Chemical Conversations: MTBE Outlook


Jeff Eickholt, MTBE analyst, talks to leading MTBE expert Roel Salazar about the Argus MTBE Outlook:

• Pricing and trading trends over the next 12 months

• Major supply and demand potential

• The impact from new US MTBE capacity in early 2023

• The impact of feedstock price volatility on MTBE globally and whether it will continue

This podcast is delivered by Argus’ MTBE experts using data and insight from the Argus MTBE Outlook.
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Jeff: Hello, everyone. I'm Jeff Eickholt, MTBE markets analyst here at Argus. Thank you for joining us today for this "Chemicals Conversations Podcast" for our MTBE outlook. Joining me today is Roel Salazar, lead consultant, MTBE, and we'll be discussing the global MTBE markets.

Roel, What do you think the next 12 months look like for pricing and trading trends for MTBE?

Roel: So, when looking at MTBE, first, we always look at what are the trends in oil and gasoline prices first? MTBE is an octane component. And it's heavily tied to gasoline prices globally. So, we also look at what is affecting the gasoline market in each of the regions. So, at the moment, we just got done with the Labor Day weekend here in the U.S. We normally start seeing gasoline prices trend lower. The gasoline cracks have pushed lower as well. And not only that, over the summer, and before that, there has been quite a bit of disruptions in the market, mainly due to the Russia-Ukraine conflict.

So, one of the biggest problems that happened during this was the lack of the crude that Russia exports into these markets – it changed a lot of the feedslates for the refiners. So, it caused many problems, especially here in the U.S. and Europe. We've started seeing an increase in naptha inventories, and then it reduced some of the output for other products.

So, one of the things that we're gonna be looking at going forward is where is gasoline gonna do in the next few months. At the moment, we're going into the winter season of the gasoline market. So, we expect to see gasoline come down from here, and it's gonna stay low, at least until the next six months. This is, of course, also depending on whether oil spikes up or not. But if you're looking at gasoline spreads, or crack spreads, it should trend a little bit lower and stay low, at least for the next six months before we start seeing a push for the summer gasoline blending season of 2023.

Going into MTBE, one of the big things that we cover in our MTBE outlook is, what is the spread of MTBE versus gasoline? So, this year has been a very out of the ordinary year. I mean, we're seeing, the same issues with gasoline as far as the European-Ukraine conflict is also affecting some of the MTBE industry as well. So, this year, we saw a combination of low production in Europe. But then at the same time, we're also seeing weak demand in Asia due to the COVID restrictions, especially in China, so there's been quite a bit of disruption. So, a market like Europe, there are short supplies and then you have a market like Asia, which is long, so it's been causing quite a bit of havoc in the industry.

So, this summer, as we mentioned, with the change in crude feed slates, we saw naphtha inventories increase in Europe and the U.S. So, what this caused is just a huge emergence of blending demand for naphtha and high octane components, including MTBE. So, I mean, technically what happens is, the naphtha price got well below the gasoline price, created a huge spread. So, it made high octane components very favorable to blend. So, we saw from MTBE to aromatics, and other octanes almost record prices of premiums to gasoline. So, a lot of that has kind of stabilized since then. It's dropped off coming out of the summer driving season. But for this time of the year, it still remains relatively high versus the previous year. And a lot still has to do with disruption of the supplies.

So, in Europe, I mean, we saw very low MTBE production. And a lot of it has to do with the high cost to produce it, with a lack of feedstocks coming in from Russia, especially natural gas. And then, so it kind of made it uneconomical to produce MTBE and other components as well. But what we did see was just a huge rush of imports from the Middle East into Europe. And we even saw imports coming into Europe from China. So, all of this has kind of kept MTBE prices in check in Europe, limiting it from rising even even further.

On the demand side, MTBE is not used as much in Europe due to their biofuel requirements. So, we're mainly seeing more demand from Europe related to their gasoline exports, Europe exports, gasoline into Africa, there's some gasoline that also goes back to the Middle East. So, it's kind of like the U.S. where they're mainly looking at gasoline exports, and that's what's driving MTBE demand there. There's still some MTBE demand in countries like Germany as they're trying to transition into an ethanol market.

Going forward we're still gonna see some of the limitations that we're seeing now as far as the disruptions from the Russia-Ukraine conflict, and then also ongoing lockdown restrictions in Asia. So, that's gonna support the markets, but at the same time, we are gonna see increased capacity globally that's going to add more supplies to the market. So, although we're seeing some issues with supplies, for some reasons, we expect that prices are gonna be lower in this year as a result of the increased MTBE supplies. However, there could be some reduced production here and there depending on on feedstock prices, which we can probably cover further in the podcast.

Jeff: You mentioned increased supply. Can you talk a little bit more about where those expansions are gonna occur?

Roel: In Asia, it's not necessarily a brand new unit, but the Malaysia's Pengerang Refining Petrochemical Complex, which started up more than a year ago or two years ago, it's kind of been down after a fire. And this complex has a 750,000-ton MTBE unit, but they have just restarted this year. So, it's going to add additional supplies in the Asia market. Malaysia is not able to absorb all the MTBE that this unit's gonna produce, so they're also going to be looking at alternative markets, mainly in the Asia region. So, they'll look at the China markets depending on what their needs are.

And then also markets like Singapore as well. Here in the U.S., there's the start of Lyondell's MTBE/ETBE unit. So, that's gonna really depend on what the market looks like and what they're gonna be producing. So, that's gonna change a bit of the trade flows. From time to time, we'll see imports of MTBE and ETBE come into the U.S. So, what this does is going to eliminate the need for these scenarios.

