Securing Our Energy Future: Methanol Fuel Blending in Asia Pacific & the Middle East

Singapore International Energy WeekRoundtable F, Marina Bay Sands – October 30, 2014

Dom LaVigneDirector, Government & Public Affairs (AP/ME)

Overview

Methanol Basics

Methanol as a Transportation Fuel

Introduction to MI

Methanol Developments in AP/ME

Methanol & Derivatives Outlook

Marine Fuels

Intr

od

uct

ion

to

MI

Introduction to MI

About MI

• Global non-profit, private-sector trade association established in 1989

• Headquartered in Singapore with offices in Washington, DC, Beijing, and Brussels

• Provides market support and development of new/emerging markets

• Global public policy outreach

• Product stewardship, responsible care, safe handling tools and resources

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2014 MI Member Companies

Met

han

ol B

asic

s Methanol Basics

Methanol Basics: Physical Properties

• Name: Methanol

• Formula: CH3OH

• CAS #: 67-56-1

• Form: Colorless Liquid

• pH: 7.2

• Solubility: 100%

• Odor: Faintly sweet alcohol

• Boiling Point: 148o

• Freezing Point: -144o

• Flammable and Toxic

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Methanol Basics: Polygeneration

Natural Gas

Coal

Synthesis Gas

Methanol

Methanol

Gasoline

FuelsDME

Chemicals Formaldehyde

Acetic Acid

Olefins

Chemicals

MTBE

Fuels

CO2

Biomass

Methanol Basics: Chemical Applications

Image source: Methanex Corporation

Methanol & Derivatives Outlook

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

Chemical MTBE/TAME Fuel DME MTO/MTP (Merchant)

Strong Global Demand Growth

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(000s tonnes)

2003 – 2013 CAGR:Energy: 10.8%

Total: 6.0%

2013 – 2017 CAGR:Energy: 12.7%

Total: 8.1%

Source: IHS Chemical 2014 Update, April, 2014. Excludes integrated methanol demand for methanol to olefins and propylene

Global Methanol & Derivatives Demand

• From 2010-2012, global methanol demand increased by 23%

• 60.7 MMT demand in 2013; forecasted to 109 MMT in 2023

• MEOH and derivative demand growth all being led by China

• China’s annual MEOH demand growth at 12% (versus 3% globally)

• China’s consumption to rise from 31MMT (2012) to 97MMT (2022)

Source: IHS – September 1, 2014

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Global Methanol & Derivatives Demand

• Methanol demand in the gasoline pool to increase from five MMT (2012) to 11 MMT (2022)

• 17 MMT of new capacity in North America between 2014-2023

• Northeast Asia, Europe, North America largest methanol importers (80% of total world trade)

• Northeast Asia’s imports to triple from 2012-2022.

• Future MTO, MTP (methanol-to-propylene, and DME-integrated complexes to consume largest amounts of methanol

Source: IHS – September 1, 2014 / March 11, 2013

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Methanol as a Transportation Fuel

Underlying Policy Drivers Energy Security•Reduce Reliance on Imports•Mitigate Foreign Influence on Policy

Emissions Reduction

•Meet Sustainability Goals

•Improve Efficiencies

•Reduce Dependence on Fossil Fuels

Domestic Economics•Create Industry at Home•Provide Jobs •Reduce Trade Imbalances•Exploit Domestic Resources

Three main factors are a part of policies created to encourage the use of alternatives to oil-derived gasoline across the globe.

Governments are pragmatic by nature, and especially in the current global economic crisis.

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Methanol is a Global Energy Resource

Out of the ~61 million metric tons (77 billion liters) of methanol sold globally in 2013, energy and fuel uses represent almost 40% of total demand.

• MTBE• TAME• Low blends• High blends• Biodiesel• DME• MTG/MTO• Diesel blends• Fuel cells

From 2009-2014, direct methanol fuel blending has increased at an annual rate of 23%.

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Methanol Basics: Transportation Fuel Applications

Direct Fueling

• Blended with gasoline (M3 – M85)

• 8 million metric ton annual demand

Dimethyl Ether (DME)

• Low-carbon, no-sulfur, diesel replacement

• Can be used neat or blended with propane

• Volvo, Nissan, UPS exploring pilot programs

Biodiesel

• Renewable methanol can make ultra-clean biodiesel; roughly 15-20% of oil source by mass

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Blend Properties

• Methanol contains oxygen for cleaner fuel combustion.

• High blending octane for smoother burning.

• Lower boiling temperature for better fuel vaporization.

