Q4 2020 Methanex Corp Earnings Call
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All participants please standby your conference is ready to begin.
Ladies and gentlemen, thank you for standing by welcome to the Methanex Corp, Q4, 'twenty 'twenty earnings call I would now like to turn the conference call over to MS. Kim Campbell. Please go ahead Ms Campbell.
Thank you good morning, everyone welcome to our fourth quarter 'twenty 'twenty results conference call on 'twenty 'twenty fourth quarter news release management's discussion and analysis.
Actual statements can be cash from the reports tab of the Investor Relations page on our website at Methanex dotcom.
I'd like to remind our listeners on our comments and answers to your questions. Today may contain forward looking information.
This information by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome.
Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projections, which are included in the forward looking information.
Please refer to our fourth quarter 2020, MD&A and share our 2019 annual report from more information.
I would also like to caution our listeners that any projections provided today regarding methanex its future financial performance are effective as of todays date.
It is our policy not to comment on or update this guidance between quarters.
For clarification any references to revenue EBITDA cash flow or income made in today's remarks reflect our 63, 1% economic interest in it.
Our facility and our 50 per cent 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 and the impact of certain items associated with specific identified events.
We reported these non-GAAP measures in this way to make them a better measure of underlying operating performance and we encourage analysts covering the company to report their estimates in this manner.
I'd now like to turn the call over to Methanex, President and CEO, Mr. John Florent for his comments and a question and answer period.
Thanks, Kevin Good morning.
Hope that everyone is continuing to stay safe and healthy.
I'd like to take a moment to thank our team around the world who have shown incredible dedication.
And flexibility in a year, where we've had to change how we work to ensure that our team remain safe.
While continuing to deliver reliable supplier to our customers.
In the face of these challenges we achieved stronger Q4 results demonstrating the resilience of our business.
This morning, we will comment on our Q4 and full year 2020 results provide an overview of what we're seeing in the methanol markets.
Review, our operational results and share on near term outlook, including how we will continue to manage our business given that the economic recovery remains uncertain.
Turning to our financial results in the fourth quarter of 2020, we recorded adjusted EBITDA of $136 million on adjusted net income of $12 million or 15 cents a share.
We recorded higher fourth quarter results compared to the third quarter, primarily primarily due to the realized prices highlighting our significant leverage to methanol price.
Our results were partly offset by changes in the mix of produced and purchased methanol sold.
On a full year of 2020, our financial results were lower compared to 2019, primarily due to lower realized methanol price.
We recorded adjusted EBITDA of $346 million and an adjusted net loss of $123 million or $1 62 per share for 2020.
Now turning to the methanol market.
In the fourth quarter. The continued improve proven in the global methanol demand combined with various planned and unplanned methanol industry outages and delayed startup of new industry capacity led to tighter market conditions and lower inventory levels supporting higher methanol prices.
Global methanol demand began began to recover in the second half of 2020 after falling in the first half of the year due to the impacts from the COVID-19, pandemic and a lower oil price environment.
We estimate the global methanol demand increased by approximately 2% in the fourth quarter of 2020 compared to the third quarter.
Overall, we estimate that the global methanol demand total approximately 82 million tons in 2020, which is a 3% decrease compared to 2019.
Before COVID-19, we forecasted global methanol demand growth of approximately 3% as a result, we estimate that 2020 global methanol demand is approximately 5% to 6% lower than pre COVID-19 expectations.
The methanol industry ran at a lower operating rates in 2020 due to plant shutdowns to respond to lower methanol demand as well as various planned and unplanned outages.
In the fourth quarter, there were a number of plant outages around the world, particularly in Iran, and in China, where there was a diversion of natural gas to meet seasonal power demand instead of methanol production the.
The delayed startup of new industry capacity additions also contributed to tighter market conditions.
We estimate that the industry cost curve, which continues to be set in China is approximately $260 per ton.
The cost curve is higher than the third quarter as a result of higher coal prices spot prices in China are above this range today.
So far in the first quarter of 2021 market conditions remain tight and we posted higher prices for January and February 2021.
We recently posted our February North American price, which increased to $492 per ton and on.
Our Asia Pacific price, which increased to $430 per ton.
Our European contract price is set quarterly and our first quarter posted price is 390 euros of $475 per ton.
We mentioned on our Q3 quarterly call that we will provide updated guidance to our discount rate to two posted methanol prices.
In 2021, we expect to see a higher discount rate of approximately 17% on average compared to our prior 15% guidance as we saw more competitive environment given broader economic uncertainty.
Recall that when prices increase quickly our discount rate.
Tends to decrease in debt versus true in prices decrease quickly.
Now turning to our operational results, we will speak to our fourth quarter production results and provide comments regarding our production outlook for 2021, including ongoing natural gas curtailments that are expected in New Zealand, Trinidad and Chile.
