Q3 2019 Earnings Call
Thank you good morning, everyone welcome to our third quarter 2019 results Conference call I 2019 third quarter neither Lee.
Discussion and analysis financial statements.
From the reports tab of the Investor Relations page on our website at <unk> Dot com.
I would like to remind our listeners that our comments and answers to your question.
Contain forward looking information.
Information by its nature subject to risks and uncertainties that may cause the stated outcomes to differ materially from the actual out.
Certain material factors or assumptions were applied in drawing the conclusions or making a forecast or projection, which are included in the forward looking information.
Please refer to our third quarter, 2019, and DNA and why 2018 annual report for more information.
I would also like to caution our listeners that any projections provided today regarding methanexs future financial performance, our effective as of today.
As our policy not to comment on or updated guidance between quarters.
For clarification any references to revenue EBITDA cash flow or income made in today's remarks reflect or 63.1% economic interest in.
And our 50% economic interest in the Egypt facility. In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark to market impact on share based compensation.
In fact, if certain items associated with specific densified event.
We reported these non-GAAP measures in this way to making a better measure of underlying operating performance and I'm encouraged analysts covering the company to report thereafter.
I would now like to turn the call over to Methanexs, President and CEO Mr., John Florida for his comments and a question and answer Perry and good.
Good morning, and the third quarter of 2019, we recorded adjusted EBITDA of $90 million and adjusted net loss of $21 billion or 27 cents per share.
Adjusted EBITDA was lower in the third quarter compared to the second quarter, partly because of lower average realized price, which was only partially offset by higher sales volume methanex produced methanol.
An improved cost compared to the second quarter.
Our average realized prices $272 per ton in the third quarter, which were reflects a decline of $54 per done from the $326 per tonne.
Realized in the second quarter as our posted prices were lower across all regions and we recorded a discount rate of 17%.
Prices decline, our discount rate tends to be higher than our guidance at the 15%.
We estimate that the industry cost curve, which is set in China. This current currently around $260 per tonne at current prices in China or slightly below this range.
We recently posted or November North American price, which remains unchanged at $342 per ton and our Asia Pacific price remains unchanged at $295 per ton.
European contract prices set on a quarterly basis, and our fourth quarter posted prices 280 barrels per ton.
Not that all industry demand in the third quarter of 29, King increased slightly compared to the second quarter of 29 team.
Traditional chemical demand declined slightly as result of planned and unplanned downstream outages.
And why safety and environmental inspections in China.
Slowdown in manufacturing activity, particularly in the automotive and construction.
The man segments.
Head into energy related applications was strong as two new methanol to olefins or MTO plants with a combined capacity to consume 3.6 million tons of methanol annually started up at the end of June .
This new MTO demand was partially offset by planned maintenance activities at some existing MTO plants, we continue to see steady operating rates for most MTO facilities.
Methanol industry supply outside China operated well in the third quarter of 29 team.
Observe some high cost producers in China reduce operating rates in the quarter when spot prices dipped below the industry cost curve.
We're excited to welcome three new Ocean going vessels powered by methanol fuel technology to our waterfront shipping fleet during the quarter. These vessels can run on methanol fuel oil marine diesel or gas or oil.
One additional methanol powered vessel joining the fleet in the coming weeks and with this addition, approximately 40% of our fleet will be capable of running on methanol fuel technology.
Now turning to our operational result in New Zealand, we post we produced 469000 tons during the third quarter compared to 446000 tons in the second quarter upstream natural gas producers in New Zealand are completing significant field development projects to increase production. However, we do not expect to see.
Any impact of these activities in 2020.
Based on our current contracted gas position, we are revising our guidance to approximately 80% operating rate for our New Zealand operations in 2020 or approximately 1.9 million times.
In Trinidad our plants operated well, we produced 474000 tons during Q3 compared to 384000 tons in Q2.
Production with higher in the third quarter as our second quarter production was impacted by a turnover at the tightened plant and a short unplanned outage better outlets facility.
