Skyrockets in Flight, Methanol Delight—US Production Is Lifting Off

There’s good reason to be bullish about a skyrocketing trajectory for US methanol production. Natural gas prices are relatively low and likely to stay so; domestic demand for methanol continues to increase; and overseas demand—especially in China—is rising even faster. More than a dozen methanol mega-projects are in various stages of planning, design and construction, most of them along the Gulf Coast. If they were all built (they probably won’t be), US methanol production capacity would increase more than 10-fold to nearly 30 million metric tons per year, and turn the US from a methanol importer to an exporter within two or three years. Today, we look into why methanol demand is rising, what new capacity is under development in the US, and what it all means for natural gas producers.

Methanol, which can be produced from natural gas, coal or other hydrocarbons, has two primary uses. About two-thirds of worldwide demand (which now totals about 60 million metric tons per year, or 60 MTPA) is tied to methanol’s traditional use a basic chemical feedstock for making formaldehyde, acetic acid and petrochemical intermediates that, in turn, are used to make plastics, synthetic fibers, paints, resins and solvents, among many other things.  The balance of methanol produced annually is used either in “methanol-to-olefins” (MTO) plants (most of them in China) that directly convert methanol into ethylene or polyethylene; as a fuel (again, mostly in China); or as a fuel additive. For example, methanol can be blended into gasoline; it can be used to produce dimethyl ether (DME), an alternative motor fuel and sometimes replacement for propane; and it can be used to produce methyl-tertiary-butyl ether (MTBE), an octane booster the US has banned for domestic use but still produces for export. Methanol’s fast-growing use in MTO and as a fuel is what’s driving worldwide demand, which by the early 2020s may top 100 MTPA—a full 40 MTPA higher than current demand.

N E W   R E P O R T ! !   Battle for Henry Hub

Examines the impact of huge surpluses of natural gas bearing down on the Henry Hub in South Louisiana from Marcellus/Utica in the east and supplies from the west sourced from high-BTU and associated gas from plays in TX, NM, OK and ND

More information about Battle for Henry Hub here.

Just as abundant, low-cost US shale gas and natural gas liquids (NGLs) have spurred development of export markets for those hydrocarbons,  cheap gas has led a growing list of companies to propose methanol mega-projects (by our definition, 1 MTPA or more) that, if all built, would make the US “methanol independent” (that is, no longer a methanol importer) by 2017, and a major exporter (mostly to China) by 2018-19. As we said a year or so ago in our Cheap Trick: I Want You to Want Me(thanol) blog, the US was once a methanol production powerhouse. In the mid-1990s, domestic methanol capacity totaled about 10 MTPA (nearly five times what it is now), but by 2005, with natural gas prices on the rise, more than 90% of that capacity had been taken offline. In the past two or three years, a handful of methanol plant restarts and small-scale expansions have boosted US capacity to about 2.1 MTPA, but the era of US methanol production growth is really just beginning.

Before we get into what’s being planned and built, let’s take a moment to discuss the significance of rebounding methanol production to natural gas producers. On average it takes about 32 Bcf of natural gas to produce one million metric tons of methanol. So, if the US is currently producing, say, 2 MTPA, methanol plants would need about 64 Bcf per year, or (dividing by 365), about 175 MMcf/d. If the roughly 27 MTPA of new US methanol capacity planned to come online by the end of 2018 were actually built (and then operated at or near full capacity), another 2.4 Bcf/d of gas (for a total of nearly 2.6 Bcf/d) would be required. Even if only half of the plants were built (a more likely proposition), the methanol production sector’s gas demand would rise to 1.4 Bcf/d. Admittedly, those aren’t huge numbers when you consider that US gas production is expected to reach more than 72 Bcf/d in 2014, and to continue rising through the rest of this decade. Still, methanol appears to be emerging as another significant market for the incremental gas coming out of US shale plays.

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