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Fuelling tomorrow

By Guy Saddy | July 7, 2014
Fuelling tomorrow
John Floren

On a Friday morning at Methanex Corporation’s downtown Vancouver head office, President and CEO John Floren is sans tie. But when it comes to discussing the shifting market for methanol, Floren is hardly laid-back.

That’s because in a rapidly changing world, methanol is gaining a prominent foothold as an alternative energy source. This bodes well for Methanex, whose global 14 per cent market share makes it the largest producer, marketer and supplier of methanol. Methanol is a colourless, biodegradable liquid formed primarily by mixing natural gas and steam. Originally distilled from wood sources – it was once colloquially referred to as wood alcohol – today it’s used to make a vast array of products, from paints and plastics to, as Floren points out, my sport coat. “Pretty much everything in this room would have methanol in it,” says the three-decade chemicals industry veteran. “So it’s a building block.”

Historically, global gross domestic product drove methanol consumption, with Western industrialized economies accounting for a disproportionate share. Economic mobility was the major growth engine: as people become more affluent, they consume more products – cars, homes and furniture, for example – that require the chemical. The methanol market has traditionally expanded between 3 and 5 per cent annually. “But what’s more exciting now are the applications for energy,” says Floren, who became CEO in January 2013 after more than a dozen years with Methanex in management roles that included Senior Vice-President, Global Marketing and Logistics. Ten to 20 years ago, use of methanol as an energy source comprised about 20 per cent of global demand for methanol; today it’s about 40 per cent, and it will probably make up half of global demand by 2018. The reason? First, the cost of oil has risen steeply relative to the price of natural gas, methanol’s primary feedstock. For years, the ratio ($barrel of oil versus $mmbtu for natural gas) was approximately 10:1 for oil and natural gas, respectively; today, Floren notes, it’s more like 25:1.

However, that isn’t the sole factor driving increased use of methanol fuel. “Methanol is very clean-burning versus some of the petroleum products,” Floren explains. As environmental concerns become more critical, methanol is part of the solution. In China, for example, fuel blending (mixing methanol with gasoline) helps reduce emissions and pollutants. And at concentrations of up to 15 per cent, methanol can be used in any car, with no retrofitting required. “The amount of methanol being used in China today, just for gasoline blending, is about seven million tonnes out of a 57-million-tonne global market,” Floren says. “The demand growth there is just exponential.” Evolving environmental regulations present opportunities elsewhere. In Northern Europe’s Baltic region and on the coast of North America, sulphur emission restrictions due to take effect in 2015 will require ships to use cleaner fuel. For ships operating in the region, there’s a choice to make. “You can put scrubbers on the stacks, but it’s very expensive and takes a lot of dry-dock time,” he says. “Liquefied natural gas works from a new build perspective, but it’s challenging and costly to retrofit a ship to run on it. You can use marine gas oil, which is very expensive and may be in significant demand in the coming years. Or you can use a product like methanol.”

A ship retrofitted to run on methanol can also use less-expensive bunker oil when feasible. “When you’re inside an area that has these restrictions, you can run on a 95-per-cent methanol and 5-per-cent bunker fuel blend and meet the air-quality standards. And when you’re outside, you can run 100-per-cent bunker,” Floren says. “You have what we call a dual fuel: same engine, different sets of injectors and two different fuel sources.”

Methanex currently employs approximately 1,100 people and has plants in six countries: Canada, Chile, Egypt, New Zealand, Trinidad and the U.S. To stay at the forefront, the company has adapted to changing circumstances. For example, its Chilean plants are traditionally dependent on Argentinian natural gas. But in 2007, when Argentina was forced to import energy to meet domestic needs, Argentinian gas suppliers halted all natural gas exports; overnight, 80 per cent of the Chilean feedstock disappeared. Instead of letting the facilities sit idle, Methanex decided to relocate two of its four existing Chilean plants to Louisiana, closer to readily available supplies of gas. “It’s quite innovative,” says Floren, adding that although other methanol plants have been cut up and shipped in pieces, nobody else has attempted to move large sections of a plant intact. The logistics were daunting, but the payoff was worth it. “To relocate a plant from Chile to Louisiana, we can do it for about two-thirds the capital of a new build and in about half the time,” says Floren, adding that a new plant takes about five years to complete. The first Louisiana plant is targeted to be operational later this year, the second by early 2016.

In 1995, to transport methanol to world markets, Methanex formed Waterfront Shipping Company Ltd., a wholly owned subsidiary whose 18 vessels specialize in safe, responsible and reliable transportation, making up the world’s largest methanol tanker fleet. (Seven more ships with dual-fuel capabilities are on order.) In the past, Methanex had deployed Waterfront’s fleet solely to ship methanol. But when circumstances changed in Chile, it had to improvise, repurposing the vessels to carry cargo other than methanol. “Forty per cent of what we carry today is not methanol,” Floren says, adding that the ships now often carry gasoline or diesel on backhaul routes. “That’s made our shipping costs much more effective.”

Hurdles remain. Finding skilled employees – as Methanex grows, it’s looking to add between 700 and 800 people in the next three to five years – will be the most pressing challenge. Another is the deft management of market growth, which is now increasing by 8 per cent annually. “The fastest-growing markets for methanol are in the energy sector, and as energy applications grow, they create very large demand,” Floren says. “You want to have orderly growth on both the demand and supply side, to grow the supply at the same time as the demand grows.”

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