Q3 2022 Methanex Corp Earnings Call
And our 60% interest in waterfront shipping.
In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark to market impact on our share based compensation and the impact of certain items associated with specific identified events.
These items are non-GAAP measures and ratios that do not have any standardized meaning prescribed by GAAP and therefore unlikely to be comparable to similar measures presented by other companies.
We report these non-GAAP measures in this way because we believe they are a better measure of underlying operating performance and we encourage analysts covering the company to report their estimates in this manner I would now like to turn the call over to Mechanize, President and CEO , Mr. John flooring for his comments and a question and answer period.
Good morning, everyone is continuing to stay safe and healthy.
We have reached on their own Nicole who will become our new president and CEO on January one 'twenty.
2023.
It has been a privilege to serve as methanex, president and CEO for the past 10 years and I look forward to seeing rich continue to extend our global market leadership position as well as continue to lead our strong performance in safety and operations of the assumed the CEO role.
On the call today, we will review our third quarter 2022 financial results provide an overview of the methanol markets discuss our operational results.
Sure our near term outlook.
Then we will open up the call for questions.
Our average realized price of $377 per ton and generated adjusted EBITDA of $192 million.
And adjusted net income of $49 million or <unk> 69 per share.
Adjusted EBITDA was lower in the third quarter compared to the second due to a lower average realized price lower sales of metal methanex produced methanol because of planned turnarounds and some unplanned outages and higher spot gas cost in North America that impacted EBITDA by approximately.
$10 million.
This was partially offset by redirecting and selling our contracted natural gas in Egypt.
Global methanol demand in the third quarter was flat compared to the second quarter of 2022.
Demand from the traditional chemical applications was down slightly with acetic acid re.
Starts in North America, being offset by other planned outages and logistics logistics constraints across various downstream sectors as.
As well as the slowdown in demand growth, primarily in Europe and China.
Demand for methanol to olefins or MTO remained stable with the startup of the new Bohai chemical MTO plant, which can consume up to $1 8 million tons of methanol ramping up to 70% in the third quarter.
This offset lower operating rates from existing plants in July and August .
MTO affordability affordability came under pressure.
Demand from energy related applications increased in the third quarter as easing COVID-19 restrictions in China led to an increase in demand for MTBE and other fuel applications.
Industry operating rates decreased in the third quarter because of extended turnarounds as well as planned and unplanned outages globally.
We estimate the industry cost curve based on the marginal producer cost in China to be approximately $350 per ton.
Our November posted prices remained healthy north American prices remained flat at $585 per ton Asia Pacific and China prices remained flat at $410, a ton and $395 per ton respectively.
Our European contract price is set quarterly and we decreased our fourth quarter 2022 price by 45 euros per tonne to 510 euros per tonne.
Volatile spot prices in the third quarter, primarily in China led to a lower discount rate of 21, 5% compared to the second quarter.
Okay.
We're currently seeing demand and similar in the third quarter.
Similar to the third quarter we.
We recognize there is potential downside risk in demand due to the energy crisis in Europe extended COVID-19, Lockdowns in China, global inflationary pressures and rising interest rates impact on consumer sentiment and demand.
Global energy prices enhanced methanol cost competitiveness against alternative fuels, which could lead to increased methanol demand.
Demand from the shipping industry continues to grow and based on existing dual fueled ships and orders to date, we expect potential demand to increase from approximately 300000 tons today, two 2 million tons of demand over the next few years.
Our production levels were lower in the third quarter compared to the second quarter due to two planned turnarounds, some unplanned outages and a redirection of sale of our contracted gas in Egypt, which I'll discuss after an update on the rest of our sites.
Medicine hat had lower production in the third quarter due to an unplanned outage in July caused by storm damage impacting the plant's power supply.
Geismar had lower production in the third quarter due to an unplanned outage in July which we extended due to elevated gas prices at the time.
Also at the end of September the utility supplier for the Geismar site experienced an extended fossil power due to a failed transformer, which lasted until mid October the <unk>.
Team took this opportunity to advance some critical guide or three tie ins, we are forecasting a natural gas price of approximately $580 Mmm btu for the fourth quarter with a 35% spot portion of natural gas purchases that are not contracted.
In Chile production was lower in the third quarter, although higher than the third quarter of 2021 is only Chile, one was operating due to limited gas availability from Argentina.
We typically experience lower gas deliveries in the southern hemisphere winter months impacting our second and third quarters.
