MTBE expert Roel Salazar talks to Lauren Williamson, VP, Product, about the outlook for MTBE, including:
- Current trends and their effect on the MTBE market and its key drivers over the next 12-24 months
- How Argus approaches its 5-year MTBE forecast
- Where additional MTBE from a new Texas MTBE-ETBE unit might be absorbed and the challenges U.S. industry might face with that
- Other key factors industry should monitor in 2023 and beyond
This podcast is delivered by Argus’ MTBE experts using data and insight from the Argus MTBE Outlook.
So Roel, in 2023, so far we've seen the world transition into a new normal with COVID-19 becoming endemic, China lifting COVID-related restrictions, and a protracted conflict in Russia-Ukraine fundamentally altering energy trade dynamics. I'm curious, how have these trends affected the MTBE market and its drivers, what will happen over the next 12 to 24 months?
Roel: In 2022, China exported up to 1.5 million tons of MTBE due to COVID restrictions and a low gasoline export quota for the first half of 2022. Exporting MTBE from China is not restricted and the country exported as much as it could. Even though we're starting to see China reduce travel restrictions, the country's still exporting a large amount of MTBE as demand has not caught up yet. For the first three months of 2023, China has already exported 329,000 tons as it continues to export to neighboring countries.
It is our understanding that China is also targeting Mexico as an outlet in the second quarter of 2023. Despite China MTBE demand improving, the country could still export most of the year amid a large amount of MTBE capacities. China will compete with exports from the Middle East and possibly the U.S. later in the year. In Europe, the MTBE industry has faced the elimination of MTBE import from Russia and reduced production most of 2022 and 2023. However, the region has attracted a fair amount of MTBE imports from the Middle East and Asia and will also be targeted from the U.S. at some point in the year. So the region has adjusted from the issues.
A large part of European MTBE demand is for finished gasoline exports as most European countries have biofuel mandates in place. MTBE demand in Europe has been steady due to favorable blending economics, but not as favorable as it was in 2022 when the market was disrupted with the sanctions on Russia trade. We're not expecting gasoline versus natural differentials to reach levels seen last year. Looking forward, Nigeria, which is a major destination of European gasoline exports, will see the addition of a new refinery. This new refinery will be Euro 5 compliant, while the country does not have strict limits with the fuel. We may see gasoline exports to Nigeria fall, but not as much as expected as the refinery could export the gasoline to other markets that require strict specifications.
Lauren: And I know an important part of the MTBE Outlook service is the publication of a five-year price forecast. Maybe you could tell us how you approached constructing your view for that time period and what are some of the major items on your mind?
Roel: The approach we use for the five-year outlook is somewhat similar to the 24-month outlook in which we look at the gasoline and feedstock forecast to form a base for MTBE and ETBE forecast. However, in the five-year forecast, we take any seasonality that is seen in the fuel market and focus more on the supply and demand aspect. For this reason, we include more supply-and-demand-related charts that are not included in the two-year version. We take into account supplies for each region and whether it can be absorbed in that region or not.
Our MTBE demand models take into account each country's gasoline demand, gasoline specifications, gasoline trade, alternative fuels, and impact from electronic vehicles. Those are the main things we should look for going forward. The big question in China is when EVs take market share from conventional gasoline vehicles in the future and whether the country will reduce MTBE production or maintain levels and increase their exports. Many regions with excess volumes will target Singapore. Singapore imported 1.6 million tons of MTBE in 2022, the highest ever recorded and more than double from 2021. Singapore is on pace to import 1.3 million tons in 2023. We will continue to see Singapore import large amounts of MTBE in the future as they can handle large volumes in their storage system.
Lauren: So the U.S. looks like it's expected to ramp up MTBE production this year and there's the addition of a new MTBE-ETBE unit in Texas. So I'm curious where could the additional MTBE be absorbed and what challenges might the U.S. industry face with that?
Roel: One of the main questions I get is whether Mexico, the largest consumer of MTBE in North America, can absorb the additional MTBE produced. It is a tricky answer. If you were to blend 10% of MTBE for Mexico's entire gasoline pool, then yes, we feel that this new MTBE can be absorbed. However, it is not always the case. This could depend on the MTBE price and whether blenders have access to the MTBE. Blending infrastructure plays a role as well. However, we do know that when MTBE is low relative to gasoline and competing blend stocks, blender can go the extra mile to obtain the MTBE.
However, as mentioned earlier, Mexico is also willing to import from other regions which take market share from the U.S., so there's going to be volatility in the U.S. price in the years ahead as industry will manage the ups and downs of supplies. In times when Mexico and Latin markets cannot absorb the additional MTBE, then we can see the U.S. target Asia or Europe for their exports. Like I mentioned earlier, many markets will target Singapore also. If MTBE producer margins are low or negative, producers are willing to reduce rates. There's also the possibility of rationalization or repurposing units in the years ahead.
Lauren: Are there any other factors that you are examining really closely and feel like the industry needs to stay close to deeper into 2023 and the outlook beyond?
Roel: Yes, the industry should always keep an eye on either changing gasoline specifications or biofilm mandates. Also, when bio-methanol or green methanol production grows, we could see the rise in bio-MTBE production. We know some countries use a small amount of bio-MTBE as it counts double towards biofilm mandates. However, this product is still very expensive at the moment.
Lauren: Thank you for that, Roel. I appreciate you sharing your views with us today and giving us a glimpse into the trends affecting the MTBE Outlook and the MTBE Analytics services.
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