What is the competitiveness of natural gas in methanol production?

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What is the competitiveness of natural gas in methanol production? Author/Source: Bai Suozhu, CNPC Overseas Exploration and Development Company; Huahua Network Coal Chemicals; Date: 2018-06-19; Clicks: 17. Through decades of development as a method for product transformation, petroleum and natural gas chemical processing has given rise to a complete value chain system. Methanol is one of the main products of natural gas chemistry, possessing both the properties of a fuel and a basic raw material for chemical industries. As a fuel, methanol can be mixed with gasoline to produce vehicle fuels such as M15 and M30, and it can also be used as fuel for ships and boilers ； As a chemical raw material, methanol can be used to produce traditional chemical products such as formaldehyde and dimethyl ether. Between 2008 and 2013, due to high oil prices, methanol-to-olefins (MTO) processing emerged as a new application for methanol in the downstream industry and reached a certain scale. The methanol synthesis and distillation processes are well-established, with the main technologies coming from Davy Company, Lurgi Company, and Topse Company. The methanol-based “carbon-chemistry” economy, as a method for enhancing the value of mature natural gas resources, has once again received widespread attention. With low oil prices, there is an urgent need to convert natural gas resources into products with higher added value. China primarily produces methanol using coal as a raw material, with production taking place mainly in the inland areas of the northwest. Transporting it to the coastal regions of eastern China incurs high shipping costs; therefore, China can compete with imported methanol only when coal prices are very low. The methanol production process using natural gas as a feedstock features lower energy consumption and less pollution compared to those that use coal as a raw material; therefore, methanol production from natural gas is highly competitive. 1 Current supply and demand situation in the global methanol market: From 2010 to 2015, driven by the rapid development of the coal chemical industry in China and the shale gas industry in North America, global methanol production capacity increased from 80 million tons per year to 120 million tons per year. During this period, the growth rate of demand was lower than that of production capacity, with an average operating rate for methanol plants at 70%. The global methanol supply and demand balance data by region for 2015 are shown in Table 1. http://img.yf116.cn/image/img/20180619/1458235390385.jpg As can be seen from Table 1, the global methanol market saw total sales of 79,380 kt in 2015, with an average operating rate of 65%. The main supply regions were the Middle East, South America, Southeast Asia, and Northeast Asia, followed by North America and Western Europe. Northeast Asia is both a major consumption region and a major production region, accounting for 58% of global production capacity. Followed by the Middle East, which accounts for 14% of global production capacity, and South America, which accounts for 9%. From the perspective of net exports, most of the production in the Middle East and South America is used for export, with little consumption within those regions. It is estimated that by 2020, 50% of the global growth in consumer demand will come from China, with North America contributing only 2.6%. This means that North America will once again become a net exporter of methanol, and an important source of methanol imports for regions such as China and Western Europe. Demand growth in regions such as Europe and South America is not expected to be significant in the future. Furthermore, almost all of the methanol production capacity in the Middle East comes from Iran, and despite rising domestic consumption, Iran will remain a major source of methanol exports. In 2015, the total global trade volume of methanol was 26,420 kt. Of this amount, China imported 5,540 kt, accounting for 58% of the total imports in Northeast Asia; other importers in that region were Japan, Taiwan, and South Korea. China’s main overseas sources of methanol come from the Middle East and Southeast Asia, while Europe’s main overseas sources of methanol are Russia, the Middle East, Egypt, Trinidad, and Equatorial Guinea. The United States’ main overseas sources of methanol are Canada and Trinidad. 2 Current supply and demand situation in China’s methanol market: In 2015, China’s methanol production capacity increased slightly, reaching 80,260 kt/a. There were 217 companies with such capacity, and their total effective production capacity was around 70,000 kt/a, accounting for more than half of the global total. Current methanol production facilities are mainly concentrated in North China, East China, and Northwest China, with regions such as Ningxia, Baotou in Inner Mongolia, and Yulin in Shaanxi accounting for a significant share. Although China’s overall methanol production capacity exceeds its demand, the uneven distribution of production means that it is concentrated in the resource-rich coal areas of the northwest. The transportation costs of methanol to China’s main consumption areas in the southeast are high; as a result, China needs to import more than 5,000 kt/year of methanol. In 2015, coal accounted for 71% of the raw materials used in methanol production in China, natural gas accounted for 15%, and coke oven gas accounted for 14%. In other words, coal is the primary source for methanol production in China; the use of natural gas to produce methanol is limited by policies regarding the utilization of natural gas in chemical industries, resulting in a small proportion of methanol produced this way. In 2015, within China’s methanol consumption, MTO/MTP (methanol to olefins/methanol to propylene) accounted for 36%, formaldehyde for 17%, methanol gasoline for 15%, dimethyl ether for 11%, glacial acetic acid for 6%, MTBE for 4%, and others for 10%. From 2016 to 2020, due to severe overcapacity and the need to phase out outdated production capacity, the addition of new methanol production capacity will slow down. It is estimated that 22,300 kt/a of new methanol capacity will be added, with 80% of this coming from facilities associated with coal-to-olefins projects. In the future, as there will be a surplus in the synthetic ammonia/urea market, the profitability of such hydroxymethanol production plants is expected to decline further. At the same time, anthracite used in atmospheric pressure gasifiers will become increasingly scarce, forcing these smaller-scale plants to shut down. The operational pressures on natural gas-based methanol production plants will grow greater, and some of them may withdraw from the market. Methanol production from coke oven gas is affected