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In-depth Analysis of the New Trends in Methanol Supply and Demand Author/Source: Cui Jun, China Chemical Information Research Institute Date: 2018-04-03 Clicks: 47 http://img.yf116.cn/image/img/20180403/101493684977.jpg http://img.yf116.cn/image/img/20180403/1015143691455.jpg A production model dominated by methanol made from coal has taken shape, and this trend is set to continue. In China, methanol is produced mainly through three methods: natural gas-based production, coal-based production, and production using coke oven gas. In 2017, the total capacity for coal-based methanol production was 81.3 million tons. Both in terms of the number of companies and their share of total capacity, this sector played a dominant role among all operating methanol production facilities; its capacity amounted to 54.35 million tons, accounting for 76.2% of the total. Methanol produced from natural gas and coke oven gas accounted for 8.46 million tons and 8.49 million tons respectively, representing 11.9% and 11.9% of the total capacity each. http://img.yf116.cn/image/img/20180403/1015563695642.jpg In the future, the production capacity of the methanol industry will still rely mainly on coal-based methods. The main reasons for this are as follows: 1. Due to policies regarding the use of natural gas, **the construction of facilities for producing methanol from natural gas has been prohibited since 2012**. 2. **Scale restrictions on coal-to-methanol production: facilities with a capacity of less than 1 million tons are not allowed to be built, while those with a capacity of over 1 million tons require approval from the provincial authorities.** 3. Coke oven gas is a by-product of coke production; therefore, the scale of methanol production is influenced by the scale of coke production and its operating rate. http://img.yf116.cn/image/img/20180403/1016383699834.jpg http://img.yf116.cn/image/img/20180403/101740370607.jpg The growth in production capacity is mainly driven by upgrades or expansions, while the number of standalone methanol plants is decreasing. It is precisely under the aforementioned **policy influences on natural gas and modern coal chemical industries** that all methanol plants to be constructed in recent years and in the future will rely primarily on coal and coke oven gas. The construction of coal-based methanol plants is mainly focused on projects that involve the production of olefins, expansions of existing methanol plants, or the first phases of such projects. The methanol plants that were put into operation in 2017 and those scheduled to be put into operation in 2018 are explained as follows. http://img.yf116.cn/image/img/20180403/1018483712826.jpg http://img.yf116.cn/image/img/20180403/1019503719029.jpg The production capacity of advanced gasification technologies is gradually increasing. In the past, methanol production in China relied on fixed-bed gasification, using anthracite from Shanxi to produce methanol in regions such as Hebei, Shandong, Henan, and Jiangsu. With the tightening of policies aimed at energy conservation and environmental protection, **the construction of fixed-bed gasification plants is prohibited; as a result, China has gradually adopted clean coal gasification technology. This technology allows for the use of bitcoals from regions such as Shaanxi and Inner Mongolia, which are relatively inexpensive, and it has also led to the relocation of methanol production facilities to these areas. With the successful development of a range of advanced coal gasification technologies, as well as related synthesis processes and equipment, and their introduction into industrial operation, in 2016 China’s production capacity for methanol using such advanced coal gasification technologies, including those based on dry pulverized coal, amounted to 37.96 million tons, accounting for nearly 50% of the total methanol production capacity. The actual output was 35.015 million tons, representing 66.4% of the total output. In 2017, most of the newly built facilities also utilized this gasification technology, resulting in a production capacity of 41.66 million tons, which accounted for 51.2% of the total production capacity. In the future, the competitive landscape for methanol in our country will shift upward. http://img.yf116.cn/image/img/20180403/1020473724778.jpg Methanol from the United States and the Middle East continues to gain a foothold in the Chinese market and pose a challenge to it. At present, the methanol imported into China comes mainly from the Middle East, which has always been a major exporter of methanol. Starting in 2018, Iran’s methanol production capacity will begin to increase; it is expected that 3–4 new production units will come online by that time, resulting in an additional production capacity of 4–5.6 million tons, which will further boost exports from that region. Due to the development of shale gas, the United States is shifting from being a methanol importer to a methanol exporter; it achieved exports of millions of tons to China in 2016–2017, and exports are expected to increase further as additional production facilities come online in the future. Iran and the United States will become the main sources of new production capacity in the future, and it is expected that most of the methanol produced will be sent to China. China’s imports of methanol are likely to increase to between 10 and 20 million tons in 2018 and in the years to come. http://img.yf116.cn/image/img/20180403/102273732790.jpg