Iran's Gas Shortage: What's the Impact on Ethylene Glycol?

The New York Times reported that Iran is facing a large-scale energy crisis. According to the report, government offices in Iran are closed or operating at reduced hours. Schools and colleges have moved to online only. Highways and shopping malls have descended into darkness, and industrial plants have been denied power, bringing manufacturing to a near halt.

For most of last week, the country was virtually shut down to save energy. As ordinary Iranians fumed and industrial leaders warned that the accompanying losses amounted to tens of billions of dollars, Mr. Pezeshkian could offer no solution other than to say he was sorry.

The government faced two stark choices. It either had to cut gas service to residential homes or shut down the supply to power plants that generated electricity.

By Friday, 17 power plants had been completely taken off line and the rest were only partially operational.

The announcement immediately triggered reactions in the commodities market. Methanol futures surged, with nearby contracts closing up by 3.8%, while MEG prices also responded to the news, rebounding by over 50 yuan/mt in the afternoon. However, setting aside speculative sentiment, what might the actual impact of Iran's natural gas shortage be on methanol and MEG?

From a feedstock perspective, Iranian methanol relies directly on natural gas supplied from gas fields, making it particularly vulnerable to shortages. Most methanol plants in Iran are located in southwestern cities along the Persian Gulf, near the South Pars Gas Field, which is their primary source of natural gas.

For MEG, the situation is more diversified. The five local MEG facilities rely on various feedstocks, including natural gas (field gas and associated gas) and naphtha. Additionally, since the direct feedstock for MEG production is ethylene, which itself is derived from ethane (or naphtha), the impact of a gas shortage on MEG is less pronounced compared to methanol.

Moreover, local ethane and ethylene supply chains typically include buffer tanks, allowing for intermediate feedstock storage, which mitigates the effects of gas shortages on downstream chemical production. For instance, one standalone MEG facility in the region depends on external ethylene procurement.

Historically, Iran has never experienced MEG plant shutdowns due to natural gas shortages. Current data indicates that all Iranian MEG facilities remain operational, although some have reduced run rates since Q4. In the short term, gas shortages are unlikely to cause significant direct impacts on MEG production. Iranian MEG cargo arrivals in January and February are estimated at 180,000–190,000 mt. Longer-term supply dynamics will be monitored and updated accordingly.