by the operating load of the coking units, and its scale is relatively small; in the future, methanol production facilities in China will tend to become larger in size. The total production capacity is expected to be around 101,100 kt/a in 2020, and it will reach 115,100 kt/a by 2025. There is an overall surplus, but as outdated facilities are phased out, the utilization rate of these facilities will increase. In terms of supply and demand balance, due to regional imbalances in methanol production, price and cost competitiveness issues, as well as the lower cost competitiveness of methanol production facilities in coastal areas, China will continue to import large quantities of methanol in the future. Looking at the new methanol production capacity to be added over the next 5 years, the majority of this new capacity will be located in the northwestern, northern, and eastern regions of China; there will be no new production capacity in the southeastern coastal areas or the southwestern region, which will remain the main markets for domestic methanol imports in the future. 3 Competitive analysis of the costs of MTO/MTP projects versus those of conventional naphtha cracking for olefin production. MTO/MTP accounts for a significant share of methanol demand; in 2015, this share was 36%. Currently, there are 16 MTO units in the country; 8 of these are integrated with upstream methanol production facilities (combined methanol and cracking production units that use coal as raw material), while the remaining 8 are independent MTO units that require methanol to be purchased from external sources. It is expected that another 7 MTO units will be built in the future. It is estimated that by 2021, the demand for methanol for MTO will be 37,000 kt, enabling the production of 10,000 kt of propylene and ethylene. Through analysis and research based on historical oil price data, MTO/MTP costs, as well as the costs associated with traditional naphtha cracking for olefin production, it can be seen that when international oil prices are above $60–$65, the cost of producing olefins through traditional naphtha cracking becomes competitive only in comparison to the MTO/MTP method. As oil prices remain stable above $60, independent MTO/MTP facilities will experience a new wave of development, and demand for methanol is expected to increase significantly as international oil prices rise gradually. 4 Analysis of the cost competitiveness of methanol production from different raw materials: The production costs of methanol using natural gas or coal vary significantly, and the cost of raw materials accounts for a substantial proportion of the total cost of methanol production. New methanol plants in China have a capacity of 1,000 kt. When the coal price is between 30 and 44 dollars per ton, the production cost is around 220 to 232 dollars per ton. The land transport distance from Baotou in Inner Mongolia to the East China region is 2,000 km, with shipping costs of about 147 dollars per ton. Thus, the cost of delivering methanol to the East China region is approximately 367 to 377 dollars per ton. In the East China market, the unit cost of methanol produced from natural gas is between 125 and 240 US dollars per ton, while the unit cost of methanol produced from coal and transported to the same region is between 367 and 377 US dollars per ton; the difference between the two is thus around 130 to 240 US dollars per ton. It can be seen that the production cost of methanol on a scale of 100 kt using natural gas as raw material abroad has a significant advantage over the cost of methanol produced in the northwestern region of China using coal as raw material. Due to domestic policies restricting the use of natural gas for methanol production (prohibiting the construction or expansion of facilities for producing methanol and downstream products from natural gas) ； Prohibition on methanol production using natural gas as a substitute for coal—Natural Gas Utilization Policy [2012]: The limited capacity for producing methanol from low-cost domestic natural gas has created opportunities for the development of low-cost methanol projects that use natural gas sourced from abroad. 5. Producing methanol from natural gas helps enhance the value of upstream natural gas resources. The development of natural gas fields requires careful planning and a solid strategic framework in advance. At low oil prices, it is difficult to fully reflect the value of natural gas resources when they are sold as products. Professional agencies believe that the Asian market will experience an overall surplus of natural gas over the next 5 to 10 years. To this end, there is an urgent need to find new ways to enhance the value of upstream resources and ensure that such value is realized. By leveraging comprehensive investment and development in downstream chemical industries, it will help address the issues associated with low oil prices, spread the risks associated with upstream development, and enhance the resilience of projects against such risks. By combining medium-sized natural gas fields and conducting comparative studies on different approaches, the results show that the methanol approach is beneficial for enhancing the value of natural gas from an investment perspective; it is necessary to carry out comprehensive research on integrated solutions for field development, wet gas treatment, pipeline transportation, and chemical utilization. From a market perspective, the main target market for producing methanol from natural gas should be Asia. When oil prices exceed $60 per barrel, domestic MTO/MTP plants will increase their demand for methanol due to cost advantages. 6 Conclusion: If natural gas liquefaction is adopted for medium-sized natural gas fields, the lack of scale effects means that the unit cost cannot compete with that of large-scale 500 kt/a natural gas liquefaction projects. The upstream-downstream integration approach can effectively reduce investment by making use of domestically developed and mature chemical processing equipment. It facilitates the export of downstream equipment as well as the transfer of skilled professionals, which is in line with China National Petroleum Corporation’s principle of focusing on profitability and seeking reasonable returns. By developing refining and petrochemical operations in key resource-rich countries where there is demand, this approach leverages its \"leverage effect\" to boost upstream operations and advance the overall development of natural gas and LNG businesses. As a basic raw material in the chemical industry, methanol can be used to produce a variety of downstream chemicals, which holds significant practical importance for improving China Petroleum’s industrial chain structure at the downstream level, increasing the added value of its products, and enhancing the efficiency and quality of its integrated projects.