Q4 2023 Methanex Corporation Earnings Call

Speaker Change: [music].

Good morning, My name is Dennis and I will be your conference operator today.

Dennis: At this time I would like to welcome everyone to the Methanex Corporation 2023 fourth quarter results Conference call.

Dennis: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Dennis: If you would like to ask a question. During this time simply press star followed by the number one onward telephone keypad. If you would like to withdraw your question. Please press star one again thank you.

Dennis: I would now like to turn the conference call over to the director of Investor Relations at Methanex Mrs. Sarah areas. Please go ahead in this area.

Sarah: Thank you.

Sarah: Morning, everyone welcome to our fourth quarter and 2023 result.

Sarah: Our 2023 fourth quarter news release management's discussion about it.

Sarah: That can be accessed from the reports tab of the Investor Relations page on our website.

Sarah: I would like to remind our listeners that our comments and answers to your questions. Today may contain forward looking information.

Sarah: 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.

Sarah: You can refer to our fourth quarter 2023, MD&A and toward 2022 annual report for more information.

Sarah: I would also like to caution our listeners that any projections provided today regarding <unk> future financial performance are effective.

Sarah: As of today's date it is our policy not to comment on or update this guidance between quarters for clarification any references to revenue EBITDA adjusted EBITDA cash flow adjusted income or adjusted earnings per share made in today's remarks reflect our 63, 1% economic interest in the Atlas facility.

50% economic interest in Egypt facility, and our 60% interest in waterfront shipping and.

Sarah: 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 identifying them.

Sarah: These items are non-GAAP measures and ratios that do not.

Sarah: 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 of formats and we encourage analysts covering the company to report their estimates in this manner.

I'd now like to turn the call over to Beth <unk>, President and CEO, Mr. Rich Governor for his comments and a question and answer period.

Beth: Thank you Sarah and good morning, everyone. We appreciate you joining us today as we discuss our fourth quarter and full year 2023 results.

Rich Governor: I'm excited to report that the G. III plant is in the process of starting up and we expect the commercial production is eminent.

<unk> significantly increases our cash flow generation capabilities and has one of the lowest emission intensity profiles in the industry. We're extremely proud of our global team for safely delivering this high quality addition to our asset portfolio.

Rich Governor: Turning to our results for the fourth quarter, our average realized price of $322 per ton and produce sales of approximately $1 7 billion tons generated adjusted EBITDA of $148 million and adjusted net income of 52 per share.

Rich Governor: Adjusted EBITDA was higher compared to the third quarter due to a higher average realized price and higher pretty sales. Our global team has delivered a strong year of operating results with production of $6 6 million equity tonnes.

Rich Governor: For the full year 2023, we recorded adjusted EBITDA of $622 million and adjusted net income of $153 million or $2 25 per share.

Rich Governor: We estimate the global methanol demand increased in 2023 to approximately 91 million tons through the fourth quarter market conditions strengthened with increased demand primarily in China outpacing an increase in supply leading to a draw down on inventories and increasing methanol prices.

Rich Governor: Global methanol demand grew by over 3% compared to the third quarter with significantly improved operating rates and methanol to olefins and growth in traditional demand in China outside of China demand for traditional and energy applications remained relatively stable.

Rich Governor: We estimate MTO operating rates and increased from low 70% in Q3 to mid 80% in Q4, driven by the completion of planned downstream expansions and an improvement in affordability during the quarter.

Rich Governor: On the supply side production increase from coal based producers in China, which was offset by planned and unplanned outages in the U S Southeast Asia, and the middle East as well as lower production from natural gas restrictions in Iran, and China corporate coal pricing in China was steady during the fourth quarter ranging from around 900 and <unk>.

<unk> 1000, RMB per ton, we currently estimate the marginal cost of production to be between $280 $300 per ton based on current coal pricing in China.

Rich Governor: Overall continued high energy pricing low global inventories and tightening supply demand balances led to higher pricing throughout the fourth quarter and into the first quarter our.

Rich Governor: Our February posted prices in North America Asia Pacific and China are posted at 570, 390, and $360 per ton per metric ton, respectively, and our first quarter European price was posted at 525 euros per tonne an increase from Q4 of 100.

Rich Governor: Third 50 euros.

Rich Governor: Based on our January and February posted prices, we estimate our global average realized price to be approximately 335.

Rich Governor: $345 per metric ton for these two months looking forward, we expect 'twenty 'twenty four demand growth rates to be similar to 2023 based on current global economic forecast supply additions in 2024 include our <unk> III plant our plant in Malaysia, which is expected.

Operator: Good morning, my name is Dennis, and I will be your conference operator. At this time, I would like to welcome everyone to the Methanex Corporation 2023 fourth quarter results conference call. All lines have been placed on mute to prevent any background noise.

Rich Governor: To start up in the second half of the year and some limited new capacity in China.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I would now like to turn the conference call over to the Director of Investment Relations at MethodX, Ms. Sarah Harriott. Please go ahead, Ms. Harriott.

Rich Governor: We expect to see increased supply from these new capacity additions to be partially offset by the rationalization of existing supply production in Trinidad will be lower by approximately 1 million tons annually beginning in September 2024, when we shutdown Atlas and restart tightened and we continue to make.

Rich Governor: On it or our competitors operating rates in Trinidad and other factors globally that could further impact supply such as announced the announced gas diversions from ethanol to LNG and Equatorial Guinea.

Sarah Harriott: Good morning, everyone. Welcome to our fourth quarter 2023 results conference call. Our 2023 fourth 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 methanx.com. I would like to remind our listeners that 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.

