2009: Current Status and Prospects of Downstream Derivatives of Methanol in China

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2009: Current Status and Prospects of Downstream Derivatives of Methanol in China 【Yahua Consulting】 At present, overcapacity in methanol production in China is an established fact. In addition, the impact of imported methanol has further challenged the domestic methanol industry. The “Several Opinions on Curbing Overcapacity and Redundant Construction in Certain Industries and Guiding the Healthy Development of the Industry” recently issued by the State Council states that “under the impact of imported products, the operating rate of methanol production facilities was only around 40% in the first half of 2009”” ； On October 19, officials from the National Development and Reform Commission said at a press conference that \"in the next three years, approval for projects such as coke, calcium carbide, and methanol, which merely aim to expand production capacity, should be halted.\" Therefore, it has become an urgent task for the methanol industry to develop competitive downstream derivatives for existing or planned methanol projects and to expand their downstream applications in order to address the issue of overcapacity. According to statistics from Yaha Consulting, by the end of 2008, China’s methanol production capacity was 25.295 million tons, representing a 54.39% increase compared to 2007 ； In 2008, China’s methanol production was 11.1168 million tons, representing a growth of only 3.28% compared to 2007 ； Due to the increase in methanol imports, China’s apparent consumption of methanol reached 12.183 million tons in 2008, an increase of 10.29% compared to 2007. The current situation of China’s methanol industry is characterized by rapid expansion of production capacity, slow growth in output, minimal exports, and competition from imported methanol in the southeastern coastal areas. While developing a large number of downstream production facilities for methanol can increase its consumption, methanol derivatives themselves face issues such as limited market capacity and overcapacity; therefore, it is necessary to focus on developing those methanol derivative products that have promising market prospects. Yahua Consulting will analyze the development trends of traditional and emerging downstream derivatives of methanol, and explore ways to address the excessive production capacity of methanol. ——Formaldehyde: In China, in 2008 there were 462 companies engaged in the production of formaldehyde, with a production capacity of around 16.17 million tons per year; the actual output was about 8.1 million tons, giving a utilization rate of 50.09%. Overcapacity was quite severe in this sector. Based on the fact that 0.47 tons of methanol are required to produce 1 ton of formaldehyde, China’s consumption of methanol for formaldehyde production in 2008 was approximately 3.81 million tons, accounting for 31.3% of China’s total apparent methanol consumption that year. Formaldehyde remains the most important downstream product for methanol in China. Due to increasing environmental awareness, the use of formaldehyde in certain fields has been restricted. In recent years, formaldehyde has shown a trend of steady growth in production capacity, while its output has actually declined slightly; as a result, it is unlikely to serve as a key factor in addressing the excess capacity in methanol production. ——Acetic acid: According to **statistics bureau data, in 2008, China’s production of acetic acid via the carbonyl method was 1.713 million tons. Since the carbonyl method requires 0.545 tons of methanol and 0.53 tons of CO to produce one ton of acetic acid, in 2008 China’s production of acetic acid via this method consumed 934,000 tons of methanol, accounting for 7.67% of the country’s total apparent methanol consumption. Although new acetic acid production projects in our country are mostly built using the carbonyl method with methanol and CO as raw materials, the growth rate of methanol consumption in the acetic acid industry lags far behind the growth rate of China’s methanol production capacity. At the same time, based on the current plans, there is also a clear trend of overcapacity in China’s acetic acid production. If development proceeds in a blind, similar manner, it is possible that the acetic acid industry will face overcapacity in the coming years. ——DMF (N,N-Dimethylformamide) is an excellent polar solvent. In 2008, China’s production capacity for DMF was 845,000 tons per year, with a production volume of around 500,000 tons; approximately 750,000 tons of methanol were consumed in this process, accounting for 6.16% of China’s total apparent methanol consumption. In the future, domestic DMF production capacity will continue to expand. Three DMF projects are planned to be built and put into operation between 2009 and 2012, resulting in a total production capacity of 600,000 tons per year; by then, China’s DMF production capacity will exceed 1.4 million tons per year. While DMF production capacity is expanding, demand is facing a decline. At present, the major domestic DMF-consuming enterprises plan to install DMF recovery units, so that the recovered