Methanol is an organic chemical and is the simplest member of a group of organic compounds called alcohol.
Quick Overview of Methanol
✔️An overview of methanol
✔️The history of methanol
✔️The production of methanol
Trading methanol as a commodity
Factors that drive the price of methanol
For what is methanol used?
An overview of methanol
Methanol’s chemical formula is CH3OH, indicating that it consists of a methyl group (CH3), linked with a hydroxy (hydroxyl) group (OH). Put differently, methanol comprises four parts hydrogen, one part oxygen, and one part carbon.
Methanol is also referred to as methyl alcohol, carbinol, wood spirit, wood naphtha, or wood alcohol. The last three names originate from the original production process when methanol was produced by the destructive distillation of wood.
Characteristics of methanol
- Methanol is a liquid that is:
- light,
- volatile, forming explosive mixtures with air,
- flammable, burning with a clear blue flame that is smokeless and difficult to perceive with one’s eyes during daylight, and
- almost colourless.
- Methanol is miscible in water, meaning it can be mixed with water without separating from it.
- It has a distinctive alcohol odour, almost similar to ethanol (ethyl alcohol), although somewhat milder and sweeter than ethanol.
- Readily biodegradable.
- Boils at 64.6 degrees Celsius (148 degrees Fahrenheit).
- The freezing point is -97.8 degrees Celsius (-144 degrees Fahrenheit).
- Methanol is toxic and must not be swallowed or inhaled.
- It has a density of 0.7918 grams per cubic centimetre.
The history of methanol
Below is a short timeline of the history of methanol, based on information obtained from the New World Encyclopedia.
- Ancient Egypt
The ancient Egyptians used a mixture of substances, including methanol and spices, in their embalming process to preserve corpses from decay. The methanol was obtained from the pyrolysis of wood. Pyrolysis is described by the Cambridge Dictionary as ‘a process in which substances are changed chemically by high temperatures.’
- 1661
Although, pure methanol was first isolated in 1661 by Robert Boyle (1627 – 1691), an Irish-born scientist and known as the father of chemistry. He called methanol spirit of box, because he produced it by distilling boxwood, a hard and compact wood obtained from the box tree or shrub. The product was later referred to as pyroxylic spirit.
- 1834
Two chemists from France, Jean-Baptiste Dumas (1800 – 1884) and Eugène Péligot (1811 – 1890) discovered methanol’s elemental composition. They also initiated the term methylene, a combination of the Greek words for wine and wood, indicating it was ‘alcohol made from wood (substance).’
- Circa 1840
The term methyl was derived in approximately 1840 by back-formation from methylene and was subsequently used to describe ‘methyl alcohol.’
- 1892
The International Conference on Chemical Nomenclature shortened the description ‘methyl alcohol’ to ‘methanol.’
- 1923
Matthias Pier (1882 – 1965), a German chemist, developed a process to convert synthesis gas (a mixture of hydrogen and carbon oxides) into methanol. Pier used a zinc chromate catalyst which required temperatures as high as 400 degrees Celsius.
The production of methanol
Key producers of methanol in the world
The major countries in the global methanol market are Iran, the USA, Saudi Arabia, Trinidad and Tobago, Malaysia, New Zeeland, Venezuela, Oman, Russia, and China, which is the largest contributor globally.
Key companies in the global methanol market are:
- Methanex Corporation (Canada)
- HELM Proman Methanol AG
- Saudi Basic Industries Corp (SABIC) (Saudi Arabia)
- China Shenhua Energy Co Ltd (China)
- China Petrochemical Corp (China)
- Yanzhou Coal Mining Co (China)
- Zagros Petrochemical Company (ZPC) (Iran)
- Celanese Corporation (Texas, USA)
The methanol production process
Methanol is typically produced from natural gas, coal, as well as renewable sources such as biomass, municipal waste, and recycled carbon dioxide (CO2) combined with hydrogen. Industrially, natural gas is the main feedstock.
The gas is reformed with steam to create a synthesis gas, also called syngas, synthetic gas, synthesized gas, or producer gas. Subsequently, the synthesized gas is converted and distilled in a reactor to produce pure methanol, which is a clear, liquid organic chemical.
Derivatives produced from pure methanol are, amongst others:
- Methyl tertiary butyl ether (MTBE), is a flammable colourless liquid with a distinctive, disagreeable odour. It is produced by blending methanol with isobutylene, a colourless gas.
- Formaldehyde, a colourless, strong-smelling, poisonous gas, synthesized by the oxidation of methanol. Formaldehyde is also called methanal, methylene oxide, and methyl aldehyde. In 2025, formaldehyde acquired the maximum share of the methanol derivatives segment.
- In the Methanol to Olefins (MTO) process, the methanol is converted to olefins such as ethylene and propylene. The olefins can be reacted to produce polyolefins, which are applied to produce several plastic materials.
- According to PubChem, ‘dimethyl terephthalate is a result of the formal condensation of the carboxy groups of terephthalic acid with methanol. It is a primary ingredient widely used in the manufacture of polyesters and industrial plastics.’
- Methylamine is prepared commercially by the reaction of methanol with ammonia in the presence of an aluminosilicate catalyst,’ as explained by Wikipedia. (Accentuation by the article writer.)
Trading methanol as a commodity
Analysts believe that methanol financial contracts play an important role to enable traders to hedge their commodity price risk.
