Q3 2022 Methanex Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Methanex Corporation Q3, 2000, Twenty's you earnings call.
I would now like to turn the conference call over to you. Mr. Harriet. Please go ahead in this area.
Good morning, everyone welcome to our third quarter 2022 results conference call.
Our 2022 third quarter news release management's discussion and analysis and financial statements can be accessed from the reports tab of the Investor Relations page on our website at methanex.
I would like to remind our listeners that our comments and answers to your questions. Today may contain forward looking statements.
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 the forecasts or projections, which are included in the forward looking information.
Please refer to our third quarter 2022 M DNA and our 2021 annual report for more information.
I would also like to caution our listeners that any projections provided today regarding <unk> future financial performance are effective as of today's date and our policy not to comment on or update this guidance between quarters for.
For clarification any references to revenue average realized price EBITDA adjusted EBITDA cash flow adjusted income adjusted earnings per share made in today's remarks reflect our 63, 1% economic interest in the Atlas facility and our 50% economic interest in the Egypt facility and are fixed.
8% interest in the 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 that these items are non-GAAP measures and ratios that do not have any standardized meaning prescribed by GAAP and therefore unlikely to be.
Terrible 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 Matt <unk>, President and CEO , Mr. John <unk> for his comments I had a question and answer period.
I hope that everyone is continuing to stay safe and healthy.
Good morning, we averaged thunder on the call who will become our new president and CEO on January one.
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 as he assumes 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.
We'll 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 method of methanex produced methanol because of planned turnarounds and unplanned outages and higher spot gas cost in North America that impact at EBITDA.
$10 million this was.
Firstly 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.
He 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 Ohio, Chemical MTO plant, which can consume up to one 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 as 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.
Our 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 coal 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 less.
Volatile spot prices in the third quarter, primarily in China led to a largest discount rate of 21, 5% compared to the second quarter.
Okay.
We're currently seeing demand similar in the third quarter.
Similar to the third quarter, we recognize there is potential downside risk in demand due to the energy prices in Europe .
<unk> COVID-19, Lockdowns in China.
Inflationary pressures and rising interest rates impact on consumer sentiment and demand.
Hi, 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 to 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 and unplanned outages at 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.
As Mark 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 barca powered due to a failed transformer which lasted until mid October .
The team took this opportunity to advance some critical geismar three tie ins, we are forecasting a natural gas price of approximately $580 of demand Mmm btu for the fourth quarter, but the 35% spot portion of natural gas purchases that are 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.
Gillyflower restarted in October with gas deliveries from Argentina that we expect will allow us to operate both plans through the first quarter of 2023.
We estimate the 2022 production to be approximately.
$906.
9 million tons.
In New Zealand, we completed a successful turnaround at <unk>, one, which we started in mid September .
<unk> operated through throughout the third quarter, but at lower levels due to gas availability restrictions from the oil and.
We expect both brands to be operating at full rate sometime in the fourth quarter based on our 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 in <unk>.
Enabled us to enter into an agreement to redirect and sell the plants 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 an incremental benefit to the third quarter of approximately $35 million.
Compared to using this gas for production of ethanol for the period of time was not scheduled to be under turnaround the.
The plant is in the process of restarting.
We ended the third quarter and strong financial position with approximately $890 million of cash, excluding noncontrolling interest and including our share of cash in the <unk> joint venture and we have $600 million of Undrawn backup 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 <unk>.
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 buildup produced inventory through the quarter as some ethanol 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. The one time 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 $4 <unk> 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.
On a call like this.
I don't think you said I don't think you can.
I don't think I'd give a production volume kind of forecast for Q4.
Could you tell us what you think Q4 might look like versus Q3, and then also a second part of that question would be should.
Should we expect the gas retail.
Benefit in Egypt to be on a monthly basis like a lot lower than that kind of a $17 5 million per month rate you got in Q3.
In September because obviously gas prices have come down.
Yes, so the Hs, we realized all of the benefit in Q3 so.
That was all realized in Q3, so thats $35 million as all of us benefit of redirecting that gas for LNG, and obviously sharing with government et cetera. So is based on selling prices through the three month period as.
As far as production, it's $1 6 million tonnes for Q4.
As our forecasted production.
So my next question as a follow on are you ready.
Okay. So John Junior tenure, Matt. Thanks to me, 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 in developing people those would be the two things that I'm most proud about.
I think many things got away I think we had a lot of volatility during 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 Joel.
The next question is from Ben Isaacson with Scotiabank. Your line is open.
Thank you very much and good morning, everyone.
And other petrochemical chains, we've seen volume down, 10%, 15% and Europe similar in China.
Generally hanging in in the rest of Asia and North America.
Now you did say that.
Q3 volume was flops.
Versus 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 as what youre seeing consistent with what we're seeing in other chemical changed and if not maybe can you just talk about real time demand on a regional.
<unk>.
Yes, I'll ask rich to answer that question.
Good morning, Ben.
Yes. So so you are right to say that it's not the same across all regions. So.
