FEBRUARY 2016

METHANOL

Marc Alvarado –Associate Director, 281-752-3271, Marc.Alvarado@ihs.com

© 2016 IHS
 AGENDA FEBRUARY 2016

• Demand
• MTO
• US
• Supply
• North American projects
• Tradeflows
• Iranian Sanctions
• Pricing and Margins
• Methanol and Crude Oil Current Conditions

Q&A

© 2016 IHS 2
 FEBRUARY 2016

Methanol Demand

© 2016 IHS 3
 FEBRUARY 2016

2010 Global Methanol Demand By End-Use

Others
Solvents 8%
6%
Chloromethanes
3%
Formaldehyde
Methylamines 34%
4%

DME
9%

Biodiesel
4%
Gasoline
Blending Acetic Acid
7% MMA 11%
2% MTBE/TAME
12%

© 2016 IHS 4
 FEBRUARY 2016

2015 Global Methanol Demand By End-Use

Solvents Others
MTO 4% 7%
18%

Chloromethanes
2% Formaldehyde
27%
Methylamines
3%
DME
8%

Biodiesel
3% Acetic Acid
Gasoline 9%
Blending MMA MTBE/TAME
9% 2% 8%

© 2016 IHS 5
 FEBRUARY 2016

Strong Demand Growth into MTO - Existing Plants

Max. Methanol
MTO/P Company Location Time on stream Methanol Source
Consumption

Long term contract

Puyang, Oct. 2011
Zhongyuan PC 600 with plants near by
Henan
and merchant market
Fund Energy Ningbo, April. 2013 Contract and merchant
1800
(Ningbo) Zhejiang market
Nanjing, Oct. 2013 Self supply and
Nanjing Wison 900
Jiangsu merchant market
Long term contract
Shandong Shenda Tengzhou,
Dec. 2014 1200 with nearby plants and
(Levima Group) Shandong
merchant market
Zhejiang New Jiaxing, April. 2015 Contract and merchant
1800
Energy Zhejiang market
Long term contract
Shandong Tengzhou,
July. 2015 900 with nearby plants and
Hengtong Shangdong
merchant market
Long term contract
Shenhua Xiwan Yuli, Shaanxi Dec. 2015 1800 with nearby plants and
merchant market
Total Max.
9000 Kt
methanol demand

© 2016 IHS 6
 FEBRUARY 2016

New US Methanol Demand

• Thus far, basically only fully integrated projects that consume methanol:
- ZeoGas – MTG
- EmberClear – MTG
- BASF – GTP
• Only exceptions are:
- Momentive adding 90 Kta of methanol demand in formaldehyde
- Mitsubishi potentially adding 170 Kta of methanol demand in MMA
- Celanese adding 75 Kta of methanol demand in acetic acid

© 2016 IHS 7
 FEBRUARY 2016

Methanol Supply

© 2016 IHS 8
 FEBRUARY 2016

Improving Methanol Operating Rates

Global Methanol Supply Demand

160 100%

120 85%

Operating Rate
$/ Metric Ton

80 70%

40 55%

0 40%
10 11 12 13 14 15 16 17 18 19 20

Demand Total Capacity Operating Rate Effective Operating Rate

© 2016 IHS 9
 FEBRUARY 2016

Changed Landscape: US Natural Gas

US Natural Gas Supply
140
120
Bcf Per Day

100
80
60
40
20
0
2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

Associated gas Coalbed methane Conventional Shale Tight sands

Source: EIA; IHS Energy

• Production from unconventional sources will continue to expand rapidly

• By the end of the forecast period, gas production from shale gas and tight oil plays
will represent over 75% of total gas production

© 2016 IHS 10
 FEBRUARY 2016

2019 World Methanol Industry Production Cash Cost

World Cost Curve: Methanol

(Price Basis = IHS, Cost Basis = Plant Gate,
Operating Rate Basis = IHS Baseline)
Dollars Per Metric Ton

