Off-spec West African gasoline depresses European methanol demand

The European methanol market has weakened over the past three weeks after its use was banned in gasoline destined for Nigeria, halting methanol buying by gasoline blenders in Europe.

The Nigerian National Petroleum Corporation issued the ban after the Nigerian Midstream and Downstream Petroleum Regulatory Authority said Feb. 9 that gasoline being sent to the country contained methanol levels of up to 20%.

The volume of purchased gasoline that was either rejected at Nigeria or rejected before it had made the voyage has been estimated to total 700,000 mt, approximately two weeks of supply for Nigeria, according to trading sources. The disruption to imports caused nationwide fuel scarcity.

In efforts to restore Nigeria's gasoline supply, the NNPC said 1.7 million mt of gasoline will be delivered by the end of February to restore stocks to a national target of 30 days supply. That was more than the stocks of gasoline in the Amsterdam-Rotterdam-Antwerp trading hub.

"There is a really strong pull from West Africa currently," a Europe-based trader said. "We are seeing 95 RON gasoline from the Med and Northwest Europe that would normally be sent trans-Atlantic or to the Arab Gulf being sent to Nigeria."

Around 18.5 million barrels of gasoline were expected to load in Northwest Europe for export to West Africa in February, up 7.7 million barrels on January, according to Kpler shipping data.

European methanol blending concerns

The spotlight on methanol blending has raised concern among European gasoline buyers. The European Standards for gasoline, also known as the EN 228 specification that S&P Global Platts considers for assessment, stipulates a maximum of 3% methanol in finished gasoline.

European traders say there is a de facto specification in place in Europe, whereby the market norm is for gasoline with no more than traces of methanol.

"3% methanol is unacceptable in Europe. We do not buy gasoline with methanol and do not know of anyone who would," a Europe-based trader said.

Methanol blended into gasoline must be stabilized by ethanol. Since most terminals in the world cannot guarantee water-free systems, where methanol has not been stabilized with ethanol, it combines with water and separates from the gasoline, rendering the product unusable.

Halt in spot methanol blending

Prior to the discovery of the off-specification gasoline in Nigeria, there was strong spot demand for methanol in Europe.

"[A gasoline blender who was exporting to West Africa] was buying a lot of methanol and then realized they were buying too much, and they sold back and depressed the market," a source said.

Following the NNPC's decision to ban methanol in imports, a halt has been seen on spot methanol buying from gasoline blenders, another trader said.

Thus, the European methanol market has been on a downwards trajectory recently. S&P Global Platts assessed the FOB Rotterdam 5-30 day forward methanol spot price at Eur339/mt ($378/mt) on Feb. 23, down from Eur405.25/mt on Jan. 28.

Demand for reformate has been reported higher as a consequence of the return of the contaminated gasoline to Europe. Reformate blending is likely to be used to effectively 'clean' off-specification gasoline and offset methanol contamination.