• Highest hydrogen to carbon ratio for lower carbon intensity.

• Lower atmospheric reactivity to reduce smog.

• No sulphur that can poison catalytic converter.

Methanol Fuel Blending Benefits

• Blending methanol allows refiners to expand gasoline production.

• Upgrade regular gasoline to higher premium grades.

• Ethanol acts as an excellent co-solvent with methanol.

• Meet environmental requirements by reducing ozone, CO, toxics and particulates.

Methanol Fuel Developments in

Asia Pacific & the Middle East

MI China Focus

• MI has opened an office in Beijing and hired Patrick Zhao as MI’s China Chief Representative.

• MI has long-standing relationships with China Association of Alcohol and Clean Ether Fuels and Automobiles and China Nitrogen Fertilizer Association.

• MI has provided technical support to stakeholders in China on methanol fuel blending and methanol safe handling.

2009 2010 2011 2012 2013

Company 276 291 295 303 321

Production Capacity（KT）

26280 38400 46540 51491 56962

Capacity year-on-year 12.4 46.1 21.2 10.6 10.6

Production Output（KT）

11300 17520 26270 31290 35847

Production up -12.1 55 49.9 19.1 14.6

China Methanol Production

2013: China Methanol Production Capacity Reached 56.96 million tons, a year-on-year increase of 10.6%

China Methanol Consumption

2009 2010 2011 2012 2013

Apparent consumption (KT) 16570 22700 31958 36220 39932

Apparent consumption on year (KT)

19.1 37 40.8 13.3 10.2

2013: Total apparent consumption of methanol was 40 million tons.

China Methanol Fuel Status

M15 truck loading in Shaanxi province

• China adopted national standards for M85 and M100 issued in 2009; M15 standard pending.

• MIIT “high proportion” Methanol Pilot Program launched in 2012 (Shanxi, Shaanxi, Shanghai); expanding to Guiyang and Gansu provinces in 2014-2016.

• 160,000 vehicles converted to methanol fuel, mostly taxis.

• Methanol vehicle and engine manufacturers: Geely, Maple, Cherry, Chang’an, Hauchen, SinoTruck, Yutong Bus, Chenggong and FAW Jing Ye.

Fuel Blending in China - Provincial Standards

• Provincial Standards have been supporting strong demand growth for methanol fuel blending in China

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Xinjiang

Tibet

Qinghai

Gansu

Zhejiang

Hunan Jiangxi

GuangdongYunnan Hong Kong

Jiangsu

Sichuan

Shaanxi

Shanxi

Guizhou

Fujian

Macau

Shanghai

Hainan

Ningxia

M15, M30 & M50

M15, M25

M45

M10 Chongqing

Shandong

Anhui

Jilin

Guangxi

Henan

Hubei

Heilongjiang

Tianjin

M5, M15, M85 & M100

Hebei

BeijingInner

Mongolia

Liaoning

M15

M15,M30

M15

M15,M30

M15

M15

Example: “M15”=15% methanol, 85% gasoline

M15

Global Methanol Fuel DevelopmentsAustralian Methanol Fuel Blending Background

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Global Methanol Fuel DevelopmentsAustralian Methanol Fuel Blending Background

Most fuel requirements imported

Australia is gas and coal rich

Methanol is easier to integrate into the fuel distribution system than natural gas

Ethanol supply limited in Australia

Local refinery capacity decliningAER, State of the Energy Market (2010)

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Led by Coogee Energy, with support from

Methanex and the Methanol Institute

Using E85 Flex Fuel Vehicle (FFV).

‘A15’ or 15% alcohol: 12% methanol with 3%

ethanol co-solvent

Methanol excise tax free status for 10 years

(~A38c/litre, ~$US 480/t)

Engagement with government, independent

fuel retailers, and commercial partners

Global Methanol Fuel DevelopmentsAustralian Fuel Blending Demonstration Overview

Methanol / gasoline pump at Coogee plant site

Holden Commodore E85 FFV

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• Have methanol included in the Australian Fuel Standard & Fuel Quality Regulations

• Demonstrate & introduce methanol as a fuel into Australia (GEM-8, GEM-15, GEM-56)

• Confirm fuels compatibility with existing fleet and determine benefit to consumer

• Obtain stakeholder inputs to get approach right

• Develop a coordinated global approach on methanol fuels for transportation use

Road Shows

• Nov 2011 Australian Road Show

• Jan 2012 MI Global Fuel Blending Alliance– Methanol Institute (www.methanol.org)

• Aug 2012 Technical program commenced– Tailpipe emissions (www.acart.com.au)– Life cycle assessment (www.csiro.au)– Materials compatibility, RVP etc.