Rich Governor: 'twenty 'twenty four we expect to see continued methanol demand growth and do not see any meaningful supply additions outside of China for the next few years.

Rich Governor: Looking at long term demand drivers ship orders for dual fuel methanol vessels accelerated at a rapid rate in 2023. This was the first year that orders for dual fuel methanol vessels outpaced LNG powered ships and the current order book for methanol vessels would result in over.

Sarah Harriott: Certain material factors or assumptions were applied in drawing the conclusions for making the forecast or projections, which are included in the forward-looking information. Please refer to our 4th Quarter 2023 MD&A and TOR 2022 Annual Report for more information. I would also like to caution our listeners that any projections provided today regarding Methanex's future financial performance are effective as of today's date. It is our policy not to comment on or update this guidance between quarters. For clarification, any references to revenue, EBITDA, adjusted EBITDA, cash flow, adjusted income, or adjusted earnings per share made in today's remarks reflect our 63.1% economic interest in the Atlas facility, our 50% economic interest in the Egypt facility, 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 share-based compensation and the impact of certain items associated with These items are non-GAAP measures and ratios that do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies.

Rich Governor: 250 ships being on the water by the end of 2028.

Rich Governor: The momentum for methanol as a greenfield is clearly very strong and we believe that methanol demand.

Rich Governor: Applications will depend on a number of factors, including availability of low carbon ethanol, including green methanol marine fuel regulations, and the cost competitiveness of methanol versus other fuels, our low carbon solutions team is in discussions with multiple shipping companies on how we can supply them with methanol as these ships start to come on.

Rich Governor: The water in the 2025 to 2028 period.

Rich Governor: In the fourth quarter, we had higher production with no scheduled turnarounds and bolt Chile plants are operating at full rates with gas from Argentina.

Rich Governor: The Egypt plant had an unplanned outage in mid October due to a mechanical failure in the synthesis gas compressor.

Rich Governor: The unit was sent to its manufacturer in Germany for a repair and I'm happy to report that is now back on site and we expect the plant to be able to start up in the first half of February.

Rich Governor: The <unk> III plant is in the process of starting up and we expect the commercial production is eminent we expect expect the plant to ramp up to full rates over the month of February.

Sarah Harriott: 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 Methonex's President and CEO, Mr. Rich Sumner, for his comments and a question and answer period. Thank you, Sarah, and good morning, everyone.

I want to thank the project team, who work tirelessly to deliver this high quality projects safely and we expect the total capital cost to come within the budget of 1.25 to $1 $3 billion.

Rich Governor: In 2024, we have one plant turnaround schedules our forecasted production for 2024 is approximately $8 1 million equity tonnes. Although actual production may vary by quarter based on timing of turnarounds gas availability unplanned outages and unanticipated events in Chile, both plants are.

Rich Sumner: We appreciate you joining us today as we discuss our fourth quarter and full year 2023 results. I'm excited to report that the G3 plant is in the process of starting up, and we expect that commercial production is imminent. G3 significantly increases our cash flow generation capability and has one of the lowest emission intensity profiles in the industry. We're extremely proud of our global team for safely delivering this high-quality addition to our asset portfolio. Turning to our results for the fourth quarter, our average realized price of $322 per ton and produced sales of approximately 1.7 million tons generated adjusted EBITDA of $148 million and adjusted net income of $0.52 per share. Adjusted EBITDA was higher compared to the third quarter due to the higher average realized price and higher produced sales.

Rich Governor: Currently operating at full rates with gas deliveries from Argentina.

Rich Governor: We estimate production for 2024 will be between 111 to $1 2 million tonnes, which is underpinned by year round natural gas supply from Chile for about 30% to 35% of our requirements with the remaining 60% to 65% from Argentina during the non winter period, allowing us to offer.

Rich Governor: Both plants at full rates.

Rich Governor: Natural gas development and related infrastructure investments in Argentina continues to progress and we're working with our natural gas suppliers on extending the period of full gas availability to our plants.

Rich Sumner: Our global team has delivered a strong year of operating results with production of 6.6 million equity tons. For the full year 2023, we recorded adjusted EBITDA of $622 million and adjusted net income of $153 million, or $2.25 per share. We estimate that global methanol demand will increase in 2023 to approximately 91 million tons. Through the fourth quarter, market conditions strengthened, with increased demand primarily in China outpacing an increase in supply, leading to a drawdown on inventories and increased methanol demand. Global methanol demand grew by over 3% compared to the third quarter, with significantly improved operating rates in methanol to olefins and growth in traditional demand in China. However, outside of China, demand for traditional and energy applications remained relatively stable.

Rich Governor: In New Zealand, we're expecting lower gas deliveries and lower production in 2024 up one to $1 1 million tons 2024 natural gas supply is expected to be impacted by a combination of our suppliers planned infrastructure maintenance outages as well as lower than expected output from existing.

Rich Governor: Wells, while upstream investment has been made by our gas suppliers in New Zealand over the past few years recent production results have been lower than originally expected, which has contributed to the revised forecast for lower production in 2024.

Rich Governor: We ended the fourth quarter in a strong financial position with $451 million of cash and $300 million of Undrawn backup liquidity, our capital priorities are to pay the remaining G III capital of approximately $60 million to $110 million.

Rich Governor: In the first two quarters of 2024 and to repay rather than refinanced $300 million bond due at the end of 2024.