We continue to guide to approximately 85% operating rates for 200 out operation.
In Chile, we produced 146000 tons during the third quarter of 2019 compared to 290000 tons during the second quarter.
Auction was lower in the third quarters as only the Chile for plant operated during the quarter later late in the second quarter. We began the first phase of the refurbishment outdoor Chile, one plant, which was scheduled to match lower natural gas deliveries during the southern hemisphere winter months.
Chile, one plant restarted in early October both plants are operating at high rates today, we expect significantly higher production in the fourth quarter compared to the third quarter.
Artillery facilities during their summer months, when we receive higher gas deliveries.
In addition, we were very pleased to announce that we reached a longer term natural gas supply agreement for a totally operations that will underpin approximately 25% of a two plant operations through the end of 2025.
This gas agreement and the completion of the first phase of the Chile, one refurbishment reflect important steps to returning our assets until the back to full operating rates over the coming years at very low capital comps.
In the near term, we continued to guide to annual operating rates.
To 75% of a two plant operation or annual production of up to approximately 1.3 million tons per year.
In Egypt, we completed the necessary repairs at our facility and restarted our plants safely in August following the unplanned outage that began in early April .
We estimate that the outage had an impact of approximately $20 million, reflecting our 50% share of Egypt on our Q3 adjusted EBITDA results.
We have insurance that covers repairs and business interruption subject to deductibles. However, no insurance recoveries have been recorded today.
Now turning to our approach to capital allocation, our balanced approach to capital remains unchanged. We believe we're well positioned to meet our financial commitments execute on our growth projects in Chile in Louisiana and deliver on our commitment to returning excess cash to shareholders through dividends and share repurchases.
In terms of our financial commitments are expected maintenance capital expenditures for the remainder of 2019 are estimated to be $30 million.
Primarily related to turnarounds planned for 2020.
We continue to advance to near term growth projects to increase our production capacity for very low capital cost.
In Chile, we continue to work with gas suppliers in Chile, and Argentina, and they were optimistic that we'll be able to secure sufficient gas to underpin a full two plant operation over the medium term.
Louisiana, we continue to make progress on the de bottlenecking opportunities at our existing Geismar, one and Geismar two facilities to increase production by approximately 10% or 200000 tons per year for a few tens of millions of dollars.
We are completing the necessary work required including construction of a pipeline to bring C. O two to the site and the necessary work at the Geismar two plans.
We expect that the incremental production capacity will be phased in over the next couple of years.
We have begun construction of our third plant in Geismar, Louisiana and advantage growth opportunity for our company, which we believe will create significant long term value for shareholders.
Mercury will be a 1.8 million ton methanol plant located adjacent to the Geismar one at Geismar two facilities. We expect this project will deliver outstanding returns based on a substantial capital and operating cost advantages.
I believe we're well positioned to complete this project as we have a rigorous and want to find execution plan and experienced team in place and a robust and flexible financing plan.
We ended the quarter with $857 million in cash on the balance sheet in September we issued $700 million and 10 year notes and subsequent to the quarter and we used $350 million that the proceeds.
A replay to repay the unsecured notes that were due at the end of this year.
Remaining proceeds are earmarked to fund geismar three construction expenditures.
In addition, we have a strong liquidity position with an 800 million dollar construction loan facility for the Geismar three project that remains Undrawn and a 300 million dollar undrawn revolver revolving credit facility to provide further financial flexibility to manage potential unforeseen business stress.
As we've stated previously we have a preference for a strategic partner for GE screen project, and we continue to pursue that option.
During the quarter, we pay $27 million to shareholders through a regular dividends.
At June Thirtyth 2019, we repurchased nearly 1.1 million shares of the approximately 3.9 million shares approved under the normal course issuer bid.
We did not repurchase shares in the third quarter.
Now turning to the outlook for our outlook for the fourth quarter.
