Methanex, Australia


During the first quarter of 2000, Methanex, the world's largest producer of methanol, began looking at plans to build a worldscale methanol production facility in Australia. Over the next four years the company signed a memorandum of understanding for the supply of gas and looked at two locations for the construction of the proposed plant. Following lengthy consideration the project was eventually abandoned in the final quarter of 2003.

DEVELOPMENT OF GAS SUPPLY

During the first quarter of 2000, Shell Development Australia, Woodside Energy and Methanex announced that a letter of intent had been signed for the supply of natural gas. The gas was to be sourced from the East Timor Sea and brought to Australia's northern shores via a new 500km pipeline. The gas was set to be used for the development of a synthesis gas (syngas) plant. Syngas can be used as a feedstock for a range of products including methanol.

At this time it was proposed that the syngas plant would become operational by 2005, with a final decision to build any downstream plants made by the end of 2002. The cost associated with the development of the project including the gas supply, syngas facility and downstream plants was put at $5 billion.

The gas deal was set to pave the way for the major industrial development of Australia's Northern Territory.

LOCATION OF METHANOL PLANT

Shortly after signing the letter of intent with its gas supply partners, Methanex said that it was considering investing some $660 million to build 1.5 million t/yr of methanol capacity at Darwin, in Australia's Northern Territory. The feedstock for the production facility would have been provided via the syngas plant. Methanex believed Darwin to be the ideal location to supply its Asian customers.

By the second quarter of 2001, Methanex confirmed that it had selected Darwin as its preferred location. But with discussions surrounding supply of gas still ongoing, the company was 'keeping its options open'. However, Methanex believed that outstanding issues could be resolved quickly and the methanol plant could be operational by 2005.

GAS SUPPLY IN DOUBT

During the second half of 2001, plans to bring gas supplies ashore were thrown into doubt when one of the petroleum companies involved in the natural gas pipeline deferred its development plans. This decision led Methanex to announce that it would look at alternative sites in Australia for its proposed methanol plant.

BURRUP PENINSULA

Following a decision by Methanex to relocate its project to Western Australia's Burrup Peninsula, the Australian federal government said that it would provide a $43 million investment incentive to the project. The incentive would be used by Methanex to develop multi-user infrastructure on the Burrup Peninsula and to undertake research and development in partnership with industry and Australian research bodies.

Methanex was also able to quickly secure a gas supply deal with the North West Shelf Gas venture, replacing the gas supply arrangement originally secured in Darwin. At this stage a final investment decision was due to be made by the end of 2002. North West Shelf Gas is a joint venture between six petroleum companies.

PROJECT DEFFERED

During the first quarter of 2003, Methanex announced that plans to develop its methanol plant on the Burrup Peninsula were to be deferred. The company said that capital costs for such a large project had become disproportionately high. Other options, such as building a series of smaller units, were being considered.

In the meantime, North West Shelf Gas venture signed an amended conditional gas sales and purchase agreement with Methanex. This agreement was announced in June 2003.

PROJECT CANCELLED

In September 2003, Methanex announced that it would not proceed with the construction of its proposed Australian methanol production plant. The company said that capital costs had escalated to an unacceptable level. It added that it could not proceed with large capital projects that would only deliver marginal returns.

BACKGROUND

Australia is keen to develop offshore gas reserves. Attracting major investors to the country would not only provide jobs but also put the country among the major industrial nations. The fact that Methanex pulled out of such a big project was a blow to Australia's state and federal governments. The hope is that companies such as Methanex will provide a much-needed boost and in turn attract other investors to Australia's industrial regions.