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Methanol growth in context of the global marketNg Bao YingSenior Editor, Asia PetrochemicalsJune 2014

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Methanol in Iran

• Iran – key methanol producer• Large natural gas reserves• Important supplier to Asia• Versatile product – traditional VS MTO

Agenda

Platts methanol assessmentsMethanol prices versus energy pricesAsia methanol price trendGlobal methanol trade flowsCompetitive pressures from shale gas

expansionsDownstream demand changesConclusion

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Introducing Platts

Platts is a commodity information and data provider founded by Warren Platt over 100 years ago, and owned by McGraw Hill Financial, a leading provider of ratings, benchmarks and analytics.

Price Reporting Assessments

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Platts methanol assessments

Daily: CFR China, CFR Southeast Asia, Domestic China

Weekly: CFR Korea, CFR Taiwan, CFR India

Prices based on latest information sourced from the market, up to the close of the assessment window at 4:30 pm Singapore time.

Cargo size: China, Korea 3-5kt. Taiwan, SEA, India 2-5kt. China domestic 200-500 mt.

CFR: Evaluate cargoes for delivery 20-40 days forward from date of publication.

China domestic: parcels loaded up to 10 days forward from date of publication.

More information can be found on the Platts Petrochemicals Methodology Guidehttp://www.platts.com/IM.Platts.Content/MethodologyReferences/MethodologySpecs/asian-petrochemicals-methodology.pdf

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Market on Close assessment process

Part of the price discovery process at Platts is the Market on Close assessment process.

At 3:30-4:00 pm Singapore time on Fridays for methanol, Platts invites firm bids and offers from approved market participants.

During 4:00-4:30 pm Singapore time, participants are allowed to increase or decrease their bids and offers.

These price movements are tested by the market as they are open bids and offers.

After 4:30 pm Singapore time, no new information will be accepted and the numbers on the MOC process will form an important basis for the final assessment of the day.

Agenda

Platts methanol assessmentsMethanol prices versus energy pricesAsia methanol price trendGlobal methanol trade flowsCapacity growth and downstream demand

changesConclusion

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1500Platts Global Petrochemical IndexMethanol CFR ChinaMethanol FOB USGMethanol T2 FOB Rotterdam Eur/mt

Global methanol prices VS Platts PGPI: Not always in sync

Global methanol prices fail to correspond with the early 2013 peak in the PGPI

PGPI, methanol prices trend lower early 2014

Source: Platts

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Global methanol prices VS Brent crude: limited correlation

Global methanol prices fall despite stable Brent

Global methanol prices rise despite stable-to-lower Brent

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Asia methanol VS FOB Mid East LNG: some correlation

China methanol prices move in similar directions to LNG

Prices move in different directions

Prices move in similar direction

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US methanol VS Henry Hub gas: some correlation

US methanol price rises and falls with gas

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Asia methanol VS China thermal coal: some correlation

China methanol prices move closely with China thermal coal prices

Coal, methanol prices fall in early 2014

Agenda

Platts methanol assessmentsMethanol prices versus energy pricesAsia methanol price trendGlobal methanol trade flowsCapacity growth and downstream demand

changesConclusion

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Asia methanol price trend

Asian methanol prices cluster and move in similar directions

Common directionality evident end 2013-early 2014

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India methanol increasingly linked to Iran

2. CFR India-CFR China spread widens mid-2012 onwards, when India started purchasing more volume from Iran following sanctions

1. In 2011, spread fluctuates between a minimum-maximum range of minus $12/mt to $50/mt

3. India prices move closely with supply from Iran. Spread narrows end-2013 to early-2014 amid tighter supply from Iran. China prices don’t surge as much due to domestic supply.

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Domestic China methanol gap to CFR China widens

CFR China-domestic China on an import parity basis spread mostly stable

Gap widens significantly end 2013- early2014

2012 average spread: $17.17/mt 2013 average spread: $22.22/mt 2014 to date average spread: $55.02/mt

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China-SEA prices start to disconnect

Spread mostly stable, especially during entire 2012

Spread widens to record-high at $135/mt on March 14 2014

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China imports fluctuate with price shifts, domestic support

(Units: mt. Source: Chinese Customs)*Includes also the countries that have been excluded from the list-up due to relatively small or sporadic volumes.

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China-SEA prices start to disconnect

Methanol prices fall sharply at the start of 2014

Agenda

Platts methanol assessmentsMethanol prices versus energy pricesAsia methanol price trendGlobal methanol trade flowsCapacity growth and downstream demand

changesConclusion

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Asia methanol flows west amid healthy arbitrage margins (US)

Tight supply in Asia narrows price gap between Asia and the US, preventing volumes from being shipped westward

March 20: Spread peaks at $188/mt, offering firm margins for the arbitrage shipment

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Asia methanol price versus FOB Rotterdam

March 20: Spread peaks at $172/mt

Agenda

Platts methanol assessmentsMethanol prices versus energy pricesAsia methanol price trendGlobal methanol trade flowsCapacity growth and downstream demand

changesConclusion

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Will the west continue to be an outlet for Asia methanol?

• Domestic production in China has been strong, supporting an open arbitrage

• US has been able to accept the surplus methanol in Asia so far

• Shale boom in the US may tip the scales• Global methanol capacity growth led by US

expansion

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Upcoming new production

In Iran, there are methanol projects slated in Chabahar, with a capacity of 1.65 mil mt/year. There’s also talk of volume from Kaveh, in Dayyar of 3.5 mil mt/year, by 2015. Kharg Petrochemical has a 1.4 million mt/year plant on top of its existing one, with volumes from H2 2016.Sources estimate varying new capacities in Iran, with one suggesting 6 million mt/year in total.

Company Country Location Size (kt/year) When

LyondellBasell US Texas 780 end 2013

G2X Energy US Texas 65 Q2 2014

Orascom Construction Industries US Texas Increase capacity by 175 H2 2014

Celanese/Mitsui JV US Texas 1300 H2 2014

Methanex US Louisiana 1000 H2 2014

OCI Beaumont US Texas Increase capacity by 182.5 Q4 2014

Valero US Louisiana 1600 Q1 2016

Methanex US Louisiana 1000 2016

Natgasoline US Texas 1750 late 2016

South Louisiana Methanol US Louisiana 1800 Jan 2017

Northwest Innovation Works US Washington 1800 2019

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Demand in Asia: China’s planned MTO projects

Source: Platts Analytics

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China’s MTO story: Risks

• Capital intensiveness

• Environmental issues

• Availability of water

• Availability of power

• Cost of delivering product to consumers

• Cost of methanol

Source: Platts Analytics

Agenda

Platts methanol assessmentsMethanol prices versus energy pricesAsia methanol price trendGlobal methanol trade flowsCapacity growth and downstream demand

changesConclusion

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Conclusion

• Reduction in Asian methanol volumes headed west • Supply to Asia limited apart from output from

planned Iran projects• China’s domestic production can displace import

demand• If Iran capacities come online as planned we may see

more rebalancing• Downstream demand growth in Asia seen in MTO

projects, but unlikely that all will come on-stream

Thank you

Ng Baoying Senior Editor, Asia PetrochemicalsPhone: +65 6530 6588Email: bao.ying.ng@platts.comYahoo messenger: platts_asia_methanol