The share of emerging downstream applications for methanol is gradually increasing. In China, the downstream uses of methanol can be divided into traditional ones and emerging ones. Traditional demands mainly include formaldehyde, acetic acid, MTBE, etc., while emerging demands mainly include olefin production from methanol, dimethyl ether, methanol fuel, etc. At present, various problems related to the traditional demand for methanol in our country have become apparent, such as overcapacity and environmental concerns, which result in limited demand. However, emerging demands – particularly the large-scale development of methanol-based olefin production and the gradual overcoming of barriers to the use of methanol in gasoline – are set to drive rapid growth in methanol consumption in our country in the future. In 2017, traditional demands accounted for 23.9%, while emerging demands reached 76.1%. In the coming years, demand from traditional downstream sectors will continue to decline, while the share of demand for olefins, fuels, and oil additives will keep rising, reaching 80.2% by 2020. http://img.yf116.cn/image/img/20180403/1023143739483.jpg http://img.yf116.cn/image/img/20180403/1024433748368.jpg http://img.yf116.cn/image/img/20180403/102593750937.jpg Overall, the main development prospects for methanol in its downstream applications are as follows: 1. There is a temporary surplus in methanol production capacity, but driven by the benefits associated with the integration of coal chemical industry processes, this capacity will continue to grow. Currently, there is still significant disagreement in the market regarding the supply and demand of methanol. The traditional view holds that the methanol industry suffers from severe overcapacity, but our analysis suggests that although there appears to be overcapacity in this sector, in reality the situation has **improved compared to previous years; the industry is moving away from a state of oversupply toward a balance between supply and demand. In terms of operating capacity, in 2016 China’s methanol operating capacity was 68.3%, an increase of 5 percentage points compared to the previous year. Effective production capacity utilization is -78.6%. In 2017, China’s methanol production capacity was 83.1 million tons. After excluding units that were shut down for extended periods, the country’s actual sustainable methanol production capacity was 71.32 million tons. Based on a production volume of 54.15 million tons, the actual operating rate was 75.9%. 2. There will be no significant increase in demand for traditional downstream products of methanol. Due to environmental concerns associated with MTBE and the substitution of other raw materials, demand is expected to decline in the medium to long term ； The acetic acid industry is facing overcapacity, with demand remaining relatively stable; new production capacity will not be added in the coming years, leading to an improvement in the industry’s situation ； The formaldehyde industry used to be the traditional sector in China that consumed the most methanol. Due to its low entry barriers, coupled with the downturn in the real estate industry in recent years, this industry has experienced severe overcapacity and a decline in production. 3. Methanol-to-olefins has become the most important downstream application for methanol, with its demand accounting for over 50% in 2020, reaching 56%. According to statistics, by the end of 2017, there were 27 coal/methanol-based olefin production facilities in China, with a total olefin production capacity of 14.15 million tons. There are 9 enterprises under construction, with a combined olefin capacity of 4.5 million tons. The number of planned coal-to-olefins plants has reached 46, with an olefins production capacity of over 27.206 million tons. 4. Methanol-to-aromatics will become a potential driver for methanol growth. The target product of methanol-based aromatic production is p-xylene, which China currently relies heavily on imports for. It is one of China’s five major modern coal chemical industries, and the one for which industrial demonstration was carried out latest. At present, the million-ton industrial demonstration project has been included in the 13th Five-Year Plan for modern coal chemical industry. Once industrial demonstration technologies are successful and economically viable, it becomes possible to replicate the production model of producing olefins from coal (methanol), as well as the model of producing aromatics using methanol produced internally or purchased externally. But it also faces competition from the simultaneous launch of many petroleum-grade p-xylene projects. 5. Methanol gasoline is used by being blended into gasoline in a certain proportion. Methanol gasoline has been in use for a long time, but due to the lack of standards and bottlenecks at filling stations, it is currently only used and promoted in certain areas of China. M15, M85, and M100 methanol fuels face different demand bottlenecks. Overall, it is possible for nationwide promotion, but it is very difficult. 6. There are still certain policy barriers to the use of dimethyl ether, so its use will not increase significantly. There is hope that the market for pure combustion has not yet been developed; the automotive market, which has high demand, lacks systematic standards and policy support, and \"gas cylinders\" and \"transport methods\" represent the biggest obstacles to promotion, among other issues.