Our production levels were higher in the fourth quarter compared to the third quarter due to higher gas availability in New Zealand, and Chile and record production at our Geismar facilities.
The New Zealand, our production levels were higher in the fourth quarter due to improved gas supply in 2021, our outlook for New Zealand production is uncertain.
Our gas suppliers have recently buys that are major offshore gas deal, which supplies the new Zealand market and underpins a low portion of our production has experienced significant unexpected production declines, which will result in lower gas deliveries.
Given that gas deliveries are expected to be lower in 2021, we are consolidating production or two large matsui plants, which have a combined operating capacity of one 7 million tonnes and temporarily idling, our smaller wipes reveille plant.
We estimate production in New Zealand for 2021 of one five to $1 6 million tonnes compared to our 2020 production of one 7 million tons.
And guys were both plants ran at full operating rates during the fourth quarter our.
Our production benefited from the completion of our low cost Debottlenecking project at our Geismar, one plant and we have seen a 10% increase in our daily production capability of this plan.
We expect to complete the Gabon Debottlenecking work at our Geismar two plant in 2021.
When the Debottlenecking activities are complete the geismar facilities will have on operating capacity of $2 2 million tonnes on an annual basis.
In Trinidad our production levels in the fourth quarter were similar to the third quarter as planned turnaround activities at our Atlas facility impacted both quarters.
Looking into 2021, we have been advised that upstream production declines and the delay of upstream maintenance work due to COVID-19 will result in lower gas deliveries. It is unclear how long these lower gas deliveries will persist.
Based on our current guests deliveries, we estimate production in Trinidad for 2021 of 900000 tonnes, reflecting methanex interest compared with our 2020 production of 1 million tonnes.
All 2021 production is expected to come from the Atlas facility as we announced earlier this month that we expect that the Titan facility will remain idled indefinitely, because we've not been able to reach an acceptable low.
Longer term natural gas agreement.
We continue to have discussions around opportunities for longer term gas supply.
In Chile, our production levels were higher in the fourth quarter as we receive higher gas deliveries. However, due to lower gas deliveries later in the fourth quarter, resulting from upstream production declines in Argentina, we are unable to run both plants in December.
Our Chile four plant remains idled today, that's uncertain how long these lower gas deliveries will persist.
We estimate production in Chile for 2021 of 900000 to 1 million tons compared to 2020 production of 800000 tons.
In Egypt production in the fourth quarter was similar to the third quarter.
In medicine hat, our planned plant ran at nearly full operating rates. After the completion of a planned turnaround that concluded at the end of October.
Our 2021 production is forecasted to be similar to 2020 production of $6 6 million tons. Although actual production may vary by quarter based on gas availability planned outages extended unplanned outages.
Anticipated factors.
Now turning to our balance sheet.
We took a series of decisive actions in 2020 to further strengthen our business and our balance sheet.
As a result, we ended the year with a strong liquidity position of over $800 million in cash of $300 million Undrawn revolver revolving credit facility and no debt maturities until the end of 2024.
Our disciplined approach to capital allocation has not changed on over the long term. We believe we are well positioned to meet our financial commitments.
Execute on attractive growth opportunities that exceed our hurdle rate and deliver on our commitment to return.
Excess cash to shareholders through dividends and share repurchases.
Regarding our Geismar three project as we personally we previously discussed this is a high quality product with substantial capital and operating cost advantages and.
April 2020, we placed the project on temporary care and maintenance for up to 18 months given the significant uncertainty regarding the global economy due to COVID-19.
The project was in excellent shape and progress had been safe on time and on budget and the project projects has been significantly derisked construction on the Geismar three project remains on hold.
Have a robust decision, making process for evaluating the project and before deciding whether to restart construction management and our board will need to carefully consider many factors, including the strength of the global economic recovery and the overall ethanol industry outlook.
We are encouraged by the early signs of economic recovery that began in the second half of 2020.
However, given that the COVID-19 pandemic continues to limit our near term visibility it is difficult to predict how methanol demand industry supply of methanol prices will ultimately recover on a sustained basis.
For now we remain cautious and we are prioritizing liquidity and financial flexibility.
Now turning to our outlook for the first quarter.
In the near term based on our posted prices. So far we expect realized ethanol prices in the first quarter of 2021 will be higher than the fourth quarter of 2020.
We expect that our production levels will be similar compared to the fourth quarter given the natural gas curtailments in New Zealand Trinidad in Chile that we mentioned earlier.
Adjusted EBITDA is expected in the first quarter to be higher compared to the fourth quarter.
In 2021, we will remain focused on operating our plants safely and reliably delivering secure and reliable supply to our customers and protecting our strong financial position and financial flexibility.
We are well positioned to continue delivering significant value to shareholders over the medium to long term as market conditions improve.
We would now be happy to answer any questions.
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The first question is from Joel Jackson of BMO capital markets. Please go ahead. Your line is now open hi.