DMF can be reused after treatment ； The shift of DMF products from disposable to reusable ones will directly lead to a decrease in the demand for DMF, and indirectly result in a reduction in methanol consumption for DMF production. —— MTBE, or methyl tert-butyl ether, is an excellent fuel additive; approximately 0.38 tons of methanol are required to produce one ton of MTBE. In 2008, China’s annual MTBE production capacity was 2.472 million tons, with output of around 1.8 million tons; 684,000 tons of methanol were consumed, accounting for 5.61% of the total apparent methanol consumption in the country. Currently, 90% of China’s MTBE consumption is used as a component in gasoline blending, while the remaining 10% is used as a raw material for producing isobutylene or in solvent applications. Although the United States will completely ban the use of MTBE in gasoline by December 2014, it is expected that gasoline production in our country will continue to grow in the coming years, and MTBE will not be banned in the short term; therefore, there is still room for an increase in market demand. It is estimated that in 2009, China’s MTBE production will reach 2 million tons, while the consumption of methanol will amount to 760,000 tons. ——Hydrogen production from methanol: Hydrogen production from methanol involves using methanol as a raw material, which is catalytically cracked to produce hydrogen and carbon dioxide; the hydrogen is then extracted through pressure swing adsorption. The methanol-to-hydrogen technology is now quite mature; to produce 1000 Nm3 of hydrogen, 0.6 tons of methanol are required, resulting in a cost of 2.2 yuan per Nm3 for the hydrogen produced. This cost lies between that of hydrogen produced by water electrolysis and that of hydrogen produced on a large scale from natural gas. Currently, the scale of methanol-to-hydrogen production is generally between 100 Nm3/h and 3000 Nm3/h, which is suitable for the medium- to small-scale hydrogen demand in industries such as fine chemicals and pharmaceuticals. Yahua Consulting believes that, due to cost considerations, methanol-based hydrogen production is not suitable for large-scale hydrogen demand; however, for smaller-scale hydrogen needs, the advantages of easy availability of raw materials for this method and flexible plant sizes become evident. There are currently a considerable number of methanol-to-hydrogen production facilities in the country, but due to limitations in facility scale, the consumption of methanol remains low. ——Pharmaceuticals, pesticides, dyes, and others: According to data from the Petrochemical Industry Association, in 2007, industries such as pesticides and pharmaceuticals consumed 800,000 tons of methanol. Other industries, including those using dyes, solvents, and organic materials such as chloromethane, consumed 1.2 million tons of methanol. In total, these industries used 2 million tons of methanol. In 2008, the consumption of methanol in industries such as pharmaceuticals, pesticides, and dyes increased slightly, reaching around 2.2 million tons, accounting for 18.06% of the total apparent consumption of methanol. It is expected that the demand for methanol in industries such as pesticides, pharmaceuticals, and dyes will remain relatively stable in 2009 and 2010; by 2010, the demand for methanol from these industries is expected to reach around 2.4 million tons. ——Methanol blended into gasoline: According to incomplete statistics from the Petrochemical Industry Association, the amount of methanol used in blending with gasoline in 2007 was approximately 1.7 million tons, representing a year-on-year increase of 41.7%. It is estimated that in 2008, the amount of methanol used to blend into gasoline across the country exceeded 2 million tons, accounting for 16.42% of the total apparent consumption of methanol. The **standard for methanol as a vehicle fuel** and the **standard for methanol-blended gasoline (M85)** will come into effect on November 1, 2009, and December 1, respectively. The introduction of these standards will help to ensure a standardized development of methanol-blended gasoline in China. However, M85 methanol gasoline requires vehicle modifications, making its widespread adoption difficult; a standard for M15 methanol gasoline that does not require such modifications has not yet been established. Methanol blended into gasoline, particularly M15 methanol gasoline, has the potential to become an important driver of methanol consumption in our country. But can the interests of all parties be coordinated to achieve genuine and widespread promotion? And how can its use be regulated to protect consumers’ rights? All these issues deserve attention. ——Dimethyl ether: In 2008, China’s production capacity for dimethyl ether was around 8.23 million tons, while the output was approximately 1.6 million tons. The amount of methanol consumed for its production was about 2.24 million tons, accounting for 18.39% of China’s total apparent methanol consumption. Due to the lagging civil gas standards for dimethyl ether and the slow progress in its development for use in vehicles, China now has a severe overcapacity in dimethyl ether production. Given that dimethyl ether is a clean and non-toxic