Rich Sumner: We estimate MTO operating rates increased from low 70% in Q3 to mid 80% in Q4, driven by the completion of planned downstream expansions and an improvement in affordability during the quarter. On the supply side, production increased from coal-based producers in China, which was offset by planned and unplanned outages in the U.S., Southeast Asia, and the Middle East, as well as lower production from natural gas restrictions in Iran and China. Coal pricing in China was steady during the fourth quarter, ranging from around 950 to 1,000 RMB per ton.

Rich Governor: Moving forward, we expect to generate strong keep strong free cash flow with limited maintenance capital and high higher production capability with G. Three operating.

Rich Governor: Looking ahead to the first quarter of 2024, we're expecting slightly higher adjusted EBITDA with a higher realized price and similar produced sales as we will be building produced inventory with the <unk> startup and the Egypt restart.

Rich Governor: With G. III is expected to wrap up to full rates over the month of February we expect the second quarter of 2024 to be more representative of a run rate production and cash generation capability.

Rich Sumner: We currently estimate the marginal cost of production to be between $280 and $300 per tonne based on current coal prices in China. Overall, continued high energy prices, low global inventories, and a tightening supply-demand balance led to higher prices throughout the fourth quarter and into the first quarter. Our February posted prices in North America, Asia-Pacific, and China were posted at $570, $390, and $360 per metric tonne, respectively.

Rich Governor: Our priorities for 2024 are to deliver strong operational results from our assets and supply chain maintain a strong balance sheet, including the repayment of debt and return excess cash to shareholders. We would now be happy to answer questions.

Speaker Change: At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.

Rich Sumner: And our first quarter European price was posted at €525 per tonne, an increase from Q4 of €150. Based on our January and February posted prices, we estimate our global average realized price to be approximately $335,000, or $345 per metric ton for these two months. Looking forward, we expect 2024 demand growth rates to be similar to 2023 based on current global economic forecasts. Supply additions in 2024 include our G3 plant, a plant in Malaysia which is expected to start up in the second half of the year, and some limited new capacity in China. We expect to see increased supply from these new capacity facilities, to be partially offset by the rationalization... Production in Trinidad will be lowered by approximately 1 million tons annually beginning in September 2024 when we shut down Atlas and restart Titan, and we continue to monitor our competitors' offering rates in Trinidad and other factors globally that could further impact supply, such as the announced gas diversion from methanol to LNG in Equatorial Guinea.

Speaker Change: That you limit yourselves to one question and one follow up question.

Speaker Change: You have additional questions. Please re enter the queue.

Speaker Change: And your first question comes from the line of Joel Jackson with BMO capital. Please go ahead.

Joel Jackson: Hi, good morning.

Joel Jackson: Okay.

Joel Jackson: <unk>.

Joel Jackson: When we think about the buyback now you talk about what your capital allocation priorities are to get through the last I don't know 80 or $90 million of spending in Q3.

Joel Jackson: <unk> got enough cash on the balance sheet to pay back the bond later in the year.

Joel Jackson: When do you think it can be in position to have enough cash buffer on your balance sheet and are you ready to start buying back stock.

Speaker Change: Yeah, I I think Joel we're we're obviously monitoring the markets methanol pricing certainly where it is today a methanol pricing as you know we generate strong strong cash flows at today's methanol price. So you know it will be a function of our outlook on firstly is building up the cash.

Speaker Change: Or or at least having an outlook on the market by the time, we make that decision to maybe open up a bit but I wouldn't say, we're there yet we're going to monitor the markets we'd.

Speaker Change: We'd like to get G, III up and running and focus on getting.

Speaker Change: Got up to full rates and you know I think if you look forward you hold pricing where it's at today you know through through Q2.

Rich Sumner: Beyond 2024, we expect to see continued methanol demand growth and do not see any meaningful supply additions outside of China for the next few years. Looking at long-term demand drivers, ship orders for dual-fuel methanol vessels accelerated at a rapid rate in 2023. This was the first year that orders for dual-fuel methanol vessels outpaced LNG-powered ships, and the current order book for methanol vessels would result in over 250 ships being on the water by the end of 2028. The momentum for methanol as a marine fuel is clearly very strong, and we believe that methanol demand in marine applications will depend on a number of factors, including availability of low-carbon methanol, including green methanol, marine fuel regulations, and the cost competitiveness of methanol versus other fuels.

Speaker Change: With with all of our assets running yeah, we will be building cash in and if we can get confidence that market's holding and then we'll see.

Speaker Change: You know, we don't have to wait until everything is built before we open up that flexibility, but we're not there yet, but we're you know we're gonna pay attention really really closely to how things build up over the next few quarters here.

Speaker Change: Okay. That's helpful. So you know when do you want and G. Two came on across 15 early 16 Theres. Another plant also in the U S. It came on I know, there's a lot of pressure on methanol inventories in the states I think prices are quite low they bounce back across 16, youre about to put a bunch of new methanol volume on the market coming out of the <unk>.

You asked about to go long methanol too.

Speaker Change: And a greater amount now.

Speaker Change: As a team doing to make sure you know that you're balancing the market, we're going to run full rate 10, a month, how do you make sure you don't.

Speaker Change: Hurt the market.

Rich Sumner: Our Low Carbon Solutions team is in discussions with multiple shipping companies on how we can supply them with methanol as these ships start to come on the water in the 2025-2028 period. In the fourth quarter, we had higher production with no scheduled turnarounds and both Chilean plants operating at full rates with gas from Argentina. The Egypt plant had an unplanned outage in mid-October due to a mechanical failure in the synthesis gas compressor.

