Page 133 - CW E-Magazine (23-7-2024)

Point of View

Methanol – slowly transitioning from a commodity

to a differentiated product with varying carbon

footprints

Methanol is the single largest chemical produced worldwide, and its output and consumption has come to be dominated by Asia, in general, and
China, in particular. Methanol finds use as a raw material, but it is use as energy carrier and to make fuel additives that has come to drive markets
recently. There are attempts being made to ‘green’ the production of methanol by using circular feedstock, including carbon dioxide and biomass,
instead of fossil fuels such as coal and natural gas.

India’s methanol industry is small, and local production meets less than 10% of domestic demand. Imports from feedstock-advantaged producers
in the Middle East account for a sizeable chunk of the methanol imported. There are some attempts being made to utilize indigenously available coal as
feedstock – akin to what China has done with great success – but these are still very early days here and there are many engineering and economic
challenges.

Global methanol demand
Global methanol demand (in 2023) is estimated at 88-mt, and about half of this serves chemical applications. These include the manufacture
of formaldehyde and acetic acid, in the main, though there are several other smaller volume derivatives made as well (more on this later). Fuel
applications account for about 30% of global methanol demand, and this has three components – direct use as a blend in gasoline; as a raw
material to make biodiesel (fatty acid methyl esters) and dimethyl ether (DME); and to make the fuel additive, methyl tert-butyl ether (MTBE).
Methanol is also being touted (along with ammonia) as a fuel for marine transport, but though this can be a significant driver of future methanol
demand, it is not so now.

A more recent outlet for methanol – accounting for 18% of global demand in 2023 – is to make olefins (mainly propylene) to feed plants making
polyolefins (polyethylene and polypropylene). This is entirely a China phenomenon today and was adopted by entrepreneurs there as a workaround to
the limited availability of olefins from conventional sources such as steam cracking. More than 40 methanol-to-olefin (MTO) plants are in operation in
China today, and more are being built. While the ones in the hinterland are backward integrated to methanol production (from coal), most on the more
developed coastal provinces are based on imported methanol. In all, MTO now accounts for about 30% of total methanol demand in China.
As mentioned earlier, Asia is where much of the methanol action is. The region consumes nearly two-third of all methanol produced, with
China alone accounting for more than half. Much of the incremental growth – in global capacity and demand – has taken place in Asia, and that is
unlikely to change in the future. North America and Europe today account for only about 10% each of global demand and the latter is expected to
show little growth.

Large seaborne trade
Methanol is also the most widely traded commodity chemical, with about 40-mt– just under half of global production – shipped across the
seas from producing to consuming centres. The Middle East, North America and parts of North Africa and South America – endowed with sizeable
and cheap natural gas reserves (or shale gas) are the major exporting regions, while China, Western Europe and the rest of Asia (including India)
are the main importers. The Middle East alone ships out between 16-mt to 20-mt annually, much of it to Asia (mainly China), and to a much lower
extent Western Europe.

Short term outlook
In recent years methanol demand growth has been severely impacted – first by Covid, and then the economic slowdown in China. Methanol
demand for MTO plants (all in China) seems to have plateaued out over the last couple of years, and existing plants are being severely challenged
by overcapacities in the olefin value chain, which are pulling down margins. The saving grace has been methanol’s use in fuels. A rebound in travel,
following the lifting of mobility restrictions as Covid abated has given a boost to demand to make MTBE and biodiesel.

The delay in commissioning of methanol projects anticipated for early 2024 has contributed to bringing markets on a more even keel of later.
As a consequence, methanol prices are expected to stay in a tight range around current levels for much of the year, though some pressure on margins
may come around next year if feedstock prices rise.

Medium term outlook
The medium-term outlook for methanol is murkier. The electrification of mobility – mainly through electric vehicles (EVs) – as well as improvement

Chemical Weekly July 23, 2024 133

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