Chile far restarted in October with gas deliveries from Argentina that we expect will allow us to operate both plants through the first quarter of 2023.
We estimate the 2022 production to be approximately <unk> <unk>.
909.
9 million tons.
In New Zealand, we completed.
A successful turnaround at <unk>, which we started in mid September .
<unk> operated through throughout the third quarter, but at lower levels due to gas availability restrictions from the <unk> gas field.
We expect both brands to be operating at full rate sometime in the fourth quarter based on the production to date and our outlook for natural gas in New Zealand, we estimate that 2022 production to be between one two and one 3 million tons.
We had low levels of production from Egypt, and the third quarter as we completed an extended planned turnaround the timing of the turnaround the needle enabled us to enter into an agreement to redirect and sell the plant contracted natural gas from late July to late October .
This was a unique opportunity to utilize excess LNG capacity in Egypt. During a period of elevated LNG prices in Europe and was done in collaboration with our Egyptian government partners.
We estimate that the sale and redirection of our gas resulted in incremental benefit to the third quarter of approximately $35 million.
Prior to using this gas for production of ethanol for the period of time was not scheduled to be under turnaround.
The plant is in the process of restarting.
We ended the third quarter and strong financial position with approximately $890 million of cash, excluding non controlling interest and including our share of cash.
This joint venture and we have $600 million of Undrawn back up liquidity.
We remain committed to our disciplined approach to capital allocation, we continue to focus on maintaining our business pursuing economic value added growth opportunities that exceed our cost of capital by three percentage points and returning excess cash to shareholders.
Construction of our advantage G. <unk> III project is progressing safely and is scheduled to be completed in the fourth quarter next year.
We have spent approximately $810 million before capitalized interest to the end of the third quarter and expect approximately 450 million to $500 million remaining capital costs before capitalized interest, which is fully funded with cash on hand.
Our asset portfolio and cash flow generation capability will be significantly enhanced with G. III comes online next year.
With our G. III project being fully funded our strong cash position and our ability to generate meaningful cash flow across a wide range of methanol prices.
We are well positioned during this period of economic uncertainty to continue returning cash to shareholders through a sustainable growing dividend and share buybacks, including our 5% share buyback announced in mid September .
Production in the fourth quarter is expected to be approximately $1 6 million tonnes.
Much higher than the third quarter.
We anticipate a build of produced inventory through the quarter as the methanol sold in the quarter will be more weighted to purchase product as a result of our FIFO inventory flows.
Based on our posted prices in October and November and higher expected produced sales, we expect higher adjusted EBITDA in the fourth quarter compared to the third quarter, if the onetime benefit of the Egypt natural gas sale of $35 million is removed.
In the medium term the methanol market outlook is positive and we have growing cash flow.
Generation capability with G III coming online in the fourth quarter next year.
At $375, a metric ton methanol price and for dollar Mmm Btu gas.
We expect <unk> to generate approximately $250 million of EBITDA per year.
We have a strong balance sheet and committed to deliver on our capital allocation commitments of returning excess cash to shareholders.
Looking forward, our geographic diversity advantaged feedstock cost position with 85% of natural gas needs in North America hedge next year and our unique global supply chain will continue to allow us to be the methanol supplier of choice and deliver value to shareholders. We would now be happy to answer questions.
At this time, if you would like to ask a question. Please press Star then one on your telephone keypad.
Our first question is from Joel Jackson with BMO capital markets. Your line is open.
Hi, good morning, John .
Hey, Joe.
I got a call like this.
I don't think that I don't think I don't think you gave a production volume forecast for Q4.
Could you tell us what you think Q4 might look like versus Q3, and then also the second part of that question would be.
Should we expect the.
Gas retail bent.
Benefits in Egypt to be on a monthly basis like a lot lower than the kind of a $17 5 million per month rate you got in Q3.
August and September because obviously gas prices come down.
Yes, so the Asia, we realized all the benefits in Q3 so.
That was all realized in Q3, so about $35 million is all of the benefit of redirecting that gas for LNG, and obviously sharing with government et cetera. So is based on selling prices through the three months period as.
As far as production, yet, it's $1 6 million tonnes for Q4.
As our forecasted production.
So my next question's a follow on are you ready.
Alright, Okay. So John Junior tenure, Matt Thanks in a long time, but over the last decade or so as CEO . What would you say is sort of a thing that you're most proud about.
And what are the ones that you would say maybe the one that got away the opportunity or something that got away.