Speaker Change: So.

Speaker Change: So.

Speaker Change: Joey where we've been on from a sales perspective, we've really built up sales in advance of Q3.

Joey: So when when when we start up the plant.

Joey: What what it'll be it'll be a displacement of purchase product in <unk>.

Joey: And like I said, we're already we're anticipating and building everything into our plans that were were getting up to full rates by the end of February when we plan our supply chain about two to three months out. So we've already pulled back on purchases and market pricing has stayed stable if not <unk>.

Rich Sumner: The unit was sent to its manufacturer in Germany for repair, and I'm happy to report that it's now back on site, and we expect the plant to be able to start up in the first half of February. The G3 plant is in the process of starting up, and we expect that commercial production is imminent. We expect the plant to ramp up to full rates over the month of February. I want to thank the project team who worked tirelessly on this project to deliver this high-quality project safely.

Joey: Creasing, So I would say a lot of G. III is in the market today without the without the plant operating and you know part of this is the fact that the timing at which we're doing this is fortunate because.

Joey: The market is typically structurally short and in the in this timeframe, but I would say a big portion of G. III is already in the market because of our supply chain decision, making that's already there.

Rich Sumner: And we expect the total capital costs to come within the budget of $1.25 to $1.3 billion. In 2024, we have one planned turnaround schedule. Our forecasted production for 2024 is approximately 8.1 million equity tons, although actual production may vary by quarter based on timing of turnarounds, gas availability, unplanned outages, and unanticipated events. In Chile, both plants are currently operating at full rates with gas deliveries from Argentina.

Joey: Okay.

Joey: Your next question comes from the line of Steve Hansen with Raymond James Your line is open.

Joey: Yeah.

Steve Hansen: Yes, thanks, guys.

Steve Hansen: Rich as you think about the gas opportunity in Argentina.

Steve Hansen: To bring on sort of those two plants at full rate full time what.

Steve Hansen: What is the timeframe for those discussions with the Argentine gas suppliers and the time to contract or different things you need to do in advance to get secure supply. So that you can run those basically at full rates.

Rich Sumner: We estimate production for 2024 will be between 1.1 to 1.2 million tons, which is underpinned by year-round natural gas supply from Chile for about 30 to 35 percent of our requirements, with the remaining 60 to 65 percent from Argentina during the non-winter period, allowing us to operate both plants at full rate. Natural gas development and related infrastructure investments in Argentina continue to progress, and we're working with our natural gas suppliers on extending the period of full gas availability to our plants. In New Zealand, we're expecting lower gas deliveries and lower production in 2024 of 1 to 1.1 million tonnes. 2024 Natural Gas Supply, expected to be impacted by a combination of our supplier's planned infrastructure maintenance outages, as well as lower than expected output from existing wells. While upstream investment has been made by our gas suppliers in New Zealand over the past few years, recent production results have been lower than originally expected, which has contributed to the revised forecast for lower production in 2024. We ended the fourth quarter in a strong financial position with $451 million in cash and $300 million in undrawn backup.

Speaker Change: Thanks, Steve.

Speaker Change: When we look at Argentina, it's a real.

Steve Hansen: As a real positive story for us right now and.

Steve Hansen: I think you know you have to go back to where it whereas development how is what's the pace of development in that country.

Speaker Change: Really good progress.

Through 2023.

Speaker Change: The tie ins that they made to the Vaca Morten.

Speaker Change: You know just how they're phasing that in the first tie in happened where it added about 11.

Speaker Change: 11 million cubic meters, a day of gas into the grid.

Speaker Change: Compression theyre going to add to that.

Speaker Change: Your line is going to double that capacity that was supposed to happen in the first half of this year.

And then there's a twinning of that of that pipeline is going to double all of that so that's about a third of the gas supply demand in Argentina.

Speaker Change: That 20 is supposed to happen through 2025.

In addition to that there is a project that's happening.

Speaker Change: In the southern basin.

Speaker Change: Which is hotel and wintershall and others is the L. A Phoenix project, that's in the south as well and that's a bad gasses submit to come online at the end of 2024 into 2025, so I see.

It's already positive we're already seeing more gas availability and then in the non winter months and that's allowed us to operate both plants.

Speaker Change: What I see is there's going to be a lot more positive developments in the next few years.

Rich Sumner: Our capital priorities are to pay the remaining G3 capital of approximately $60 million to $110 million in the first two quarters of 2024 and to repay rather than refinance the $300 million bond due at the end of 2024. Moving forward, we expect to generate strong free cash flow with limited maintenance capital and higher production capability with G3. Looking ahead to the first quarter of 2024, we're expecting slightly higher adjusted EBITDA with a higher realized price and similar produced sales as we will be building produced inventory with the G3 startup and the Egypt restart. With G3 expected to wrap up to full rates over the month of February, we expect the second quarter of 2024 to be more representative of our run rate production and cash generation capabilities.

Speaker Change: And what I would say is our goal is to is to contract on a longer term basis. This full gas and then Don winter periods, and then over time, we shorten that.

Speaker Change: To shorten those shoulder periods to the point, where we can move towards full gas supply.

Speaker Change: So I can't give you exact timeframe, but I think theres going to be a lot of positive things happening in the next few years and certainly we're going to we're gonna be a working very closely with our with our gas suppliers.

Speaker Change: Yeah.

Speaker Change: Okay. That's great and then just on your reference to discussions with some of the ship owners around.