Hi, good morning, John.
Morning, Joe Bob John I know you can't predict the future can you help us handicap as you sort of plan your business.
You know how.
How you would see the different <unk>.
Cash issues, you're facing right now sort of more normalized like can you prioritize what you think will come back to be normalized.
Normalized faster it would seem like you'd think new Zealand might be the one that's on.
Most likely not to normalize soon because of the consolidation of plants can you just give us as much as we can about how you see it happening.
That's really difficult to predict these new Zealand news on the Trinidad News came late last year.
He was expecting that news, including our GAAP suppliers. So we're working with them to really understand the problem I think in New Zealand. The suppliers have tried some things to see if they could impact what's happened in the field and unsuccessfully so I think what we understand is there has to be some drilling going on there to recover the field fully.
And that's going to take some time debt to get rigs et cetera. So.
Hopefully sometime later this year, but really hard to predict.
And then we have to make an investment.
We are planning to take our.
Going to valley plant down.
February one for fairly significant turnaround from a statutory point of view.
Obviously without the gas it doesn't make sense to spend any money on that plant. So.
We will have to have a really good view that we will have enough gas for <unk> plant operations for a sustained period before we invest any money in that way to valley plant, maybe better for US just to run the two larger ones for the foreseeable future, but early days.
We're still working with our gas suppliers to understand the issue.
I think Chile, Argentina didn't have much investment.
In gas because of COVID-19, that's changed in the fourth quarter.
We're being told biogas suppliers to expect GAAP.
<unk> deliveries later this year, but until we see it will continue to run one plant in Trinidad is pretty opaque. So I really don't have any anything to update with Trinidad other than we were told.
Few weeks ago that to expect.
Gas deliveries of about 80%.
That's helpful. Thank you and then my last question would be.
You know that U S Gulf spot methanol prices were somewhat weak in that in January I think on about $30. A ton you were able to affect the February posted price contract at about a $10 per ton higher month over month can you talk about some of the dynamic there despite a slower weaker spot market youre able to raise prices I guess spot.
Prices don't matter and customers are happy this is related to some of your from now lower cash available anything there would be helpful. Thank you.
Yeah, I've always said in Europe, and North America, the spot markets are pretty liquid very little product gets traded on the spot markets there.
Indication, but they don't really drive pricing decisions and those two markets in Asia in China, especially as spot market is very large so that has a bigger impact in when we're thinking about prices. So.
I know our team looked at supply demand fundamentals.
Fundamentals for the next period 30 to 60 days.
To the customers about what they're seeing in their supply demand balances and then we make decisions on pricing.
And based on those discussions we increased prices slightly.
So we still continue to see inventories quite snug and <unk>.
Demand.
Not back to 19 levels, but better than it was.
In the first half of last year, but I'd say this is.
Tightness is being driven by.
Unplanned and planned maintenance around the world as well as gas availability issues in places like Iran, and China. So.
Windows will turnaround who knows.
We're above the cost curve all of 2018 by $100 a ton and that's kind of where we are today, a $100 a ton above the cost curve.
When that changes it really will be a factor of supply coming on in there as anticipated new supply as well from our plan from the United States.
And really around demand recovery.
The hardest thing for us to predict today as demand recovery in this COVID-19 environment as we see the second wave and government is taking different actions on.
Really the vaccine rollouts are starting but.
Probably going to take some time to work their way through and see restrictions so lowered somewhat so.
Really tough environment to predict Joel.
Thank you very much.
Thank you.
The next question is from Jacob bout of CIBC. Please go ahead.
Good morning, John.
Just a question on <unk> three.
Still targeting.
Mid 'twenty 'twenty, one decision and how far can you push it on the <unk>.
Susan before Theres, some more financial penalties.
Yes, so our target to make a decision on <unk> is in the summer.
Obviously, our teams are working hard to see what.
What different options, we might have at that time.
Certainly we'll want to look at what's going on on the methanol markets and as part of that decision. So.
I know our teams are working hard to see what our options soon to defer or start or or other things and really don't have any numbers at this time around them.
Okay.
John.
And then.
From a core price reduction moved.
A bit in China interest in getting your thoughts around where you think the cost curve Florence for methanol right now.
Yes today, we see it around $2 60.
Jacob.
It is based on coal and some natural gas as well.
Coal has moved up to the higher end of the range that the government had stated after the 2016 price collapse in oil.
It's really driven by supply demand.
It's hard to predict but I don't think coal is going to go much higher than where it is today unless you see oil.
Moving to 60, 70, $80, which is not our view so but we'll continue to watch it were a bit surprised how high the coal prices in China at this point.
Thank you John.
Thanks.
Thank you.
The next question is from John Roberts of UBS. Please go ahead.
Thank you and nice quarter.