• Apr 2013 Australian Road Show

• Nov 2013 Technical program continued– Particulate emissions (www.orbeng.com.au)– RVP and other regulatory tests– Replicate work done for ethanol fuels

• Nov 2014 Australian Road Show • 2015 - Commercial rollout of GEM fuel

Timeline

2012 Holden Commodore SV6

(Victoria)

2013 Toyota Camry Altise

(Queensland)

2012 Ford Mondeo Zetec

(Western Australia)

www.drivenbygem.com.au

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2014 Mazda CX-9 Classic

(Victoria)

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Tailpipe Emissions

OVERALL EMISSIONS

• GEM56 is lower than E85 (E85 has higher embedded emissions)

• GEM56 similar to PULP98 (PULP98 has higher tailpipe emissions)

NOx EMISSIONS

• GEM56 & E85 has reduced NOx

• GEM15 has lower NOx than E10 or ULP91 or PULP98.

ULP = 91 octane gasoline

PULP = 98 octane gasoline

Global Methanol Fuel DevelopmentsIsrael Methanol Fuels Demonstrations

Israel Fundamentals

– Large gas finds in Israel

– Strategic need to reduce oil dependence

– Technology focus

M15 demonstration completed

– Lab testing in Northern Italy

– M70 demonstrations being considered

– Government, academia, industry involved

• AzMeCo started first methanol production in Caucuses in late 2013

• 561,000 tpa methanol, and 160,000 tpa CDR

• Biomass fuel research

• 12-15 proposals for MEOH applications being evaluated

• 2018: 100,000 tpa of MTBE production planned

• Interest in methanol fuel blending and standards development

Global Methanol Fuel DevelopmentsAzerbaijan

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• Focus primarily on downstream chemical production, but opportunities exist for fuel blending

• Uzkimyosanoat currently produces 15,000 TPA of methanol

• 2016: Completion of a natural gas-to-acetylene facility that will produce 300,000 TPA of methanol

• 2017: Completion of MTO facility requiring 500,000 TPA methanol

• GM’s 4th largest global auto manufacturing facility in Uzbekistan

Central Asian Methanol Fuel DevelopmentsUzbekistan

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Central Asian Methanol Fuel DevelopmentsTajikistan

• 90% of oil and gas used is imported

• One million tons of fuel imported annually from Russia

• Geopolitical influences from Russia, Uzbekistan, and China

• Lack of employment; one million Tajik citizens working abroad

• Pollution, limited FDI

• MOU with MI signed on Oct 15

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References:1.CIA World Factbook2.The Wall Street Journal3.The Diplomat – June 2013 edition

Marine Fuel Applications

Methanol Marine Fuels

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• Bunker fuel – usually made from diesel has been historically used in the shipping industry

• Diesel bunker fuel has been highly polluting; high SOx, NOx, particulate emissions

• Shipping industry moving to cleaner fuels - lower sulphur and other pollutants (NOx, particulates)

• Large market potential

Methanol Marine Fuels

• International Maritime Organization (IMO) establishing marine engine emission limits for use in Emission Control Areas (ECAs) for SOx and NOx.

• By 2020, all marine fuels globally required to contain maximum 0.5% sulphur.

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Methanol Marine Fuels

• Compliance options include:

– Dual-fuel bunker with LNG, DME or methanol– Selective catalytic reduction with urea solution– Exhaust gas recirculation

• Methanol viewed as effective and low-cost option

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Methanol Marine Fuels

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1. Direct use of methanol with 5% diesel/bunker as pilot fuel (this will result in low emissions and high efficiency)

2. Convert on board using a ~60% DME + methanol and water mixture. This results in ultra-low emissions, but lower efficiency, and required a higher CAPEX and OPEX.

Options for Methanol use in Bunker Fuel

Marine Methanol Fuels

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SPIRETHAlcohol (Spirit) and Ether as Marine fuel

Methanol Marine Fuels

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• Stena demonstrating methanol marine engine fuels in EU-sponsored effort.

• Conversion of Stena’s fleet of 25 ferries by 2018 will create methanol demand of 625 KMT.

• Methanex’s Waterfront Shipping has ordered six new vessels powered by MAN dual-fuel methanol/diesel engines.

• There are 90,000 commercial ships on the world’s oceans, a huge potential market for methanol.

Thank you!

Dom LaVigneDirector of Govt & Public AffairsAsia Pacific/Middle Eastphone: +65 6325 6302e-mail: dlavigne@methanol.org