Speaker Change: Methanol supply arrangement is there is there something you need to do to sort of cargo to the scream of methanol, whether it's R. A D based or some sort of carbon based low carbon based fuel stream. They provide that kind of fuel type for the methanol operators or are they are they just looking for the regular methanol.

Speaker Change: As a starting point.

Speaker Change: It's a I would say, there's a combination of discussions going on.

Speaker Change: You know there's regulations in Europe that are really driving the desire for low carbon and more green methanol and so when worked our discussions with a lot of those shipping companies do focus more into investments in renewable whether that'd be RMG or or email us at all.

Rich Sumner: Our priorities for 2024 are to deliver strong operational results from our assets and supply chain, maintain a strong balance sheet, including the repayment of debt, and return excess cash to shareholders. We would now be happy to answer questions. At this time, I would like to remind everyone that in order to ask a question, please press the star then the number one on your telephone keypad.

Speaker Change: Biomass at all or E methanol and so you know.

Speaker Change: Those discussions are ongoing there's also discussions about conventional methanol happening as well outside of Europe and with other shipping companies, but you know like I said there was a number of different factors I think that the marine industry is is working with it.

Joel Jackson: We ask that you limit yourselves to one question and one follow-up question. If you have additional questions, please re-enter the queue. And your first question comes from the line of Joel Jackson with BMO Capital. Please go ahead. Hi, good morning.

Speaker Change: And that will influence their up their ultimate choice in fuels and certainly our low carbon solutions team is working right along with them on how we can provide solutions be it investments in and in green or conventional methanol or both so you know I think we're going to have more to report here as we move.

Rich Sumner: Um, when you think about the buyback now, you talked about what your capital allocation priorities are to get through the last, to do 90 million in spending in G3. Were you ever in a situation where you had to put enough cash on the balance sheet to pay back the bond later that year? When do you think you're in a position to have enough cash buffer on your balance sheet and be ready to start buying back stuff? Yeah, I think, Joel, we're obviously monitoring the markets, methanol pricing, certainly where it is today. Methanol pricing is, you know, we generate strong, strong cash flows at today's methanol price. So, it will be a function of our outlook on, firstly, building up the cash for, or at least having an outlook on the market by the time we make that decision to maybe open up a bid. But I wouldn't say we're there yet.

Speaker Change: Through this transition to have these ships on the water and it's going to evolve so hard to give you exact time frames and volumes.

Speaker Change: As it relates to methanol certainly these are dual fuel ships. So there's options for traditional bunker fuels.

Speaker Change: We think that methanol looks is competitive to the alternative low carbon solutions in the diesel space, but again, that's also going to evolve.

Speaker Change: Hum.

Speaker Change: Your next question is from the line of Hassan Ahmed with Al Embed Global Your line is open.

Hassan Ahmed: Good morning Rich.

Rich Sumner: We're going to monitor the markets. You know, we'd like to get G3 up and running and focus on getting that up to full rates. And, you know, I think if you look forward, you hold pricing where it's at today through Q2, with all of our assets running, you know, we will be building cash. And if we can get confidence that the market's holding in, then we'll see, you know, we don't have to wait until everything's built before we open up that flexibility. But we're not there yet, but we're, you know, we're going to pay attention really, really closely to how things build up over the next few quarters. Okay, that's helpful.

You know what you guys saw a good bump up in pricing over the last couple of months.

Hassan Ahmed: Particularly in Europe.

Hassan Ahmed: My question kind of is around the variances are divergences embracing.

Hassan Ahmed: You know there still seems to be a fairly large delta between call. It U S Clos European pricing and Asian pricing, So would love to hear your views around around that Delta.

Hassan Ahmed: Thanks.

Hassan Ahmed: It's.

Speaker Change: I think I think when we look at the markets.

Speaker Change: To start with China, China becomes is the is the cost center are in the market and today, we say cost curve is around 280 to $300 and we see MTO affordability, which is a big buyer.

Rich Sumner: So, you know, when G1 and G2 came on across 15 and early 16, there was another plant in the US that came on. I know there's a lot of pressure on methanol inventories in the States. I think prices went quite low. They bounced back across 16.

Speaker Change: The industry kind of in the same in the same range and so that we've seen that price holding I would call. It relatively firm for quite some time and then what we see is that the.

Rich Sumner: You're about to put a bunch of new methanol volume on the market coming out of the States. The US is about to go long on methanol for a greater amount now. What is the team doing to make sure, you know, that you're balancing the market? We're going to run full rates in a month. How do you make sure you don't, you know, hurt the market?

Speaker Change: Depending on the I call it the tightness in the market, we see pricing in other regions at a at a premium to China, which varies depending on supply and demand into those markets and availability of methanol. So if you have.

Speaker Change: Unplanned outages in the U S than the premium to premium in the in the in the U S market will will go up for a period, but what we're seeing as things got a settling in at around.

Rich Sumner: So, I mean, Joel, where we've been from a sales perspective, we've really built up sales in advance of G3. So when we start up the plant, what it'll be is a displacement of purchased product. And like I said, we're already anticipating and building everything into our plans that we're getting up to full rates by the end of February. We plan our supply chain about two to three months out.

Speaker Change: So on average we're in this 30 to $50 over China and like I said for the first quarter here, where we're at 335 to $340 $45 per ton on an average realized basis with China in that $2 80 to 300, So we're very happy with our with the with the <unk>.

Speaker Change: Rising that is happening in the market, which is reflective of our of tight market conditions.

Speaker Change: Fair enough fair enough and just moving on to the natural gas side of things, particularly in the U S. I mean, I know you know.