What we're also seeing as far as supply and demand going forward, the naphtha differentials will play a huge role in MTBE blending both here in the U.S. and Europe, so I think we're gonna be following that. So, there could be some volatility in MTBE demand depending on the the blending economics for MTBE.

Singapore will remain a large importer of MTBE, but could see high volumes of inventories depending on their blend demand. Singapore is one of the locations where a lot of the excess MTBE goes to so, they're gonna continue importing from the Middle East, from India. And then at times, if Singapore has an open arb versus China, you'll see volumes moving into Singapore. And they'll take as much MTBE until they can no longer take any more due to their inventories.

Jeff: What's the impact from the new U.S. MTBE capacity in early '23?

Roel: Lyondell, they're building two plants at the same time. So, you have the appeal TBA unit that is expected to be commissioned later in the year, fourth quarter. And then you also have the corresponding MTBE/ETBE unit that's pretty much I think already completed and commissioned that is located in Bayport, Texas. So, they're adding a feedstock unit and an MTBE unit in different locations. And this is gonna be more to fill in the gaps because they already have an existing PLTBE unit in Bayport and they already have an existing MTBE/ETBE swing unit in Channelview, Texas. So, it's gonna reduce the need to pipeline feedstocks between both locations. So, we look at what is gonna be the impact.

First of all, our assumption is that Lyondell is gonna make as much ETBE as they can to fulfill their obligations with Japan. And then after that, it's gonna be more of whatever the market looks like for MTBE and ETBE. So, it would depend on, what the market situation is gonna be in first quarter of next year. Whether there's gonna be an opportunity to move ETBE into Europe or even even MTBE as well. So, whatever gives them their best net back. They have that flexibility. But the end result is they will have additional MTBE that's gonna hit the market in the U.S. So, that would eliminate any imports that we normally see. We import ETBE from Brazil. We import MTBE at times as well from from other locations. So, the imports that should be heavily reduced.

On the demand side you have to look at what are the potential outlets. And with Mexico being one of the biggest consumers of MTBE for U.S.-produced MTBE, we continue to see them being a big role and absorbing MTBE. And we're in a strong belief that Mexico can absorb additional MTBE supplies. I mean, if you look at it, MTBE is mandated in the three major cities in Mexico, Monterrey, Guadalajara, and Mexico City, Mexico City being the biggest. And then the rest of Mexico, it's more of an option. So, they have a limit on the max oxygenate, but it's more of a max that is not mandated, so they can use MTBE. They can even use ethanol, but that limits it even lower at 5.8% of overall gasoline blend.

So, there is a lot more room for MTBE to grow in the nationwide gasoline market. We see more room to absorb an additional million tons of MTBE. But the price has got to be right. It's got to be beneficial for the blenders in Mexico. It's got to be beneficial for the blenders here in the U.S. that are selling gasoline to Mexico. We just don't see them blending it just to blend it, it's got to be the right price. A large differential between gasoline and naphtha or where it can be where MTBE, its market price is at a huge discount to the balloon value for MTBE.

Jeff: Has feedstock price volatility affected the production of MTBE globally? And do we expect this to continue next year?

Roel: None have been more affected than Europe as far as production. They've been having issues with just lack of feedstocks. And then in also poor margins as well, I mean, all of it due to the Russia-Ukraine conflict. But in addition to that, this summer saw huge disruptions due to low Rhine River water levels. So, this affected the movement of getting feedstocks to many petrochemical complexes. And then also reduced the ability to barge the end products as well. So, there's been quite a bit of issues there in Europe. But they've been able to import from other global regions to offset some of the loss from the production there.

And here in the U.S. a lot of the feedstock issues that we noticed in the past year have been more related to mechanical issues or maybe lower demand for coproducts that forces the producer to reduce rates in the overall unit. For instance, propylene oxide is a co-product of TBA and MTBE, and that's gonna be facing possibly a weak demand going forward due to the global economies.

Jeff: Do we expect to see another spike in high octane component demand in 2023?

Roel: Yeah. The high amount of naphtha caused a huge push for a high-octane demand in the summer 2022. If we see that gasoline versus naphtha differentials widen again in 2023, then for sure, yeah, it could be repeated. However, we don't expect to see the rise as high as 2023 as markets adjust to the change in crude feedslates. Asia could also resume its imports on that, which will reduce European inventory. So, we'll see what will happen there. We have U.S. octane spreads somewhat turning back to normal RVP cycles, but levels are forecasted higher than previous years.

Jeff: What other key insights can readers take away from the outlook to help make better commercial decisions?

Roel: The key insight we provide is how changes in supply and demand will affect MTBE and other component pricing for the next 24 months. Our MTBE outlook provides forecasts for crude gasoline feedstocks and competing component prices like with other fuel products or seasonality for MTBE markets, and this is captured in our outlook.

Jeff: I'd like to add what I find useful in the outlook is the pricing differentials section. It's nice to be able to see charts of all the important spreads for each of the regions together on one page. Just allows me to get a quick handle on the state of the global MTBE market and where you expect it to go.

Roel: I agree. I think many of our readers also find that useful.

Jeff: Well, folks, that's all the time we have for today. Thank you for listening to our Chemicals Conversations Podcast. For more information, visit us at

This podcast is delivered by Argus’ MTBE experts using data and insight from the Argus MTBE Outlook.
Get more information and request a free trial

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