Study on Economic Partnership Projects

in Developing Countries in FY2016

Study on Methanol Project in

Puerto Libertad, the United Mexican States

Final Report

Febrary 2017

Prepared for:

Ministry of Economy, Trade and Industry

Prepared by:

Sojitz Corporation

PREFACE

This report is the preliminary feasibility study for “Methanol Project in Puerto Libertad, the United Mexican

States” commissioned by Ministry of Economy, Trade and Industry to Sojitz Corporation under the menu of

“Study on Economic Partnership Projects in Developing Countries in FY2016”.

This study is to investigate the feasibility of the methanol project at Puerto Libertad, Sonora State, United

Mexican States, which consume natural gas as raw material and utilize Japanese technology to construct the plant.

We hope this report will be supporting the realization of the abovementioned project and also be a reference

information for related parties in Japan.

February 2017

Sojitz Corporation

MAP

Source: Study Team

LIST OF TABLES

PAGE

Table1-1 Economic and Financial Indication of Mexico ............................................................... 1-1

Table2-1 Schedule of the Studay .................................................................................................... 2-2

Table3-1 Forecast of Demand and Supply of Petrochemicals in Mexico ...................................... 3-2

Table3-2 Automobile Manufactures by State ................................................................................. 3-2

Table3-3 MTO Plant Plan from 2017 to 2019 in China ................................................................. 3-6

Table3-4 Basic Design and Specifications ................................................................................... 3-20

Table3-5 Track Record of Mitsubishi Methanol Process ............................................................. 3-21

Table4-1 Environmental Process in Mexico for Industrial Projects ............................................... 4-5

Table5-1 Breakdown of Total Project Cost .................................................................................... 5-2

Table5-2 Assumption of Methanol Price ........................................................................................ 5-3

Table5-3 The Number of Employees and Unit Cost ...................................................................... 5-5

Table5-4 Debt Structure ................................................................................................................. 5-6

Table5-5 Interest Rate and Financial Cost ...................................................................................... 5-6

Table5-6 Assumption for Working Capital..................................................................................... 5-6

Table5-7 Evaluation of Economics ................................................................................................ 5-8

Table5-8 Sensitivity on Natural Gas Cost ...................................................................................... 5-9

Table5-9 Sensitivity on Plant Cost ................................................................................................. 5-9

Table5-10 Sensitiity on Methanol Price ......................................................................................... 5-9

Table6-1 Project Milestone ............................................................................................................ 6-1

LIST OF FIGURES

PAGE

Figure1-1 Mexican Peso against US$ ............................................................................................ 1-2

Figure1-2 Export Amount by Product ............................................................................................ 1-3

Figure1-3 Export Amount by Region ............................................................................................. 1-3

Figure1-4 Import Amount by Product ............................................................................................ 1-4

Figure1-5 Import Amount by Region ............................................................................................. 1-4

Figure1-6 Applications of Methanol ............................................................................................... 1-6

Figure1-7 Methanol Demand by Application ................................................................................. 1-6

Figure1-8 Plywood Factory ............................................................................................................ 1-7

Figure1-9 Fuelling Station of Gasoline Blending ........................................................................... 1-7

Figure1-10 DME Truck Made by Isuzu Advanced Engineering Center ......................................... 1-8

Figure1-11 Fuelling Station of Biodiesel ........................................................................................ 1-8

Figure1-12 Cigarette Filters (utilizing acetate tow) ...................................................................... 1-10

Figure1-13 Methanol Demand Forecast by Product ..................................................................... 1-10

Figure1-14 Methanol Demand by Region .................................................................................... 1-11

Figure1-15 Methanol Trade Flow among Region ........................................................................ 1-11

Figure1-16 Puerto Libertad .......................................................................................................... 1-12

Figure2-1 Organization of the Study .............................................................................................. 2-2

Figure3-1 Automobile Manufactures in Mexico ............................................................................ 3-3

Figure3-2 Plans of Natural Gas Pipelines in Mexico ..................................................................... 3-4

Figure3-3 Pipelines in Western Mexico .......................................................................................... 3-4

Figure3-4 Access Route Map to Puerto Libertad ........................................................................... 3-7

Figure3-5 Access Route to Puerto Libertad (1) .............................................................................. 3-8

Figure3-6 Access Route to Puerto Libertad (2) .............................................................................. 3-8

Figure3-7 Bridge under Construction (Route 3) ............................................................................. 3-9

Figure3-8 Distant View of Puerto Libertad (from South) ............................................................... 3-9

Figure3-9 Potential Project Site (from Sea Side).......................................................................... 3-10

Figure3-10 Potential Project Site (Shoreline) ............................................................................... 3-11

Figure3-11 Potential Project Site (from Road Side) ..................................................................... 3-11

Figure3-12 Potential Project Site (from Front Public Road) ........................................................ 3-12

Figure3-13 CFE Jetty Overview ................................................................................................... 3-13

Figure3-14 Jetty (1) ...................................................................................................................... 3-13

Figure3-15 Jetty (2) ...................................................................................................................... 3-14

Figure3-16 Jetty (3) ...................................................................................................................... 3-14

Figure3-17 Firefighting Facility ................................................................................................... 3-15

Figure3-18 Mooring Dolphin (North) .......................................................................................... 3-15

Figure3-19 Mooring Dolphin (South) .......................................................................................... 3-16

Figure3-20 Operationg Platform at Head ..................................................................................... 3-16

Figure3-21 Potential Space for Methanol Loading Arm .............................................................. 3-17

Figure3-22 Methanol Plant General Layout ................................................................................. 3-18

Figure3-23 Mitsubishi Gas Chemical Niigata Plant ..................................................................... 3-22

Figure3-24 AR-RAZI-I, Saudi Arabia Plant ................................................................................. 3-23

Figure3-25 AR-RAZI-II, Saudi Arabia Plant ................................................................................ 3-23

Figure3-26 AR-RAZI-III, Saudi Arabia Plant .............................................................................. 3-24

Figure3-27 AR-RAZI-IV, Saudi Arabia Plant............................................................................... 3-24

Figure3-28 AR-RAZI-V, Saudi Arabia Plant ................................................................................ 3-25

Figure3-29 METOR-I, Venezuela Plant ....................................................................................... 3-25

Figure3-30 METOR-II, Venezuela Plant ...................................................................................... 3-26

Figure3-31 Brunei Methanol Plant ............................................................................................... 3-26

Figure3-32 Trinidad and Tobacco Methanol and DME Plant (under construction) ..................... 3-27

Figure3-33 Methanol Process Flow .............................................................................................. 3-27

Figure3-34 New Methanol Trade Flow by Implementing the Project .......................................... 3-31

Figure4-1 Climate of Puerto Libertad............................................................................................. 4-1

Figure4-2 Houses in Puerto Libertad (1) ........................................................................................ 4-2

Figure4-3 Houses in Puerto Libertad (2) ........................................................................................ 4-2

Figure4-4 Houses in Puerto Libertad (3) ........................................................................................ 4-3

Figure4-5 Houses in Puerto Libertad (4) ........................................................................................ 4-3

Figure5-1 Assumption of Methanol Price ....................................................................................... 5-3

Figure5-2 NPV Analysis ................................................................................................................. 5-8

Figure5-3 Sensitivity on Project IRR ............................................................................................. 5-9

Figure7-1 Expected Project Structure ............................................................................................. 7-1

LIST OF ABBREVIATION

Abbreviation Standard Nomenclaure

BFW Boiler Feed Water

BOM Bank of Mexico

BOO Build Own Operate

BOT Build Operate Transfer

BTMU The Bank of Tokyo-Mitsubishi UFJ, Ltd.

Cx Carbon Number

CDM Clean Development Mechanism

CFE Comisión Federal de Electricidad

CFR Cost and Freight

CIA Central Intelligence Agency

CMA Crude Methanol

CO Carbon Monoxide

CO2 Carbon Dioxide

DCS Distributed Control System

DME Dimethyl Ether

DSCR Debt Service Coverage Ratio

DSRA Debt Service Reserve Account

DWT Deadweight Tonnage

EPA Environmental Protection Agency

EPC Engineering, Procurement and Construction

ESIA Environment and Social Impact Assessment

F/S Feasibility Study

FAME Fatty Acid Methyl Ester

FCF Free Cash Flow

FEED Front End Engineering Design

FID Final Investment Decision

FOB Free on Board

FRB Federal Reserve Board

FY Financial Year

GDP Gross Domestic Product

H Harf

H2 Hydrogen

H2S Hydrogen Sulfide

HDPE High-density Polyethylene

IDC Interest during Construction

IEnova Infraestructura Energética Nova

IMF International Monetary Fund

IRR Internal Rate of Return

IT Information Technology

JBIC Japan Bank for International Cooperation

JETRO Japan External Trade Organization

LDPE Low-density Polyethylene

LIBOR London Interbank Offered Rate

LPG Liquefied Petroleum Gas

MDF Medium Density Fireboard

MF Melamine Formaldehyde

MMA Methyl Methacrylate

MMP Mitsubishi Methanol Process

MMSA Methanol Market Services Asia

MTBE Methyl Tertiary Butyl Ether

MTO Methanol to Olefin

MW Megawatt

MXN Mexican Peso

MeOH Methanol

N/A Not Applicable

NAFTA North American Free Trade Agreement

NEXI Nippon Export and Investment Insurance

NPV Net Present Value

O&M Operation and Maintenance

OECD Organization for Economic Co-operation and

Development

OPEX Operating Expense

OSB Oriented Strand Board

OTS Operation Training System

PB Particle Board

PEMEX Petroleos Mexicanos

PF Phenol Formaldehyde

PMMA Polymethyl Methacrylate

PPP Public Private Partnership

PTU Participación de los trabajadores en las utilidades

Q Quarter

RG Reformed Gas

SEMARNAT Secretaría de Medio Ambiente y Recursos Naturales

SPC Superconverter

UF Urea Formaldehyde

USA United States of America

US$ United States Dollar

VAM Vinyl Acetate Monomer

bp Basis Point

ha Hectare

kWh Kilowatt Hour

km Kilometer

m Meter

m3 Cubic Meter

mil Million

mm Milimeter

mmbtu Million British Thermal Unit

mmscf/d Million Standard Cubic Feet per Day

p.a. Per Annum

pH Potential Hydrogen

wt% Weight %

TABLE OF CONTENTS

PAGE

Preface

Map

List of Tables

List of Figures

List of Abbreviation

Table of Contents

Executive Summary

CHAPTER 1 OVERVIEW OF THE HOST COUNTRY AND SECTOR

1.1 Economic and Financial Status of the United Mexican State ................................................... 1-1

1.1.1 Economic and Financial Overview ................................................................................. 1-1

1.1.2 Overview of Export and Import ...................................................................................... 1-2

1.1.3 Direct Inward Investment ................................................................................................ 1-4

1.2 Overview of Methanol Industry ............................................................................................... 1-5

1.2.1 What is Methanol ............................................................................................................ 1-5

1.2.2 Applications of Methanol ................................................................................................ 1-5

1.2.3 Demand and Supply ...................................................................................................... 1-10

1.3 Overview of the Project Site ................................................................................................... 1-12

CHAPTER 2 STUDY METHODOLOGY

2.1 Content and Methodology of the Study .................................................................................... 2-1

2.2 Organization of the Study ......................................................................................................... 2-1

2.3 Schedule of the Study ............................................................................................................... 2-2

CHAPTER 3 JUSTIFICATION, OBJECTIVES AND TECHNICAL FEASIBILITY OF THE PROJECT

3.1 Justification and Objectives of the Project ................................................................................ 3-1

3.1.1 Petrochemical Industry in Mexico .................................................................................. 3-1

3.1.2 Natural Gas Pipeline in Mexico ...................................................................................... 3-3

3.1.3 Marketing of Produced Methanol .................................................................................... 3-5

3.2 Outline and Basic Plan of the Project ....................................................................................... 3-6

3.2.1 Project Outline................................................................................................................. 3-6

