But the critical element is the government’s promotion of methanol-blended motor fuel. The government is providing subsidies to motorists who use methanol but along with the government’s push have come a number of problems, including worries about the damage to vehicles, as well as financial problems for China’s methanol producers.

In August, provincial and local governments began providing subsidies of about $370 for any vehicle retrofitted to burn methanol-blended fuel. The price of M85 methanol gasoline (85 percent methanol) is about half that of standard gasoline, giving individuals a big incentive to make the switch. But the changes in methanol prices are hurting producers.

Last year, methanol prices hit $660 per ton at about the same time that oil prices were peaking. And given that oil and gas are the usual feedstocks for methanol production, the methanol market price has long fluctuated along with the crude oil price.

In China, about 70 percent of the feedstock for methanol comes from coal. That results in higher costs, with the average production cost for methanol derived from coal being about $260 per ton. Making methanol from natural gas costs about $150 per ton. Given that foreign producers can provide methanol to the Chinese market more cheaply than domestic producers, large volumes of methanol have been flowing into China from the Middle East, New Zealand and other countries. According to data from China’s customs officials, the country imported 1.4 million tons of methanol in 2008. But in the first six months of 2009, imports totaled some 3.4 million tons. These imports are crushing domestic methanol producers who are cutting operations or going into bankruptcy. In January, about 70 percent of China’s methanol production capacity was idle and the recent increase in crude oil prices have not helped bring methanol prices back to their highs of mid-2008.

Methanol in China has taken a unique hue both in terms of the government’s push for its use as a “clean” transportation fuel and also in terms of its market share. Thus, the central government has been trying to protect the domestic methanol industry. Two operations are underway, one is anti-dumping; the other is to promote the utilization of methanol gasoline.

In June, after hearing complaints from the domestic methanol industry, the Commerce Ministry decided to pursue anti-dumping litigation against imported methanol from Saudi Arabia, New Zealand, Malaysia and Indonesia by invoking WTO regulations. Chinese methanol producers are hoping that an anti-dumping tax will save them.

In May, the Chinese government issued national standards for methanol-fueled vehicles to help spur the use of alcohol as motor fuel. The M15 gasoline (analogous to E15 elsewhere for ethanol gasoline) with a methanol content of 15 to 20 percent does not require motor retrofitting. (M85 gasoline requires different engines.) Nationwide five automobile assembly lines for M85 methanol gasoline vehicles have been constructed. Currently methanol consumption for motor fuel amounts to about 2 million tons annually, which is about 3 percent of the 64 million tons of annual gasoline consumption. If M85 gasoline can be applied on a large scale, with natural gas or, especially, coal as the feedstock, China may be able to reduce the growth of its soaring appetite for oil and oil products.

However, there are a number of problems. Methanol is toxic, corrosive, hydrophilic, and contains about half of the heat content of gasoline. There are also emissions of pollutants that are unique to methanol combustion. The US has largely given up on using methanol as a motor fuel for passenger vehicles. Some Chinese experts have warned of these problems, but their warnings have not made much difference to the newly found methanol enthusiasm.

The question for Chinese methanol producers is: can methanol as motor fuel save the domestic methanol industry from cheaper imports? Only time will tell.