Yes, I would say our safety record is the thing I'm, most proud about and our internal succession process developing people those would be the two things I'm most proud about.
I think many things got away I think we had a lot of volatility.
During the time in the last 10 years and.
I think we came out a stronger company as a result of the teamwork. So I don't want to go through all of the things that got away, but certainly.
Lots of noise during the last 10 years.
Okay. Thank you.
Thanks, Joe.
The next question is from Ben Isaacson with Scotiabank. Your line is open.
Thank you very much and good morning, everyone.
In other petrochemical chains, we've seen volume down, 10%, 15% and Europe similar in China.
Generally hanging in the rest of Asia and North America.
Now you did say that.
Q3 volume was flat.
<unk> Q2, and right now what Youre seeing is that it's flat and you also highlighted the risks in Europe , and China already but when you say, but it's flat right now does that mean, it's stronger in some regions and its weaker than other regions. So is what you're seeing consistent with what we.
We're seeing in other chemical change and if not maybe can you just talk about real time demand on a regional basis.
Yes.
Yes, I'll ask rich to answer that question, yes. Good morning, Good morning, Ben.
Yes, so so you're right to say that it's not the same across all regions. So in.
Third quarter, we saw stronger demand in <unk> is mainly on the traditional side stronger demand in North America part of that was returned if operating rates for acetic acid producers, but we are seeing helped still healthy demand in North America.
Things are pulling fairly strong there and we actually do think that there is some impact of lower operating rates in Europe that may be shifting some industrial production into and to North America and Europe , we are seeing traditional demand down and.
And so that in that region, there is a bit of a.
Some offset there.
We're continuing to track China, our traditional demand growth.
We would say that that's been relatively flat and there is some pressure obviously material COVID-19 lockdowns end.
And also a slowdown in housing there. So we're watching those things closely but we haven't seen a significant pullback in demand in any region. Europe is the one that we have seen some some modest pullback. So we're continuing to watch all of it across across all applications.
We have had some offset obviously with higher stronger demand into other energy applications in China.
In Q.
Q2 was.
Period, where COVID-19 lockdowns were.
We're quite restrictive in Q3, some of that eased off which meant there was better demand for transportation fuels as well as other thermal applications.
We would see that continuing with higher energy prices as well.
Yeah.
As well as some.
If COVID-19 Lockdowns continued to ease so so we're watching all markets right now and things are still probably trending at Q3 levels, Yes, I'd just add the MTO right. We've added a new plant in Bohai.
So that's new demand, that's one 7% for rates so yes.
We watch the other customers what they are reporting as well if were just not seeing that in our business yet, but we're certainly cautious about what could be coming.
Thank you and then just a quick follow up you mentioned John that I think you said both plants in New Zealand will be up and running.
If I'm in Q4.
Does that mean that this maui gas fields issue is now behind us and.
As we look into 2023 and the absence of any turnarounds, we should be kind of back to normal production in New Zealand, so all else equal.
Yes, both plants are running now.
But I think my remark was that full rates.
In the quarter so far.
So our expectation.
So we expect to be running both plants at full rates next year.
Provided there's not any further disruptions in the gas supply that's what our gas suppliers have told us and that's what we're expecting.
Great. Thank you very much.
The next question is from Nelson <unk> with RBC capital markets. Your line is open.
Great. Thanks, and congrats John on your upcoming retirement and congrats to you rich on your new role.
So first question is it sounds like Egypt, where the special situation, where you were able to use excess LNG capacity to divert gas.
But can you talk about whether there's any other opportunities to re sell gas or divert gas because I remember in New Zealand.
Recently, you agreed to reduce production to allocate more gas to power plants.
Can you just give us a bit of color on.
Whether there is other opportunities in other regions to two.
To divert gas.
Yes, we're in the business of producing methanol selling methanol I think the Egypt.
Opportunity was unique because we had a planned turnaround at the same time in which only happens every four years and the conditions were that there was excess LNG.
Capacity at a high price in Europe , So I mean, but those were very unique conditions.
With those conditions happen at some point in the future will they haven't happened in the last 30 years, So who knows but certainly we're in the business of producing and selling methanol.
Okay got it and then you talked about <unk> and your expectation of.
I think $250 million of EBITDA contribution per year.
Is that assuming that it's operating close to or 90% to 100% utilization and then on the back of that can you.
Give us an update on.
Your hedging position.
In North America.