Dave based on posted methanol prices. So far this quarter, we expect average realized prices in Q4 to be slightly lower than Q3.
We expect production in the fourth quarter to be substantially higher than the third quarter as both of our two like plants are operating during the southern hemisphere summer months and our Egypt plant is back on line, we expect adjusted EBITDA in the fourth quarter to be higher and the third quarter.
I would now be happy to answer any questions.
Thank you if you're using a speaker phone please lift your handset prior to making your selection.
If you have a question. Please press star one on your telephone keypad, there will be a brief possible to participants register for questions. Thank you for your patience.
The first question is from Mike Light head with Barclays. Please go ahead.
Thanks, Good morning, guys. Good morning, I guess first if I look at the supply demand commentary you provided in your release. It appears you saw methanol demand up a bit sequentially, yet prices were down call. It 15, 20% sequentially. So I was hoping maybe you could give a little bit more color on what you're seeing on the supply side.
Right, and maybe where you're seeing incremental supply that drove such a move in the quarter.
Yes, So I mentioned already pricing is just slightly below the cost curve in China, we've seen the industry outside China operate very well the last two quarters and you know better than on average over the past number of years, which has caused a little bit extra supply.
Got it that makes sense and then just on Geismar three could you provide us with any update on your discussions for potential partner for this project is that still on the table at this point or any update there would be helpful.
Our preference is to have a partner for the project, we're pursuing that option. We're in discussion with a couple of parties.
About potential partnerships and or will you should expect us to approach couple of parties at a time to gauge interest and.
Discussions are ongoing and our preference is still to have a partner for about 30% of the project.
Great. Thank you.
Thank you.
The next question from Eric Petrie with Citi. Please go ahead.
Hi, good morning, John .
Morning.
You noted that the energy related methanol demand increased 6% quarter over quarter, if I exclude the to know MTO plants, what was the underlying demand growth.
Or was it flat.
Well the traditional chemical as we mentioned was down slightly quarter over quarter.
So quite a few unplanned and planned outages in the downstream I already mentioned in my remarks that.
Automotive and construction sectors are a bit as well.
Okay, and secondly, China methanol inventories so look like they remain elevated around you know 900000 metric tons worse normalized levels and is it an important driver to getting price is higher in the region.
Yeah, we see a inventory levels at that level, but I wouldn't call side, because remember we've got a lot more demand as a result of the additions of MTO I think the challenge in China. Today is lack of storage capability, even though demand has gone up significantly over the past few years storage has not kept pace.
We are experiencing we see a situations during the quarter were ships are lined up to try and on on load.
Cargos, because the tanks far full and that's more of a as a result of not enough storage, which can lead to some.
Leasing of distressed cargo. So we think a we need to see more storage built to to meet the increased demand for methanol, especially on the coast in China.
Great. Thank you.
Thank you. The next question is from Jacob bout with RBC. Please go ahead.
Hi, good morning.
Morning.
I wanted to ask some questions around the biggest contracts in.
In Chile, and maybe but about the structure of these these gas contracts.
What was the origin is its conventional and unconventional.
And is there any price participation with the supplier.
Yes. So these are for about 25% of our requirements for the two plant operation.
These are all this all gas is on the Chile side of the border all unconventional all that activity in Chile has been going after tight gas over the last five or six years. So this is tight gas.
And there is a sharing mechanism in this contract that works similar to what I've guided to before were about one third we share with the producer above $200 methanol in that kind of ballpark.
And then.
And then in Egypt.
You quantified what the losses from the outages in the in the quarter and then how much are you actually expecting to be covered by insurance.
Yes, so we in my opening remarks, I mentioned, our half about 20 million dollar EBITDA impact in the quarter.
There are some deductibles like I mentioned, and we have been and insurance claim and we expect to be able to collect on than that insurance claim less the deductibles.
It's just going to extend into fourth quarter.
Into 2020.
The outage or the the insurance claims.
These these outages losses.