alternative energy source that can be blended with LPG or used as a substitute for diesel, Yaja Consulting believes that if oil prices remain high for an extended period, consumption of dimethyl ether will continue to increase as downstream applications are developed and improved. Dimethyl ether remains a highly promising route for utilizing methanol. The above are the main current consumption pathways for methanol. Although there is an overall surplus in production capacity for some methanol derivative products, given the constraints of transportation costs and conditions, methanol derivative plants can still be built in areas with strong downstream demand when imported products are not competitive. To become competitive derivatives of methanol that are used on a large scale, the following conditions must be met: 1. There is strong demand for these products in the market ； 2. Be economically competitive ； 3. The technology is reliable and mature. Next, we will explore new applications for methanol. ——Methanol-to-olefins (MTO/MTP): China faces a significant shortage of ethylene and propylene. In 2008, the import volumes of ethylene and propylene monomers were 721,200 tons and 917,300 tons respectively. On the surface, the proportion of these imported monomers in China’s total consumption of ethylene and propylene seems small; however, the country still imports large quantities of products in the form of ethylene and propylene derivatives each year. Data from 2008 show that China’s equivalent shortages of ethylene and propylene were 9.724 million tons and 4.189 million tons respectively, which creates substantial market opportunities for methanol-to-olefins technologies. Methanol production facilities that already have a certain scale can consider developing methanol-to-olefins (MTO/MTP) processes; in areas with convenient transportation, the scale of such MTO/MTP facilities can be increased by purchasing some of the methanol raw materials externally. Furthermore, chemical parks with a demand for ethylene and propylene monomers can develop MTO/MTP by purchasing methanol externally. The technology for producing olefins from methanol is becoming more mature. Using UOP’s MTO process, TotalEnergies in Belgium built the world’s first pilot plant for the production of olefins from methanol/olefin cracking (MTO/OCP PDU) in Feluy, Belgium. By incorporating olefin cracking technology, this pilot plant sends olefins with four carbon atoms or more to the cracking unit, thereby increasing the yield of ethylene and propylene. By introducing the OCP unit, the MTO unit requires only 2.6 million tons of methanol feed to produce 1 million tons of low-carbon olefins. ——Methanol-to-gasoline (MTG): The MTG process is now well-developed; it utilizes technology provided by EXXONMOBIL or the Shanxi Institute of Coal Chemistry under the Chinese Academy of Sciences. Approximately 2.5 tons of methanol are required to produce 1 ton of gasoline. Unlike blending, methanol-to-gasoline production yields truly high-standard clean gasoline, offering advantages in terms of the ease of use of the product. The current price of gasoline in our country, along with the pricing system for refined oil, means that gasoline prices will rise as international oil prices return to around $80 per barrel. The continuous increase in the number of cars in our country, along with the rising standard of living of the population, leads to higher car consumption, which in turn will keep demand for gasoline high in our country. Methanol-to-gasoline production has mature commercial operation experience, the resulting product is easy to use, the plant scale can be adjusted flexibly, and the investment required is low; if reliable sales channels can be secured, it will make a significant contribution to addressing the surplus methanol capacity in China. In recent years, the traditional domestic sectors that consume methanol, such as those in formaldehyde, acetic acid, pharmaceuticals, and pesticides, have seen steady development, resulting in a gradual increase in methanol consumption in these industries. However, what truly drives the rapid growth in methanol consumption in our country is dimethyl ether and methanol-blended gasoline. In addition, methanol-to-aromatics (MTA) is also attracting attention. Datang International is utilizing the methanol-to-aromatics technology developed by Tsinghua University to build a pilot plant in Dolun, Inner Mongolia, with an annual production capacity of 10,000 tons of aromatics (xylene). If this approach is successful, methanol is expected to become a new source of raw material for PTA in our country. Overall, with the slow growth in methanol consumption through traditional consumption channels such as formaldehyde, acetic acid, MTBE, and DMF, alcohol-ether fuels—methanol-blended gasoline and dimethyl ether—are becoming an important driving force behind the increase in methanol consumption. However, the development of these alcohol-ether fuels still requires further guidance from relevant standards and regulations. Methanol-to-olefins (MTO/MTP), methanol-to-gasoline (MTG), and methanol-to-aromatics (MTA) are expected to become emerging development directions for downstream applications of methanol.