Uses for the natural gas derivative as a fuel are varied. The car racing industry has a long association with it and methanol has found a niche as an octane-enhancer for petrol. It can also be economically burnt in gas turbines for electricity generation.

But the emerging fuel cell technology sector appears to offer the largest future market for methanol.

Clean air legislation in Asia, Europe and the US has prompted Mercedes and Chrysler to unveil cars powered by methanol-fired fuel cells. Most other manufacturers are expected to follow suit by 2007.

This new generation of cars is emission-free and three times more efficient than traditional motor vehicle engines at converting energy.

Fuel cells are an electrochemical battery in which hydrogen, derived from methanol, is passed over one electrode, and air containing oxygen is passed over the other. As combustion occurs within the fuel cell, free electrons travel from one electrode to the other, providing constant electrical energy.

Traditionally, methanol is used in manufacturing of paints, resins, plastics, adhesives, silicones, solvents and window cleaners. But local group Methanol Australia says this is about to change, with fuel requirements expected to consume a larger slice of the market and boost demand over the next few years.

And with Asia just on its doorstep, Australia is placed to exploit its emerging potential, according to company managing director Chris Hart.

“Methanol could become a significant export industry for Australia,” Hart told EnergyReview.net.

“One of its big attractions is its versatility. It’s primarily used as a feedstock for the chemical industry, but is gradually emerging as a fuel.”

Methanol Australia has received environmental approvals until 2052 for its Tassie Shoal project – a series of concrete islands that will initially produce methanol from a $A950 million plant, 275km northwest of Darwin.

The original plan was for the methanol operation to be co-developed by Methanol Australia’s 50:50 joint venture partner Air Products and Chemicals, with the plant to be fed carbon-dioxide rich gas from the Santos-operated Evans Shoal gas field.

However, Methanol Australia’s move onto adjacent ground in exploration permit NT/P68 brought with it the potential for gas suitable for an LNG project, as well as further methanol production possibilities.

Two methanol plants are each planned to have a 5000-tonne per day methanol production capacity, with the first plant to be commissioned and operating as early as 2010.

The second island and methanol plant, along with supporting gas production facilities, would be installed about four years later, raising the total methanol production to 10,000 tonnes each day, or 3.45Mtpa.

The methanol operation could generate export revenue in excess of $1.1 billion a year based on current prices.

But Hart said the Tassie Shoal project would provide for a total export market to Asia.

“Australia is ideally suited for the production of methanol due to its low sovereign risk and proximity to countries such as China, Korea and Japan.”

Hart predicted about 80-90% of Tassie Shoal’s exported methanol would be used in these countries as a feedstock, with the remainder used as fuel.

But while the government has given the project the green light, the joint venture is still waiting to secure gas supply contracts.

Methanol Australia’s vision to establish a joint methanol and LNG production facility models how the two commodities should interact on a larger scale, according to Hart.

“Rather than competing against each other, LNG and methanol could complement each other,” he said.

To demonstrate his point, Hart cites the impending global energy crisis.

“We’ve got world demand of oil outstripping its supply, so it’s not hard to see that the world has got a problem,” he says.

“LNG will start replacing oil as a dominant energy and has its place in large industrial centres, but it is expensive to transport. It needs refrigeration, is complex to store and needs re-gasifying at the other end.”

He argues that methanol, on the contrary, would be suitable for use in regional areas with peaking power requirements as it is cheaper to transport than LNG because it doesn’t require refrigeration – hence its appeal in Asian markets.

But methanol also has its drawbacks.

Like LNG, methanol is manufactured from natural gas, but it has higher capital costs per unit of energy. About 32% to 44% of the energy input is consumed in producing the methanol. Thus, about three such plants would be required to deliver the same energy as a one-million-tonne-per-year LNG train, according to the US Department of Energy.

The lower energy content of methanol compared to LNG is a downside, but this is offset by lower transport costs. Therefore, at larger distances, methanol is competitive, creating opportunities for its manufacture in gas-rich regions.

While world-scale methanol plants typically produce one million tonnes per year, they use only up to about 90 million cubic feet of natural gas per day. Therefore, methanol projects are not viewed as an alternative to LNG projects.

Indeed, in many gas-rich countries, methanol plants complement LNG sharing facilities to reduce production costs. So many gas-exporting countries have at least one methanol plant.

In recent times, methanol has also become increasingly attractive to producers as prices have kept rising in line with gas prices. Last week, the world methanol price rose to about US$320 per tonne – a 25% increase in less than six months.

Hart said the forecast demand for methanol had “noticeably” outweighed current levels and predicted methanol prices would retain their current levels.

While the economics look favourable, methanol could also provide part of an answer to climate change concerns and emerging environmental consciousness.

In the largest projected growth market - fuel cells - vehicles running on methanol are more energy efficient than those using petrol, according to Hart.

“Methanol’s fuel efficiency is up around 80%, and it doesn’t matter whether you’re idling or accelerating up the highway,” he said.

“Meanwhile, the energy efficiency of petrol is very poor at about 20%.”

In addition, methanol evaporates when exposed to air, dissolves completely when mixed with water, and micro-organisms that live in the soil can also break it down into organic matter.

“It’s very environmentally friendly,” says Hart.

“In fact, it’s used in Europe as a nutrient to encourage marine growth. This means there shouldn’t be an issue in the event of a spill.”

As high oil prices, climate change and the threat of “peak oil” force consideration of alternative energy sources, many argue Australia is well placed to exploit its gas reserves both domestically and on the export market.