There's been a lot of disruption in freight per container ships, our bulk liquid shipments being affected at all I know you have your own ships, but the methanol industry at all having any logistical challenges here.
Well, we're not I'm not aware of any others. So there seems to be available shipping for chemical liquids.
No I'm not aware of any John at all on I am aware of what's going on in the container industry, though and I think that's more driven by low.
Lots of product coming from China, and not much going back so.
I think it's different in illiquid liquids market.
Okay, and then earlier this year you talked about your own maintenance being challenging during the pandemic is that a significant cause of the greater industry downtime, our competitors, either delaying maintenance and that's reducing their reliability and causing some of the outages or when they're doing maintenance, it's just being more disruptive to supply.
Yes, I can only speak to our own experience, but if youre following COVID-19 safety protocols.
Got it.
A lot more time to follow those so you do have extended from original schedules.
You've got probably more investment.
Because you have social distancing in on all of those things and it's tough to get people experts into certain countries.
When we did our Trinidad turnaround it was really difficult to get are usually bring 40 or 50 global experts in to help.
So a lot of that was done remotely via cameras and videos and it takes a lot longer and not as efficient and maybe not as as.
As good either so that's been our experience.
And I am sure anybody in the petrochemical or anything, but it's running a large.
<unk>.
Goes through these kind of turnarounds is experiencing the same thing.
Alright, thank you.
Thank you.
The next question is from Mike <unk> of Barclays. Please go ahead. Your line is open.
Thanks, Good morning, John.
Good morning.
Firstly, just a question on the higher discount rate that you mentioned for 2021 I was hoping you could maybe just talk a bit more about what's driving it whether it's a specific region or startup of new capacity and is it more indicative of what's going on here at the beginning of the year or do you kind of expect this to be the.
The ongoing level of discount kind of moving forward.
Yes that guidance is for 2021, most of the contracts globally from ethanol or negotiated in the fourth quarter of any given year.
Like I mentioned in my remarks, we were expecting three to 4 million.
<unk> growth in methanol demand and we saw a 3 million ton decline so.
That's about 6 million tons of different than what the industry was expecting that's four to five world scale plants. So.
I think there was a lot more or I don't think I know there was a lot more.
Rivalry as we negotiated contracts.
And some competitors, maybe that didnt have home for their product really offering.
All time high discounts so.
We're in this for the long term, we work with our customers.
Over the long term and we're certainly not going to be moved aside on a on a price basis.
Because of a short term what we believe is a short term demand situations. So we took the decision to be competitive and it is a commodity and you need to be competitive and that's what's gone on here. So.
<unk> seen this before but not to the extent of the rivalry that we saw at the end of last year.
Got it that's helpful and maybe just a broader industry question on methanol demand. There's obviously been a lot of talk lately about clean energy and the use of hydrogen obviously methanol as a lot of merit as a clean burning fuel source and methanex has done a lot of work advocating for that I'm curious in your conversations if you've seen a true.
<unk>.
In the conversations with potential customers about methanol is the energy opportunity.
It's changed your low.
Long term view at all.
In that regard.
Well, we've had an investment in this clean burning methanol.
Clean.
Zero carbon methanol in Iceland for 10 years.
It's a small plant, but it takes.
Water.
Splits it into hydrogen and oxygen.
Power plant, we make methanol, so it's 100% carbon free.
The challenge is the cost the cost of that kind of methanol is two to three times.
Methanol made from natural gas. So there is the odd customer that.
We'll pay that kind of pricing based on day wanting to have a green footprint, but it's.
A very very small part of the overall industry.
The technology works, it's scalable to not to the extent that we see natural gas, but you can probably do a 50 to 100000 ton plant.
But you need 10 of those to meet a world scale plant from natural gas.
We don't have customers today that are asking for our millions of tons of <unk>.
Carbon free methanol that doesn't mean it won't happen in the future, but we are we are ready to scale, we are ready to to move, but we need on much higher price.
And even what we're seeing today in the methanol markets too to make a return on capital so.
It's a bit of a chicken and the egg the technologies. There we can do it but right now we haven't had the customers lined up to pay 1000 Bucks a ton for that kind of methanol. So we're certainly not going to blindly invest in multiple plants based on this technology without having some secured contracts.
That makes sense from a return on capital employed basis.
Great. Thank you.
Thank you.
The next question is from Steve Hansen of Raymond James. Please go ahead.
Yeah, Good morning, John.
John I know, it's hard for you to comment on on other specifically, but the challenges that you've seen here on your gas supply specifically it sounds like theres some unique situations in each country, but as a general common theme it sounds like some upstream.
Or lack of upstream capabilities or maintenance or whatever it is it's been through Covid has had it.
From impact across the board is there are there other instances in the industry that are suffering from the same challenges I'm just trying to sense for whether this is can be something more broad or if it's just for whatever reason isolated to yourself and just as a related question. You know Trinidad strikes me is the most interesting just given that we've seen on your plant startup. There recently, so just maybe walk us through your.
