Creating a Common Market in Future Fuels: Methanol Greg Dolan, CEO Methanol Institute

Washington – Hudson Institute – 7 May 2015

SINGAPORE WASHINGTON

BRUSSELS BEIJING

About MI • World’s leading methanol

producers • Distributors • Technology companies

MEMBERS INCLUDE:

• To traditional markets & derivatives • Leads the development of new

emerging markets and applications • Delivers safe handling tools to

global distribution chain

PROVIDES MARKET SUPPORT:

2015 Members

Alternative Fuel Drivers

• Scale: The feedstock base needs to be large enough to support global transportation market.

• Sustainability: There needs to be a viable pathway to low- or no-carbon transport, while reducing smog.

• Subsidy: Can’t rely on government support forever, so someone needs to make money.

Methanol Made From Many Resources

Methanol Value

6

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)

Chemical Commodity to Energy Resource

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

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(000s tonnes) 2003 – 2013 CAGR: Energy: 10.8% Total: 6.0%

2013 – 2017 CAGR: Energy: 12.7% Total: 8.1%

Methanol is a Global Energy Resource

Out of the ~64 million metric tons (21 billion gallons) of methanol sold globally in 2014, energy and fuel uses represent ~45% of total demand. •Direct Methanol Fuel Blending • Diesel Substitution •MTBE •Biodiesel • DME • MTG/MTO •Fuel cells

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

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Examples of Transportation Fuel Use

PASSENGER CARS

SHIPPING

TRUCKS & BUSES

Methanol-Gasoline Blend Options

M3 – M15 • EU allows M3 (EN228)

Blended a.o. in UK and NL

• China uses M15 Estimated 7 million metric tons ~75% of cars build by international automakers

• Trials in Australia, Israel, a.o.

M20 – M30 • Automakers in US call

for higher octane to facilitate greater engine efficiency (higher compression, turbocharging, downsizing)

• Fit with ePure drive toward E20 in Europe

M51-100 • ASTM D5797 standard

revision • M100 dedicated

vehicles (e.g. Geely) • Use of SI technologies

in Light and Heavy Duty vehicles

• Few changes needed to existing vehicle technologies at low cost

Different Technology Options in HDV Segment

DUAL FUEL

DME

DIESEL BLENDS

MD95

SPARK IGNITION

BENEFITS • High break thermal

efficiency • Low emissions • Low soot • Easy handling • Compatible with existing

engine technologies • Opportunities for

optimization • Affordable

US Methanol Resurgence • Shale Gas Revolution leading a

resurgence of domestic methanol production.

• By some estimates, US methanol production increase from 3 million tons (1 billion gallons) in 2014 to 28 million tons (9.3 billion gallons) by 2018.

• US again becomes net exporter of methanol in next 2-3 years.

• New methanol production means billions of dollars of investment, thousands of permanent jobs, and tens of thousands of construction jobs.

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North American Projects

US 114th Congress

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• Fuel Choices and Deregulation Act was introduced Sen. Rand Paul (S. 889) and Rep. Rod Blum (H.R. 1944) to provide a CAFE credit for automakers that introduce fuel choice enabling vehicles.

• Open Fuel Standard Act to be reintroduced requires automakers to introduce Fuel Choice Enabling Vehicles.

• According to April 2015 poll by RFA and Morning Consult, 69% of voters support the federal government requiring automakers to build cars that run on fuel sources other than oil.

• Legislation has already been introduced in both the House and Senate to modify or repeal the Renewable Fuel Standard.

• US EPA has completely mismanaged RFS program, playing into Republican hands.

• MI argues that Congress needs to repeal and replace the RFS with a Domestic Fuel Standard opening door to the use of domestic natural gas for methanol fuel production.

• The RFS calls for 36 billion gallons of renewable fuels by 2022, but there is no viable pathway to get there.