The European Methanol T2 FOB Rdam (ICIS) futures (commodity code MT2) contract was launched in 2018, starting its inaugural trade in March 2018. The spot price for methanol forms the reference for the futures contracts. Methanol’s spot price is its current cost for the current purchase, payment, and delivery. Payment and delivery are required immediately. In other words, the deal is ‘on the spot,’ hence the name ‘spot price.’
Features of the MT2 contract include:
- Contract size: 100 metric tonnes (MT).
- Minimum block size: 5 lots equal 500 MT.
- Quotation: Euros and Eurocents per MT (EUR/MT).
- Last trading day: The contract terminates at the close of trading on the last Friday of the contract month.
There is also a U.S. methanol futures contract available, namely Methanol FOB Houston (Argus) futures with the commodity code MTH. The contract has, inter alia, the following features:
- Contract size: 42 000 U.S. gallons.
- Minimum block size: 5 lots = 210 000 U.S. gallons.
- Quotation: U.S. cents per gallon.
- Last trading day: The contract terminates 5 calendar days before the last calendar day of the contract month.
It is assumed that forward liquidity indicates a healthy futures market because it is a sign that traders are confident that the contract price reflects their physical exposure over the long term.
Ways to trade natural gas can be obtained from a regulated commodity broker, whose services and trading platform will be needed to trade commodities.
Another option to get exposure to methanol as a commodity is to trade the energy commodity natural gas which is a key feedstock for the production of methanol.
The following is a summary of some features of some of the trading instruments available to trade natural gas as a commodity:
- Natural gas futures
Natural gas futures contracts are available on the Chicago Mercantile Exchange (CME) and trade globally on the CME Globex electronic platform. The contract size is 10 000 million British thermal units (mmBtu) of natural gas.
At expiry, the contracts are physically settled by delivery of the natural gas.
Trading futures contracts requires a high level of knowledge, experience, and skill.
- Natural gas options on futures
Chicago Mercantile Exchange (CME) also provides an options contract on natural gas futures.
Like futures contracts, options contracts have an expiry date. It also has a strike price (exercise price), which is the agreed-upon price at which the quantity of natural gas may be purchased (regarding a call option) or sold (with regard to a put option) by the option holder until or at the expiry date.
On natural gas call options, traders pay a price referred to as the premium to buy contracts. A natural gas options contract succeeds only if the price of natural gas futures exceeds the strike price by an amount greater than the premium paid for the contract.
- Natural gas exchange-traded funds (ETFs)
ETFs are financial instruments that trade in the same way as shares do on stock exchanges.
Examples of popular natural gas ETFs are:
- The United States Natural Gas Fund (UNG)
- The United States 12 Month Natural Gas Fund LP (UNL)
- ProShares Ultra Bloomberg Natural Gas (BOIL)
- Shares of publicly traded companies
There are several publicly traded companies that have exposure to natural gas prices. For example, BHP Billiton and Cabot Oil and Gas Corporation.
The names of more such companies and information of their performance can be obtained from your commodity broker.
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Factors that drive the price of methanol
According to financial analysts, demand for methanol is influenced by various factors, such as:
- The increasing methanol demand in China since the 1980s. The demand has accelerated in recent years as the country embraces methanol as a clean alternative automotive fuel. China is the largest producer and consumer of methanol in the world.
- Methanol does not contain sulphur, allowing the commodity to gain ground in the maritime fuel markets due to the introduction of 0.5 percent sulphur limits imposed by the International Maritime Organisation.
- The rising concern to reducing greenhouse emissions, using clean fuels like methanol to reduce the emissions.
- Furthermore, the increasing use of methanol in construction is boosting the growth of the methanol market.
The price of natural gas – the main feedstock used to produce methanol – plays an important role in the price of methanol. Higher gas prices will increase the price of methanol, consequently reducing the demand for methanol. For instance, the current sanctions imposed on Russia because of its war in Ukraine will affect the supply and price of natural gas negatively because Russia is one of the largest global suppliers of natural gas.
Other factors hampering demand for methanol are:
- Competition of other feedstock for olefins production.
- Fluctuating methanol prices.
- The increasing uses of ethanol in comparison to methanol.
For what is methanol used?
Methyl tertiary butyl ether (MTBE) has been used as an additive for unleaded gasoline (petrol) in the USA since the 1980s. The additive increases octane and oxygen levels in gasoline (petrol) and reduces pollution emissions. However, due to concerns about groundwater contamination and water quality, MTBE is banned or limited in several states in the USA, according to Centers for Disease Control (CDC) of the USA.
MTBE is also used in small quantities in certain medical applications and as a laboratory solvent.
Formaldehyde is used in the manufacture of paper, fertilizer, building material, plywood, disinfectants, and adhesives. It is also used as a preservative in certain foods, and in antiseptics, cosmetics, and medicines.
Industrially, it is used as a chemical component in the production of paint, plastic, vehicle parts, and construction materials.
Methanol is a clean-burning, biodegradable fuel, an alternative to conventional transportation fuels due to benefits such as:
- The production costs of methanol are relatively cheaper than those of other alternative fuels.
- Methanol is safer than gasoline (petrol) because it has a lower risk of flammability.
It is an attractive alternative to fuel vehicles such as cars and trucks, ships, boilers, and stoves to cook food and heat homes.
Methanol is increasingly regarded as a clean and sustainable fuel, not just a petrochemical. Its inherent clean-burning properties allow lower greenhouse emissions.
Note: This article does not constitute investment, financial, or trading advice. Please obtain the advice of a professional and regulated commodity broker before making trading and investment decisions.
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