3.2.2 Outline of Project Plan and Design Basis of Plant ........................................................ 3-19

3.2.3 Participation of Japanese Firms ..................................................................................... 3-30

3.2.4 Raw Material Procurement and Product Marketing Policy ........................................... 3-30

3.3 Necessary Issues to be Considered ......................................................................................... 3-31

3.4 Effect of Project for Stable Energy Supply to Japan ............................................................... 3-31

CHAPTER 4 EVALUATION OF ENVIRONMENTAL AND SOCIAL IMPACTS

4.1 Current Social and Environmental Situation ............................................................................ 4-1

4.2 Effect of Improvement in Environment by Project Implementation ......................................... 4-4

4.3 Social and Environmental Impact of Project Implementation .................................................. 4-4

4.4 Summary of Social and Environmental Regulation in Host Country and Necessary Measures 4-5

4.5 Issures that Host Country should Handle for Realization of Project ........................................ 4-6

CHAPTER 5 FINANCIAL AND ECONOMIC EVALUATION

5.1 Evaluation of Economics .......................................................................................................... 5-1

5.1.1 Plant Cost ........................................................................................................................ 5-1

5.1.2 Total Project Cost ............................................................................................................ 5-2

5.2 Result of Preliminary Economic Evaluation ............................................................................. 5-2

5.2.1 Assumptions .................................................................................................................... 5-2

5.2.2 Evaluation of Economics ................................................................................................ 5-7

5.2.3 Sensitivity Analysis ......................................................................................................... 5-8

CHAPTER 6 PLANNED PROJECT SCHEDULE

6.1 Planned Project Schedule .......................................................................................................... 6-1

CHAPTER 7 TECHNICAL ADVANTAGES OF JAPANESE COMPANY

7.1 Expected Participation Structure of Japanese Firms ................................................................. 7-1

7.2 Advantage of Japanese Firms in Project Implementation ......................................................... 7-1

7.3 Necessary Measures for Participation of Japanese Firms ......................................................... 7-2

APPENDIX

1 OVERALL BLOCK FLOW DIAGRAM

EXECUTIVE SUMMARY

This Study is a preliminary feasibility study for the Project which is to construct and operate a new methanol plant

with a capacity of 1 million ton per year (3,000 ton per day) at Puerto Libertad, Sonora State, northwest of Mexico.

Major export products of Mexico are industrial products and parts, such as automobile and automobile parts.

However, with relatively small numbers of those manufactures in Sonora State, both demand and supply of

petrochemicals are small in the region where the Project will be located. As a methanol project to produce basic

chemical, the Project will contribute not only to create jobs but to be an important milestone for the chemical

industry in Mexico. Since the methanol plants in the Americas are located at Gulf of Mexico in USA and Atlantic

side in Central and South America, the Project will be the first methanol plant located in the West coast of North

and Central America. Thus, the Project has geographical advantages to the market in Asia, including Japan,

compared with other methanol plants. Taking this advantage, the Project contributes the stable supply of methanol,

a basic chemical product, for Asian countries.

Mexico’s President Enrique Pena Nieto has expressed his policy to accelerate the energy reform. On the national

development plan, it is clearly described as a government policy to “strengthen the natural gas market by

strengthening the infrastructure of import, transportation and distribution” and to “promote the development of a

profitable and efficient petrochemical industry”. The construction of natural gas pipeline to import USA’s shale

gas has been proceed under the government’s initiative and the pipeline from the boarder of USA has already

connected to Puerto Libertad. Study Team received positive reply from Comision Federal de Electricidad (CFE),

the national electricity company of Mexico who has the right of the pipeline capacity, to provide natural gas for

the Project. To secure raw material, natural gas, is a key issue for project viability. However, the Project has

positive aspects that it is able to utilize the existing facility and highly likely to secure natural gas.

On this Study, Mitsubishi Methanol Process, the process license which was jointly developed by Mitsubishi Gas

Chemical and Mitsubishi Heavy Industries, was planned to be utilized and Mitsubishi Heavy Industries was

assumed to be Engineering, Procurement and Construction (EPC) contractor. Mitsubishi Methanol Process is a

reliable Japanese technology, supported by long experience of methanol plant operation by Mitsubishi Gas

Chemical and a number of track records of methanol plants constructed by Mitsubishi Heavy Industries. The

Project assumes to raise project finance. If all the natural gas is procured at the market price such as Henry Hub, it

is difficult to meet the condition for structuring project finance since the Project is influenced by two different

market index of methanol and natural gas. As a result of the financial and economic analysis, the Study shows the

Project will become confortable, with implementing certain measures to hedge the gas price volatility, for the

lenders to provide project finance, while generate certain return for the investors.

Detailed feasibility study, including plant engineering design and environmental impact assessment, needs to be

conducted after structuring the basic project structure. The gas price hedging mechanism is impacted by the

natural gas market conditions, and therefore, further discussion is necessary with the potential gas suppliers. After

that, further discussion on investment ratio with potential investors as well as on terms and conditions with lenders

is required. After the inauguration of USA’s President Trump in January 2017, there are uncertainties of USA’s

policy against Mexico. It should be carefully paid attention to the policies of USA government toward Mexico and

to the impacts for the Project caused by those policies.

CHAPTER 1 OVERVIEW OF THE HOST COUNTRY

AND SECTOR

1-1

1.1 Economic and Financial Status of the United Mexican States

1.1.1 Economic and Financial Overview

The United Mexican States (Mexico) is the second largest economic state in the Americas, except the United

States of America (USA) and Canada, following Brazil, with 121 million population (2015 estimated),

US$ 1,143.8 billion of Gross Domestic Product (GDP) (2015) and US$ 9,452 of GDP per capita (2015 estimated)1.

Mexico has a border with the USA, who is currently leading the economics of the world, and is a geographically

advantaged country as a base for manufacturing industry. As Mexico is the second largest exporting and the third

largest importing country for USA with US$ 590 billion (2014) of trading volume2, the execution of North

American Free Trade Agreement (NAFTA), in 1994, has improved the status of the country. With an economically

close relationship with USA through trading, Mexico is one of the countries who receive benefit from USA’s

economic growth significantly and recent healthy economies in USA exercise a favorable influence to those of

Mexico.

Mexico’s President Enrique Pena Nieto has aggressively promoted the restructuring in energy sector and gradually

opened up the investment of oil fields to foreign funds. The tender of the fields in shallow and deep water has

submitted sequentially and a number of international companies participate in the bidding, but still the account for

20% of the annual government revenue is relying on the contribution from Petroleos Mexicanos (PEMEX),

Mexican national oil company. Mexican Peso (MXN) used to be US$ 1.00 = MXN 12 – 13 during these 3 years,

but because of the energy price decrease since end of 2014, Peso has depreciated gradually to US$ 1.00 = MXN

19 in early 2016.

The real GDP growth of Mexico showed a stable growth in 2015 of 2.5%. Though the energy and mining sector

had negative growth effected by the worldwide severe environment in this sector, the manufacturing industry has

steady performance led by increase of direct inward investment and export to USA, especially automobiles, and

the domestic demand sector showed a robust economy driven by IT and commercial services.

Table 1-1 Economic and Financial Indication of Mexico

2013 2014 2015

Real GDP Growth Rate 1.4% 2.2% 2.5%

Consumer Price Index 4.0% 4.1% 2.1%

Unemployment Rate 4.9% 4.8% 4.4%

Current Balance (US$ million) -30,409 -24,882 -31,874

Source: IMF World Economic Outlook Database, October 2016

1 IMF, World Economic Outlook Database, October 2016

2 CIA, The World Factbook

1-2

USA presidential election in 2016 has affected significantly to the MXN market. In November 2016, after Mr.

Donald Trump was elected for the president, MXN depreciated dramatically for the first time in 20 years and

currently, as at 27th

December, MXN shows US$ 1.00 = MXN 20.6. Bank of Mexico (BOM) raised the policy

interest rate for 0.50% respectively in February, June, September and November 2016. Furthermore, shortly after

Federal Reserve Board (FRB) decided to increase the interest rate, BOM also raised the rate for 0.50%

additionally and showed their attitude to protect the currency. Even after USA’s President Trump assumed his

position, he has expressed his opinion to build a wall along the border with Mexico and his anti-immigration

stance. There are uncertainties of USA’s policy against Mexico, which also makes unpredictable economic

situation of the country.

Figure 1-1 Mexican Peso against US$

Source: Study Team based on data from The Bank of Tokyo-Mitsubishi UFJ

1.1.2 Overview of Export and Import

In 2015, Mexico showed a trade deficit of approximately US$ 15 billion with US$ 381 billion of export and

US$ 396 million3 of import.

Major export products are industrial products and parts, such as automobile, automobile parts, color television,

mobile phone and industrial machinery, which account for 90% of the total export. Especially, automobile and

automobile parts records significant surplus with 30% of the total. Though export of mineral products, mainly

crude oil, accounted for more than 10% in 2014, both in export amount and export volume decreased due to recent

low oil price. Regional wise, North America is the dominant importer with 84% of the total amount, especially

USA with 81%, which prove the strong relationship between economy of USA and Mexico. Following to North

America, Europe is the second largest importer. Automobile and automobile parts to Germany, crude oil for Spain

and electronics to France have substantial share.

3 CIA, The World Factbook

1-3

Figure 1-2 Export Amount by Product

Source: Study Team based on JETRO Annual Report (2016)

Figure 1-3 Export Amount by Region

Source: Study Team based on JETRO Annual Report (2016)

Industrial products also account for significant amount in import amounts for 88% mainly as capital investment

goods for manufacturing. In 2015, import volume of automobile parts grew, because of the increase of the

automobile manufacturing to be exported to USA, and this rose further share of the industrial products among the

total import amount. On the other hand, as same as export overview, the world-wide energy price decrease led an

extensive reduction of the import amount of mineral product, such as gasoline, for 20% drop over the previous

year.

Region wise, also as same as export, USA is the largest counterparty for Mexico with 47% share, but the degree of

dependence is lower than export. Asian countries become more important for Mexico, namely China, Japan and

South Korea.

1-4

Figure 1-4 Import Amount by Product

Source: Study Team based on JETRO Annual Report (2016)

Figure 1-5 Import Amount by Region

Source: Study Team based on JETRO Annual Report (2016)

1.1.3 Direct Inward Investment

Total amount of inward direct investment was US$ 30.3 billion in 2015, with 18% increase compared to the

previous year. The top two countries, USA and Spain, account for more than 60% of those. Japan is in the third

position with US$ 1.3 billion investing mainly in automobile industry.

By industry, manufacturing has the largest investment with US$ 15.2 billion followed by communication and

media with US$ 2.8 billion, transportation / postal service / warehousing with US$ 2.5 billion and finance /

insurance with US$ 2.4 billion. In manufacturing, automobile industry has constant investment and metal package,

beverage and air craft industry showed large investment in this year4.

4 JETRO, Annual Report (2016)

1-5

1.2 Overview of Methanol Industry

1.2.1 What is Methanol

Methanol is a light, colorless, flammable liquid chemical composed of four hydrogen atoms, one carbon atom and

one oxygen atom. Methanol is a versatile molecule leading to hundreds of value chains from which modern day

consumer goods are produced. It is a feedstock for industrial production of a wide range of chemicals from

solvents, adhesives for forestry and plastics. Methanol is also used in fuel applications, namely gasoline blending,

feedstock for biodiesel, dimethyl ether (DME) and olefins (Methanol to Olefin, namely MTO). Although it has

been largely manufactured from natural gas, nowadays the production from coal gasification or from cock oven

gas, which is a by-product from cock oven plant, are increasing in areas where coal is abundant, mostly in China.

Methanol is not only a basic chemical in chemical industry, but also an important product in energy sector, since

they utilize natural gas or coal as raw material and broadening its position in energy use. The versatility of

methanol has become strategically important in serving the needs of our modern world, covering from chemicals

to energy sector.

1.2.2 Applications of Methanol

There are two main applications of methanol, chemical intermediate use and energy use. According to Methanol

Market Services Asia (MMSA), a Singapore based methanol consulting firm, 48% of the total demand is for the

chemical intermediate use and the rest, 52% is for the energy use.