Thoughts on that if you if you could.
I don't have any specific information about <unk>.
Gas issues in other countries other than what we've already reported.
On productions in places like Trinidad and Venezuela as two examples.
We understand there could be issues, maybe in Indonesia, as well, but we don't have any specific.
Information on why or how come it seems to be more and more gas is diverted in places like China and Iran. In the wintertime, which has been a phenomena we've seen for the last.
10 years, but it seems to be more acute this year is that because of colder weather could be.
Because of more demand probably but.
At the table if these governments, making these decisions.
I would say I'm really happy that we have three plants in North America, where there are no gas issues and it looks like no gas issues for the foreseeable future and Egypt, I really good new story, where theres a lot more gas than there is demand right now and thats because of all of the success they've had in the.
Exploration on the upstream so yes, we've seen these issues I can go on you remember medicine hat was shutdown for 10 years and interest.
Chuck <unk>, Louisiana.
We're down to one small plant in New Zealand. So this has been an issue for us.
20 years I've been at the company, so it's really hard to predict.
When these things happen and how long they last.
But we'll work with our suppliers and we'll get through this we don't think this is a <unk>.
Significantly long term issue in any region, but.
We need to be cautious about when and if we can.
Resolve these problems.
Okay, that's fair.
And just to follow up on me on the discount question earlier.
You're suggesting this is a somewhat short term issue, but I mean, if we're thinking about into 2022 shall.
Should we think about that 17% rate holding or do you think we'll get back to that more normalized 15% and just as a related to that is this a regional specific issue or is it.
More globally as you negotiate contracts.
Yes, so again I don't like predicting the future.
But I'd say you know not all of our contracts come up.
Every year Theres a portion of them come up so you can see the impact of even a portion of the business being renegotiated at a very competitive environment.
Steve I think it's going to be a factor what's demand look like.
How do we recover demand and how does the new supply gets absorbed.
So beyond.
On the Coke plant in the United States is not a heck of a lot coming on on the next five years. So.
It could be.
Depends on what your view of short term is but.
We're pretty excited about the medium term supply demand fundamentals as long as we can get beyond this pandemic and get some more normal activity on a global basis.
Okay very good thing.
Yeah.
Thank you.
The next question is from Hassan Ahmed of Alembic Global Advisors. Please go ahead.
Good morning, John.
Okay.
John wanted to do.
So to touch on.
It is that the industry experienced particularly in the back half a day, yeah I mean.
Correct I believe it was like slightly north of 8 million tons of <unk>.
And all the capacity that was going through.
Be it planned or unplanned outages.
You've touched on sort.
Gotcha she was out.
Trinidad.
She was out in New Zealand as well.
Where would you see that number being through the course of 2021.
Yeah, again I have no idea.
What are unplanned outages.
Land outages are there.
Plant feed a turnaround every three to four years.
But what else is going to go on with those plans from what are their vulnerabilities and I have no idea Hassan.
Okay. Okay.
Now as a follow up obviously.
Administration change here.
In the U S and you know I'd like to think that the current administration would not be as hawkish.
On the Iranian side of things.
Are you seeing any sort of early signs of Iranian brought out sort of making it into the export market.
Currently and what are your expectations.
Call it over the next couple of months.
Iran has been experiencing quite a few restrictions we understand on gas and they've had some technical issues, we understand as well so we haven't seen.
Normal amounts of product coming out of Iran, which is a phenomenon. We've seen this time every year for the last.
Number of years I would say, it's more acute right now.
The new administration in the United States decides to do with the.
On your deal on sanctions is beyond my pay grade level, So I'll take a pass on that one.
Thanks, so much.
Thank you.
The next question is from Cherilyn Radbourne of TD Securities. Please go ahead.
Thanks, very much and good morning.
And Keith.
Can you sort of asked my question on gas availability, but Tom with respect to New Zealand in particular can you just comment on what you would need to see in order to undertake.
Significant turnaround at the white wider at Bali plant and what sort of lead time, you would need to undertake that kind of decision.
Yes, well we are in the.
Midst of our planning that turnaround when we got the news.
So the planning is done.
It's a matter of people.
A bit of equipment, but I would say, we need to see gas availability on the technical issues resolved on that field to allow us to have run on three plant operations for a significant period of time.
That's what we were set up to do.
When we plan to turnaround on White Valeant. This is a very significant field and where have the gas market. New Zealand. So you can imagine the impact not only on us, but the electrical generation and others in New Zealand, so our suppliers werent expecting this to happen.
And they tried.
Other things to resolve it may have been unsuccessful. So.
We rely on them to give us information on what they see.
I think there is going to have to be some drilling done in this field to correct. The problem. It's correctable. So that's going to take some time.
And then just with respect to capital allocation I'm going on.