Rich Sumner: So we've already pulled back on purchases, and market pricing has stayed stable, if not increased. So, I would say a lot of G3 is in the market today without the plant operating, and part of this is the fact that the timing at which we're doing this is fortunate because the market is typically structurally short in this time frame, but I would say a big portion of G3 is already in the market because of our supply chain decision making that's already there. Your next question comes from the line of Steve Hansen with Raymond James. Your line is open.

Speaker Change: Between sort of last year and this year you know, we've obviously seen natural gas prices in the U S coming down you know a fair bit.

Speaker Change: Can you talk a bit about the.

Speaker Change: The difference is in your hedging strategy between 2023 and 2004, because I know you guys had obviously hedged out a fair amount of U S natural gas last year.

Where does that stand this year.

Speaker Change: Yeah. We were so our strategy is just kind of to have you know.

Speaker Change: Three to five year, rolling hedges, and we actually go beyond that but at much lower quantities.

Steve Hansen: Yeah, thanks. Rich, as you think about the gas opportunity in Argentina, to bring on sort of those two plants at full rates, full time, you know, what is the timeframe for those discussions with the Argentine gas suppliers and the time to contract all different things you need to do in advance to get the secure supply so that you can run those basically at full rate? Thanks, Steve.

Speaker Change: And we target in the near term years too to have about 70% of our position in North America hedged and that's where we're at today with G. Three operating at full rates. So so where effectively you can say we're participating at will be participating in the in the spot market.

Rich Sumner: I think when we look at Argentina, it's a real, you know, it's a real positive story for us right now. And I think, you know, you have to go back to where the development is, how the pace of development in that country was. Really good progress through 2023 with the tie-ins that they made to the Vaca Morta and, you know, just how they're phasing that in. The first tie-in happened where it added about 11 million cubic meters of gas a day to the grid. The compression they're going to add to that pipeline is going to double that capacity that's supposed to happen in the first half of this year. And then there's a twinning of that pipeline that's going to double all of that. So that's about a third of the gas supply demand in Argentina. That twinning is supposed to happen through 2025. In addition to that, there is a project that's happening in the southern basin, which is Total and Wintershell and others. It's the L-Phoenix project that's in the South as well.

Speaker Change: Kit at around 30%, we said, we said that that level based on the minimum minimum operating rates in our plants, because we target at delivered cash costs that were comfortable with to operate at all points in the methanol price cycle and so we've been successful in putting in those hedges, where we're happy with where we are.

Speaker Change: We're not seeking to to to hit in the short term to be hedging hedging up beyond that level and and we continue to be active in the market layering hedges in the outer years as the new year's roll in so.

Speaker Change: So hopefully that helps helps you are with that question.

Speaker Change: Yeah.

Speaker Change: Your next question is from the line of Ben Isaacson with Scotiabank. Your line is open.

Ben Isaacson: Thank you very much and good morning first question is on <unk>.

Ben Isaacson: New Zealand.

Ben Isaacson: Just looking back at my model I see in 2016, you produced or sold a $2 2 million tons from that region and now eight years later, we're down about 50% to 1% to $1. One what should we be modeling as a run rate for New Zealand going forward not in 'twenty, four but beyond 24 whats the real.

Rich Sumner: And that gas is meant to come online at the end of 2024 or beginning of 2025. So I see, you know, it's already positive. We're already seeing more gas availability in the non-winter months, and that's allowed us to operate both plants. You know, what I see is there's going to be a lot more positive developments in the next few years, and what I would say is our goal is to contract on a longer-term basis and pull the plug. Okay, that's great.

Ben Isaacson: What's the game plan, there and is there an opportunity to monetize an asset that's not being used right now.

Speaker Change: So thanks Ben.

Ben Isaacson: You know for modeling purposes, we are where we're giving are dark.

Ben Isaacson: Giving guidance right now one year out and a lot of this is based off of developments that are happening in the natural gas fields in the in the terror Taranaki basin as well as other factors.

Rich Sumner: And then just on your reference to discussions with some of the ship owners around methanol supply arrangements, is there something you need to do to sort of carve out a new stream of methanol, whether it's RNG based or some sort of carbon-based, low carbon based fuel stream to provide that kind of fuel type for the methanol operators, or are they just looking for regular methanol as a starting point? It's a combination of, I would say there's a lot of discussions going on.

You know I think what we've seen if you will.

Ben Isaacson: When you look at the.

Ben Isaacson: The decline over that time period that you referenced it's all about what's happening in the different fields and and in New Zealand and we did see that there was a revision in and reserve estimates at one of the major fields that brought that was quite some time ago that production down you know today I would.

Rich Sumner: You know, there's regulations in Europe that are really driving the desire for low carbon and or green methanol. And so our discussions with a lot of those shipping companies do focus more on investments in renewables, whether that be RNG or, or e-methanol, biomethanol, or e-methanol. And so I, I, you know, those discussions are ongoing.

Ben Isaacson: You know, we don't we don't forecast to have watched her valley the smaller plants in our and our plans are really focused on the two months' annuity plants.

And and getting gas or for those for those plants I think when you look longer term how do you think longer term for these assets.

You'd have to look at both above ground.

Rich Sumner: There are also discussions about conventional methanol happening as well outside of Europe and with other shipping companies. But, you know, like I said, there are a number of different factors. I think that the marine industry is working with, and that will influence their ultimate choice and fuels. And certainly, our low carbon solutions team is working right along with them on how we can provide solutions, be it investments in green or conventional methanol or both. So, you know, I think we're going to have more to report here as we move through this transition to have these ships on the water, and it's going to evolve so hard to give you exact timeframes and volume as it relates to methanol. Certainly, these are dual fuel ships, and there are options for traditional bunker fuels.