The predominant use of methanol, of 30% of the whole demand, is the feedstock of formaldehyde, which is

largely used in the adhesives for wood panels and wood products.

The second largest demand lies in alternative fuels, such as gasoline blending, DME and biodiesel, making up

21% of the total demand. The third largest use of methanol is for Methanol-to-Olefin (MTO) production (19% of

the whole demand), followed by methyl tert-butyl ether (MTBE) with 12% demand and acetic acid with 8%.

Acetic acid has been utilized as a feedstock of acetate tow for filters of cigarette and intermediates of polyvinyl

alcohol, but recently the use as a reaction solvent to produce polyester fiber intermediates is increasing.

1-6

Figure 1-6 Applications of Methanol

Source: Study Team

Figure1-7 Methanol Demand by Application

Source: Study Team based on MMSA

1-7

(a) Formaldehyde

Formaldehyde is one of the most widely used chemical intermediates in the world. The main demand of

formaldehyde is urea formaldehyde (UF) resins, melamine formaldehyde (MF) resins and phenolic formaldehyde

(PF) resins, which are utilized as adhesives of the production of wood panels and wood products. There are four

major categories of wood products consume adhesive from formaldehyde; particle board (PB), plywood, medium

density fiberboard (MDF) and oriented strand board (OSB). Formaldehyde is used to bond the layers together and

coat surfaces for waterproofing purpose. In addition, it is utilized as a feedstock for high performance plastics for

automotive products.

Figure1-8 Plywood Factory

Source: Xuzhou Faryang Wood Industry5

(b) Gasoline Blending

Direct blending of methanol to gasoline is widely practiced in China, where methanol is produced

from their abundant coal resources. This application has been introduced as a replacement for

imported gasoline, as methanol is less costly per mile than gasoline. There are several provincial

governments that ratified the specification of blending standard, generally 5-15% of methanol to be

blended, and enhancing gasoline blending. As methanol is more corrosive than gasoline, special oil

additives are necessary in order to protect the engine, or an automaker needs to change some of the

materials in the fuel-handling systems. This inhibits the commercialization of gasoline blending

application outside of China.

Figure 1-9 Fuelling Station of Gasoline Blending

Source: Methanol Fuels6

5 Xuzhou Faryang Wood Industry (http://faryangwood.com/plywood-factory.asp)

1-8

(c) Dimethyl Ether (DME)

DME is multipurpose chemical gas, generally made by dehydrating methanol. DME is utilized for

aerosol propellant and yet it has found larger markets as a replacement for liquefied petroleum gas

or LPG and kerosene for home heating and cooking use, because of similarities in physical property.

DME is also used as a substitute to diesel for transportation needs and can further used in power

generation. However, for its low viscosity and lubricity, when applied to diesel engine, leaks are

likely to occur to pumps, and its nature of volume contraction by pressure makes it difficult to

control the precise injection. DME also swells resin sealing material, and therefore, improvement of

the fuel injection system and the sealing material is required to expand DME market for this use.

Figure 1-10 DME Truck Made by Isuzu Advanced Engineering Center

Source: Japan Science and Technology Agency (JST)7

(d) Biodiesel

Fatty Acid Methyl Ether (FAME) is produced through the chemical reaction of methanol and fatty

acid extracted from vegetable oils of palm, soybean, cottonseed and canola. As the characteristics of

FAME are rather similar to the traditional diesel oil, the major application of FAME is for bio fuel

blending with oil, which is called as biodiesel. Vegetable oils or animal fats are likely to cause

engine deposits, ring sticking, lube-oil jelling and other maintenance problems that reduce engine

life. By converting vegetable oils or animal fats to biodiesel by trans-esterification with methanol,

the viscosity of the fuel is reduced to the similar level of conventional diesel fuel.

Figure1-11 Fuelling Station of Biodiesel

Source: PESwiki8

6 Methanol Fuels (http://www.methanolfuels.org/fuel-blending/)

7 JST (http://www.spc.jst.go.jp/hottopics/1003biomass/r1003_oguma.html)

1-9

(e) Methanol to Olefin (MTO)

Methanol application for MTO has momentum to boost the demand of methanol tremendously.

MTO process is a newly developed technology providing an economical means to convert methanol

to olefins, primarily ethylene and propylene, which are very basic raw materials with C2 and C3

hydrocarbons. Ethylene and propylene are the raw materials for polyethylene and polypropylene,

widely used for plastics. This process is of particular interest in China, which has a shortage of

ethylene and polypropylene but a surplus of methanol made from domestic coal, and number of

MTO plants are constructed in China.

(f) Methyl tert-Butyl Ether (MTBE)

MTBE is manufactured via the chemical reaction of methanol and isobutylene, which is derivative

of C4 hydrocarbons. The primary use of MTBE is to boost gasoline octane value. When blended with

gasoline, MTBE adds oxygen and allow more effective combustion. MTBE is soluble in water and

may cause contaminate water sources when it enters into the groundwater through leaking

gasoline tanks or improper disposal. According to this impact to the water environments, The

Environment Protection Agency (EPA) of USA has decided to ban the use of MTBE as a fuel additive

nationwide after 31st December, 2014. Countries such as Japan, Thailand, Philippines, Europe and

Australia have ordered slowing or restricting the use of MTBE, on the other hand, Middle East

countries and China are registering high growth rates in that use.

In addition to energy application, MTBE is utilized as a raw material of chemical intermediate,

such as methyl methacrylate (MMA) and alcohol. Recently, feedstock for chemicals are getting

lighter and this situation is advantageous to the industry producing C1, C2 and C3 hydrocarbon

derivatives, while negatively impacts to the industry who needs heavier feed such as C4, C5 or

higher hydrocarbons. Under this condition, leading MMA manufacturers are paying serious

attention toward the demand of MTBE to secure stable raw material.

(g) Acetic Acid

Acetic acid is a well-developed intermediate used in high commercial value added chemical

processes. It has wide range of application mainly for non-durable goods, including textiles, latex

emulsion resins for paints, adhesives, paper coatings, textile finishing agents, cellulose acetate

fibers, acetate tow for cigarette filter and cellulosic plastics. Acetic acid has corrosive character with

sharp odor, acid taste and harmful blistering properties.

8 PESwiki (http://peswiki.com/congress:member:charles-bensinger)

1-10

Figure1-12 Cigarette Filters (utilizing acetate tow)

Source: Solvay9

1.2.3 Demand and Supply

As shown in the below Figure 1-13, there will be a stable growth in methanol demand for

“traditional” chemical intermediate application, such as formaldehyde, at a similar rate as the

world economic growth. On the other hand, MTO and energy applications are expected to lead the

growth of the world methanol demand. It is estimated that the demand for MTO will reach 37

million ton per annum and this for energy application will be 22 million ton in 2021. Region-wise,

the demand will be driven by China and, though the volume is relatively smaller, India and South

East Asian countries will also contribute to the increase of the demand.

Figure 1-13 Methanol Demand Forecast by Product

Source: Study Team based on MMSA

9 Filter Tow (http://www.rhodia.com/en/markets_and_products/brands/acetow_rhodia_filter_tow.tcm)

1-11

Because of their population and economic magnitude, the methanol demand in China is extremely large, and

furthermore, as abovementioned, methanol use for gasoline blending, MTO and DME are heavily concentrated in

China. Therefore, the demand in China made up of a majority of the total methanol demand in the world. Almost

of the demand is covered by the domestic plants, which are located inland China and producing methanol from

coal. Inadequate supply in the coastal area is contributed by the import cargos, since the inland coal based

methanol plants has logistic disadvantage to deliver products to the coastal area to meet their demand.

Figure 1-14 Methanol Demand by Region (2015)

Source: Study Team based on MMSA

Far East Asia including China, Europe and North America are the main methanol net-import regions supplied by

Middle East, South America and other regions. Import volume in Far East area of 10 million ton consists of 5

million ton by China and the rest amount by Japan, Korea and Taiwan. Although the importing volume of these 3

counties are not so much compare to the total demand in the world, those have a profound impact on the methanol

trade flow.

Figure 1-15 Methanol Trade Flow among Region (2015: million ton)

Source: Study Team based on MMSA

1-12

1.3 Overview of the Project Site

The project site is located in Puerto Libertad, Sonora State, northwest state of Mexico facing to the Gulf of

California. Sonora State has a border with Arizona State and New Mexico State, USA. It takes 3 hours by air from

Mexico City to Hermosillo, the state capital, and from Hermosillo to Puerto Libertad is approximate 240km, 2.5

hours’ drive. The project site is a land covered by sand and rocks and has few residential areas in the

neighborhood. There are 624 MW power generating plant operated by CFE in the city, and majority of its

population, totally 2,823 inhabitants, are the workers in related industries of them. The Project will be the first

methanol plant locates in the West coast, not only in Mexico but also in the North and Central America.

Figure 1-16 Puerto Libertad

Source: Study Team

1-13

CHAPTER 2 STUDY METHODOLOGY

2-1

2.1 Content and Methodology of the Study

(a) Methanol Market Study

Explore the demand, supply and market of methanol of the world and especially in the Americas, based on

international published documents and reports by consulting firms, such as MMSA, IHS, JJ&A, Platts and ICIS.

Estimate the demand of MTO, the largest driver of methanol demand, and the changes of trade flow affected by

those demand.

(b) Engineering and Technical Assessment

Visit the potential project site with the engineering company. Base on the site survey, select the plant process,

system configuration, facility optimization plan and estimate the EPC cost based on those selection.

(c) Environment and Social Impact Assessment

Check the regulation and requirement in terms of environment and social impact assessment. Identify

environment and social impacts and define the items to be examined at latter stage.

(d) Economic and Financial analysis

Define the requirements to obtain Project Finance for the Project with the support from financial institution as a

consultant. Based on those requirements, create an economic model of the Project, analyze the sensitivity and

investigate the economic feasibility of the Project.

(e) Impact to the Stable Energy Supply for Japan

Estimate the impact represent an effective contribution to the stable energy supply for Japan from the

establishment of the Project.

2.2 Organization of the Study

The Study was prepared by Sojitz Corporation (hereinafter Sojitz). It was conducted under project manager with

two researchers in charge of technology, two for economic and financial analysis, two for environment and social

assessment and two for marketing. Sojitz Corporation of America and Sojitz Mexico Corporation will also support

the Study.

Mitsubishi Heavy Industries, Ltd. (hereinafter, Mitsubishi Heavy Industries) was delegated to select the plant

process, system configuration, facility optimization plan and estimate the EPC cost. The Bank of

Tokyo-Mitsubishi UFJ, Ltd. (hereinafter, BTMU) was appointed as financial advisor and supported Sojitz to

define the requirements to obtain Project Finance, create an economic model and analyze the sensitivity of the

Project.

2-2

Figure2-1 Organization of the Study

Source: Study Team

2.3 Schedule of the Study

Table 2-1 Schedule of the Study

2016 2017

Sep Oct Nov Dec Jan Feb

[Site Visit]

Site visit / Gas market survey

Methanol market survey

[Domestic Study]

Preparation of site visit

Analysis of the result

Report writing

Source: Study Team

2-3

CHAPTER 3 JUSTIFICATION, OBJECTIVES AND

TECHNICAL FEASIBILITY OF THE PROJECT

3-1

3.1 Justification and Objectives of the Project

3.1.1 Petrochemical Industry in Mexico

Over the past decades, petrochemical industry in Mexico was relatively small from the perspective of the

countries diversified mineral resources reserve and their economic magnitude, with the production volume of 1.3

million ton of ethylene, 0.2 million ton of high-density polyethylene (HDPE) and 0.5 million ton of low-density

polyethylene (LDPE). The industry was led by the largest domestic supplier, Petroleos Mexicanos (PEMEX), the

national oil company.