Just a couple of ways. So so just comment on how you think about geismar three versus share buybacks versus dividends and and is there a scenario over the next couple of years where are you.
Don't resume spending on Geismar, three but do feel comfortable allocating some cash to buybacks or dividends or.
<unk> increased dividends I should say.
Like I mentioned in my remarks, nothing has really changed with our capital allocation strategy.
And we'll grow the company at the rate of growth the methanol market, which obviously didn't growth in 'twenty.
2020, and then return excess cash through dividends and share buybacks. That's been our strategy that hasnt changed I would say in this environment where on.
Financial flexibility liquidity Trump all of those.
And if we have pricing like we see today for a couple of years, we will have tons of cash to grow the company too.
Return.
Sure money to shareholders through dividends and buybacks. So to me, it's all about demand.
What happens with demand do we get back to a more normal situation of demand growth.
And if we do then beyond the Coke plant, that's coming up we think the supply demand fundamentals are very attractive, which will lead to price and that allows us to generate a lot of cash and fulfill our strategy on capital allocation, but today, it's really uncertain. So we'll keep our powder dry and when.
When we look to the G. III decision in the summer, we'll have a bit more information around how the pandemic is impacting demand for methanol.
Okay. Thank you for the time John.
Thanks, John.
Thank you.
The next question is from Nelson <unk> of RBC capital markets. Please go ahead great.
Great Thanks, and good morning, John.
Good morning, Michael.
My first question relates to Trinidad in terms of the <unk> methanol plant being fully commissioned.
Does that materially reduce the.
For natural gas potentially for Titan or.
Any other facilities or needs in Trinidad I was just wondering in terms of like you've recently.
Titan.
It'll tighten indefinitely, but I'm just wondering if conversations are still taking place in on whether the outlook has.
Okay.
So it doesn't look very favorable day.
Sure.
Yes, so I've mentioned before the upstream and the government of negotiating.
Different terms on what are today the terms a third today don't allow us to run that heightened plant through the cycles.
<unk> kept it down and ready to go for eight months.
And those solutions, we decided to pilot more on an indefinite period.
Supply demand balance for gas in Trinidad is really a factor of price.
We don't know where the gas is coming from from the new flat, but obviously it will impact the overall supply demand balance but.
Many of our.
Other people on the site ammonia and methanol have also experienced.
The same thing we haven't shut down capacity. So there's a lot of capacity in ammonia methanol that's not running.
And I think we're going to need to see more gas development.
Talk to us about.
<unk> market there.
<unk>.
It's complicated.
And you are unsuccessful on some of our.
<unk>.
The manufacturer ammonia had been on successful.
Made the same decision weighted so we'll continue to talk to the government.
Here's something that makes sense on a medium term basis, we'll look to restart that plant, but it will take capital as well so.
Not too dissimilar to what we're seeing in large valley, we will have to spend money and hire people and that takes time.
Okay got it and then moving on to Chile.
Based on all the various supply agreements you have in place.
Are you able to give a bit of color in terms of how much gas you typically expect from from Argentina.
Yes.
I mentioned before we had gas contracts signed up to run two plants.
Throughout the year, except for the winter time or summertime for about three months. So we expect it to have.
75% on operating rates.
Throughout the year I also mentioned the Argentinian gas was interruptible, both by us and by the supplier.
And we chose to interrupt that gas in April.
When COVID-19 happened and shut down one of our plants because of demand.
So they are also the exercise their rights on interruptible gas because of the lack of exploration and development in 2020 on that's changed now that there's a lot more being spent in <unk>.
We're being told to expect gas to run both plants.
Sometime this year, but until we see it.
And we will continue to be cautious and run the one plant.
And.
Is all that gas from Argentina on that Tony.
<unk> arrangement, where they send your gas in.
Your processes from ethanol and send it back.
No we haven't had that arrangement.
Four five years.
Okay got it alright, thanks for that.
Thank you.
Thank you once again, please limit yourself to one question and one follow up question from further questions. Please rejoin the queue.
The next question is from Eric Petrie of Citi. Please go ahead. Your line is now open.
Hi, good morning, John.
Good morning.
As North America turns to a net exporter of methanol do you see any change in pricing relationship between the regions.
Yes, we're watching that pretty closely and up to now we haven't seen any any impact I guess the next milestone will be the.
Coke methanol plant, but what else happens in the basin, it's not just a north American situation hold Atlantic Basin.
And the supply demand fundamentals there.
We will do will dictate if theres any impact but up to now we haven't seen any impact on on the pricing in the basin balances.
Okay, and then on G. III you noted your preference to do a partner on that project can you discuss what the pool of potential parties looks like or has that stalled given COVID-19.
Yes.
Pretty well on install mode on partner discussions.
If you recall this time last year, we had hired a banker to run the process for us.
Then it's actually won year to.
To date that we had our first case in BC. So.