Ben Isaacson: Below ground factors and what I mean by that above ground.

Ben Isaacson: We play a huge role in New Zealand in the natural gas market.

Ben Isaacson: The country is uses most of the power it is renewable power, but natural gas is an important power source.

Ben Isaacson: When there's intermittent gas or <unk>.

Ben Isaacson: And power supply.

Ben Isaacson: And we it's a low emission power source.

Ben Isaacson: Otherwise you're dependent on imported coal will represent 50% of the market and where the baseload customer for for the natural gas industry. So so I think that is an important factor in the second one is the government.

Ben Isaacson: You know.

Ben Isaacson: <unk> been a new government put in place and New Zealand Center right coalition their platform is much more favorable.

Ben Isaacson: Towards the the gas industry in comparison to what we've seen for the last six years and and that there's a clear a clear direction that they've set coming in into the into the into a into power. So so so that's positive and then and then obviously looking at below ground. Some of the campaigns that have been.

Rich Sumner: We think that methanol is competitive with the alternative low carbon solutions in the diesel space, but again, that's also going to involve... Your next question is from the line of Hassan Ahmed with Alambeck Global. Your line is open. Good morning, Rich.

Ben Isaacson: And run for the last year or so they haven't delivered the results, which as you know what.

Ben Isaacson: Kind of expect sometimes you're going to have results, sometimes you won't.

Ben Isaacson: These are not deliver results from the wells that have been producing we've seen declines are happening a little quicker. So we're working with our gas suppliers really closely on.

Hassan Ahmed: You know, you guys saw a good bump up in pricing over the last couple of months, particularly in Europe, so my question kind of is around the variances or divergences in pricing. You know, there still seems to be a fairly large delta between, call it US slash European pricing and Asian pricing. So I would love to hear your views on that delta. Your... All right.

Ben Isaacson: The investments are going to be making to improve the existing wells and also the impact that has on their future campaigns. So it's difficult to to give you you know what is that going to result in for a long term run rate what I can say is our focus is on the two months of new plants.

Ben Isaacson: And keeping those.

Rich Sumner: I think when we look at the markets, we tend to start with China. China is the cost-setter in the market. Today, we say the cost curve is around $280 to $300.

Ben Isaacson: You know trying to improve that.

Ben Isaacson: Production from.

Ben Isaacson: From those those those assets.

Speaker Change: That's super helpful. And then just one more if I may.

Speaker Change: Forgive my bad math here, but you said that the world grew at an annualized rate of 3% in Q4 and ex China. The world was stable or maybe about roughly flat. So does that in any given that China is roughly half of global demand does that mean that China really grew at five 6% in Q4, and if you take MTO out.

Rich Sumner: We see MTO affordability, which is a big buyer to the industry, in the same range. We've seen that price holding, I would call it relatively firm, for quite some time. Then what we see is that, depending on what I call the tightness in the market, we see pricing in other regions at a premium to China, which varies depending on supply and demand into those markets and availability of methanol. So if you have unplanned outages in the U.S., then the premium in the U.S. market will go up for a period. But what we're seeing is things kind of settling in at around $30 to $50 over China. And like I said, for the first quarter here, we're at $335 to $345 per ton on an average realized basis, with China in that $280 to $300. So we're very happy with the pricing that is happening in the market, which is reflective of tight market conditions. Fair enough, fair enough.

Speaker Change: What is non MTO trying to do but that's what I'm I think that's what investors are quite interested in because you know MTO will fluctuate all the time, we really want to see demand improvements from underlying China. Thank you.

Speaker Change: Yeah. So we did see some we did see some demand improvement in traditional applications in China as well as MTO and overall growth rates for about 6% in China, a quarter over quarter over quarter.

Speaker Change: Traditional applications. Obviously, it's it is something that we're watching really closely as well for the year in China. We saw you know we saw about 5% to 10% growth rates in China across all applications.

Speaker Change: So without was MTO and other energy applications and traditional chemical applications and traditional chemical applications were supported in industrial production in China increased by over 5% for the year export demand was weak, but they were exporting a meaningful amount of especially in comparison.

Rich Sumner: And just moving on to the natural gas side of things, particularly in the U.S., I mean, I know, you know, between sort of last year and this year, we've obviously seen natural gas prices in the U.S. coming down a fair bit. Can you talk a bit about the differences in your hedging strategy between 2023 and 2024? Because I know you guys had obviously hedged out a fair amount of U.S. natural gas last year. Where does that stand this year?

Speaker Change: And to the previous year, where they were in a COVID-19 year. So in a way what we did we were coming off of a lower base coming into 2023.

Speaker Change: But 5%, 5% to 10% growth rates across all those different applications whenever represents 60% to 65% of your demand obviously is going to be meaningful for the industry.

Speaker Change: Okay.

Speaker Change: Your next question is from the line of Josh Spector with UBS. Your line is open.

Rich Sumner: Yeah, we are, so our strategy is kind of to have, you know, three to five year rolling hedges. And we actually go beyond that, but in much smaller quantities. And we target in the near term years to have about 70% of our position in North America hedged. And that's where we're at today with G3 operating at full rate. So, you know, we're effectively, you could say, we're participating in the spot market at around 30%. We set that level based on the minimum operating rates in our plant, and we target a delivered cash cost that we're comfortable with operating at all points in the methanol price cycle. So we've been successful in putting in those hedges. We're happy with where we are.