Yes, so with the plant came up back up in early October has been running extremely well. Since then so the issues behind us and we made the insurance claim and.
Or whether we get in Q4 Q1.
Too early to tell but Oh, we expect to be able to collect on the insurance.
But there thanks.
Thank you.
Our next question is from Joel Jackson with BMO capital markets. Please go ahead.
Hi, good morning, John .
Good morning, John would you ought to give us some sort of valuation metrics around what you would be looking for 30% stake in some of different conditions Atg three and then also as you've been starting to price I was long lead time items, how maybe capex is fairing extrusions for Capex is faring in that 1.3 1.4 billion dollar range for GE three thanks.
Yes, so just a correct something I just said the Egypt came up in early August on October I apologize, but for G. III, we're having partnership discussions like I said for about 30%.
Not just financial considerations that strategic considerations were talking to potentially other producers of methanol that may be looking to build their own facility somewhere around the world, where we can partner together or a customer no somebody that might be consuming 600000 tons or saw methanol several location.
It is around the world, where they see nothing at all and this would help them backward integrate into some equity tons. So both of those kinds of conversations or our ongoing.
Notwithstanding this company not with American companies, but other other parts of the world.
What was the second part of your question Joel.
No you're getting some long weekend items trying to get price. How your Capex is buried within that one point. The 1.4 billion dollar yes. So all of the long lead items that we placed the purchase orders for.
Back either what we had been indicated in a quote or less so we're not seeing any surprises on the capital side I'd say I was just down there a few weeks ago, though some of the other competing projects that we expected to be up aidid over the coming months seem to be somewhat delayed so as far as productivity and labor.
Availability and getting way more comfortable today than it was even three months ago about our ability to execute on this project.
In the range of capital we provided.
Thank you.
Thanks Joel.
Thank you.
The next question is from Hassan Ahmed with Alembic Global. Please go ahead.
Nope.
Sorry, I was on mute money John .
John wanted to revisit the demand side of things you know it seems that the energy related demand sort of picked up quite nicely quote unquote take Q3.
And conventional demand was down to tied to it.
So you know I mean, celanese recently reported the acute feed numbers and they were talking about as much as 25% of data CD costs. It did not see down into quartet and it seems also sip scan and so the had done around as well. So so you know as I think to Dodge and sort of or think about you know the net.
It did sort of conventional.
On growth that you guys. So.
In Q3 should we expect a lot of died demand goes to come back now in Q4.
Yeah. We saw the same thing you mentioned you know we saw some unplanned and planned downtime from especially on the chemical side or the equation.
We do plan to see this part of the 55% demand from ethanol the chemicals side to grow at IP in GDP growth rate. So provided we're seeing positive GDP and IP growth rates, we would expect those demands to grow at those amounts now having said that quarter by quarter. They do vary.
But usually the Q4 in any given years. This is a strong demand quarter for methanol, especially into chemical products and.
We're not seeing anything that would would change our beliefs around that.
Understood understood.
And as a follow up.
And your idea remarks, you talked about.
Sort of Chinese environmental inspections, again sort of popping up in the like are you seeing any sort of environmental sort of curtailment at all within the Chinese methanol industry.
Yes, we're seeing some and not only in the methanol, but in the downstream products more.
There have been quite a few industrial accidents in China and that is leading to these inspections and safety is a big concern for us and and for the Chinese I think our we're probably going to continue to see these inspections, both on methanol and methanol derivative plants going forward.
Perfect. Thanks, so much <unk>.
Thank you.
Thank you. The next question is from John Roberts with CBS . Please go ahead.
Thank you.
The timing of the 10% de bottlenecks for Geismar, one into is that being done to take advantage if any of the synergies with guys more three or.
Because of the upcoming downtime at those sites.
You should this has nothing to do as Geismar for you. This is totally isolated projects similar John This is similar to what we did in medicine hat number of years ago.