President Pena Nieto has promoted the restructuring of energy sector to open up the private investment to of oil

fields and PEMEX has devaluated their dominant position in the sector. However, the world is paying attention to

Mexico whether the development by the private sector will proceed as planned or not, even facing the recent

period of falling energy prices. In April 2016, Braskem – Idesa ethylene complex started their production at

Veracruz State, west coast of the Gulf of Mexico, of 1.0 million ton of ethylene, 0.75 million ton of HDPE and 0.3

million ton of LDPE, which was a fresh wind for petrochemical industry in Mexico.

The forecast of the demand and supply of petrochemicals in 2020 is as shown in Figure 3-1 below. Even though

Braskem – Idesa started their large production, still most of the product balances are in net-import position due to

the stable growth of the manufacturing and export of the industrial products. In these circumstances, President

Pena Nieto has expressed his policy to accelerate the energy and chemical reform. On the national development

plan 2013 - 2018, it is clearly described as a government policy to “strengthen the natural gas market by

strengthening the infrastructure of import, transportation and distribution” and to “promote the development of a

profitable and efficient petrochemical industry”.

Table 3-2 and Figure 3-1 show the location of the automobile manufacturing factories in Mexico. Those

manufacturers are the largest consumer of petrochemicals and mainly located at northwest, central west and

central area in Mexico. Both demand and supply of petrochemicals are small in Sonora State with relatively small

numbers of factories in the state, where the Project will be located. The Project will be the first methanol project

to produce basic chemical, in a state with little chemical industry. Sojitz believe the Project will contribute not

only to create jobs but to be an important milestone for the chemical industry in Mexico.

3-2

Table 3-1 Forecast of Demand and Supply of Petrochemicals in Mexico (2020)

Source: Ministry of Economy, Trade and Industry (METI)10

Table 3-2 Automobile Manufactures by States (2014)

Source: Study Team based on JETRO

10

METI, Demand and Supply of World Petrochemicals, July 2016

State Number Ratio # in Map

Chihauhua 145 11% 1

Coahuila 137 10% 2

Mexico 126 9% 3

Nuevo Leor 119 9% 4

Ciudad de Mexico 116 9% 5

Queretaro 88 7% 6

Guanajuato 87 6% 7

Tamaulipas 83 6% 8

Jalisco 78 6% 9

Puebla 71 5% 10

San Luis Potpsi 49 4% 11

Others 244 18% -

(1,000ton, %)

Capacity

(A)

Production

(B)

Import

(C)

Export

(D)

Demand

(E=B+C-D)

Import

Ratio

(C/E)

Export

Ratio

(D/B)

Balance

(B-E)

Operation

Rate

(B/A)

Major Supplier

C2 2,610 2,180 330 0 2,510 13% 0% -330 83% Pemex, PMV, B-I

LD 870 780 580 100 1,260 46% 13% -480 90% Pemex, B-I

HD 980 830 360 100 1,090 33% 12% -260 85% Pemex, B-I

SM 150 140 600 0 740 82% 0% -600 90% Pemex

EG 380 320 90 0 410 22% 0% -90 85% IDESA, Pemex

PVC 620 560 100 350 310 32% 63% 250 91% Mexichem

Others 390 350 100 100 350 29% 29% 0 90%

Total C2 2,860 2,510 1,230 380 3,360 37% 15% -850 88%

Propylene 1,440 1,300 370 0 1,670 22% 0% -370 90% Indelpro, Pemex, B-I

PP 590 590 720 0 1,310 55% 0% -720 100% Indelpro

AN 70 60 20 40 40 47% 63% 20 97% Unigel

Others 350 320 100 100 320 31% 31% 0 91%

Total C3 1,030 1,000 760 40 1,720 44% 4% -720 97%

Benzene 160 140 30 0 170 18% 0% -30 85% Pemex

Toluene 370 330 200 40 490 41% 12% -160 89% Pemex

Xylene 380 340 100 20 420 24% 6% -80 90% Pemex

PX 490 440 510 0 950 54% 0% -510 91% Pemex

PTA 1,530 1,380 0 830 550 0% 60% 830 90% Petroce, Temex

3-3

Figure 3-1 Automobile Manufactures in Mexico

Source: Study Team

3.1.2 Natural Gas Pipeline in Mexico

Based on the national policy, Mexican government is trying to “strengthen the natural gas market in Mexico by

strengthening the infrastructure of import, transportation and distribution”, as abovementioned national

development plan 2013 – 2018, and construction of natural gas pipeline has been proceed under the government’s

initiative. Natural gas pipeline for Mexico is the national infrastructure to stimulate the demand of natural gas and

those pipeline projects are mostly conducted as Public Private Partnership (PPP) structure, such as Build Operate

Transfer (BOT) or Build Own Operate (BOO). As Figure 3-2 shows, the government announced a plan to build

totally 800km, or US$ 3.1 billion, pipeline all over the country.

These pipelines are connected to pipelines built in USA and to import inexpensive shale gas produced in USA and

encourages the demand in the domestic market including petrochemical industry. The thermal power plants in

Mexico that had been operated as oil-fired has been sequentially converted as a natural gas-fired thermal power

plants, and these electric power uses are also considered as one of the demand of imported natural gas. As far as

the announcement so far in public, the President Trump shows a positive attitude toward energy exports and this

may be the tailwind for this policy of Mexico. However, there is an uncertainty over the political relationship

between the two countries. The relationship of the countries and the impact toward the Mexican governmental

policy should be carefully paid attention, since these may cause a large impact to the natural gas policy of Mexico.

3-4

Figure 3-2 Plans of Natural Gas Pipelines in Mexico (May 2016)

Source: Platts

In March 2015, new pipeline from Sasabe, northwest town in Mexico at the boarder of USA, to Puerto Libertad

was constructed and the pipeline in Mexico was connected to the existing line in USA. This pipeline is operated

by Indraetructura Energetica Nova (hereinafter IEnova), a subsidiary of USA major energy company Sempra,

under 25 years concession contract as BOO project of Comision Federal de Electricidad (CFE), the national

electricity company of Mexico.

Figure 3-3 Pipelines in Western Mexico

Source: Study Team based on Platts

The pipeline is operated by IEnova and the capacity right of whole pipeline capacity, 770 mmscf/d, belongs to

CFE. CFE had been operated 623 MW oil-fired thermal power plant in Puerto Libertad, but after completion of

3-5

the pipeline in March 2015, they converted the plant into natural gas-fired power plant and utilized the natural gas

transported by the pipeline as raw material. Since the contract between CFE and IEnova is a concession agreement,

even though the required natural gas volume to operate this power plant is only 160 mmscf/d, CFE is charged for

the full capacity of the pipeline and paying for whole 770 mmscf/d right to IEnova. Although it is in compliance

with the national policy to improve the pipeline as an infrastructure, if payment of the capacity charge for unused

portion will continue in the future, it will become heavy financial burdens for CFE and it may eventually affect

Mexico government finance as well. Study Team asked CFE to supply natural gas for this methanol Project as a

utilization of the unused portion and we received positive reply from them to provide natural gas. The project will

utilize the pipeline developed as infrastructure and advance the chemical industry using the transported natural gas,

which consistent with the Mexican governmental policy.

3.1.3 Marketing of Produced Methanol

(a) Mexico

Demand for methanol in Mexico is approximately 250 thousand ton and most of the consumers locate in Gulf

Coast of Mexico and around Mexico City. There are several methanol plants in USA coastal area of Gulf of

Mexico where it is close to those consumers and able to deliver methanol in lower costs than those produced from

the Project. Therefore, Study Team considers it is difficult to supply produced methanol from the Project to the

domestic market.

(b) West coast of USA

In the west coast of USA, there is a demand of approximately 200 thousand ton in Oregon, Washington and

Montana States. The Project will be the first methanol plant located in the west coast of the North and Central

America and it is assumed to have a geographical advantage to supply products to these areas.

(c) East Asia

As mentioned, since the supply of products to domestic market in Mexico is geographically difficult and the

demand in the west coast of USA is still limited compared to the plant capacity, the major market of the product

from the Project is assumed to be countries in East Asia, such as Japan, China, South Korea and Taiwan. As

described in Section 1.2.3, it is assumed that the demand of methanol will be steadily expands toward the

completion of the Project in 2022. As well, the demand in East Asia also forecasted to increase and we consider

that the new capacity of the Project will be fully absorbed in the market.

The largest driver in the East Asian market is MTO application in China. Whether the methanol demand in China

and the product price will grow steadily as forecast depend on if MTO plants will start operation and purchase

methanol as raw material as planned. From the geographical point of view, since the project is located on the west

coast of the Americas, it has an advantage such as lower transportation cost and shorter voyage compared with

plants located at Gulf of Mexico, Venezuela and Trinidad and Tobacco.

Through this Study, Study Team listed the announced newly established MTO plant and investigate the progress

3-6

of each plant and identified that seven plants shown in table 3-3 below are likely to start up as planned. Only with

these seven plants, the demand for methanol is expected to increase for exceeding 11 million ton by 2019, and it is

considered that the new capacity of 1 million ton from the Project can be easily sold at the market. However, we

need to pay close attention to the progress of the MTO plant construction plan.

Table 3-3 MTO Plant Plan from 2017 to 2019 in China

Start

Operation Project Name Location Timing

Demand

(1,000 ton)

2017

Changzhou Fund Energy Changzhou, Jiangsu Started 1,000

Jiangsu Sailboat Chemical Lianyungang,

Jiangsu Started 2,400

Shandong Daze Chemical Dongguan,

Shandong 2017/1H 600

Jiutai Energy Ordos, Neimeng 2017/2H 1,800

2018 Wison Clean Energy Nanjing, Jiangsu 2018/2H 1,800

2019

Tianjin Bohai Tianjin 2019 1,800

Fujiang Gurei

Petrochemicals Zhengzhou, Henan 2019 1,800

Total 11,200

Source: Study Team

3.2 Outline and Basic Plan of the Project

Basic outline and the plan of the Project are as follows.

3.2.1 Project Outline

The project is to construct and operate a new methanol plant with 1 million ton capacity per year (3,000 ton per

day) at Puerto Libertad, northwest of Mexico. The license, Mitsubishi Methanol Process, jointly developed by

Mitsubishi Gas Chemical Company, Inc. (hereinafter Mitsubishi Gas Chemical) and Mitsubishi Heavy Industries

is planned to be utilized and Mitsubishi Heavy Industries is assumed to be selected as Engineering, Procurement

and Construction (EPC) contractor. Mitsubishi Methanol Process is a reliable license based on Mitsubishi Gas

Chemical’s long experience of methanol plant operation and Mitsubishi Heavy Industries has a number of track

records to construct methanol plant based on this license. The detail of Mitsubishi Methanol Process will be

described at Section 3.2.2 (b) and technical advantages of this license will be mentioned at Clause 7.2.

The project has advantages as follows;

1) Utilizing inexpensive natural gas produced in North America,

2) First methanol plant located in west coast of North and Central America and has geographically

3-7

advantage to Asian market, and

3) Natural gas pipeline is already existing and easy to secure land.

Basic outline of the project site and methanol plant is as follows.

(a) Access to the Project site

The capital of Sonora State is Hermosillo with population of approximately 700 thousand. It takes about 3 hours

flight to Hermosillo from Mexico City. Access route from Hermosillo to Puerto Libertad is shown on Figure 3-4.

The distance of the two is approximately 240 km with 250m of height difference, and it takes about 2.5 hours by

car. Route 26 (approx. 80 km to the west) is a flat road through agricultural zone with some heavy traffic. Route 3

(approx. 160 km to the north and northwest) is a two-way load without traffic lights mostly asphalt-paved with 6

m width. Oncoming car passes only once in 10 minutes and, except the part under construction, it can run at an

average speed of 100 km/h. Roadsides are desert area where cactus grows and can see some orange and vineyards.

The road elevation is referred to natural gradient not to prevent surface water flow and water ponding during rainy

season not seems to be observed. However, surface water condition should be carefully monitored, because there

is no bypass route to the site.