NEA Avg
NAM Avg
SAM Avg
AFR Avg SEA Avg

MDE Avg
0 20 40 60 80 100
Cumulative Production - Million Metric Tons

© 2016 IHS 11
 FEBRUARY 2016

Methanol Tradeflows

© 2016 IHS 12
 FEBRUARY 2016

Global Methanol Trade Shift – South America

1.1 Mt
4.3 Mt

2014

© 2016 IHS 13
 FEBRUARY 2016

Global Methanol Trade Shift – South America

1.8 Mt

4.0 Mt
1.1 Mt
4.3 Mt

2014

2015

© 2016 IHS 14
 FEBRUARY 2016

Global Methanol Trade Shift – 2020 North & South America

0.98 Mt
5.0 Mt 1.2 Mt

© 2016 IHS 15
 FEBRUARY 2016

Global Methanol Trade Shift – 2020 North & South America

0.65 Mt
+6.2 Mt

0.98 Mt
5.0 Mt 1.2 Mt

© 2016 IHS 16
 FEBRUARY 2016

An Update on Iranian Sanctions

© 2016 IHS 17
 FEBRUARY 2016

Iran: Sanctions Update

• Iran and the P5+1 countries reached a historic agreement on 14 July

2015 that curbs Iran's nuclear programme in return for sanctions relief
• The agreement has now effectively passed US Congress
• The US and Iran adopted the nuclear agreement on the official
“Adoption Day”, 18 October 2015
• “Implementation Day” is likely to be between in the first half of 2016, IF
Iran satisfies the IAEA it has fulfilled its nuclear obligations
• However, these are only part of a network of sanctions; earlier US
sanctions will remain in place, as will congressional restrictions on US
companies and their subsidiaries' ability to do business in Iran

© 2016 IHS 18
 FEBRUARY 2016

Iran: Impact on the Methanol Market

• Short-term:
• Rather than being mainly restricted to China and India, Iran could export to other
markets, maximising its netbacks
• This is likely to have the effect of minimising regional price differentials
• Plant reliability could improve if Iran has better access to items such as spare parts,
catalyst charges etc.
• Current margins are breakeven at best for importing into China at a price of $215 CFR

• Longer-term:
• Iran could add to its current 5m tpa methanol capacity
• Existing projects could be re-invigorated
• New projects, potentially with overseas finance and know-how, could be implemented
• By 2025-2030 Iran’s methanol capacity could grow by more than 10m tpa

© 2016 IHS 19
 FEBRUARY 2016

Methanol Projects Announced in Iran

Company Project Capacity in Kta Timeframe

Kaveh Methanol Co New Facility 2,300 Medium Term

Marjan PC New Facility 1,650 Medium Term

Fanavaran PC Expansion 1,650 Long Term

Kharg Expansion 1,400 Long Term

Sabalan PC New Facility 1,650 Long Term

Siraf Energy Invest. New Facility 1,650 Long Term

© 2016 IHS 20
 FEBRUARY 2016

Methanol Pricing and

Margins

© 2016 IHS 21
 FEBRUARY 2016

US METHANOL PRICING

The 4Q 2015 US spot methanol price was $269 vs $415 in 4Q of 2014 and that is
approximately $80 lower than we expected six months ago.

Our outlook for 2016 pricing is $263 vs $327 in 2015.

In general the US methanol market came under significant pressure at the end of
2015.

• WHY?
• Planned: new capacity onstream in the US
• Environmental: further falls in the crude oil price
• Unplanned: postponement of some MTO unit start-ups in China

© 2016 IHS 22
 FEBRUARY 2016

Global Methanol Demand Crude Derivatives vs.

