capacity figure of 7,000-8,000 ktpa is more real, mainlydue to expansion of existing capacities. To succeed, new capacities need to ensure long-term natural gas supply at affordable prices, utilizeadvanced technology, win markets and attract investment.

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Russia. Methanol Market Forecast

CommentsForecasted Demand and Supply of Methanol in 2014-2025, million tons

• Methanol output will follow the market situation. Ongrowing global and Russian capacities, in theunderdeveloped local market, new projects mustcomprehensively elaborate on feasibilitycomprehensively elaborate on feasibility.

• Despite the local market is rapidly developing, exportsupplies of methanol will be significant for the number ofproducers that have suitable production locations.

R li ti d l t i i li th th f• Realistic development scenario implies the growth ofexport to 2-2.5 million tons by 2021 and further minorcorrection due to growing local demand and globalcompetition.

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Conclusions

• Local market capacity in Russia reached 2.2 million tons in 2013. Compared to 2008, the market grew by over 30%.

• Methanol market will be growing to 2025, with demand increasing both in traditional segments and in alternativeapplications. The balanced scenario implies the growth of demand for methanol by 60%, with average yearly growthof 4%of 4%.

• Methanol consumption structure hasn’t changed in the period analyzed. Formaldehyde production remains the keymethanol processing segment, accounting for about 34% share in 2013 (taken together formalin and UFC).

B 2025 prod ction of formaldeh de ill contin e to be the largest methanol cons mption segment in the R ssianBy 2025, production of formaldehyde will continue to be the largest methanol consumption segment in the Russianmarket. Formalin demand will be driven mainly by growth of formaldehyde resin production, which is connected withapplication in wood processing. About 25 new plant projects exist in wood boards and plywood production, alongwith insulation materials production. Total Russian demand for formalin will reach about 2.25 million tons. Suchoutput will require about 1.2 million tons of methanol.

Methanol consumption for production of MTBE and TAME will double from 450 thousand tons to 830-850 thousand tons.New capacities that are now planned by the Program of modernization at Russian oil refineries, will not be enough tocover oxygenates demand. So plans to expand production of additives will be amended upwards. Thereforemethanol use in this segment will be much higher. In other traditional application areas methanol demand will growmethanol use in this segment will be much higher. In other traditional application areas methanol demand will growslower.

• Export-oriented pattern of methanol production will maintain to 2025, despite significant growth of local demand. Theshare of export in production will be within 39-44% by 2025.

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METASEV Project - Summary

METASEV PROJECT:

CREON ENERGY performs the functions of the project operator under the agreement with the initiator and the main

5,000 mtpd capacity MeOH plant (1,650 ktpa).

under the agreement with the initiator and the main shareholder of the project, NGSK.

p p y p ( p )

Deepwater port of Ust-Luga. St Petersburg region.

No dependence on railway transport and guaranteed shipment times.

Target sales destinations:

80% export (mainly Europe);

20% l ll i l di i l t i20% locally, including in-plant processing.

Long-term availability of natural gas at affordable price levels in Russia.

Existing transportation facilities (rail, road, port).

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METASEV Project - Summary

Site identified: Industrial & Logistics Center «Alekseyevka», Kingisepp district of Leningrad region.g y , g pp g g

Distance to:Kingisepp – 15 km;St.Petersburg – 100 km;Ust-Luga Port – 40 km;

Land type: industry land.Area designated for industrial facilities of hazard class I: 20

ha.High-voltage lines (330 kV) will be constructed near the site

with a possibility to supply 60-70 MW.

Advantages:Opportunity to use existing utility facilities at the brown field;Proximity to main gas pipeline Leningrad – Kohtla-Järve;Federal road in proximity with direct driveway into the site;General-use double-line railroad available at the site.General use double line railroad available at the site.

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THANK YOU!

Welcome to «Methanol 2015»Conference in Moscow

End of June 2015End of June 2015

CREON ENERGYTel./fax +7 (495) 797-49-07

info@creonenergy.ruwww.creonenergy.ru