Figure 3-4 Access Route Map to Puerto Libertad

Source: Study Team

3-8

Figure 3-5 Access Route to Puerto Libertad (1)

Source: Study Team

Figure 3-6 Access Route to Puerto Libertad (2)

Source: Study Team

3-9

Figure 3-7 Bridge under Construction (Route 3)

Source: Study Team

(b) Puerto Libertad

As the town of Puerto Libertad with the population of 2,823 people is originally a fishing village, environment

impact of the new plant especially for marine life (fish and crustacean) should be mitigated. This area is generally

desert without public surface water management system. Therefore, the project site shall be selected and designed

in respect of natural gradient and natural surface water flow. There is a thermal power plant built in 1980s by CFE

and certain existing facilities are assumed to be utilized for the new methanol plant where available as described

hereunder.

Figure 3-8 Distant View of Puerto Libertad (from South)

Source: Study Team

3-10

(c) General Condition of the Potential Site

① Topographic Condition

The ground level of the site would be;

- Lowest Level : approx. +4m

- Highest Level : approx. +8m

- Public Road Level : approx. +10m

② Soil Condition

As per public geology literature11

, the site would be stiff stratum. However, local densification or

equivalent method during site preparation should be considered for large size foundation.

③ Temporary Area, camp area and construction utility

The adjacent open yard would be applicable for the temporary area. Also, former camps of CFE power

plant could be utilized with some refurbishments. Availability and capacity of construction utilities,

especially water, should be carefully evaluated considering allowance of desalinated water from existing

CFE power plant.

④ Material offloading facility (MOF)

MOF facility inside CFE power plant (approx. 10 m width, stone pitching finish) could be utilized. As an

alternative, temporary MOF beside the site also could be constructed with required local permit.

Figure 3-9 Potential Project Site (from Sea Side)

Source: Study Team

11

Referred U.S. Geological Survey and Universidad Nacional Autónoma de México.

3-11

Figure 3-10 Potential Project Site (Shoreline)

Source: Study Team

Figure 3-11 Potential Project Site (from Road Side)

Source: Study Team

3-12

Figure 3-12 Potential Project Site (from Front Public Road)

Source: Study Team

(d) CFE power plant jetty

CFE power plant had been operated as oil-fired power plant until the natural gas pipeline started operation in

March 2015. The jetty which had been utilized to import fuel oil but now it is not used anymore so the jetty could

be utilized for methanol export. The length of it is 1 km, 3.55 m width, with draft of 17 m and can accept up to

55,000 DWT vessel, which is more enough for methanol project. CFE intends to use the jetty as an emergency

backup when the transportation of the natural gas stops, but even that case the frequency of the jetty usage is twice

a month. When the supply of natural gas stops, methanol production will also stops and the project will not be

able to export methanol by using the jetty. From CFE, Study Team received a comment that as far as there is no

effect on the use in emergency case, there is no problem to utilize the jetty for the methanol project. However,

following issues should be verified at later stage to determine the possibility of utilization.

- Route for new piping and cable on jetty trestle

- Space for new methanol loading arm

- Maintenance device for new facilities

- Latest safety regulation (firefighting, access way, etc.)

- Structural integrity

- Mooring plan for methanol vessel

3-13

Figure 3-13 CFE Jetty Overview

Source: Study Team

Figure 3-14 Jetty (1)

Source: Study Team

3-14

Figure 3-15 Jetty (2)

Source: Study Team

Figure3-16 Jetty (3)

Source: Study Team

3-15

Figure 3-17 Firefighting Facility

Source: Study Team

Figure 3-18 Mooring Dolphin (North)

Source: Study Team

3-16

Figure 3-19 Mooring Dolphin (South)

Source: Study Team

Figure 3-20 Operation Platform at Head

Source: Study Team

3-17

Figure 3-21 Potential Space for Methanol Loading Arm

Source: Study Team

(e) Methanol Plant General Layout (refer to Figure 3-22)

① Production Plant

Production plant shall be positioned beside the public road. The balanced space at the sea side could be

utilized for temporary area or future expansion.

② Corridor

Production plant and shipping facility, sea water intake and discharge facility of CFE power plant shall be

connected with corridor for piping and cabling. The corridor would cross the public load at least three

times.

③ Sea water supply and return

Desalinated water from CFE power plant would not be expected due to their capacity limit. Therefore, sea

water at intake channel and pit of CFE power plant should be directly transferred to the methanol plant as

make-up water.

④ Production methanol shipping jetty

As mentioned above, piping and cable supports, loading arm with platform and others (required by latest

local regulation) shall be provided.

3-18

Figure 3-22 Methanol Plant General Layout

Source: Study Team

3-19

3.2.2 Outline of Project Plan and Design Basis of Plant

Outline of the project plan and the design basis of the plant based on Mitsubishi Heavy Industries are as follows.

(a) Overall plant Configuration

① Overall structure of the plant

The facilities necessary for the methanol plant comprise following three sections;

- Processing plant,

- Electricity, water supply, other utility facilities and off-site facilities, and

- Building and others.

Plant configuration is shown in OVERALL BLOCK FLOW DIAGRAM (Appendix 1).

② Processing plant

Mitsubishi Methanol Process, jointly developed by Mitsubishi Gas Chemical and Mitsubishi Heavy

Industries, is selected as the methanol process technology under this study, which is composed of

following sections and facilities;

- Desulfurization section,

- Steam reforming section,

- Compression section,

- Synthesis section, and

- Methanol distillation section.

③ Utility facilities and off-site facilities

Utility and off-site facilities for the methanol plant are composed of following facilities;

- Auxiliary boiler,

- Desalination (seawater purification) unit,

- Cooling water system (Composed of a seawater cooling tower, sea water / closed cooling water plate

heat exchanger and pumps, chemical injection system and other systems),

- Water treatment system (Composed of a chemical injection system for pH control, neutralization pit

and oil-water separation device),

- Fire prevention and extinguishing facilities,

- Emergency diesel generator,

- Instrumentation air / plant air system (Composed of an instrumentation air compressor,

instrumentation air drier and holder),

- Seawater intake / discharging facilities,

- Product storage facilities, and

- Product shipment facilities (except existing product shipment jetty and platform).

④ Buildings and others

Composed of followings;

3-20

- Control building,

- Laboratory,

- Electrical substation buildings,

- Compressor house,

- Product shipment jetty (except existing product shipment jetty and platform),

- Maintenance / workshop building,

- Administration / technical office building, and

- Warehouse.

(b) Schematic Design Condition of the Plant

① Basic design condition of the plant

The design production capacity of the methanol plant is 3,000 ton per day, and the targeted number of

days in operation is 330 days per year. This means that the annual methanol production will be 990,000

ton (approximately 1 million ton).

Dehydrated and sweetened natural gas is used as the raw material. Produced methanol is loaded into

methanol vessels from the product shipping jetty installed adjacent to the plant. All necessary electrical

power for plant operation and for exportation of the product methanol is supplied through the existing

electrical grid. An emergency diesel generator is installed to shut down the plant safely in case of

emergency. Seawater is pumped up at the existing intake facility, and used as cooling media and as raw

material for making plant water. Cooling system for the methanol plant is comprised of the sea water

cooling tower system and closed loop cooling water system. Supplied seawater to the plant area shall be

as make up water for the seawater cooling tower system. Blowdown seawater from the seawater cooling

tower system shall be transferred to discharge point and returned to sea. Besides, seawater supplied to the

plant is also used as material for plant water. The desalination unit is installed to produce the required

amount of plant water. The basic design conditions of the plant are summarized below.

Table 3-4 Basic Design and Specifications

Capacity 3,000 ton per day

Number of days of plant operation 330 day per year

Annual methanol production 1,000,000 ton per year

Product quality The Federal Grade AA

Process license Mitsubishi Methanol Process (MMP)

Licensor Mitsubishi Gas Chemical and

Mitsubishi Heavy Industries

Feedstock natural gas Dehydrated and sweetened natural gas to be

supplied at the boundary of the plant battery limit

Product storage capacity 140,000 m3

(70,000 m3 x 2 tanks)

Source: Study Team

3-21

(Others)

Number of non-operation days for periodic turnaround and other reasons;

35 day/year (including shut-down and re-starting periods)

Shipment;

Loaded into methanol vessels by the shipment facility installed on the existing product shipment

jetty

Scope of the project;

Depends on the extent of usable infrastructures at the location of the plan

② Mitsubishi Methanol Process

Mitsubishi Gas Chemical is the first company developed the catalyst for methanol synthesis and put the

technology for methanol synthesis from natural gas into commercial application in Japan in 1952.

Technologies and know-how of plant operation has accumulated over many years by Mitsubishi Gas

Chemical are available into the methanol synthesis technology and have been utilized in the process

design. Mitsubishi Gas Chemical and Mitsubishi Heavy Industries jointly developed Mitsubishi Methanol

Process with high reliability and low OPEX with high efficiency Superconverter and key machineries.

Since constructing the first large-scaled methanol plant (600 ton per day) at Mitsubishi Gas Chemical

Niigata Factory in 1975, Mitsubishi Gas Chemical and Mitsubishi Heavy Industries have cooperated to

each other and established the world leading position of methanol synthesis technologies. The plants are

highly reliable under long history of own methanol synthesis catalyst performance of Mitsubishi Gas

Chemical and the experience of designing, constructing of Mitsubishi Heavy Industries. The track record

of Mitsubishi Heavy Industries related methanol plants are shown as below.

Table 3-5 Track Record of Mitsubishi Methanol Process

Start of Operation Country Capacity Reactor Type

1975 Japan 600 t/d Quench

1983 Saudi Arabia 1,815 t/d Quench

1991 Saudi Arabia 1,906 t/d Quench

1993 Japan 520 t/d Superconverter

1994 Venezuela 2,200 t/d Quench

1997 Saudi Arabia 2,500 t/d Superconverter

1999 Saudi Arabia 2,500 t/d Superconverter

2008 Saudi Arabia 5,000 t/d Superconverter

2009 Brunei 2,500 t/d Superconverter

2010 Venezuela 2,500 t/d Superconverter

2018

(under construction)

Trinidad and

Tobago 3,000 t/d Superconverter

Source: Study Team

3-22

Total of more than 8 million ton per year production of the above operated plants covers more than 10%

of the world total production of methanol today. All above plants are owned and operated by the joint

ventures invested by Mitsubishi Gas Chemical and each country’s national oil and gas companies or

chemical companies. The world first and largest (at that time) modular methanol plant was constructed by

Mitsubishi Heavy Industries in Saudi Arabia.

These plants have been successfully operated with no material issues not only because of above

mentioned expertise of Mitsubishi Gas Chemical and Mitsubishi Heavy Industries on their own but also

because of their training programs to transfer the required technical and operational skills to local

employee, the troubleshooting drills using specialized Operator Training Simulator (OTS) of Distributed

Control System (DCS) developed by both companies especially in case of starting-up, shutting-down and

operating under abnormal malfunction. Both companies have delivered this simulator for their past

projects in Saudi Arabia, Venezuela and Brunei and had a lot of appreciation from the partners.

Figure 3-23 Mitsubishi Gas Chemical Niigata Plant

Source: Study Team

3-23

Figure 3-24 AR-RAZI-I, Saudi Arabia Plant

Source: Study Team

Figure 3-25 AR-RAZI-II, Saudi Arabia Plant

Source: Study Team

3-24

Figure 3-26 AR-RAZI-III, Saudi Arabia Plant

Source: Study Team

Figure 3-27 AR-RAZI-IV, Saudi Arabia Plant

Source: Study Team

3-25

Figure 3-28 AR-RAZI-V, Saudi Arabia Plant

Source: Study Team

Figure 3-29 METOR-I, Venezuela Plant

Source: Study Team

3-26

Figure 3-30 METOR-II, Venezuela Plant

Source: Study Team

Figure 3-31 Brunei Methanol Plant

Source: Study Team

3-27

Figure 3-32 Trinidad and Tobacco Methanol and DME Plant (under construction)

Source: Study Team

③ Description of the methanol process in the plant

The Mitsubishi Methanol Process comprises the following five sections.

