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Methanol industry weighs impact of US-Iran relations, global decarbonization in 2021 and beyond

  • Featuring
  • Lara Berton
  • Commodity
  • Petrochemicals Shipping

The methanol industry is watching for changes in US foreign policy under the incoming Biden administration, as well as decarbonization policies that could create new opportunities for the product as a fuel.

Methanol trade flows have been altered in recent years owing to sanctions on Iran, but a potential shift in the US stance on the country could spur increased Iranian production.

Meanwhile on the demand side, there may be limits to growth potential from traditional applications in petrochemicals and formaldehyde production. A more promising outlet for the future could be the shipping sector, which is seeking out alternative fuels to lower emissions.

All eyes on Iran

After Donald Trump took a tough stance on Iran early on in his administration, global methanol trade flows had to quickly adjust to the impact of sanctions on the Middle Eastern producer, leading to an increase in flows from Iran to China.

According to the latest China customs data, Iran sent around 2.25 million mt of methanol to China between January-August, up 26% from the same period in 2019 and up 34% from 2018, when the US re-introduced sanctions on Iran.

Meanwhile, India has seen a significant reduction in Iranian imports since the US stopped granting sanctions waivers to Iran's key customers, in May 2019.

India methanol imports after Iran sanctions waivers end

Between January and August 2020, India's imports from Iran dropped by 90% compared to the same period in 2019, while imports from Saudi Arabia ramped up by 70% to cover the loss, the latest India customs data showed.

Methanol trade flows could be poised for another change if US President-elect Joe Biden seeks a return to the Iran nuclear deal.

Iran has been a key trading partner for China, accounting for close to 30% of total Chinese methanol imports over the past three years, and is likely to remain so –; but a potential softer approach towards Tehran would likely impact India the most, allowing it to ramp up supply from Iran again.

Removal of sanctions could also allow Iran to meet its ambitious capacity expansion goals. Iranian methanol capacity has almost doubled in the past two years, to 12 million mt in 2020, following the start-up of the Pars Kimiya and Bushehr facilities, both located in Assaluyeh. Based on planned and announced additions, Iran's capacity could grow to above 30 million mt by 2030, according to market sources, making it the largest exporter of methanol.

Besides Iran, other countries are also planning to expand their methanol capacity. Both the US and Russia will have at least one new unit each starting-up in 2021, with more to come over the coming years.

Questions over petchems demand

Methanol-to-olefins (MTO) units in China have been the fastest-growing demand outlet for methanol over the past five years, but the trend may be stalling.

The volume of olefins produced from methanol rose by 90% between 2015-2019, to 4 million mt, S&P Global Platts Analytics data showed, but in 2021, demand is expected to decline at 3.3 million mt.

While MTOs have benefitted from affordable methanol prices in China during 2020, high costs are still an obstacle. Platts Analytics expects methanol-based production of ethylene to cost around $730/mt between 2020 and 2030, compared with $315-420/mt for ethylene production from naphtha during the same period.

Meanwhile, demand for the single largest segment, formaldehyde, which accounts for 20% of global methanol demand, is likely to track global GDP growth, according to market sources.

In short, methanol suppliers will probably have to look beyond traditional demand outlets to find a home for incremental methanol supply.

Decarbonization presents new opportunities

New opportunities are arising from a policy push for decarbonization, including in the marine transportation sector, where there is interest in alternative fuels.

The trend is driven by the International Maritime Organization's initial strategy on the reduction of greenhouse gas (GHG) emissions from ships, which seeks to reduce total GHG emissions by at least 50% from 2008 levels by 2050, and CO2 emissions per transport work by at least 40% by 2030.

Methanol is a safe-to-carry clean liquid, readily available at major bunkering hubs, and can significantly reduce GHG emissions.

"Methanol represents an optimal balance of energy density, purity and storage requirements due to it being a liquid at ambient temperature, thereby saving infrastructure costs, handling fees, training and even maintenance," said chief operating officer at the Methanol Institute, Chris Chatterton.

Chatterton explained that other alternative fuels, like ammonia and hydrogen, but also LNG, have limited support infrastructure in place due to high cost, and can only exist with subsidies in place.

In addition, with a high hydrogen-to-carbon ratio, methanol can be used as a hydrogen carrier, facilitating the transition to a green hydrogen economy.

"Methanol allows for even more hydrogen molecules to be safely and cost-effectively bunkered on board a vessel of any size than either ammonia or hydrogen, on a volumetric basis," Chatterton said.

From a cost perspective, methanol still faces tough competition from conventional fuels, especially after the oil price crash earlier this year, based on Platts data.

Methanol expensive compared to conventional marine fuels

European methanol prices per energy content have been above $10/GJ since July, versus marine gasoil hovering around $6.50-$7.50/GJ. But until February 2020, methanol was competing with marine gasoil due to higher crude oil prices.

Currently there are only 12 methanol-powered tankers in operation, but depending on future prices trends, the methanol industry could grab a bigger slice of the pie.

This article is based on a presentation given by the author at a virtual event on Nov. 9 organized by the Methanol Institute, "Trade Outlook and Methanol in the New Normal"