Methanol stuck in Russia

Methanol stuck in Russia



In Russia, problems are accumulating with the sale of oil and gas chemical products. Due to the closure of European markets and falling domestic consumption, methanol producers are forced to reduce production to a minimum and sell products to China for next to nothing in order not to completely stop plants. Low prices for methanol, despite expensive raw materials, are also kept in Europe. In the future, experts say, there are all prerequisites for their growth, but plans to build new plants in Russia are likely to be cancelled.

As it became known to Kommersant, the largest methanol production is beginning to stop in Russia. Problems arose at Tomsk Gazprom, Shchekinoazot, Metafrax, as well as Tomet (methanol capacity of 900 thousand tons per year, is under bankruptcy management as part of the bankruptcy procedure). Tomet is technologically connected with the site of Togliattiazot, which became part of Uralchem ​​last year.

According to Kommersant's information, Tomet is working with a load of less than 30%, the rest of the enterprises, as Kommersant's interlocutors assure, are at least partially stopped.

The companies either did not comment on the situation, or did not respond to Kommersant's request.

In Russia, methanol, which is one of the first processing stages of natural gas, is produced by nine companies. Their total production capacity is estimated at 4.5 million tons per year, exports are about 2 million tons. In 2021, this sector was actively growing against the backdrop of high world prices, and some companies (Shchekinoazot, Metafrax) expanded their capacities. The global market, according to E&Y, is about 85 million tons, about half of which is processed in China. By 2025, global methanol production may rise to 110-120 million tons.

Russian companies planned to actively increase production. So, about 1 million tons per year was planned to be produced as part of the Nakhodka Mineral Fertilizer Plant (originally owned by Arkady Rotenberg, but then his partner Artem Obolensky took up the development of the project, the launch of methanol production is scheduled for 2023). EuroChem planned to produce another 1.7 million tons per year at its site in Kingisepp. In addition, the plant for the production of methanol for 1.8 million tons in Ust-Luga in 2023 was going to launch the "Ruskhim" of the ex-State Duma deputy Vitaly Yuzhilin, a similar project for 1.7 million tons was planned by the Baltic Gas Chemical Company (owner - "Baltic Methanol" Ilya Traber and Vladimir Kruglov).

At the same time, the main volumes of exports from Russia went to Europe, so that already in March, problems began to arise with supplies, since they were carried out through foreign ports (the key one is in Finland). At the same time, methanol was not formally subject to EU sanctions. Russian sea shipments through Ust-Luga were limited by transshipment capacity. Domestic consumption of methanol, Kommersant's interlocutors in the market explain, although it grew in 2021 (for example, due to the growth of processing at Nizhnekamskneftekhim), in 2022 it began to decline, not meeting the demand for produced volumes.

Now, Kommersant's sources say, companies are trying to sell the maximum volumes to China, even at the lowest price, in order to prevent a complete shutdown of production, since storage capacities are limited, and restarting production is a costly undertaking.

But in China, Kommersant's interlocutors note in the market, there is also weak demand against the backdrop of regular lockdowns, which puts pressure on the cost of methanol, while netbacks from Russian companies are low due to the increased transport shoulder.

Experts note that methanol prices in the world are now relatively low, despite the increase in gas prices. Thus, independent expert Leonid Khazanov points out that since February 2022, methanol prices in the EU have been at a level above $600 per ton amid a drop in production at a number of chemical enterprises due to the high cost of gas. At the same time, there are objective prerequisites for an increase in methanol prices due to the expected new plant shutdowns, he notes. In the US, prices are now stable, being in the range of $560-590 per ton, and so far there are no grounds for their rise, he believes.

Kommersant's sources in the chemical market remind that the difficult situation with a surplus in Russia has developed not only with methanol. A similar problem has arisen in the liquefied hydrocarbon gas sector. Kommersant's interlocutors suggest that the construction of new methanol capacities in Russia will be frozen, or at least projects will be shifted strongly to the right, given the lack of guaranteed demand. At the same time, current capacities will remain at a low load until new export routes are established and consumption increases in Asian markets.

Olga Mordyushenko



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