Methanol
generates huge bonanza for CL Financial
Port Spain
Petroleumworldtt.com
01 13 08
With oil prices hovering around US$100/bbl, few
would have noticed an even more alarming increase
price of another major export commodity. The price
of methanol reached a shocking record high of US$900
per tonne in December. The average price for the
last quarter was US$700/tonne, while for the full
year, methanol prices averaged US$435/tonne, the
highest on record.
The significance of this price increase is best
understood in the context of historical prices
for methanol. In the period, 1991 to 2005, methanol
prices averaged US$195/tonne, with an annual peak
of US$290/tonnes and a floor of US$109/tonnes.
The situation might be temporary, but the mere
fact that circumstances could exist to drive prices
to more than twice its previous peak is worthy
of our attention.
CL Financial, majority owner of Methanol Holdings
Trinidad Limited, seems set to reap millions in
windfall profits. Given contractual and fiscal
conditions, the Government, National Gas Company
and the gas producers are also in line to share
in the fortuitous bonanza.
The main cause of the price spiral is a chronic
supply shortage caused by growing production problems
being experienced by Methanex, the world's largest
producer. Since September, Methanex has been forced
to shut down three of its four operating units
in Southern Chile because of the curtailment of
natural gas supplies from Argentina.
The latter experienced an extremely cold winter
and decided to divert natural gas supplies to meet
heating requirements. The southern winter has since
ended but there has been no resumption of supplies.
Methanex plants in Chile have a production capacity
of 3.8 million tonnes per year equivalent to about
12 per cent of world production. Methanex also
has production facilities in Trinidad (2.5 million
tonnes) and New Zealand (500,000 tonnes).
The loss of Chilean output cut global supply by
more than eight per cent at a time when global
demand was and continues to be strong and growing.
The Chilean Government has taken some initiatives
to relieve the situation. About 20 international
oil and gas companies are reported to be in the
bidding process for new exploration acreage in
Chile's southern region. Success in any of these
could bring relief in the medium-term. However,
with no short-term solution in sight, the market
is likely to remain very tight and prices at unprecedented
levels.
The current market and price situation could not
come at a more opportune time for CL Financial's
Methanol Holdings Trinidad Limited. The firm's
flagship plant- M5000- the world's largest, commenced
operations in September 2005. It was widely anticipated
then that its large output would create a supply
surplus and weaken prices. Less than two years
on, the firm is enjoying unprecedented prices.
MHTL has recently embarked on the Ammonia Urea
Melamine (AUM) project which was projected to cost
in excess of US$700 million and is likely to experience
cost overruns. The surplus generated by the current
price situation no doubt will be welcomed. It is
also a second time lucky for Mr Duprey and CL Financial.
The firm's first methanol investment - Caribbean
Methanol Company was built at a time when no one
seemed interested in new methanol capacity. Fortuitously,
the price of methanol doubled shortly after plant
commissioning in 1993. Whether this is impeccable
timing or just luck is immaterial. MHTL stands
to reap huge profits as a result of the misfortune
of its major rival.
Other parties in the natural gas value chain also
stand to benefit. Methanol accounts for about 25
per cent of NGC's natural gas sales. The product's
related pricing formula, which has come under scrutiny
time and again by critics, would generate gas prices
to methanol well about those paid by LNG. This
boost should drive NGC profits for 2007 beyond
the TT$2 billion mark.
Government also stands to benefit from increased
tax revenue and higher dividends from NGC.
One drawback in the current the
Heritage and Stabilisation Fund legislation is
that revenue derived from the
petrochemical sector is not classified as "oil
revenues. Therefore, windfall tax revenue from
the methanol sub-sector will not form part of the
pool from which the deposits to the HSF will be
extracted. It is a major flaw that should be corrected.
Feedback: energyczartt@yahoo.com
Story
by Energy Correspondent from
Trinidad Express
Trinidad
Express
Wednesday,
January 9th 2008
Copyright
©2007 Petroleumworld. All Rights Reserved.