Obviously, when COVID-19 happened those discussions.
People Werent looking to invest in methanol plants at that time so.
It's difficult in this environment too.
Pursue partnership discussions, but that's still our preference.
Okay, and then last could you just give an update what's your plan operating changes with a $10 per ton price change in methanol translates to EBITDA and free cash flow.
Yes, I will take that offline.
Okay.
Jim follow up thank you.
Yes.
Thank you.
The next question is from Ben Isaacson of Scotia Bank. Please go ahead. Your line is now open.
Thank you and good morning, John.
My first question is.
Where is methanol demand the weakest right now if it's if you want to answer that by region or by <unk>.
End use market would that be fuel blending our MTBE and kind of what gives you the greatest concern about demand recovery going forward.
Would you say it was the deepest.
Sorry.
So if I look if I look at 2020 versus 2019, which I think is the most recent data we have.
Traditional demand was down 5% energy was flat, but really driven by MTO, which is up 12.
And then the other energy that's really for transportation like MTBE <unk> fuel they were all down 5% to 6%. So the only shining star in 2020 was MTO net.
Was up 12% year over year.
So I'd say as far as regions, China is back to where it was.
As far as demand 2020 versus 2019, the rest of the World I'd say North America download the most by about 9% the rest of the world between four to six net.
Year over year.
Great. Thank you and as a follow up.
Is there a market for <unk>.
China or others buying used plants I'm just thinking like.
If you think about Titan or Chile, four or white Kara.
New Zealand is there a way to offset the capex or partially offset the capex at G. III by selling some of these plants to the Chinese for a few hundred million dollars and that would reduce the risk profile for G. III.
Yes, well we've looked at.
Chile.
Remember was a bolt on to Chile, 123, and I'll actually one so that's not really a standalone plant except for what we've been able to do integrating it to July one.
We looked at moving tightened in the way, it's built it's probably where it's not pretty much from.
Equipment at some steel.
And Walter Valley is pretty old needs quite some tender loving care. So.
I don't think we're at the point today, where we're going to be selling these plants for cents on the dollar we're going to try and see a little bit more visibility on the gas situations.
In all three we've had these challenges before.
There's lots of attempts to buy our medicine hat plant from the 10 years. It was down and we sold two and kept one I'm glad to be kept for one.
We got cents on the dollar for the other two and would it be nice to have a free plant operation there today.
On the future is very hard to predict so I think we will we're not in that mode yet.
Okay. Thank you so much.
Thank you. The next question is from John is absurd of Bernstein. Please go ahead.
Well thank you.
A question right right now on LNG prices Spike up to I think $20 from the Btu coal price of Spike and you seem to be on the way back again.
Okay.
Your experience when you've seen these things in the past, but does that have any material impact on global production do producers take a brief hiatus during a spike like this.
Methanol producers.
Yeah.
Yes in the past and Lindsay spikes have happened, we haven't seen any impact on the LNG I'll call was despite.
On where we are today, it's just a matter and move the cost curve up but like I mentioned earlier, we're already $100 a ton above the cost curve.
So we would think in this environment anybody that could run on methanol plant is.
Running as hard as they can.
So.
There's lots of room for coal prices will go up and still be cash positive.
In China.
It's really a factor of.
How how high the price is and how long do you think the price is sustainable.
But there's lots of room today to.
I have every plant that can run run at full rates.
Okay.
On a separate question I just want to follow up on the.
On the carbon free methanol in Iceland so.
You mentioned that it's expensive to produce but if you think of it as a carbon sequestration, how does the cost compare to sequestering seal too.
And.
And this seems to be a potential solution for places like Iceland that cant sequester cotwo.
So how does it compare to other possible C O two elimination efforts.
Yes, its more favorable I mean, when we looked around the world that technologies to produce methanol carbon free. This was the one that made the most sense to us.
Expensive and smaller scale I haven't dusted off the sequestration numbers for a bit but it was very expensive to for one of our plants like in Louisa.
Louisiana or medicine hat to sequester carbon, but I haven't dusted those numbers off so I'll have to take that offline and get back to you.
Okay. Thank you.
Okay.
Thank you.
Next question is from Matthew Blair of P. P. H. Please go ahead. Your line is now open.
Hey, good morning, John the release noted the global methanol demand rose, 2% quarter over quarter in the fourth quarter could you just could you share any insights on how that might be progressing so far in Q1 'twenty one here.
Yes, Q1 is usually the low quarter for methanol demand.
So when we look at quarter over quarter, we see it pretty well flat to down a little bit, but thats based on forecast so.
Not very good in the forecasting business.
Thats our expectation today.
Sounds good and then John you always have helpful commentary on China could.
Could you talk about the current dynamics from the country with natural gas being diverted to home heating youth.
And do you have any numbers you can share on on just what kind of impact that's having on methanol production in the region.
