Methanol: Geopolitical conflict remains, focus on energy market volatility

Methanol: Geopolitical conflict remains, focus on energy market volatility

Since September 2, Russia has stopped the transmission of the Nord Stream 1 natural gas pipeline due to equipment failure, and the Nord Stream 2 has not been put into operation after its completion. As a result, the Nord Stream pipeline has effectively been out of service since early September. The NordStream pipeline leak will not have a direct impact on gas supplies in Europe in the short term. But Europe's gas supply is highly dependent on Russia. In 2021, Europe will import 341 billion cubic meters of natural gas, with an import dependence of 59.72%. Among them, pipeline gas is 232.8 billion cubic meters, and Russia's pipeline gas imports are 167 billion cubic meters, accounting for 49% of total natural gas imports. As a result, Europe is highly dependent on Russian gas. The leaked NordStream 1 is Europe's largest gas pipeline, with an annual capacity of 55 billion cubic meters, or 16% of Europe's total gas imports. If NordStream1 cannot be repaired in the short term, it will have a greater impact on European gas supply.

Europe is an important chemical production base in the world, with many chemical giants such as BASF, Air Liquide, Bayer, Covestro, and Lanxess. The European chemical industry occupies an important position in many types of work, including MDI, TDI, etc. The energy cost of European chemical companies is expected to be high in the future. In addition, tight supply and demand of natural gas will put pressure on the supply of raw materials. The production of European chemical companies will be greatly affected, which will have a greater impact on the supply and demand of some global chemical products.

France's Le Havre and Lyon regions have already experienced feedstock shortages due to disruptions in Russian oil and gas supplies. ExxonMobil's Gravenchon and Total Normandy's Le Havre units have been shut down, ExxonMobil's Fos unit and Total's Feyzin The installations are also currently out of service, and gasoline and diesel filling stations in parts of France are currently running out of stock.

From the perspective of the methanol market, methanol imports in Europe mainly depended on the Russian market in the early stage. According to historical data, Russia exports about 1.5-1.8 million tons of methanol to Europe every year. Last year, Russia newly put into production Shchekinoazot's 500,000 tons/year methanol. Installations will also increase the import trend. However, with the outbreak of the conflict between Russia and Ukraine this year, after the US and Europe imposed sanctions on Russia, the situation of Russia's methanol exports has fundamentally changed. It is almost impossible to continue exporting to Europe. Judging from the situation in the first three quarters, the export volume of Russian methanol was mainly received by the Indian market, and a small amount flowed into China. Relatively higher freight rates and lower selling prices have weighed heavily on the profits of Russian methanol companies. And this year coincides with weak downstream demand, and the capacity of the consumer market has also declined. Russian supply still needs to face competition from Iran's methanol, which put into operation a new 1.65 million tons/year unit last year, and the cumulative production capacity has reached around 14 million tons.

According to recent market rumors, the Indian market is still negotiating Russian goods, and the currently traded goods are loaded at the end of October and are expected to arrive in November. Given the changing fundamentals and uncertain market dynamics across Asia, buyers do not want to trade in the short term. The methanol plant in Iran has restarted several units this week after the overhaul. However, due to the previous overhaul, the supply from Iran will be in short supply in October. Cargo shipments from Iran are expected to pick up in October, and there may be some relief in import supplies to Asian markets in November. Due to the tightening of supply in the Iranian region from July to September, methanol prices in the Asian market have risen, and the running trend is deviating from the US and European markets. At present, due to the US dollar interest rate hike and weak overseas demand, commodity prices in the euro zone remain weak, which indirectly prevents some supplies from being exported to Europe.