Material Insights · Understanding the Material World

Methanol and Natural gas

Outside China almost all methanol is made by reforming natural gas, which is its main cost, so plants are built where gas is cheap and stop when their gas supply fails.

Methanol (chemical) and Natural gas (energy): 5 relationships.

How they are linked

1. Gas is the main feedstock

Physical flow · Strong · Natural gas to methanol

Methanol is made by reforming natural gas into synthesis gas (carbon monoxide and hydrogen) and passing it over a copper catalyst, so gas is both the raw material and the largest cost.

  • about 65% of world methanol made from natural gas (2019)
  • 31 to 34 MMBtu gas per ton of methanol in best-in-class plants (HHV)
  • 35 to 38 MMBtu gas per ton in older plants

World output was about 98 Mt in 2019, and about two thirds of it started as gas. Older plants burn noticeably more gas per ton, so they are the most exposed when gas prices rise. Most of the rest is made from coal, and most coal-based capacity is in China.

Sources: IRENA and Methanol Institute; HyCO1

2. Price link: feedstock cost

Cost and price · Medium · Both ways

Gas is the largest variable cost of a methanol plant outside China, so sustained gas price moves feed through to methanol, though methanol's own demand cycle blurs month-to-month moves.

  • 0.21 monthly change correlation
  • 0.80 12-month change correlation
  • 0.15 fitted elasticity

The monthly tie is loose (0.21) but the yearly one is strong (0.80), so gas sets the trend rather than the month. The low elasticity (0.15) reflects that the site uses a broad organic chemicals price proxy and European gas, while the marginal tonne in Asia is often Chinese coal-based methanol.

Sources: Methanex (SEC filing); Material Insights (World Bank, FRED, IMF data)

3. Built on cheap or stranded gas

Geography and ownership · Strong · Gas-rich exporters make methanol

Methanol plants need large volumes of cheap gas under long-term contracts, so export capacity sits in gas-rich places such as the Gulf, Trinidad and New Zealand, and the methanol is shipped to gas-poor buyers.

  • about 98% of India's methanol requirement imported (FY2026)
  • about 88% Middle East share of India's methanol imports, April 2025 to February 2026

When the gas runs short the plant stops: Methanex's 2023 filing lists its Titan plant in Trinidad as idled indefinitely and its Waitara Valley plant in New Zealand as idled because of gas constraints. The other side is that importers such as India rely on a few gas-rich exporters for nearly all their supply.

Sources: Methanex (SEC filing); Crisil Intelligence

4. Gulf supply and Hormuz

Shared risk · High in India · Gulf gas disruption cuts methanol supply

A large share of gas-based export methanol is made around the Gulf and leaves through the Strait of Hormuz, so a Gulf conflict hits gas and methanol together.

  • about a third of global seaborne methanol trade passes through the Strait of Hormuz
  • about 51% Middle East share of India's methanol imports, March to May 2026

In March to May 2026 the Gulf conflict forced Gulf producers to curtail output, some declared force majeure, and India turned to Oman, China, Venezuela and others; the Middle East share of its imports fell from about 88% to about 51%. Gas-based export methanol is concentrated in the same region as much of the world's cheap gas.

Sources: Crisil Intelligence

5. Gas route versus coal route

Substitution · Medium · Coal-based methanol competes with gas-based

Methanol can also be made by gasifying coal, which China does at scale, so gas-based exporters compete with Chinese coal-based plants for the Chinese market.

  • about 0.5 kg CO2e per kg of methanol, gas route
  • 2.6 to 3.8 kg CO2e per kg of methanol, coal route

IRENA put production costs at about USD 100 to 250 a tonne depending on feedstock. The gas route emits several times less carbon than the coal route, which matters more as carbon pricing spreads.

Sources: IRENA and Methanol Institute

For investors

Key learnings

  1. A gas-based methanol plant is a gas contract with a chemical plant attached: its margin and its uptime both depend on gas price and gas availability.
  2. Gas sets methanol's yearly trend (0.80 correlation) but not its monthly moves, so short-term methanol trades need Chinese coal and demand signals as well.
  3. Supply is concentrated in a few gas-rich exporters, many around the Gulf, so a Gulf disruption cuts supply to importers even when gas elsewhere is plentiful, as in 2026.

What to track

  • Regional gas prices (Henry Hub, TTF, Gulf contract gas): Higher gas raises the cost floor of non-Chinese methanol and can idle older plants (Daily · exchange and EIA data)
  • Methanol CFR India and CFR China: A widening gap over gas cost signals tight supply or a disruption premium (Weekly · trade press (Argus, ICIS))
  • Plant outages and gas curtailments in Trinidad, Iran, Egypt and New Zealand: Gas-driven shutdowns tighten seaborne supply (As announced · company releases)

For policymakers

Key learnings

  1. India imports about 98% of its methanol, mostly gas-based product from the Middle East, so its supply security rests on Gulf producers and the Strait of Hormuz.
  2. Most Indian methanol plants have cut output or shut because domestic gas is scarce and imports are cheaper, so policy for a methanol economy has to choose between imports, coal gasification and green routes.
  3. Gas-based methanol emits far less than coal-based, so carbon rules on fuels and chemicals will favour gas or renewable methanol over coal.

What to track

  • India methanol imports by source country: Concentration in one region raises disruption risk (Monthly · DGCIS trade data)
  • Domestic gas allocation and prices for chemical users: Cheaper or more available gas would let idle Indian methanol units restart (Monthly · PPAC)

India

India imports about 98% of the methanol it uses, about 3.57 Mt in FY2026, mostly gas-based product from the Middle East; most domestic plants have cut output or shut because local gas is scarce and imports are cheaper.

Sources

  1. Innovation Outlook: Renewable Methanol, IRENA and Methanol Institute (2021)
  2. Methanex Corporation Annual Information Form 2023, Methanex (SEC filing) (2024)
  3. Methanol's Moment: How New Pathways and Energy Benchmarks Are Redefining a Critical Chemical (Part 1), HyCO1 (2025)
  4. Methanol: move away, Crisil Intelligence (2026)
  5. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)