Figure 3-33 Methanol Process Flow

Source: Study Team

■#100: Desulfurization

Since sulfur contained in natural gas is harmful to the reforming catalyst and methanol synthesis catalyst,

it needs to be removed to a microscopic level before supplying the natural gas to the reforming section. In

the desulfurization process, the natural gas for the process including hydrogenator from other source is

mixed with purge gas recycled from the methanol synthesis reactor and sent to the hydro-generator. The

organic sulfur contained in the natural gas for the process is converted to hydrogen sulfide (H2S) in the

hydrogenator. The natural gas with the hydrogenated sulfur content is then sent to the sulfur absorber to

remove H2S. The treated gas is then sent to the steam reforming section.

■#200: Steam reforming section

The natural gas as the process feedstock sent from the desulfurization section is sent to the steam

3-28

reforming section. The gas passes through the saturation system and comes into contact with the process

condensate including the distillation waste water to bring steam to a saturated state. The gas with steam

that has reached the saturation state is then mixed further with the steam added for inducing the reform

reaction, to control the steam / carbon ratio to an appropriate level. The gas mixture is brought into the

steam reforming reaction tube after it is preheated with the waste heat from the reforming furnace. The

reforming reaction takes place on the nickel-base catalyst in the reforming tube, through the chemical

reactions shown below.

CH4 + H2O = CO + 3H2 + 49.2 kcal/mol (1)

CO + H2O = CO2 + H2 – 9.8 kcal/mol (2)

The above reactions are heat-absorption reactions, and the necessary reaction heat is supplied by burning

the natural gas using a burner in the furnace. The reformed gas sent out from the steam reformer passes

through the Reformed Gas (RG) waste heat boiler and generates high-pressure steam after the heat

collected in the boiler. After the gas comes out of the boiler, the heat is recovered as it passes through the

series of process heat exchangers. The process condensate that has been cooled and condensed in these

heat exchangers is separated from the reformed gas and reused in the plant.

■#300 and #400: Compression / Methanol synthesis section

The reformed gas, from which the process condensate has been removed, is compressed in the synthesis

gas compressor. The synthesis gas that comes out of the synthesis gas compressor is mixed with the

recycled gas (unreacted synthesis gas) from the circulator as makeup gas. The gas mixture is preheated by

the preheater in the synthesis reaction loop, and sent into the Superconverter (SPC). The SPC is simple,

vertical double-tube heat exchanger reactor, with the loop-formed space between the inner and outer tubes

filled with the methanol synthesis catalyst. Boiler Feed Water (BFW), made to circulate through the SPC,

shall side for cooling and recovering reaction heat. On the catalyst, methanol is synthesized from H2, CO

and CO2 through the following chemical reactions.

CO + 2H2 = CH3OH – 21.6 kcal/mol (1)

CO2 + H2 = CO + H2O + 9.8 kcal/mol (2)

CO2 + 3H2 = CH3OH + H2O – 11.8kcal/mol (3)

The above reactions, which are heat-generating reactions, proceed under a pressure of approximately 100

kg/cm2G and a temperature of between 200 and 300 degrees Celsius. The reactionary gas is cooled by

BFW circulating through the shell side of the SPC, and generates steam at medium pressure. The

methanol and other components are condensed by cooling the reaction gas outlet from the SPC and the

crude methanol (CMA) is separated from the unreacted gas (non-condensed gas) in the methanol

separator. Most of the unreacted gas is recycled into the methanol synthesis loop by the circulator, but

some of the non-condensable gas is discharged from the loop as purge gas to maintain the pressure of

synthesis loop to control the concentration level of the inert gas accumulating in the loop. Finally, CMA

from the methanol separator is sent to the methanol distillation via CMA tank.

■#500: Methanol distillation section

CMA contains about 80 wt% of methanol, 20 wt% of water and small quantities of organic impurities

3-29

which are produced simultaneously with methanol synthesis. The impurities consist of lighter ends,

ethanol, higher alcohols and other complexes. These impurities are separated from the methanol product

in the distillation section.

CMA is distilled in the system composed of two distillation columns. Small amount of dissolved gas and

lighter ends impurities in CMA are concentrated at the top of the topping column and removed as vent gas

or liquid from the system. The liquid separated at the bottom of the topping column is sent to the refining

column, and pure methanol is concentrated and withdrawn in the overhead system of the refining column.

On the other hand, liquid containing concentrated ethanol and other heavier impurities are withdrawn at

the tray near the bottom of the refining column as the side cut flow and removed as waste liquid.

(c) Issues when adopting the proposed technologies, system and their solutions

① Methanol process

Mitsubishi Methanol Process is well established and proven methanol production process technology

which has a lot of commercial plant experiences and no technological issues have been found. To ensure

that the process works effectively, external following factors need to be confirmed at the time of the

detailed studies;

- Storage and stable supply of accompanying gas,

- Basic design requirements, and

- Applicable laws and regulations, domestic laws and regulations of Mexico.

② Utilities and off-site facilities

This report is prepared under assumptions that the required amount of natural gas, seawater, electrical

power, diesel oil for emergency power generator and potable water are available for the methanol plant

and blow down seawater and treated waste water from the plant can be discharged to sea. All other

necessary utilities and off-site facilities, including emergency power generator and desalination

equipment, are included in the scope of construction works.

It is assumed that the existing facilities for seawater intake and outfall can be utilized. Necessary utilities

in the seawater intake and outfall area, such as electricity, service water and instrument air, are assumed to

be supplied by existing utility facilities of the power plant in the seawater and provision from methanol

plant site is not considered. Based on such assumptions, following facilities are included in the Inside of

Battery Limit (the scope of construction works and responsibility);

- Seawater intake pump,

- Seawater intake pipeline, and

- Seawater outfall pipeline.

For methanol export, it is assumed that the existing jetty facility of the power plant can be used for

methanol shipment. Provision and installation of following items are included in the Inside of Battery

Limit.

3-30

- Product methanol piping corridor, and

- Product methanol loading arm.

However, extension of natural gas pipeline and electrical cable from existing facilities to battery limit of

the plant is not included in the Inside of Battery Limit (out of the scope of construction works). In

addition, details of necessary permit or regulatory approval in accordance with local regulations such as

environmental impact assessment (effluent / emission) or waste disposal should be further studied. The

above scope of work should be further studied and finalized during the later stage in details.

③ Construction related matters

Topographic survey and soil investigation should be carried out at later stage to prepare detail layout and

plot plan. In addition, details of transportation method as following should be studied at later stage.

- Heavy / Oversized cargo: to be unloaded at CFE power plant using material offloading facility

- Other general cargo: to be unloaded at Guaymas international port and inland transportation to

site

3.2.3 Participation of Japanese Firms

It is expected that Mitsubishi Heavy Industries will take a role of EPC contractor. Mitsubishi Heavy Industries has

tremendous track records in building methanol plants and providing process license to projects, which was jointly

developed by Mitsubishi Gas Chemical. Out of total project cost, US$ 600 million is expected for Mitsubishi

Heavy Industries to be recognized as overseas revenue of Japanese firms.

In addition to Japanese firm’s contribution as EPC contractor, “Japanese Consortium”, jointly invested by

Japanese firms with experience in trading methanol at East Asia, is expected to make majority investment to lead

and manage the operation of the Project and offtake the product from the project company, in regards to the stable

methanol supply to East Asia including Japan.

3.2.4 Raw Material Procurement and Product Marketing Policy

The Project shall purchase low cost natural gas, as raw material, from USA through the pipeline from USA to

Puerto Libertad, which was completed in March 2015. It is confirmed that the pipeline still has enough capacity

for the Project.

The Project, as the first methanol plant being located at the west coast of North and Central America, has

geographical advantages to the market in East Asia over the methanol plants at Gulf of Mexico or Middle and

South America. Taking this advantage, the marketing plan of the Project is to sell the product in countries such as

Japan, China, South Korea and Taiwan, primarily by Japanese Consortium.

3-31

3.3 Necessary Issues to be Considered

The main issues to be considered for final investment decision are listed below.

- Equity structuring

- Debt structuring

- Marketing & offtaking

- Gas supply

- Gas price hedge

- EPC

- O&M

- Utility supply

- Site acquisition

3.4 Effect of Project for Stable Energy Supply to Japan

As discussed in Section 1.2.2, currently half of methanol application is for energy use (gasoline blending, DME as

alternative of LPG, MTBE, bio-diesel), and volume of methanol that is consumed for this purpose can be

considered as replacement of oil products. Also, MTO, to produce ethylene and propylene from methanol, has the

effect of replacing naphtha and therefore contributes to decrease oil demand. Statistically, 500 thousand ton, half

volume of methanol produced under the Project, is for energy use and this will have effect of decreasing

equivalent volume of oil demand. Also as discussed in Section 1.2.3, China and East Asia are the world biggest

methanol import region, however, vessels must go through Strait of Hormuz and South China Sea, where political

instability exists, and that is considered possible threat to stable supply. By implementing the Project, together

with supply source in Oceania, another stable supply source without going through instable sea lane to Japan and

East Asia region can be secured.

Figure 3-34 New Methanol Trade Flow by Implementing the Project (2015: million ton)

Source: Study Team

CHAPTER 4 EVALUATION OF ENVIRONMENTAL

AND SOCIAL IMPACTS

4-1

4.1 Current Social and Environmental Situation

Puerto Libertad is desert area with desert climate. Average annual temperature is 22 degrees Celsius and average

rainfall is very small 88 mm. Height above sea level is 10 m and facing Gulf of California without danger of

Tsunami.

Figure 4-1 Climate of Puerto Libertad

Source: CLIMATE-DATA. ORG12

Population of Puerto Libertad is 2,823, among that 81 is indigenous people but can communicate in Spanish. 755

households out of total 758 live in apartment. 726 households have sanitary facility, 737 households have water

supply, and 727 households receive electricity supply.13

According to the interview, villagers were living under

self-sufficient prior to completion of the power station. After the power station or gas pipeline construction,

residents working for power and energy sector increased and people working for accommodation and restaurants

followed.

12

CLIMATE-DATA.ORG （http://en.climate-data.org/location/227995/） 13

en.nuestro-mexico.com（http://www.en.nuestro-mexico.com/Sonora/Pitiquito/Puerto-Libertad/）

4-2

Figure 4-2 Houses in Puerto Libertad (1)

Source: Study Team

Figure 4-3 Houses in Puerto Libertad (2)

Source: Study Team

4-3

Figure 4-4 Houses in Puerto Libertad (3)

Source: Study Team

Figure 4-5 Houses in Puerto Libertad (4)

Source: Study Team

4-4

4.2 Effect of Improvement in Environment by Project Implementation

The Project does not intend to utilize Clean Development Mechanism (CDM).

4.3 Social and Environmental Impact of Project Implementation

In order to evaluate the social and environmental impact caused by implementation of the Project, Screening Form

and Environmental Check List of JBIC are referenced to list up points that require special attention, and main

issues are summarized as follows.

(a) Environment and Social Impact Assessment (ESIA)

The Project is still at the stage of preliminary feasibility study and detailed ESIA report has not been

prepared. As the Project progresses, a consultant specialized in this field will be engaged to prepare ESIA

report and get approval from the authority.

(b) Explanation to residents

The Project is still at the stage of preliminary feasibility study, and discussion with the residents and study

of social and environmental impact has not been started. As the Project progresses, a consultant specialized

in this field will be engaged and explanation to the residents will be handled. The plant site does not

currently have existing residents so relocation of residents is unlikely. If ever relocation is required, the best

effort must be made to minimize the impact and, following the laws and regulation there, necessary

measures must be taken.

(c) Measures for pollution

Following the laws and regulations there, necessary measures to prevent air pollution, water pollution,

waste disposal, smells, noises, soil contamination etc. should be taken.

(d) Project Site

Project site is not designated as protected area, biologically important forests or natural habits, or land for

minorities and indigenous people. Also, deforestation, large scale ground or geological change is not

planned. On the other hand, the Project requires 20 ha of site clearance, and utilizes sea water. It is

mandatory to take necessary measures following the laws and regulations by evaluating the impact of

construction or use of seawater to the environment.