Traditional
Global Methanol Consumption
100

80
Million Metric Tons

60

40

20

0
10 11 12 13 14 15 16 17 18 19 20

Traditional derivatives MTO/MTP Fuel

© 2016 IHS 23
 FEBRUARY 2016

The crude oil supply glut is not expected to be absorbed

before late 2016
Energy Price Trends

120
US Dollars Per Barrel

100

80

60

40

20

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

WTI Brent

© 2016 IHS 24
 FEBRUARY 2016

Methanol vs Crude Oil

Methanol vs. Crude Oil Pricing

800 140

700 120
Methanol, Dollars Per Metric Ton

Crude Oil

Crude Oil, Dollars Per Barrel

600
100
500
80
400
Methanol
60
300
40
200

100 20

0 0
2000 2002 2004 2006 2008 2010 2012 2014 2016

© 2016 IHS 25
 FEBRUARY 2016

Lower Production Costs and Oversupply are Expected to

Keep Coal Prices Low

120
Dollars per metric ton

90

60

30

0
10 11 12 13 14 15 16 17 18 19 20

© 2016 IHS 26
 FEBRUARY 2016

Methanol Affordability Into DME

Global Dimethyl Ether Energy Value

1,000 700
Equivalent methanol
value based on 1.4

Methanol, Dollars Per Metric Ton

metric tons of methanol
DME, Dollars Per Metric Ton

800 560
per metric ton of DME

600 420
DME valued at volume
equivalence to propane
400 280
DME valued at energy

200 2016 140

NEA Forecast price
range for propane
0 0
0 200 400 600 800 1,000

Propane, Dollars Per Metric Ton

© 2016 IHS 27
 FEBRUARY 2016

Methanol Affordability Into Gasoline

Methanol Values Into Direct Gasoline Blending

900
Methanol Price, Dollars Per Metric Ton

800

700 Equivalent
volume price for
600 methanol. One
gallon methanol Equivalent energy
500
equals one price for methanol
400

300
Forecast price range of
200 gasoline, 2016
100

0
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

Gasoline Price, Dollars Per Gallon

© 2016 IHS 28
 FEBRUARY 2016

Methanol Affordability

Domestic Methanol Spot Affordability: December 2015 vs. November 2015 (based on
spot domestic derivative pricing)
Descriptor: Price in columns indicates what the maximum price is for methanol based on cash cost and price for each
derivative before consumers operate at a loss
2,600
China Spot Methanol:
2,400 December '15 - RMB 1767
2,200 November '15 - RMB 1885
2,000
RMB / mt

1,800
1,600
1,400
1,200
1,000
800
600

1,809
2,131

2,238

2,003

1,884

1,775
265

385

400
200
Acetic Acid Formaldehyde DME MTO
December 2015 November 2015
China Spot Methanol December 2015 China Spot Methanol November 2015

© 2016 IHS 29
 FEBRUARY 2016

Methanol Affordability Into MTO

500
USD per metric ton

400

300

200

100
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15
Breakeven Methanol Price Domestic Spot Methanol

200
150
Margin Index

100
50
0
-50
-100
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15

© 2016 IHS 30
 FEBRUARY 2016

How has the low oil price affected methanol demand?

DME Gasoline blending

• Profitability poor • Low growth
• 2015 demand • But much blending on
essentially flat a volumetric basis

• Issue of ongoing • Profitability eroded

profitability: may reduce • But gasoline demand
operating rates healthy given low oil
• Especially for facilities price
with no units downstream • Healthy growth 2014-15
of propylene
MTO/MTP MTBE
© 2016 IHS 31
 FEBRUARY 2016

Methanol prices 2010 - 2020

Methanol Prices
600
Dollars Per Metric Ton

500

400

300

200

100
2015
2010

2011

2012

2013

2014

2016

2017

2018

2019

2020
US Spot, Gulf Coast Rotterdam Spot, T2 China Spot, CFR

© 2016 IHS 32
 FEBRUARY 2016

Conclusions
• Demand growth in 2016-2017 depends heavily on the MTO market:
• New MTO capacity start-up
• MTO Operating rates/profitability

• Prices forecast to recover slightly but stay in a narrow range in 2016-2017

• New North American projects announced but unlikely to come on stream

between now and 2020

• If the Iranian sanctions are permanently suspended:

• Iran will be free to export to countries other than China and this will reduce regional price
differentials
• Iran will progress its methanol projects and potentially develop new projects

© 2016 IHS 33
 FEBRUARY 2016

Q&A

© 2016 IHS 34