Yes, so our hedging position hasnt changed during the quarter, we haven't added any hedges. So it remains unchanged and yes, we plan to run <unk> at full rates.
Okay. Thanks, I'll leave it there.
Thanks.
The next question is from Steve Hansen with Raymond James Your line is open.
Yes, good morning, guys I'll just echo the congratulations comments earlier to both of you.
A question to start is just around regional contract spreads I know we've been in a position like we have for some time now, but just wanted to ask about the retail spreads being extremely wide relative to history here, particularly in the Atlantic Basin is that is that a situation that you expect to carry through 'twenty, three and perhaps beyond just given the market dynamics.
<unk>.
Do you think about that spread going forward.
Yeah, I'll ask rich to add to that Steve Yes, yes.
That is certainly has been the dynamic we've seen were in contracts season now. It is just starting so it's hard to or to give you guidance on that.
Obviously, the Atlantic is where where we've seen that.
Spreads and Thats been on the back of a lot of new capacity. That's been added over time, we haven't seen any.
Any new capacity or or in our outlook.
Any new capacity other than G. III, so we're going to have to watch and see what happens.
We'll obviously go through that in.
We'll give guidance on where we see discount levels.
Going forward, so, yes, I think as well I mean, we look at realized price that's what's important.
I think.
Youll have a base that is still our best realized price.
Throughout our company. So yes spreads are certainly something people watch, but we look at realized price so $3 77.
If I can take that for the next 10 years are.
Rich could take that for the next 10 years I'm curious.
No fair enough that's helpful and maybe as a related question then because you've introduced this new China contract that sort of break apart the traditional Asia, China combined contract, maybe just could you speak to the benefit that you've seen from that and whether it's Ben.
<unk> from what you had originally planned.
Yes.
Probably the biggest benefit is that just the Asia Pacific region.
Yes.
As a whole is quite a lot of unique elements to it so having the China market separate from the Asia market. Those those markets don't move the same way and we're able to obviously.
Stay competitive with our with our customers in those markets.
Lot more timely fashion, so I think its working well with with our customers in those regions and helping us stay competitive on a monthly basis to to those market. So yes.
Yes, it's working the way we would've hoped.
I think when we put a BCP in many years ago. The Iranian products wasn't only destined for China and I think that dynamic is.
It really changed the Chinese import markets. So.
The traditional freight differentiate from China to the other parts of Asia changed as a result, so having the two prices I think allows us to stay more in tune with the different markets in Asia.
I appreciate that thanks.
The next question is from Josh Spector with UBS. Your line is open.
Sure.
Yeah, Hey, Thanks for taking my question. So just to follow up on the Egypt gas sale and I understand that you don't want that to be a normal mode of operation, but assuming Europe prices for gas go up again.
Unique kind of discussion with the government to make this happen and you would characterize as more one off or if that arb opened up is that something you could quickly switch to if it was advantageous for you to do that.
Well, we own 50% of that plant we operate so we have a partner there and thats, mainly the government. So.
Any any ideas, we we talk about with our partners.
Look I'd say this is a unique opportunity for us because we are in a planned turnaround anyways and we won't have another plant turnaround for probably three or four years. So that the dynamics would be different if we are at.
Operating fully versus a planned turnaround.
I don't like to predict the future on that I'm not very good at it but certainly this was very unique and hasnt happened in our 30 year history. Yes, we did do something in New Zealand, but that was more of a need for the country meeting the gas for electricity. So it was very different circumstances than what happened here in Egypt.
Okay. Thanks, that's helpful and just.
A follow up on the <unk>.
And that's an offer for fuel demand in the marine market and when you talk about the 2 million tonnes of potential demand to be added.
I'm curious if you could provide any color like within that calculation are you assuming a mix of fuel and those dual teed engine similar to what is that today, which is kind of a low level of ethanol are you assuming that all methanol just curious depending on how that shakes out today versus how you are you seeing that navy shift over the next couple of years.
Yes.
So so that 2 million number that we've provided is as demand potential that assumes all of those vessels run on methanol, 100% of the time.
What what fuel will be the choice will be dependent on Egypt.
The shipping companies and what they are what they are operating at the time, we think certainly that the shipping companies are choosing methanol because.
One it's clean burning attributes as well as its.
Future pathway to low carbon so we think that methanol has been a choice they have made.
Because of that in there.
Looking and seeking the economics of methanol as well as it is.
Our ability to decarbonize over time so.