Yes, like I mentioned anybody that can produce methanol today, we will be producing at full rates.
The pricing dynamics.
As already mentioned on the call LNG prices have spiked.
China is a large import of LNG a.
$20 in F&B to you it doesn't make sense to make methanol. So we've seen this in the past and we would expect as temperatures come into the summertime.
And prices from ethanol stay where they are that we would expect more natural gas producers to be making methanol, but until we see it like I said, we in 2018 because of supply issues. We saw the price remain above the cost curve by 100 Bucks the whole year.
Unusual to see that but.
It's really hard to predict in this environment to me, it's all about demand and demand recovery.
Will lead to sustainable good pricing.
Sounds good thank you.
Thank you.
The next question is from Adam Star of Golf side asset management. Please go ahead. Your line is now open great. Thank you for keeping me in the queue.
What do you expect capital spending to be this year.
Excluding any.
Decisions on.
Hi, it's mark.
What would what do you think the cost of completing Geismar would be if you go ahead with that.
Yeah, our maintenance capital spend this year will be about $110 million.
And to complete Geismar team is doing that work right now, but based on our initial.
<unk> numbers.
We.
Beside to restart the construction later this year.
Budget that we're looking at it as not too different than what we had already signaled to the market, which is a range of one three to one four.
$1 billion.
And up to the end of this year, we have spent 365 million.
We've got about $900 billion to $1 billion to go.
Yes, Adam we have about $80 million of cost to spend this year on the care and maintenance program and then after that it's about $900 million.
To get to John's number of the one three to one 4 billion.
No.
And that care and maintenance is that within the 110 of maintenance Capex for the whole company.
In addition, I'd say in addition to the one time.
Got you that's very helpful. I appreciate it.
And the Argentina situation does that have anything to do with the.
Most recent change in government.
There'd been policies that have affected cash production or is this entirely a business related.
Thing to do with the.
Political situation.
Yes, there were a number of reasons, including politics.
No investment happen from most of 2020, and but that has changed in the fourth quarter and we're seeing more development of GAAP. So that doesn't mean it can't change again.
But there are policies in place today that are very helpful and encouraging to suppliers in the upstream.
Okay. Thank you very much I appreciate your interest.
Thank you.
The last question is from Steve Hansen of Raymond James. Please go ahead. Your line is now open.
Yeah, sorry, John just a follow up here on day three so if if we presume and I'm not going on.
Conclusion, yet, but if we presume that there is a deferral.
G III this summer or if there's a decision not to proceed.
Happens next what is the next gating milestone after that.
I know you can put these projects on care and maintenance for a longer period of time, but you know what.
Would you revisit it annually quarterly what is the process you're coming into this important decision.
Yes, what we're going through that now so what are our options I think the more you delay the more risk to the project that's clear.
Product teams still in place and a lot of the things that we've put in place are still there through this current maintenance period. If you have a further deferral.
Extended time that adds more risk to the project. So our teams are working through what are our options.
And probably comes down to start restart or deferred for a period and depending on how long that period is you'll have different risks and different costs. So our teams are working on working on that it's pretty too premature to be sharing any of that data yet Steve.
No that's fair and just just as a follow up.
Going back a few years now you reported to have some Chinese partners potential partners at the table a lot of that got.
Squashed with some of the political dynamics taking place.
Administration in the U S. Again, I mean, how do you feel about re engaging on.
Two of those Chinese partner that you would in previous discussions with.
And we'd love to have a Chinese partner for the Geismar project Geismar three but.
I think China is going to take a wait and see attitude towards the new administration.
I'm not a political expert but.
Are things going to change significantly between the two countries I don't know so we will see I think theyre going to take a wait and see attitude as well.
Okay. That's fair. Thank you appreciate that.
Yeah.
Okay, well, thanks very much.
We've continued to demonstrate the strength of our business model throughout the pandemic and our competitive advantage on delivering secure and reliable supply to our customers around the world.
We are encouraged by the continued improvement we have seen in methanol demand in prices, although the near term economic recovery remains uncertain.
We remain focused on operating our plants safely and reliably delivering secure and reliable supply to our customers protecting our strong financial position and financial flex ability.
We continue to believe that the long term outlook from ethanol remains intact methanol as a key chemical building block that is used to Bruce.
Alrighty of everyday consumer and industrial items.
Methanol is also used in a growing number of clean burning and economic alternative energy applications. While there are limited industry capacity additions expected beyond 2022 based on lower investment in the current environment, we expect the demand from ethanol to rebound and grow as global economic activity recovers.
Will emerge from this pandemic stronger than ever and we will continue to execute on our consistent strategy to deliver significant value to shareholders over the medium to long term.
You for joining us today, and we will speak with you in April and thank you for the interest in our company.
Thank you.
Conference has now ended please disconnect your lines at this time, we thank you for your participation.
This conference is no longer being recorded.
This is from August.
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