(e) Impact of residents and livelihood

The Project is hardly considered to give any impact to livelihood of the residents, but measures should be

taken once possibility of impact is found out. Because raw material is transported through the gas pipeline,

there is no influence to the existing traffic. Routing of methanol pipeline should be designed not to interfere

with the resident.

4-5

The Project is expected to create employment of 300 persons, which is considered a positive impact to the

local community.

(f) Labor Environment

It is necessary to prevent accident during construction period by way of adequate design, management, and

notification in compliance with environment and regulation. This will be achieved under coordination with

the EPC contractor and implementation of safety measures. Also at the operational stage, necessary

measures should be taken in compliance with labor regulation.

4.4 Summary of Social and Environmental Regulation in Host Country

and Necessary Measures

Secretaría de Medio Ambiente y Recursos Naturales (SEMARNAT), ministry in charge of environment and

natural resources under the federal government, and department of environment at state or municipal level are the

in charge authority for environment in Mexico. The process related to environmental permits required for the

Project and industrial projects in general are mentioned as below.

Table 4-1 Environmental Process in Mexico for Industrial Projects

Process Topic Overview Authority

Level Action for the Project

Planning Land Use Necessary when tree trimming will

occur.

Federal N/A

Environmental

Impact

Required to submit potential

environmental impact assessment

from early stage to mitigate the

impact.

Federal

State

Plan the Project to match

the requirement.

Appoint a supervisor to

assess the environmental

impact.

Environmental

Risk

Required if the project is highly

likely to have environmental risk.

Related sectors are on the list

published in 1990 and 1992.

Federal

State

Appoint a supervisor and

conduct the necessary

process.

Water

Resources

Required to obtain concession to

utilize water resources. Approval to

drain industrial water to river or sea.

Federal Appoint a supervisor and

conduct the necessary

process.

4-6

Construction Required to construct under law. City Appoint a supervisor and

conduct the necessary

process.

Change of

existing

concession

Required when changing, amending,

or extending the existing concession.

Federal

State

N/A

Construction Completion To accept the completion of the

construction.

City Appoint a supervisor and

conduct the necessary

process.

Operation

permit

To accept the operation of the facility.

Federal

State

Appoint a supervisor and

conduct the necessary

process.

Hazardous

waste

The certification of the disposal of

hazardous waste.

Federal Appoint a supervisor and

conduct the necessary

process.

Unhazardous

waste

The certification of the disposal of

unhazardous waste.

State Appoint a supervisor and

conduct the necessary

process.

Operation Annual

Operation

Permit

Annual monitoring and reporting of

the disposal of waste to air, water,

land surface and underground.

Federal

State

Appoint a supervisor and

conduct the necessary

process.

Source: Study Team based on JETRO

4.5 Issues that Host Country should Handle for Realization of Project

As discussed in 4.4, it is required to get permission from SEARNAT and department of environment under state or

municipal level. There is no procedure required for existing natural gas pipeline and export jetty in Mexican

authority.

4-7

CHAPTER 5 FINANCIAL AND ECONOMIC

EVALUATION

5-1

5.1 Evaluation of Economics

5.1.1 Plant Cost

Mitsubishi Heavy Industries was engaged for estimation of plant cost under the Study. Mitsubishi Heavy

Industries estimated plant based on cost selection of process, system structure, design of suitable facility and the

project site survey conducted jointly by Study Team and Mitsubishi Heavy Industries. The natural gas is assumed

to be supplied to plant site (battery limit) with necessary volumes.

The plant cost estimated by Mitsubishi Heavy Industries is as follows

EPC Cost： US$ 600,000,000 (accuracy of ±30%)

The plant cost has been estimated based on in-house data for a 3,000 ton per day methanol plant of Mitsubishi

Methanol Process which include following scope of work.

Methanol Plant including Utility/Offsite Facilities

- H2S Removal System

- Water System including Sea Water Intake and Return Pipelines

- (excluding Sea Water Intake and Discharge Structure Facilities)

- Inert Gas & Air System including Nitrogen generator

- Electrical System including Emergency Diesel Generator

- Fuel System

- Product Methanol Storage Tanks (2 x 70,000m3)

- Flare System

- Effluent Water Treatment

- Product Transfer and Loading Facilities including Pipeline (excluding the existing Jetty structure)

Any taxes, duties, charges, levies (including import custom duties) and local authority requirements in

Mexico are not included in this cost estimation and further study/investigation should be carried out at

later stage.

The plant site is adjacent to 624MW gas fired power station owned by CFE, and this power station used to be oil

fired until 2015. Oversea or domestic oil was transported from the sea. As explained in Section 3.1.2, after gas

pipeline connected from USA is completed in 2015, fuel of the power station has been changed from oil to gas.

The jetty utilized for oil import is unused today and still remaining at the site. The Project assumes to refurbish the

jetty for methanol export and EPC cost doesn’t assume construction cost for a new jetty. It is confirmed that the

jetty can be refurbished and used as methanol export facility by Study Team and Mitsubishi Heavy Industries.

5-2

5.1.2 Total Project Cost

The total project cost includes plant cost and other expenditure during the construction period. Interest during

construction (IDC), financial cost, development cost, other expenditure and contingency are considered for

calculation of total project cost. Some of these expenditures are assumed capitalized even though there will be

actual cash out.

As discussed in Section 5.1.1, Mitsubishi Heavy Industries estimated the plant cost of US$ 600 million and the

construction period of 36 months including procurement, construction and commissioning, which is typical period

of time for construction of a methanol plant. Other cost is estimated US$ 156 million (including contingency of

5%) and total project cost is assumed US$ 756 million. The breakdown of total project cost is shown in Table 5-1.

Table 5-1 Breakdown of Total Project Cost

（US$ 1,000）

Total

Plant cost 600,000

Development cost 20,000

Financial cost 46,193

Other expenditure 11,346

Contingency 33,877

IDC, guarantee 45,236

Total 756,652

Source: Study Team

5.2 Result of Preliminary Economic Evaluation

5.2.1 Assumptions

(a) Annual Production Volume

The production capacity is assumed 3,000 tons per day. Periodical turnaround is 35 days annual basis and

operation days is 330 days (operation rate 90%), resulting in annual production volume of 990,000 tons.14

For the

1st year of operation, operation days for the 1st half of the year are conservatively assumed 128 days (normally

183 days, operation rate 70%) considering start-up period of unstable operation, and total operation days of the 1st

year is assumed 275 days (operation rate 75%).

(b) Marketing and Sales Price

The entire sales destination of methanol is assumed to be East Asia including China, Japan, South Korea and

Taiwan. As discussed in Section 3.1.3, Mexico has demand of 250 thousand ton, however, the demand is located

at Gulf of Mexico side or vicinity of Mexico City and supply from the Project is not economically feasible. On the

other hand, west coast USA, Oregon, Washington, and Montana State, have demand of 200 thousand ton, and the

Project might be able to take a geographical advantage and supply to these demands. However, the demand size is

14

In this Study, the annual production volume was mentioned as 1 million ton in rough figures.

5-3

relatively small compared to the production capacity, and also there is no existing logistics between the plant site

and demand areas which makes it difficult to estimate the logistic cost. Therefore, under the Study all the volumes

are assumed to be sold in East Asia and west coast USA is expected as upside of sales.

Under the Study, the price forecast issued by a leading methanol market consultant of MMSA is referred. MMSA

publishes price forecast of CFR China, and this forecast is assumed as sales price. The forecast of MMSA is only

up to year 2025, and therefore the sales price over project life is forecasted based on the MMSA forecasted price

of year 2021, multiplied by annual increase of 1.9%, which is average Consumer Price Index of developed

countries published by IMF.

The forecast of MMSA and the forecasted price under the Study are shown in Figure 5-1 and Table 5-2. Average

price of methanol for 20 years is US$ 446 per ton.

Figure 5-1 Assumption of Methanol Price (CFR China)

Source: Study Team

Table 5-2 Assumption of Methanol Price (CFR China)

(US$/ton)

Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

MMSA forecast 371 385 400 415 429 n/a n/a n/a n/a n/a

Assumption for the

Study 371 378 385 393 400 408 415 423 431 439

Source: Study Team

(c) Freight and sales commission

Based on the methanol trading experience of Sojitz and interview of shipping companies or brokers, average

freight cost from the project site to East Asia is estimated at US$ 50 per ton. Freight is assumed to inflated

5-4

annually by 1.9%.

The Project Company sells the product to offtakers and they take the market risk of sales volume. As a

compensation for that risk, the Project Company pays offtakers sales commission. Sales commission is assumed

5% of FOB project site which is CFR China minus freight cost.

(d) Natural Gas Cost

The Project assumes to raise project finance. Under the Study, BTMU was engaged as an adviser and necessary

conditions for structuring project finance is identified. It is pre-requisite that enough cash flow is secured for

repayment of principal and interest at base case as well as in the case of methanol price downturn. According to

BTMU, many of the methanol projects which achieved financial close utilize methanol linked gas formula for

procurement of natural gas, and therefore even during the time of methanol price downturn, natural gas

procurement at low price is possible that achieves stable cash flow.

The Project will be located at North America where natural gas is traded at the market mechanism of Henry Hub.

If all the natural gas is procured at the market price, it is difficult to meet the condition for structuring project

finance since the Project is influenced by two different market index of methanol and natural gas. Under the Study,

methodology for gas price hedge is investigated through interviewing natural gas developers and traders in USA.

It turned out possible to satisfy the conditions for project financing by utilizing certain methodology to hedge gas

price and mitigate the risk.

The natural gas cost is assumed US$ 3.37 per mmbtu as of year 2021 that is the Henry Hub forecast in Energy &

Metals Consensus Forecast published by Consensus Economics calculated from average price of forecast

published by each financial institution. Based on this assumption and above-mentioned gas price hedge

methodology, average gas price for the project life of 20 years is assumed US$ 4.05 per mmbtu.

Sulfur content in the natural gas is assumed 20 ppm on the basis of hydrogen sulfide. According to engineering

design of Mitsubishi Heavy Industries, natural gas consumption is 94,900 mmbtu per day (31.63 mmbtu per

methanol ton), on the basis of natural gas of lower calorific value. (1,013 btu/SFC)

(e) Labor Cost (direct and indirect labor)

From Sojitz’s operation experience of the methanol plant in Indonesia, the number of employees during the

operational period is assumed 300 persons. Out of that, direct labor of 200 persons is the operators or engineers

engaged in production and maintenance, and the indirect labor of 100 persons are the management, administrative

staff and drivers. 40% and 80% of total labor cost is assumed for 2nd and 3rd year of construction period

respectively. Unit labor cost is based on information of JETRO and PROMEXICO and inflation of 3.0% is

assumed based on consumer price index forecast published by IMF.

5-5

Table 5-3 The Number of Employees and Unit Cost

Number of Employee Unit Cost

Construction Period Y1 Y -3

2018 2019 2020 2021 2018

Production 0 40 80 100 US$ 30,000

Maintenance 0 24 48 60 US$ 30,000

Technical Service 0 16 32 40 US$ 30,000

Total Direct Labor 0 80 160 200

Management 0 4 8 10 US$ 60,000

IT 0 4 8 10 US$ 30,000

Logistics 0 4 8 10 US$ 30,000

Transportation 0 4 8 10 US$ 30,000

Sales 0 4 8 10 US$ 30,000

Finance/Accounting 0 4 8 10 US$ 30,000

Human Resource 0 8 16 20 US$ 30,000

Driver/Security 0 8 16 20 US$ 15,000

Total Indirect Labor 0 40 80 100

Total 0 120 240 300

Source: Study Team

(f) Maintenance

From Sojitz’s operation experience of the methanol plant in Indonesia, annual maintenance cost is estimated at

1.0% of the plant cost with annual inflation of 1.9%.

(g) Jetty Charge

Jetty use fee is assumed US$ 3.00 per ton of methanol with annual increase of 3.0%. It will be subject to

negotiation with CFE.

(h) Electricity

Required volume of electricity is 14MW under estimation of Mitsubishi Heavy Industries, and it will be supplied

by CFE. Based on the information of JETRO and PROMEXICO, US$ 0.08 per kWh is assumed with annual

inflation of 3.0%.