So all of that we will have to play out we think that that 2 million tons is what's on order today and there's there's a lot of other discussions that are going on which we would expect to see that order book continuing to increase over time.
Yes, Greg.
We will continue to.
The regulations will continue to get.
And tighter than maybe some of the alternatives today won't be alternatives in the future. So it's really if all of the ships that are on order or on the water today, where to run 100% on methanol it would be $2 million.
Demand.
Got it very helpful. Thank you.
Yeah.
The next question is from Jacob bout with CIBC. Your line is open.
Good morning.
Wanted to I wanted to go back to one methanol demand and.
Increasing concerned about a recession here going into 2023, maybe just walk us through how youre thinking about methanol demand in either kind of a moderate.
Severe recession scenario.
What could be different this time.
What we've seen historically.
Sure.
I think.
When you break out the demand and the industry.
We're kind of somewhere between 85 to 90 million tonnes.
Around $45 million of that is in the traditional demand.
Segment that would be the segment, we'd be monitoring very closely in terms of any recessionary impact.
Right now we would would've forecast at the beginning of this year, a three 3% to 4% demand growth.
For those derivatives.
Seeing that trend flat today.
We talked about for the third quarter, so we're going to be watching that at 45 million tons of demand.
And really looking at what impact that will have across.
The different jurisdictions so.
Knowing exactly are predicting exactly what the impact will be it tends to follow GDP. So how how however, we would forecast GDP growth will tend to be.
That segment is driven.
I think the other thing that we're seeing those we're seeing potential recessionary impacts and a high energy price environment and that tends to be a driver for demand growth for methanol. So how those two things enter play.
We'll ultimately determined demand. So we think that the high energy price environment, certainly is a positive.
For supporting to macro.
And are you more or less concerned about China somewhat.
We're watching China really closely.
I think Thats zero Covid.
That has had an impact certainly on demand.
What happens post the national progress.
Around policies, there will ultimately determine.
How thats going to impact us so we're watching to China market very closely right.
Right now, we're probably most concerned about the MTO. So that's always been.
Our biggest concern by the operating rates, although they are a little bit lower there is still quite healthy. So again, that's something that our team watches on a very regular basis.
I'll leave it there good luck to you John .
Thanks Chip.
The next question is from Hassan Ahmed with Alembic Global Your line is open.
Good morning, John and congratulations.
Thanks, John .
John a question around demand.
Just revisiting something you said earlier I mean, obviously sequentially you guys talked about demand being flat.
Obviously, a bit different from other commodities, which has seen a fair bit of destocking in some cases getting 15% 20%.
Can you try to date about inventory levels, where they are right now.
As more of these recession fears sort of.
Spread through the market is there.
Genuine concern around.
Maybe heightened degrees of Destocking.
Yes.
Hi, Hassan this is rich here so.
In terms of inventory levels, we saw we saw flat demand during the quarter, but we saw quite a you did see industry operating rates have pulled back in the quarter by about 2% to 3%. So overall, we saw actually a draw on inventories through the quarter.
That those the production outages, where mainland and Iran, where we saw outages across a number of plants.
There were outages in North America, the European refinery units or are operating at low rates and there are other issues, including.
Including our own turnarounds in Egypt, and in New Zealand, so industry operating rates were actually when we balance out demand and.
And production, we saw a drop during the during the quarter that was most pronounced in the important markets into China, where we see actually quite low inventory levels today.
So so and that obviously led to some strengthening in pricing in the China market during the quarter. So we're seeing tight.
<unk> balanced to tight.
Inventory levels everywhere today.
The dynamic is one is that.
As we get into Q4 and Q1 that those are traditionally the low end for the production because of gas diversion for heating and electricity in places like Iran.
Got the higher gas prices in North America impacted.
Supply in Q3 are obviously prices of gas now come down to around five six which is somewhat a little bit more affordable if youre not.
Hedged or fixed like like we are so yes, you've got the high cost curve in China right.
Oil price, they're setting a very high cost curve.
So yes, even if demand was to go down somewhat I think there is the supply issues are going to be probably more impacting what the ultimate price of methanol is going to be versus <unk>.
Somewhat of a drop in demand.
Very helpful.
As a follow up.
I noticed that sequentially.
<unk> costs were up around $12 million now looking at sort of shipping rates coming down coming down pretty hard.
Should that be a nice tailwind for you guys as we think about Q4 and beyond.