Third quarter, we saw stronger demand.
For transient is mainly on the traditional side stronger demand in North America part of that was return of operating rates for acetic acid producers.
But we are seeing helps 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 into North America, and Europe , we are seeing traditional demand down and.
And so that in that region, there is a bit of.
Some offset there.
We're continuing to track China, our traditional demand growth.
I would say that that's been relatively flat and there is some pressure obviously material COVID-19 lockdowns in the house 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 a period, where over Lockdowns were where were 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 see that continuing with higher energy pricing as well as <unk>.
As well as some if COVID-19 lockdowns continued to eat so so we're watching all markets right now.
Things are still probably trending at Q3 levels.
The MTO right work, we've added a new plant in Bohai.
So that's new demand that's $1 seven at full rates so yes.
We watch the other customers, what they're reporting as well if we're just not seeing that in our business yet, but we're certainly cautious about what 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.
In Q4 did.
Does that mean that this maui gas field 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 than what I think my remark was that full rates.
In the quarter so that's.
That's our expectation so.
So we expect to be running both plants at full rates next year.
Provided there's not any further disruptions of 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 with a 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.
You agreed to reduce production to allocate more gas to power plants, but I'm. Yeah can you just give us a bit of color on.
Whether there is other opportunities in other regions to.
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 G three and your expectation of I.
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.
And in North America.
Yes, so our hedging position hasnt changed during the quarter, we haven't added any any hedges. So it remains unchanged and yes, we plan to run G III 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.
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 regional 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.
Or how would you think about that spread going forward.
Yeah, I'll ask rich to add to that Steve.
Steve Yeah.
Yeah. This is certainly has been the dynamic we've seen were in contracts season now. It is just starting so it's hard to hard to give you guidance on that.
The Atlanta, obviously, the Atlantic is where where we've seen that.
The spreads and that's been on the back of a lot of new capacity. That's been added over time, we haven't seen any new capacity or or in our outlook any Indian capacity other than G. III. So we're going to have to watch and see what happens but.
We'll obviously go through that in.
We will 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 and I think youll.
Youll have a base that is still our best realized price.
Throughout our company. So yes spreads are certainly something people watch what we look at realized price so $3 77.
I think that for the next 10 years.
Rich can take that for the next 10 years I'm curious either.
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 either China combined contract, maybe just could you speak to the benefit that you've seen from that and whether it's Ben.
From what you had originally planned.
Yeah, I think probably the biggest benefit is that just the Asia Pacific region as it is a.
As a whole is quite there's 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 and a 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 yeah. It's working the way we would.
Yes.
Put <unk> 30 years ago, the Iranian product wasn't only destined for China, and I think that dynamic has really changed the Chinese import market. So.
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.
Yeah, Hey, Thanks for taking my question. So just a follow up on the Egypt gas sale and I understand that you don't want that to be your normal mode of operation.
Assuming Europe prices for gas go up again.
Is this a unique kind of discussion with the government to make this happen and you would characterize it as more of a 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 idea as we we talk about with our partners and look at that I'd say this was a unique opportunity for us because we are in.
Planned turnaround anyways, and we won't have another plant turnaround for probably three or four years. So you know the dynamics would be different if we're operating fully versus a plant turnaround. So.
I don't like to predict the future on that.
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.
A follow up on the <unk>.
And that's an offer for fuel demand in the marine market. Let me 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 Pete engine similar to what it's at today, which is kind of a low level of methanol 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 yes, so the 2 million number that we provided is as demand potential that assumes all of those vessels run on methanol, 100% of the time.
You know 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 of.
One it's clean burning attributes as well as its.
Teacher 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 our ability to decarbonize over time so.
So all of that will have to play out we think that that 2 million tons.
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.
Regulations will continue regulations will continue to get tighter and tighter and 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 around the water today, where to run 100% on methanol it would be $2 million in demand.
Got it very helpful. Thank you.
Yeah.
Yeah.
The next question is from Jacob bout with CIBC. Your line is open.
Good morning.
When I talk to I wanted to go back to methanol demand and.
Increasing concern about a recession here going into 2023, maybe just walk us through how you're thinking about methanol demand in either kind of a moderate or severe recession scenario when and what could be different this time.
What we've seen historically.
Sure.
I think.
You know when you breakout the demand in the industry.
You were 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 we would have forecast at the beginning of this year, a three 3% to 4% demand growth.
For those derivatives and we're seeing that trend flat today.
We talked about for the third quarter. So we're going to be watching that that that at 45 million tons of demand.
And really looking at what impact that will have across <unk>.
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 how that segment is driven.
I think the other thing that we're seeing now is 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 interplay.
<unk> will 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 there's zero COVID-19.
As had an impact certainly on demand what.
What happens post the National Congress.
And around policies, there will will ultimately determined.
How that's going to impact us so we're watching the 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 and good luck to John .
Thanks Jacob.
The next question is from Hassan Ahmed with Alembic Global Your line is open.
Good morning, John and congratulations.
Thanks.
John a question around demand.