(i) Catalysis and Chemicals

Catalyst includes the ones for methanol synthesis, sulfur removal, reforming etc. Chemicals are the ones used for

water treatment such as demineralized water unit and boiled feed water unit, and for waste water treatment and

waste disposal. From Sojitz’s operation experience of the methanol plant in Indonesia as well as estimation of

Mitsubishi Heavy Industries, annual cost all together is estimated at US$ 4 million with annual increase of 1.9%.

(j) Administrative Cost

This includes office rent, travelling, social welfare, consultant, audit etc. From Sojitz’s operation experience of the

methanol plant in Indonesia, annual cost of US$ 4 million is estimated with annual inflation of 3.0%.

(k) Insurance

From Sojitz’s operation experience of the methanol plant in Indonesia, annual insurance cost is estimated at US$ 5

million with 1.9% inflation annually.

5-6

(l) Finance Cost

Debt-Equity ratio is assumed 50%:50% from the viewpoint of bankability under support of BTMU. Two tranche

finance from Japan Bank for International Cooperation (JBIC) and from commercial banks, under the insurance

covered by Nippon Export and Investment Insurance (NEXI), was assumed.

Table 5-4 Debt Structure

Lender Insurance Amount

(US$ 1,000) Ratio

Tranche 1 JBIC N/A 226,995 60%

Tranche 2 Commercial Banks NEXI 151,330 40%

Total 378,326 100%

Source: Study Team

Based on advice from BTMU and Sojitz investigation, tenor of 13 years including drawdown and construction

period is assumed under the current financial market. Out of 13 years, drawdown period is 3 years and repayment

is 10 years. Equity and debt is disbursed pro-rata basis during construction period, and each tranche is also

pro-rata basis based on the percentage. Repayment is based on principal equal monthly payment、and semi-annual

payment is assumed. Interest rate for each tranche and financial cost is assumed in Table 5-5.

Table 5-5 Interest Rate and Financial Cost

Base Interest Margin Commitment

Fee Upfront Fee Insurance

Tranche 1

(JBIC)

6 month

LIBOR 150bp p.a. 100bp p.a. 100bp flat N/A

Tranche 2

(Commercial

Banks)

6 month

LIBOR 250bp p.a. 60bp p.a. 100bp flat

5.0% flat

(upfront)

*p.a. means “per annum”, 100bp (basis point) equals to 1.0 %

Source: Study Team

(m) Working Capital

Working capital includes inventory, account receivable and payable, which is necessary for operation of the

Project, and it is assumed as shown in 5-6.

Table 5-6 Assumption for Working Capital

Item Assumption

Inventory 1 month Against total production cost

Account receivable 1 month Against revenue

Account payable 1 month Against natural gas cost

Source: Study Team

(n) Reserve Account

Under project finance, the Project is required to keep a certain amount of cash in the reserve account as restricted

cash for the purpose of emergency case of cash shortfall during the loan period. Debt service reserve account

(DSRA) is opened for this purpose to make sure of repayment of principal and interest, and maintenance reserve

5-7

account is also prepared for enabling continuous maintenance so that the plant operation is maintained.

According to BTMU, amount of DSRA is assumed to be equivalent to 6 months of principal and interest payment,

and also 6 months equivalent amount is assumed for maintenance reserve account.

(o) Tax

Corporate income tax is assumed 30% as per tax rate of Mexico. Also, there is a unique system called

Participación de los trabajadores en las utilidades (PTU) in Mexico, which is stipulated section 117 and 131 of

labor act, and companies after 2 years from star-up are required to distribute 10% of taxable income to employees.

To follow this rule, 10% PTU is assumed in the economics.

(p) Dividend Ratio and Restriction

Dividend ratio is assumed 80% until amount of the capital reserve is added up to 20% of the capital amount, and

after that assumed 100%. Also, dividend is only paid on the condition that 1) enough retained earnings, 2) enough

restricted cash for DSRA and maintenance reserve account, 3) achievement of satisfactory DSCR level by lenders.

DSCR is the parameter which indicates ability to repay principal and interest, and calculated by following

formula.

DSCR = operating cash flow of 6 months / principal and interest payment for 6 months

Under project finance, DSCR of 1.75 is the minimum requirement, and dividend payment is allowed only when

DSCR achieves 1.20.

5.2.2 Evaluation of Economics

Based on the assumptions as discussed, the economics of the Project is analyzed based on cash flow of 20 year

operational period. The economics is evaluated based on project internal rate of return (Project IRR) and equity

IRR, Net Present Value (NPV). The basis of calculation is as follows.

- Project IRR and NPV is calculated from free cash flow (FCF)

- FCF = operational income – corporate income tax + depreciation ± change in working capital

- Equity IRR is calculated by dividend amount against amount of capital

- NPV is calculated based on three different discount rate of 10%, 12.5% and 15%

- Perpetual value at 20th

year is not considered.

Outcome of calculation is as follows; Project IRR of 13.9%, Equity IRR of 14.8%, NPV under 10% discount rate

US$ 237 million. The details is as per Table 5-7 and Figure 5-2.

5-8

Table 5-7 Evaluation of Economics

(US$ 1,000)

Year Up to

year 0

1st year

2021

5th year

2025

10th year

2030

15th year

2035

20th year

2040

Free cash flow -756,652 80,358 133,497 134,016 147,540 154,299

NPV (@10.0%) US$1,000 237,417

NPV (@12.5%) US$1,000 70,783

NPV (@15.0%) US$1,000 -49,914

Project IRR 13.9%

Equity IRR 14.8%

Source: Study Team

Figure 5-2 NPV Analysis

Source: Study Team

5.2.3 Sensitivity Analysis

Sensitivity analysis is conducted to evaluate impact of fluctuation of each variable. Following three are selected as

main variables and sensitivity of Project IRR is calculated.

(a) Increase and decrease of Natural gas cost

In this scenario, other variables remain unchanged.

(b) Increase and decrease of plant cost

In this scenario, other variables except for the ones linked to plant cost remain unchanged.

(c) Increase and decrease of methanol price

In this scenario, other variable except for natural gas price which is linked to methanol price remains

unchanged

Sensitivity analysis based on above scenario is shown below.

5-9

Table 5.8 Sensitivity on Natural Gas Cost

Variation -20% -10% 0% 10% 20%

20 year average（US$/mmbtu） 3.24 3.65 4.05 4.46 4.86

Project IRR 14.9% 14.4% 13.9% 13.3% 12.8%

Source: Study Team

Table 5.9 Sensitivity on Plant Cost

Variation -20% -10% 0% 10% 20%

Plant Cost（US$ million） 480 540 600 660 720

Project IRR 16.4% 15.0% 13.9% 12.8% 11.9%

Source: Study Team

Table 5-10 Sensitivity on Methanol Price

Variation -20% -10% 0% 10% 20%

20 year average（US$/ton） 357 402 446 491 535

Project IRR 8.8% 11.4% 13.9% 16.1% 18.2%

Source: Study Team

Figure 5-3 Sensitivity on Project IRR

Source: Study Team

The outcome shows that methanol price has the highest sensitivity among the others. On the other hand,

sensitivity of natural gas cost is the lowest, since gas price hedge is structured. If methodology of natural gas

supply or gas price hedge is changed, it is possible that sensitivity goes up, and therefore deliberate consideration

will be required for gas supply.

5-10

Impact of plant cost is in the middle, but this is the only controllable factor since methanol and natural gas cost

depend on the market situation. In this sense, it is important to introduce a plant with competitive cost.

5-11

CHAPTER 6 PLANNED PROJECT SCHEDULE

6-1

6.1 Planned Project Schedule

As discussed in Chapter 5, the Project is confirmed to have bankable economics under the assumption in Section

5.2.1. As a next step, detailed feasibility study including FEED (Front End Engineering Design） and

environmental study needs to be conducted. Prior to that, further project scheme needs to be structured since

detailed feasibility study will require a large amount of budget. The target is within 6 month after this Study,

structuring of the project scheme is preceded, and then detailed feasibility study will be started. It is expected

beginning of year 2019. Final Investment Decision (FID) will be made after all the negotiation of project

agreement and financing. Start of the operation will be year 2022 after 36 months of construction period.

Necessary actions necessary at each phase are listed as follows.

< Structuring the project scheme>

- Term sheet for gas supply agreement

- Acquisition of project site

- Nomination of sponsors

- Confirmation of financing structure

- Term sheet for utility supply agreement

<Detailed Feasibility Study>

- FEED

- Environmental Impact Study

<Up to construction>

- Finalizing all the project agreement

- Finalizing finance agreement

- FID and achievement of financial close

Table 6.1 Project Milestone

Source: Study Team

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

0 Prefeasibility Study (this Study)

1 Structuring the project scheme

a) Term sheet for gas supply agreement

b) Acquisition of project site

c) Nomination of sponsors

d) Confirmation of financing structure

e) Term sheet for utility supply agreement

2 Detailed Feasibility Study

a) FEED

b) Environmental Impact Study

3 Up to construction

a) Finalizing finance agreement

b) Finalizing all the project agreement

c) FID and Finance Close

4 Construction

a) Construction period

Item2017 2018 2019

CHAPTER 7 TECHNICAL ADVANTAGES OF

JAPANESE COMPANY

7-1

7.1 Expected Participation Structure of Japanese Firms

On this Study, it is assumed that Mitsubishi Methanol Process jointly developed by Mitsubishi Heavy Industries

and Mitsubishi Gas Chemical to be selected and Mitsubishi Heavy Industries to take a role of EPC contractor.

It is expected that Japanese Consortium having operational and management experience of methanol plant will

invest to the Project with majority share. In that case, Japanese Consortium will be able to lead the product offtake

in the main market of East Asia.

In terms of debt financing, a syndicate loan consisting of JBIC Overseas Investment Loan and commercial banks

loan are expected as Japanese Consortium takes a majority share in the Project. In that case, Overseas Investment

Insurance of NEXI will be insured with majority participation of Japanese companies

Figure 7-1 Expected Project Structure

Source: Study Team

7.2 Advantage of Japanese Firms in Project Implementation

As abovementioned in Section 3.2.2, Mitsubishi Methanol Process is an established Japanese technology. The (1)

Superconverter (SPC) and (2) Compressors and Turbines which are the main equipment for the Methanol Project,

products of Hitachi Zosen Corporation and Mitsubishi Heavy Industries Compressor Corporation (MCO), have

many years of experience in the production of these equipment, machinery and technologies and products of

Japanese companies will be used.

(1) SPC

SPC is a high-efficiency methanol synthesis reactor. SPC is one of the most important equipment in the Process

Plant for synthesizing methanol efficiently and has been improved so that it can make the most of the performance

7-2

of the methanol synthesis catalyst. As described in Section 3.2.2, SPC is outcome of domestic technologies

introduced through joint development by Mitsubishi Gas Chemical and Mitsubishi Heavy Industries and can

enhance energy efficiency in the Plant through heat recovery in methanol synthesis.

(2) Compressors and Turbines

Two main compressors/turbines will be installed.

1- NG Compressor: compress source natural gas (NG) and will send gas to the steam reformer (Reformer), and

2- Syn-Gas Compressor: send the makeup gas through Reformer (reformed gas) and heat recovery section to the

methanol synthesis system.

The synthesis gas will circulate in the methanol synthesis loop at a certain required flow rate and pressure. In

addition to SPC as the methanol converter, the main compressors and turbines are indispensable, and their

reliability and stability are important for the continuous steady operation of the Plant. The compressors that have

been designed and manufactured by MCO, which has a great deal of experience and technologies as a machinery

manufacturer, have contributed to the stable production of methanol.

7.3 Necessary Measures for Participation of Japanese Firms

As discussed in Clause 7.1, it is expected that Japanese Consortium, consisting of Japanese companies who have

operational and management experience of methanol plant is expected make investment with majority share from

the viewpoint of debt structuring and stable supply of the product to East Asia.

APPENDIX

1. OVERALL BLOCK FLOW DIAGRAM