Well. This is one of our key competitive advantage is our integrated logistics, yes, we paid more for for fuel.
When Joel was quite high.
It's come down a little bit and we're running methanol wherever we can on our ships as well, but the tanker market. If you look at what happened in the dry cargo market a few years ago. The tanker market didn't have the same reaction it kept to be quite low with what's happened in Russia as a supply chain shipping days, becoming much longer.
The tanker market has gone up quite significantly so the rates of the tanker market. If youre not integrated like we are and you are buying spot youre paying double and sometimes more versus this time.
Last year, and I'll remind you about 35% of what we carry is on a backhaul basis. So the rates, we're getting for that would be quite a bit higher this year versus last year. So I think our supply chain and our old shipping an integrated logistics is a key competitive advantage not only to deliver product on.
And the quality of our customers want but now that the shipping market looks to be in the tanker market.
Quite strong.
Going forward and with the further restrictions now in Europe , where Russian.
Nothing at all and other.
Clean petroleum products will not be allowed to be exported into Europe , those supply chain early longer and which will lead we believe type tanker market for most of next year.
Very helpful. Thank you so much.
The next question is from Matthew Blair with <unk>. Your line is open.
Hey, good morning.
Yes.
Could you talk about MTO economics currently is it fair to say that they're a little bit better than Q3 levels.
What are your expectations for MTO operates in Q4 and into 2023.
Yes, hi.
Matthew.
So MTO affordability when we look at it on a straight ethylene propylene basis is around 200.
$80 today thereabouts, it's below 300.
What we've seen is a bit of a dissociation between.
That's in a high oil price environment traditionally would see higher oil <unk>.
MTO affordability, so theres been a little bit of just association from oil because of what's happening in their downstream some weaker demand into olefins market.
Combined with ample supply so that that that's something we're monitoring very closely.
There is other factors that are at play for true economic operating decisions for the MTO units you have to look further downstream into what they are producing downstream as well as the synergies that a lot of these units have with their other parts of their their facilities. So so.
Not a straight.
Mathematical.
A number.
That you can rely on in terms of their knowing their operating decisions today.
We know that there is a few plants there arent operating today in that that's been offset as John said with the startup of the $1 8 million tons at the north China. So as of today, we'd say operating rates for MTO or aren't around.
Just under 80% operating rates. So there is latent demand there part for them to start up when inventories in China are a really tight today and.
At current pricing in China, $330, a ton, we're going to watch and see.
What what operating rates to expect but we would we would probably hold operating rates at levels.
At around the 80% today and then watch.
Decisions that will be made itself.
Great. Thanks for all the color you also mentioned your ships are running on methanol whenever possible, what's the economic benefit there whats the spread between methanol and like a low sulfur fuel oil or low sulfur diesel.
Yeah.
Yes so.
Earlier in the year win.
Oil pricing was well above.
$100 a barrel we saw.
Methanol on an energy equivalent basis being quiet.
A bit more affordable than.
Other alternatives of marine gas oil or ultra low sulfur diesel oil.
It's probably a discount on an energy equivalent basis about 20% to 30%.
Seen those prices come down recently to where it's actually more of it on a on a fairly neutral.
Level of pricing, so still look looks attractive to be burning methanol against the alternatives.
Great. Thank you.
As a reminder, if you'd like to ask a question Thats Star one on your telephone keypad. Our next question is from Chris Shaw with <unk> Crespi. Your line is open.
Yeah, Hi, good morning around How're you doing.
Hey, Chris.
I have a longer term question around natural.
Natural gas availability, both for say your current operating plants at any.
I guess potential future plants.
Sure.
Spansion.
Given whats.
As happened with the Russian gas.
Protracted conflict in Ukraine.
You know Europe .
Europe , bringing in a lot more LNG and it looked like you were trying to expand the capacity to do so in store.
You see any shifts and like supplies, where you are now or again or other places.
Maybe yeah producers.
Producers of natural gas.
Looking to liquefy more incentive to Europe in the future I mean or is this actually something thats spring, probably more development and you'll actually have better supplies like how do you see that I don't know four or 510 years down the line I guess, how does this all play out.
So I guess it depends on what your LNG price forecast is I mean, certainly if its $30 $40. If thats your forecast that it makes more sense to use gas to make LNG, then theyre, making methanol unless you have a view of methanol price being 800 Bucks a ton then.
I don't think there'll be many new methanol plants being built and if your alternative is.
30% to $40.
So.
