The demand for traditional derivatives has increased, and new low-carbon and zero carbon applications have surged
Recently, analysts from Standard&Poor’s Global stated that after the surge in raw material prices in the past two years, downstream European companies have reduced production due to lack of competitiveness. Currently, global demand for methanol and ammonia is returning to growth. Analysts say that due to the increasing demand for traditional derivatives, the potential for new low-carbon and zero carbon applications in the energy and fuel industries will also surge. It is expected that the continuous growth of global methanol and ammonia demand in the next 10 years will stimulate significant growth in new production capacity.
Methanol demand growth back on track
At the World Petrochemical Conference held in Houston, Olivier Maronneaud, Global Analytics Director for Methanol and Derivatives at Standard&Poor’s Global, stated that the growth in demand for methanol will definitely return to the right track as traditional methanol derivatives demand returns to the right track. But more importantly, methanol has potential new applications. After years of weakness, methanol demand is expected to resume growth, mainly driven by the Asian market and fuel applications.
Maronneau stated that last year’s chaotic raw material prices put pressure on methanol production costs and profit margins, and the oversupply of olefins and polyolefins markets has exacerbated this situation. The region most severely affected by energy costs in Europe in 2022 is expected to resume improvement. Maronneaud said: “Looking ahead, we expect that Europe’s natural gas supply will eventually improve, and the past 18 months will not become the New Normal in Europe. We expect that the natural gas price will return to a relatively normal level, and the European natural gas price will remain high, but more competitive than in the past.”
Maronneau stated that the global demand for methanol in 2022 is approximately 85 million tons, with a production capacity of 130 million tons. The global demand for methanol has steadily increased from about 69 million tons in 2015 to about 83 million tons in 2019. However, due to the impact of the COVID-19 in 2020, the demand has dropped to slightly more than 80 million tons. It is expected that by 2032, global methanol demand will continue to increase from approximately 85 million tons/year to 110 million to 115 million tons/year. This means that in the next 10 years, global methanol demand will increase by at least 25 million tons per year.
Maronneau stated that global methanol spot prices have remained stable over the past 15 months. But in the past six years, global methanol spot prices fluctuated greatly, from around $150 per ton in early 2016 to around $500 per ton in October 2021. The prices of major raw materials such as natural gas and coal are expected to be lower than their high levels in the past two years, providing additional support for methanol producers. Standard&Poor’s Global predicts that the spot price of methanol will remain at $300-320 per ton in the coming years.
Methanol consumption is heavily skewed towards Asia. According to data from Standard&Poor’s Global, approximately 52% of methanol worldwide is used for chemical production, such as formaldehyde, acetic acid, methyl chloride, methylamine, and methyl methacrylate, while 31% is used for fuel production; Another 17% is used for methanol to olefin production in China. Approximately 68% of global methanol consumption is in Asia, with China accounting for approximately 57%.
Chemical industry is the largest methanol demand industry. According to data from Standard&Poor’s Global, the chemical industry is expected to contribute over 55 million tons of methanol demand by 2032. Low carbon methanol is also becoming a new trend in the industry, and the development of low-carbon methanol and methanol fuel may become the next engine for methanol demand growth.
Low carbon ammonia demand will grow rapidly
Max Ismagillo, senior research analyst at Fertecon, a subsidiary of Standard&Poor’s Global, said that similar to methanol, new low-carbon and zero carbon applications are expected to increasingly change the rules of the ammonia game.
Ismajilo stated at the World Petrochemical Conference that it is expected that the global low-carbon ammonia production capacity will increase by 120 million tons/year by 2035, and the global grey ammonia production capacity will stop growing after 2025. The new potential applications of low-carbon ammonia, such as marine fuels or liquid hydrogen carriers, may grow from zero in 2020 to 120 million tons per year by 2035. By 2035, the share of new energy related applications of low-carbon ammonia will reach 31%, and more traditional applications will also increase – mainly for urea, other fertilizers, and industrial purposes. However, the majority of global investment in new ammonia production capacity will be used for green and blue ammonia projects, as new low-carbon applications may require significant growth in green and blue ammonia production capacity.
According to data from Standard&Poor’s Global, global ammonia production capacity is expected to increase to 358 million tons per year by 2035, including an increase in low-carbon ammonia production capacity of 120 million tons per year. Ismajilo stated that the new low-carbon ammonia production capacity will include approximately 92 million tons/year of green ammonia and 28 million tons/year of blue ammonia. It is expected that by 2035, global grey ammonia production capacity will increase by approximately 18 million tons per year. Ismajilo stated that compared to 2020, urea production will require approximately 25 million tons/year of additional ammonia by 2035, some of which will still be met by expanding grey ammonia production capacity.
Ismajilo believes that a considerable portion of the 140 green and blue ammonia projects announced globally will not achieve results, as there are many unknown factors and possibilities in the development process of low-carbon ammonia, many of which will never be completed. However, this does not hinder the emergence of more clean ammonia projects in the future. In addition, if governments accelerate the use of ammonia to meet energy demand through policies, the global demand for low-carbon ammonia may exceed production capacity.