Gas restrictions impact methanol plants in Iran

Toward the end of the year, natural gas restrictions in China and abroad especially in Iran has come under heightened discussions. The supply shortage of natural gas to industrial sector would be a short-lived influencing factor to methanol market in winter. Recently, there's saying that several methanol plants in Iran would undergo shutdown in Dec due to gas restrictions. According to the feedback from the market sources, Iranian methanol plants have not yet determined the time of shutdown or production cuts, but they are likely to get affected by gas restrictions beginning from Dec.

Why are there gas restrictions in Iran?

Iran has the second largest natural gas reserves in the world. Although the reserves are large, the development is not in place (and it may also attributed to the intention to raise prices during the peak season). Therefore, when it comes to demand peak in winter, the Iranian government prioritizes the natural gas usage in residential sector, and thus the methanol plants would shut or cut operating rates to cope with gas shortage in industrial sector.

How will it turn out in 2023?

It is believed that the gas restrictions will repeat in the winter of 2023. China's methanol prices have been at a low level this year, and Iran's methanol export benefits have been significantly compressed. In the middle of 2023, the Iranian government requested an increase in the price of natural gas for chemical production. Iranian production plants grappled with price hike with some shut as a result.

In recent years, with new plants starting, methanol has been more sensitive to the cost of natural gas in Iran. During the peak of gas consumption, the government is very likely to raise selling price or restrict the usage in industrial sector. In addition, Iran is able to export natural gas directly and the profits are considerable with economics better than that of methanol production. The exports of Iranian natural gas has become more important after the sanctions on Russia were implemented.

How deep will it affect methanol market?

From the charts above, it can be seen that, affected by the gas restrictions, the operating rate of Iranian methanol plants typically reaches its low point in Jan, and the cargoes arriving at China usually hit the low point in Feb, indicating reduced shipments loaded in Jan.

In Jan-Feb 2022, China methanol price surged sharply, while in the Jan and Feb of 2021 and 2023, the price rise was not obvious, and it was also attributed to other factors.

In a conclusion, Iran is expected to continue gas restrictions this winter. The government may seize the opportunity during price rise to export more natural gas. However, the temperature may not be so low as in previous years, and if the shortage gets relieved, the gas restrictions could be less intensive compared to previous years.