Methanol, the Cheaper Gasoline Substitute

Spend Matters welcomes a guest post from Jara Zicha of Mintec.

Every day in the news we hear about the cost of gas, and we have now reached the highest average price to fill our car since 2008. Is there an alternative?

Methanol, as opposed to ethanol, is probably not well-known in the US. You may remember it from your high school chemistry class but you might not be aware of its growing significance.


Methanol is primarily produced from the methane component of natural gas. Methanol has a variety of uses, but its importance to the energy industry as a gasoline substitute is growing.

Currently around 12 percent of methanol is used in fuel blending, with China being the world leader. The dependence on it in China is so strong it has now become recognised as a strategic commodity. Methanol accounts for 8 percent of total fuel consumption in China.

As a fuel substitute, methanol has many advantages. It is greener, cheaper, easily blended with gasoline, and unlike ethanol, its feedstock doesn’t have to compete for food consumption. However, it is not currently part of the US fuel market. In the 80s and early 90s, methanol was used as an alternative fuel in the US, but since then its blending into gasoline has been abandoned, possibly due to limited availability and the high price.

Recently though, the methanol industry has been thriving due to the shale gas revolution and the abundance of its cheap feedstock, natural gas. Natural gas prices have fallen 30 percent over the decade while crude oil prices have more than doubled. The price disparity of natural gas over crude oil has invited vast amounts of capital investment into the methanol sector.

Companies such as Methanex, OCI, Celanese, or Northwest Innovation Works are expected to invest more than $8.5 billion by 2018 to increase the US methanol capacity. New facilities have been planned along the Gulf Coast in Texas and Louisiana, adding 10 percent to the global capacity of around 100m tons per annum. There is additional capacity investment in China as well. Global demand is projected to grow by 11 percent each year between 2014 and 2017, so these additions may not be enough.

There are two major factors currently standing in the way of methanol blends making it to pump stations: price and legislation.

Even though methanol is produced from natural gas, its price strongly correlates with the price of crude oil due to its use as a gasoline substitute. As such, the price advantage over crude oil has been limited so far. Prices have fallen over 15 percent since the beginning of the year, but they may have to trend even lower for methanol to be seriously considered as an automotive fuel.

Lastly, it would have to be approved by the U.S. Environmental Protection Agency. This is a potentially slow process that could also depend on the success of the lobbyists in the methanol industry. Either way, at least there is some hope to keep costs down on your journey to work.

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Voices (3)

  1. Gully Foyle:

    The Methanol/DME combination will make a large impact over the next decade simply because a DME/Methanol mix can be used by diesel engines and turbines, covering all heavy duty application on land and on the water. Moreover, DME is completely benign to the environment and is easily mixed into propane.

    1. Zack:

      Good point–both DME and propane are gaseous at 1atm, so if there happens to be a leak, the spilled fuel will evaporate. Definitely a good thing. However, because of this, both must be stored at 5atm, which means expensive and complicated storage and refueling stations (relative to gas/diesel) are required.

      Another major barrier to entry is that DME is not a drop-in fuel. Diesel engines but be modified to accept the fuel, and while the associated costs are much lower than those for CNG, any non drop-in fuel is going to face an uphill battle at the consumer level.

      At the fleet level, where heavy duty trucks may average 500 miles per day, the payback model looks much different. For this reason, heavy duty applications are much more able to absorb conversion costs.

  2. Zack:

    “methanol was used as an alternative fuel in the US, but since then its blending into gasoline has been abandoned, possibly due to limited availability and the high price.”
    Methanol as a blendstock was legally disallowed when the ethanol mandate was implemented. This was a political favor to environmentalists who prefer renewable fuels, and farmers who were struggling to break even selling crops for food.
    The ethanol mandate is really the only thing keeping MeOH away from the pumps. MeOH is dirt cheap compared to ethanol, it doesnt compete with the food supply, it lowers tailpipe emissions comparably, and the environmental impact is lower.
    Even though it’s disallowed from the US road fuel polychotomy, methanol is a prolific feedstock in chemical applications; its’ price is not tied to oil (the US nat gas market is the most mature on earth) and the industry is in a constant price war, with downward pressure on pricing exacerbated by the shale boom (low feedstock cost) and the ethanol mandate (reduced demand). For this reason, methanol-derived transportation fuels such as DME and MTG have been viewed as favorable substitutes for crude-based fuels (such as gasoline and diesel), but consumers have been reticent to make the change for a variety of reasons, namely the fact that oil pricing has been relatively stable over the last year or so and the desire, for most people, simply isn’t there.
    But fleets are a different story (road, railroad, shipping). The closest alternative fuel to methanol is methane (offered as compressed natural gas (CNG), which is becoming increasingly popular for fleet operators. (see Clean Energy Fuels). It is fully EPA approved (you can even buy a ford F-series truck which runs on CNG); railroad applications for liquefied natural gas (LNG) are being developed, as are innovative approaches to old technologies for drop-in fuels such as Fischer-Tropsch products which are typically marketed under the term gas-to-liquid (GTL) fuels. Natural gas-based fuels potentially have very promising futures.

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