Just revisiting something you said earlier.
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 10 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.
Our own maybe heightened degrees of Destocking.
Yes.
I Hassan this is rich so here so.
In terms of inventory levels, we saw we saw flat demand during the quarter, but we saw quite a we did see industry operating rates pull back in the quarter by about 2% to 3%. So overall, we saw actually a draw on inventories through the quarter.
That those 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 our own turnarounds in Egypt in New Zealand, so industry operating rates were actually only balance out demand.
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 to.
Balanced to tight.
Inventory levels everywhere today.
I think the dynamic is that as.
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.
That's a higher gas prices in North America impacted.
Supply in Q3 are obviously prices of gas now come down to around $5, six which is <unk>.
A little bit more affordable if youre not.
Hedged or fixed like.
We are so then 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.
Fixed costs were up around $12 million now looking at sort of you know 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.
We paid more for fuel.
When fuel was quite high.
It's come down a little bit and we're running methanol were wherever we can on our ships as well, but the tanker market.
You look at what happened in the dry cargo market a few years ago. The tanker market didn't have the same reaction of it get to be quite low with what's happened in Russia in the supply chains in shipping days, becoming much longer the tanker market has gone up quite significantly so the rates of tanker market. If youre not integrated like we are at <unk>.
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 own shipping an integrated logistics is a key competitive advantage not only to deliver product on <unk>.
And the quality of our customers want but now that the shipping market looks to be in the tanker market.
Quite strong.
Forward and with the further restrictions now in Europe , where Russian.
Methanol and other footprint 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 Tpa <unk>. Your line is open.
Hey, good morning.
Could you talk about MTO economics currently is it fair to say that they're a little bit better than Q3 levels and 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.
In a high oil price environment traditionally would see higher oil.
Affordability, so theres been a little bit of Dis 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's 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 facility. So so it is not.
A straight.
Mathematical.
A number that that you can rely on in terms of their knowing their operating decisions. Today. We know that there is a few plants or arent operating today and that's been offset as John said with the startup of the $1 8 million tonne plant in north China. So as of today, we'd say op.
Operating rates for MTO or arent around.
Just under 80% operating rates. So there's latent demand there hard for them to start up when inventories in China are really tight today and at.
At current pricing in China at $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 mentioned your ships are running on methanol whenever possible what's the.
The economic benefit there whats the spread between methanol and like a low sulfur fuel oil or low sulfur diesel.
Yes so.
Earlier in the year when oil pricing was well above our.
$100 a barrel we saw.
Methanol on an energy equivalent basis being quiet.
A bit more affordable than other alternatives and marine gas oil or ultra low sulfur diesel oil.
It's probably a discount on an energy equivalent basis of about 20% to 30%.
We've seen those prices come down recently to where it's actually more 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.
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 the natural gas availability, both for say your current operating plants and any.
I guess potential future plants.
Expansions.
Given what you know.
It's happened with our Russian gas.
Protracted conflict in Ukraine.
You know.
Europe , bringing in a lot more LNG and it looked like you were trying to expand the capacity to do so in store.
Do you see any shifts didn't like supplies, where you are now or again or no.
There are places.
To be.
Producers of natural gas are looking to liquefy more incentive to Europe in the future I mean or is this actually something that spring probably more development and you'll actually have better suppliers 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 that's $30 $40. If thats your forecast that it makes more sense to use gas to make LNG. Then then making methanol unless you have a view on methanol price being 800 Bucks a ton then.
I don't think there'll be many new methanol plants being built 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.
Return on your capital employed.
Above your cost of capital that people make the investment decisions on and certainly there is an abundance of gas around the world.
Unfortunately today because of what's happened in Europe started 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 to $5 range so.
So lots of gas in North America that can be developed at very economically that Florida.
Dollars range so.
Assuming as capital allocation of the capital that 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 I've seen.
That changes that because of a short term dislocation because of the war in Europe .
And then I guess North America is your only market that has the excess gas liquefied center the two.
Europe driving.
Neil and Chile, Argentina, all those places that would be.
If they had that much 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'll develop an export LNG market, but that's sometime in the future as they continue to develop the noise can basin, New Zealand certainly not enough gas.
To think about an LNG plant, we have obviously Trinidad has LNG production and so does Egypt Egypt.
Egypt gas outlook is only getting more and more favorable as it wanted to become a regional hub for cypress in Israel gas plus the additional gas that they are developing so.
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.
Yes, 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. III comes up we don't have any significant projects in the pipe today I mean G. III is going to survey.
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, so 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.
That's 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 at 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.
Executed project Theres nothing that leads us to believe it's not going to commission, the well and run well.
We'll take the excess cash beyond maintenance maintenance capital and the dividend, we have and buy back shares. So that's our plan.
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.
Turning to debt and buying back shares.
No further questions at this time I'll turn it over to John Florida for any closing remarks.
Yes. 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. Methanol 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 in <unk>.
<unk> 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.
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 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.
We hope Youll 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.
Okay.
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Sure.
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