• By law, cellulosic ethanol requirement for 2013 was one billion gallons, EPA reduced to 6 million gallon, then 800,000 gallons

• Easier to buy a unicorn than a gallon of cellulosic ethanol

• Hit blend wall for E10, little commercial interest in E15, and E85 FFV CAFE credit expires 2017 model year

Renewable Fuel Standard vs. Domestic Fuel Standard

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China Methanol Fuel Status

M15 truck loading in Shaanxi province

• Estimated that 7 million tons of methanol blended with gasoline as M15 in 2014, against total gasoline consumption of 105 million tons.

• China adopted national standards for M85 and M100 issued in 2009.

• MIIT “high proportion” methanol demonstration that will serve as the basis for M85 vehicle standards was launched in 2012 in Shanxi, Shaanxi, and Shanghai, and is now expanding to other provinces and cities.

• 160,000 vehicles converted to methanol fuel, mostly taxis. Geely Chairman LI Shufu with methanol cars

Rally Racing with GEM Fuels

• Methanol Institute, Methanex and OCI NV (Natgasoline) sponsored GEM fuels in 2013 and 2014 World Rally Championship.

• GEM Fuels: 37% Gasoline; 21% Ethanol; 42% Bio-Methanol

• 2013 Junior WRC and 2014 Fiesta Trophy Results:

– 24 young drivers in 10 Rally Race events across Europe drove 16,000 km

– Consumed 38,000 liters of GEM fuels – Saved 66,000 kilograms of CO2

• Methanol Fuels being commercialized in Australia • Project led by Coogee. Methanex is a partner • Path to energy security • Methanol excise tax free status for 10 years (~A38c/litre, ~$US

480/t) • Successful road trials and testing programs completed • Commercial roll out of GEM 8 planned in 2015; GEM15 &

GEM56 in the future

Australia Methanol Fuel Blending

Israel Methanol Fuels Demonstrations

• Israel fundamentals: • Large gas finds in Israel • Strategic need to reduce

oil dependence • Technology focus

• Prime Minister Netanyahu established Fuel Choices Initiative.

• M15 demonstration underway, M70 demonstration launched.

Marine Fuels in Transition

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

• With over 90,000 commercial vessels moving around the world’s oceans, shipping consumes 370 million tons of fuel (Heavy Fuel Oil and Middle Distillates).

• Bunker fuel has been highly polluting; high SOx, NOx, particulate emissions.

SOx and NOx Regulations Driving Market

• The International Maritime Organization has adopted regulations for SOx and NOx that are transforming the shipping industry.

• While SOx reductions may be met with low sulfur fuels, the combination of SOx and NOx reductions driving shipboard solutions.

Methanol Marine Fuels

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• Launched in March 2015, Stena Germanica features methanol-fueled marine engine in EU-sponsored effort.

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

• MethaShip project led by Lloyd’s Register with German shipbuilder and shipyard designing cruise ship and ro-pax ferry over next three years.

• LNG

• 50-60 ships already use LNG as a fuel, while methanol is a cargo.

• LNG industry has head start in promoting the fuel for marine engine use.

• Medium speed LNG duel fuel engines can meet SOx/NOx requirements, but slow speed engines cannot meet NOx, and will need SCR or EGR.

• Methanol • Capital costs for ship

conversion 1/3 that of LNG.

• Methanol can easily be stored at any port in the world, again at a fraction of the cost of LNG storage.

• Major engine manufacturers confident engines can meet SOx and NOx requirements.

Methanol vs. LNG

• Given often inconsistent public policy, methanol fuels will succeed because: • Methanol has a wide range of

feedstocks making methanol a long-term sustainable fuel option.

• There are no technical barriers to using methanol as a transportation fuel.

• There are significant economic advantages to methanol fuel use.

Conclusions

Thank you for your kind attention!

Greg Dolan CEO Methanol Institute gdolan@methanol.org +01 703 248 3636 www.methanol.org www.methanolfuels.org