I don’t believe in e-methanol

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Leitender Direktor und Hauptanalyst

My colleague Mukunda Kaushik published a new report on the future of methanol, an exceedingly hot topic among chemical companies, as methanol is being positioned as a key decarbonized feedstock for the future of the industry. The report finds that electrochemical production of methanol (or e-methanol) is about an order of magnitude more expensive than conventional grey methanol. Not a great place for the future of your industry to be! But groups like the International Renewable Energy Agency (IRENA) and the chemicals industry at large are still fairly positive on e-methanol; they’re obviously expecting a lot of cost reduction over the next decade, and this kind of order-of-magnitude cost reduction is possible. We’ve seen it with lithium-ion batteries most recently: In the late 2000s to early 2010s, lithium-ion batteries cost north of USD 1,000/kWh; today, they are around, or even below, USD 100/kWh. Utility-scale solar was a similar story; costs fell roughly 85% between 2010 and 2020. Can e-methanol replicate that success? It could, but I think methanol is different from lithium-ion batteries (or solar) in a few important ways:

  • There’s no market on-ramp for methanol scale-up. Both lithium-ion batteries and solar had initial markets that were not as cost sensitive as their ultimate targets — consumer electronics and rooftop solar, respectively. These applications allowed initial commercialization before the big cost reductions. There’s no equivalent in methanol; demand is overwhelmingly concentrated in chemical applications. It’s possible there are some small-scale fuel applications for methanol where there will be a significant “green premium,” but demand is highly concentrated there as well. 
  • Electric vehicles (EVs) are just better than the incumbent tech, in a way e-methanol isn’t. EVs are a fundamentally superior platform; the combination of high-efficiency electric motors and regenerative braking means even in the early 2010s, EVs offered much better fuel efficiency (the metric of note at the time). We are already producing EVs that are better and cheaper than combustion engine vehicles, and there’s plenty of room for further improvements. Methanol, however, is a commodity, so e-methanol doesn’t have this performance advantage over conventional methanol. The distributed production of e-methanol isn’t an advantage the way it is for solar. Electricity has lots of small-scale, distributed demand sites, while demand for methanol is concentrated; if anything, distributed production is a disadvantage (for now).  
  • E-methanol may have to displace grey methanol. E-methanol is a commodity; it’s seeking to displace grey methanol, which is already produced at a millions-of-tons scale. Forecasts from IRENA show that a) demand growth for methanol will be super strong and b) e-methanol will be additive to existing grey methanol supply. I think there’s good reason to be skeptical on both fronts; recycling poses a real threat to methanol demand for methanol-to-olefin processes (the major source of demand growth over the last decade), and I’m not convinced a 5.5% growth rate is sustainable for the next 25 years. If methanol becomes the global energy carrier, that kind of growth is possible, but that’s a big if; methanol could end up oversupplied very easily, bringing down the price and making e-methanol even less competitive. 

That said, there’s another side of this argument: a huge bag of cash. It’s undeniable that government support is way stronger for the hydrogen economy generally (of which methanol is a part) than it was for EV or solar scale-up. Methanol being a commodity also means price is the key driver, a factor that direct subsidies are pretty good at fixing, whereas consumers adopting EVs had to think about changes to their habits and the availability of charging infrastructure and so on. The flipside of this means that e-methanol scale-up is likely to be a largely political issue: Because of current costs, it will only scale if subsidies continue and are strengthened. 

In 2015, I helped write a report about the future of the automotive industry that turned out to be really accurate; my colleagues’ understanding that electrification was the future of the automotive industry let me easily make a bunch of other accurate predictions about the future of materials demand. The future of methanol feels similar — if we can understand this, a lot of other predictions get much simpler. I don’t want to be like the people scoffing at batteries in 2014 but right now, the combined factors of adoption hurdles, regulatory risk, and overall questions about demand make me skeptical that e-methanol is the future of the chemicals industry. 

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