Abundant natural gas resources, the goal of strengthening the national economy, domestic demand considerations, and the high capital intensity of gas export infrastructure initially led policymakers in the oil, gas, and petrochemical sectors to support downstream gas industries. This approach facilitated exports of products such as urea and methanol, which—unlike natural gas—are easier to transport due to their solid and liquid forms and require less extensive infrastructure. Supported by a range of economic incentives, this strategy ultimately positioned Iran among the world’s leading producers and exporters of these products and can be regarded as largely successful in its early stages.
Initially, methanol appeared to offer stronger economic advantages than urea. However, subsequent global and domestic developments introduced instability into the sector. Positive trends included the expansion of methanol downstream industries in China—such as methanol-to-olefins (MTO) and methanol-to-propylene (MTP)—and the construction of methanol-fueled vessels, both of which signaled potential demand growth. At the same time, negative factors such as international sanctions, the rise of gas-based liquid fuels as competitors in the fuel market, and sharp fluctuations in natural gas prices exerted pressure on the industry.
Compounding these challenges, the Ukraine war led to higher gas prices, fiscal imbalances, and financial constraints that prompted Iran’s parliament and the Ministry of Petroleum to gradually roll back earlier incentives. As a result, the industry’s difficulties deepened, and despite early optimism, the current outlook has raised concerns among industry stakeholders and policymakers—reflected most clearly in the steady decline in profit margins for methanol producers.
Methanol is commonly used as a fuel, accounting for roughly 30 percent of its current consumption. Beyond this, it has a growing range of applications in chemical and petrochemical industries that affect everyday life. The expansion of downstream methanol units, particularly in China and India, has effectively shifted methanol from a downstream product to a midstream industry, generating new sources of demand.
Global methanol demand is currently estimated at more than 100 million tons. Production remains geographically concentrated due to reliance on coal and natural gas feedstocks, with countries such as China, Iran, and the United States among the largest producers. Analyzing methanol supply and demand trends is complex, as changes in downstream markets or direct consumption can significantly affect overall market dynamics. In international trade, methanol maintains a substantial footprint, with China accounting for around 31 percent of global imports, followed by the Netherlands, Thailand, and India. For Iran specifically, China absorbs about 90 percent of exports, with India accounting for most of the remainder.
Several factors could positively influence the market outlook. Methanol is considered a relatively clean fuel, and as environmental considerations gain priority among governments, corporations, and international organizations, demand could rise significantly in the coming years. The potential blending of methanol with gasoline—at ratios of three to five percent in some countries—also offers a path to demand growth. In addition, expanded production of downstream products such as synthetic ethanol and gasoline could further stimulate consumption. Environmental restrictions on coal-based methanol production may also reduce supply and support higher prices.
Conversely, notable risks remain. The emergence of alternatives such as green hydrogen in direct fuel applications could weaken methanol demand, although methanol-based hydrogen production may also present new opportunities. Expectations surrounding methanol-fueled shipping fleets have progressed slowly, limiting their impact on demand forecasts. Volatility in feedstock prices—particularly in Iran, where political factors play a role—continues to pressure margins. The possibility of tighter sanctions, domestic gas shortages, and supply disruptions during winter months further complicate the outlook.
Despite these challenges, long-term projections remain optimistic. Some forecasts estimate global methanol demand could reach up to 500 million tons by 2050. Domestically, Iran’s installed methanol production capacity currently exceeds 17 million tons and could rise to nearly 27 million tons with projects under construction, intensifying competition among producers. Limited export market diversification and increased supply will further heighten competitive pressures.
At the same time, Iran’s reliance on petrochemical export revenues and the significant share of methanol in the export basket underscore the industry’s strategic importance across short-, medium-, and long-term horizons. Protecting the substantial investments already made in this sector should therefore remain a priority for policymakers.
Looking ahead, overcoming current challenges will require coordination between government institutions and industry players, with large petrochemical holdings playing a pivotal role due to their greater negotiating power. Given constraints on natural gas feedstock, downstream development appears increasingly important, though it should not be viewed as a universal solution. While some global leaders, such as Methanex, continue to focus primarily on expanding methanol production, Iran’s specific conditions warrant a tailored approach.
Short-term measures could include limited blending of methanol into automotive fuel to stimulate domestic demand and reduce export dependence. In the medium term, greater attention must be paid to environmental and quality considerations, with methanol-to-gasoline (MTG) and methanol-to-ethanol (MTE) emerging as viable options. Synthetic ethanol production, in particular, benefits from lower conversion ratios, reduced capital costs, and favorable environmental characteristics, making it an attractive pathway already being pursued by several Iranian producers.
Further downstream development—such as formaldehyde and methylamine production—also offers higher value-added potential, job creation, and regional economic benefits. However, the success of these pathways depends heavily on government support, including feedstock pricing reforms, fuel blending approvals, guaranteed offtake mechanisms, and recognition of synthetic ethanol within the national fuel mix.
In the current environment of constrained international trade, sustained government backing—especially for blending ethanol into automotive fuels—will be a decisive factor in ensuring the viability and long-term resilience of Iran’s methanol downstream industries.