Had a CEO to source a across the fence from an ammonia plant and by introducing CEO to into our production process. Because we have excess hydrogen we can get more methanol for the same fit so we contracted for Seo too and Louisiana with a supplier of Seo too and we're in the process of building a pipeline to.
Not to ours, our site when we did the G. One turn around earlier this year, we put in the necessary equipment to be able to introduce you to into the system and we'll do the same when we do the geismar two turnaround in the coming quarters. So at that work has been done two pipeline has to be built.
So you should think of.
The first G. One.
Some time in.
The next first quarter next year, and then about a year after for GE too, but that's just roughly guidelines for today and we still have to complete the work.
And then are you seeing any higher shipping costs for my ammo 2020, and do you expect to have to eat that'll just reduce the net backs.
So we are in our budgeting process right now for next year, and we obviously trying to forecast what is going to happen to well methanol I guess, we we have a better view, but the ultra low sulfur diesel market.
You see both sides you see some people think that that's going to spike in price and others think theres enough refining capacity to meet the demands and again nobody will know until we actually get the demand in Q1, but yes, we will experience higher fuel costs.
Which will lead to higher freight.
Our.
Supply chain and you know well continue to a price methanol based on the cost curve and based on the supply demand balances. So we and other suppliers nothing changes on the price I wouldn't be eating that additional freight.
Okay. Thank you.
Thank you and the next question is from Steve Hansen with Raymond James. Please go ahead.
Yeah, Good morning, guys.
Just a quick one here on the partners you for Q3 <unk>, how should we think about the timing of your proceed or part here given that you've now started construction.
He asked because every month it passes now to project arguably risk a little more and I'm just thinking that that's got to be a difficult or a sliding scale backdrop for ongoing negotiations. So are you able to think about.
A timeline or some sort of like milestones that you would like to have park locked up by given the context of current negotiations the how should we think what that.
Yes, so we wanted to have the partner before we f. ideas, but but here. We are I would agree with you. The as time goes by the project does get considerably de risks.
We still preference to have a partner for this project and that May impact the buy in price.
Ticket you risk or slow our preference is to Abbott partner and we'll pursue that.
Like I said before we're not talking to 10 parties as the same time, we're talking to a couple and put some fairly aggressive timelines as we talking to potential partners. Because if there is no interest will like to go onto some other potential partners. So we'll continue to pursue that strategy.
We're optimistic will secure partner and we'll continue to work towards that.
Okay helpful. And then just one quickly on the supply side as it relates to Iran lots to talk about potentially Iranian startups at some point.
What is your supply chain, telling you what have you seen in the channel has there been any indications on shipping from either because you're one of the other projects as yet just anything you're seeing on that front would be helpful.
Yeah, we don't have any special intelligence from around because of the U.S. traded company, we obviously Ken can.
Be doing any business at all with Iran.
We have you have seen the Iranian production in the quarter operate much better than we had anticipated.
So they continue to rise in the continued to be able to ship, mainly to China and India.
So that was a bit of the upside on the on the supply side as well I read the same things you do see about the next the plant I really don't have any special Intel over and above what.
You read and I read.
Okay, I think that just squeeze in one last one if I may on on the Chile ramp for Q4 can you just give us some better context I know you noted that truly one is restarted but you just give us a sense for what kind of ramp or what kind of utilization are we expecting Q4.
Yes, so what I've guided to 75% operating rate for the year for the two plant operation. What I've said is full rates for clients want to plan for nine months, when we're not experiencing their winter and one plant operation during the winter. So I would expect provided everything.
And goes well with the operational plans full rates in Q4.
Okay very good thank you.
Thank you.
Question is from that Jonathan I'll start with Bernstein. Please go ahead.
Hi, good morning.
Okay.
Looking at your known U.S. margin.
Historically, there's been a strong.
Correlation between the margins and the price per seemed to due to the real matured formula, but that seems to broken down lately. The margins have been a much lower than the pricing suggest has something changed in your formula us.