I don't know what the future is going to hold for gas prices on LNG, but usually economics prevail and it's a price that gets you.
Our return on your capital employed.
Above your cost of capital that's people.
People make investment decisions on and certainly there is an abundance of gas around the world.
Unfortunately today because of what's happened in Europe , starting in the right place and Thats, leading to dislocations on on pricing, but.
I think when we look at the forward curves on gas in North America, it's still in the four.
Four to $5 range so.
So lots of gas in North America that can be developed at very economically that Florida.
Range so.
Sumit.
As to capital allocation of capital and citizens.
Or in the future you would expect producers of gas to be investing in production. If the demand is there at those kinds of prices, that's usually how commodities work and I don't see anything that <unk> seen.
That changes that.
Short term dislocation because of the war in Europe .
And then I guess North America is your only market that has.
The excess gas to liquefy incentives.
Europe , driving New Zealand, Chile, Argentina, all those places that'd be.
If they had that much of that would be probably a good problem to have right.
Yes, I don't think theres enough gas in Chile, Argentina today, I mean, maybe at some time in the future as the <unk> gets developed.
They will develop an export LNG market, but that's sometime in the future as they continue to develop the <unk> basin.
Zealand certainly not enough gas.
To think about an LNG plant, we have obviously Trinidad has LNG production and so does Egypt, but.
<unk> gas outlook is only getting more and more favorable as I wanted it to become a regional hub for Cypress in Israel gas plus the additional gas that they're developing so far.
All of those regions I would probably expect Egypt to be.
The most likely to develop more LNG capacity at some point in the future.
Alright, that's helpful. Thank you.
Yeah.
Our last question is from Steve Hansen with Raymond James Your line is open.
Yeah. Thanks, guys, just one quick follow up.
If we think forward here 12 or 15 months.
G III is up and running for what could be a great outcome. How are you going to feel about capital allocation at that time, but it might be too early to ask but if we think about the backdrop with very little incremental capacity being built.
Over the next couple of years.
Arguably the market will start to need it but then at the same time, you're going to have to play this off with your idea around returning cash to shareholders. So I know you've got a strong focus on a balanced approach, but when a lot of that cash flow is flowing I mean are you going to be keen on adding new capacity again or are you going to be more tilted towards the returning cash side. Thanks.
Yes, it's a great question I'm glad you asked it.
Yes, you are right to point out at any methanol price around where we are today or even much lower we're going to generate a lot of cash as G. Three comes up we don't have any significant projects in the pipe today, I mean G. III is going to surgery.
Satisfy our demand aspiration or supply aspiration growth and we will focus on getting tightened and why trevally back up and running if were able to secure additional gas which.
We'll take some time.
I think we'll have lots of cash to distribute whether we invest a little bit in green methanol or our other projects like that to be determined but.
I think thats somewhere post G III.
One or two years at least so.
We do want to grow in line with the market most of the questions today have been about demand and we've seen very little demand growth overall since COVID-19. So it's really since 2020, we've seen basically very very little demand growth. So we don't need to grow it.
If we want to maintain our market share and G. III is going to more than satisfy our growth aspirations. So.
Assuming.
It will come up and it will run well.
We're convinced of that.
We got a great commissioning team, it's been a great projects that are great.
<unk> project Theres nothing that leads us to believe it's not going to commission, well and run well.
We'll take the excess cash beyond maintenance maintenance capital and the dividend, we have and buyback shares.
Our plant.
Okay, great color. Thanks, I appreciate it.
Yeah, I'll add one thing that we do plan to retire the debt that's coming due as well $300 billion. So.
Retiring the debt and buying back shares.
No further questions at this time I'll turn it over to John Florin for any closing remarks.
Thank you for your questions and interest in our company before we close the call I want to emphasize we produce a central chemical building block was used in hundreds of consumer and industrial products.
<unk> is also a cleaner burning fuel that has increasing demand as a marine fuel we believe that the methanol industry is a positive outlook with growing demand and minimal new capacity additions are well positioned asset portfolio generates meaningful cash flow across a range of methanol prices, which allowed us to execute on our capital allocation priorities.
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We are well positioned in this period of economic uncertainty with a strong balance sheet <unk> III project fully funded and coming online next year, which we all expect to add approximately $250 million of EBITDA at $375 methanol price and $4 gas, which will significantly enhance our cash flow generation capability.
We hope you'll join us in January when we will update you on our fourth quarter results. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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