Actually I think about that.
I think we've guided to this in the past so about 55% to 60% of our gas today is this formula based.
Gas than that's mainly in outside North America with inside North America, you should think more fixed price gaps in our portfolio. We do have some fixed price gaps in other parts and but mainly its formula outside North America and fixed in North America.
Yeah, I was only looking at the at the known US No North America margins.
So nothing has really changed and I'm sorry, good reason for why the margin is lower than its historically been at these methanol prices then.
I'd have to take it offline.
I don't have the numbers in front of me, So I mean, Egypt didnt run during the quarter.
And you know we have that's a very high margin.
Bid business for us so we.
We didnt have any any sales and they're very few sales for me to second of impacted but I'd have to look at the numbers.
Okay. Thank you.
Thank you.
The next question is from Nelson.
VC capital markets. Please go ahead.
Great. Thanks, So John just for New Zealand could you just give a bit more color in terms of the the gas market there and I.
I guess the.
I presumed there's there isn't a spot market. So you can't really get more gas and in 2020.
In terms of that 80% utilization and then I guess the second question relates to kind of longer term for New Zealand and 2021, Mike do you generally expect that utilization.
And.
Gas availability to improve.
Well, we've been experiencing a.
A lot of maintenance activities in the upstream.
Yes.
Number of quarters, So I thought it would be best to guide to what we expect as opposed to disappointing each each and every quarter just how we think about New Zealand, it's 2.4 million tons at full capacity.
That's assuming we get the high Seo to guess, which we haven't got for 10 years. So the actual capacity we've gotten in the last 10 years around 2.2.
Now there is highest cotulla gas available and where we're still actively trying to contract that but we haven't done that yet so the way I think about it without the high school to gas, it's a 2.2 million tons a facility and we've been experiencing like I said shortages because of maintenance and other activities.
I guess the good news is shell has sold their business to all M.D. and Olivia.
Our investing hundreds of millions of dollars not only in the infrastructure, but in developing.
This thing reserves as well, there's lots of other activity from ties and others, you're right. There is no spot market there for gas or very little spot market. So all the gas that we would consume and our plans is contracted so the country itself just re determined the reserves in Egypt up by 20% year over year, which I think is very positive.
So I think we're gonna have probably similar operating rates that we had this year next year, but 21 and beyond we're optimistic we can get to the 2.2 and possibly the 2.4, if we can get the high CEO to gas and are now I know our team there is working hard towards that goal.
Okay got it and then my next question relates to the yen shabby, obviously, taking a pause in Q3.
I was just wondering what your what you need to see.
On your balance sheet, our cash flow.
Started repurchases again.
Yes, so what I said is that you know weve had this target of about $200 million of cash on the balance sheet, that's not borrowed money, that's actually generated excess cash to the operations.
We're increasing that guidance to 300 million as we're completing the three a project.
Beyond the 300 million, we would plan to return excess cash to shareholders through the dividend and share repurchases. The dividend is going to be we look at it once a year round April time, and make a call whether the we grow at or keep it the way. It is a moment, we'll look at it again around the ATM time.
When we look at our internal numbers.
Above $300 methanol realize we believe that we can complete the project on our own and have a little bit of excess cash.
To repurchase shares so it'll be a factor of methanol price.
And like I said, we'll still want to build that cash balance up to 300 million before we would start to exercise the NCR do you again.
Thanks, Sean.
Thank you. The next question is from Matthew Blair with Tudor Pickering. Please go ahead.
Hey, good morning, I see your your net leverage is moving up with the debt issuance can you remind us of any sort of I guess like Max targets are parameters and.
What are the chances that you have to issue equity down the road here.
Yeah.
Issuing equity is probably a I never say never but highly unlikely.
Ski and our CFO to comment on the leverage our target leverage from a balance sheet perspective is.
As to the time two to three times debt to EBITDA.
And as as we've described before.
We live within that range.
In methanol prices above $300 tons at $3 a ton.
We achieved a leverage ratio of around three times and if you go higher than that obviously it goes a lot lower.
That's a topic, that's how we've been running our balance sheet.
Sounds good and then just a clarification on the commentary on global methanol demand. So I think in Q2, you said that you're you're asking for global methanol demand was up 3% year over year and then the commentary talked about a slight improvement in Q3, So I guess should we be thinking about like.
A 3% to 4% year over year growth rates I'm for global methanol demand this past quarter.
I think going forward, it's about 3% to 4%, including the MTO. So.
Pins on the MTR runs and.
Hard for us to forecast the future operating rates of our customers.
They have problems or or take downtime, but I think thats a good good range of growth.
Great. Thank you.
Thank you. The next question is from Chris Shaw with Monness Crespi. Please go ahead.
Good morning, John how are you done very good. Thanks, Russ I question clarification on the the $20 million EBIT impact from Egypt is that just cost that you guys had to spend or was that just sort of reflective of the volume is it produces well or just.
Although not so I mentioned, we obviously have insurance for.
The equipment and business interruption, whether deductible, so thats a combination of both.
Okay, and then a question about the the new Trinidad a.
Plant, that's coming up but I thought turn it that was I think you guys were always having some problems getting gas down there and I'm. Just curious do you have any like.
Color and why that how that plant was you know developed and I don't uninsured, who is the owner the down there as well they have enough gas what impact your guess is a availability at all.
Well since that isn't my project I'm not going to make any comments on it.
Guided to 85% operating rates for our plans based on what we've been told to expect for gas and uncomfortable with that guidance at this time.
The owner of that planets or is it.
So John Japanese, but in a small shareholding local Trinidad company.
Thanks for the it's up thanks.
Thank you once again, please press star one at this time for questions.
The last question from a share let it ride born with TD Securities. Please go ahead.
Thanks, very much and good morning.
Turning most most of my questions have been asked I'll just ask a couple of quick ones. I also looking for clarification on the $20 million reference with respect to Egypt.
Related just to the plant outage or would that have also included.
Additional logistics costs that you might incurred from a supply chain perspective.
Does suggest sharable amount, which is the equipment plus lost margin I would say business interruption no I think what are the reasons our logistics costs were higher in the quarter was because of the outage and we had to reconfigure our supply chain.
As a result, so bringing product into the Mediterranean from farther distances, which.
Led to higher cost center logistics and that would be shown in our logistics costs as opposed to and the insurance claim. Okay. So that should normalize in Q4 and going forward Dennis Loughran [noise].
Yes, but our again I'll remind you that we will be paying higher for fuel starting January .
Because of the new IMO regulations. So you know we expected to normalize in Q4, but a CR logistics costs go up starting next year because of the higher fuel costs.
Okay, and then just in terms of the gas sometimes hear me.
Can you just clarify how far out you've now contracted gas to support up to 75% to the two plant operations.
So we have 25% contracted out through 2025 minutes until they contract.
Balance, we're getting from Argentina different likes the contracts, but they are shorter term and we're in the process of renegotiating those.
That's helpful. That's all for now thank you.
<unk>.
Thank you. This concludes the question and answer session I would now like to turn the meeting back over to Mr. fine.
Thank you we remain focused on strengthening our global leadership position in the methanol industry, enabling us to deliver secure reliable methanol supply, which is our competitive advantage and makes us a preferred supplier to customers around the world.
Our balanced approach to capital allocation remains unchanged, we believe we're well positioned to meet our financial commitments execute on our growth projects in Chile in Louisiana and deliver on our commitment to returning excess cash to shareholders through dividends and share repurchases. Thank you for the interest in our company.
Thank you.
The conference has now ended.
Please disconnect your lines at this time and we thank you for your participation.
Okay. Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.
This conference is no longer being recorded.
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Please note that this conference call has ended please disconnect your lines at this time. Thank you.
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