Yeah, Hi, thanks for taking my questions.

Joshua Spector: First I just wanted to ask just within Europe, but thinking about Red Sea and middle East disruptions.

Joshua Spector: Has that had any impact on the region I know for some other commodities were talking about potentially limiting supply into Europe being an upward price, perhaps catalyst I know methanol floats tend to be in the other direction, but what are you seeing and what do you think plays out here in near term there.

Speaker Change: That's exactly right it hasn't been a big impact for us or for the methanol industry broadly.

Speaker Change: Our supply chain, we don't have any product flowing through the Suez in the Red Sea, we would if we were supplying Egypt too.

Speaker Change: Asia, but Egypt is really an asset that doesn't.

Speaker Change: Supplies, mostly embedded training our Mediterranean customers. So so we're we're not impact and then as a broad industry. The flows from the middle East have really have really pulled back overtime and are almost negligible and that's on the basis that there's been a lot of new Atlantic production that's come on.

Rich Sumner: We're not seeking to... in the short term, be hedging up beyond that level. And we continue to be active in the market, layering hedges in the outer years as the new years roll in. So hopefully that helps you with that question. Your next question is from the line of Ben Isaacson with Scotiabank. Your line is open. Thank you very much and good morning.

Speaker Change: On line over over the past many years and so it hasn't impacted the methanol pricing.

Speaker Change: It really tightened up the market in Europe, I would say, what we're continuing to monitor which you know well look.

Ben Isaacson: The first question is on New Zealand. Just looking back at my model, I see that in 2016, you produced or sold 2.2 million tonnes from that region. And now, eight years later, we're down about 50% to 1 to 1.1. What should we be modeling as a run rate for New Zealand going forward, not in 2024, but beyond 2024? What's the realistic game plan there? And is there an opportunity to monetise an asset that's not being used right now? So, thanks, Ben.

Speaker Change: Everyone will be monitoring as potential escalation in the region and the Strait of Hormuz.

Speaker Change: As you know were probably 15% to 20% or so.

Apply because all middle East supply flows through that region, just given recent events in our with Iran. Something we're watching very closely but that would impact many many different commodities and and and.

Speaker Change: And so we'll continue to monitor that but so far the impact has been pretty pretty muted.

Speaker Change: Thanks, I appreciate that and just a quick one on Capex, if I could just as G. III winds down I mean, you go more to maintenance levels, but you're talking about a little bit of growth. When you think about marine fuel as some other applications. What's the range of Capex do you see over the next couple of years of the go forward.

Rich Sumner: You know, for modeling purposes, we're giving guidance right now, one year out, and a lot of this is based on developments that are happening in the natural gas fields in the Taranaki Basin, as well as other factors. Um, you know, I think what we've seen if you, you know, when you look at the, um, decline over that time period that you referenced. It's all about what's happening in the different fields in New Zealand. And we did see that there was a revision in reserve estimates of one of the major fields that brought production down quite some time ago. You know, today, we don't forecast to have Watcher Valley, the smaller plant, in our plans.

Speaker Change: When we look out we don't see any real meaningful capital in the next few years when it comes to either intrinsic organic growth opportunities or low carbon Beth Malone carbon methanol investments you know it will take time to develop we are developing these opportunities.

Speaker Change: But that will take time, so we're not standing still we're developing these but in terms of capital spend we don't see a lot of outflows or outlays being needed in the next few years. So you know really.

Really when we look at free cash flow generation the focus again as the balance sheet, and then and then excess cash to shareholders, which we've been pretty consistent with over the years.

Rich Sumner: We're really focused on the two Mata Nui plants and getting gas for those plants. I think when you look longer term, how do you think long term for these assets? You have to look at both above ground and below ground factors. And what I mean by that, above ground... You know, we play a huge role in New Zealand and the natural gas market. The country uses most of the power; it's renewable power, but natural gas is an important power source when there's intermittent gas, an intermittent power supply, and we, it's a low emission power source; otherwise, you're dependent on imported coal.

Speaker Change: Yeah.

Speaker Change: Your next question is from the line of Nelson <unk> with RBC capital markets. Your line is open.

Nelson: Great Thanks, and good morning.

Nelson: My first question is in terms of the outage and Egypt like obviously, you still need to supply Europe did you see materially higher transportation costs in Q4, and maybe in Q1 and if so should we assume that things kind of normalize.

Speaker Change: In Q2.

Speaker Change: Yeah. So thanks Alvin.

Rich Sumner: We represent 50% of the market, and we're the base load customer for the natural gas industry. So I think that is an important factor, and the second one is the government. There's just been a new government put in place in New Zealand. It's the Centre Right Coalition.

Alvin: Yes, we did see higher logistics costs, and I would say part of that was because of because of Egypt.

Alvin: Additionally, we it does depend on your supply chain movements with more Chile product in our in our asset base. We do see more flows from Chile to Asia, So a little lengthening of the supply chain there.

Rich Sumner: They're a platform much more favorable to the gas industry in comparison to what we've seen for the last six years. And that is a clear, clear direction that they've set coming into the, into the, into the power industry, so that's positive. And then obviously, looking below ground, some of the campaigns that have been run for the last year or so, they haven't delivered the results, which is what you kind of expect: sometimes you're going to have results, sometimes you won't. These have not delivered results in the wells that have been producing.

Speaker Change: And we move forward.

Speaker Change: Our supply chain it will be partially linked and when you with G. III G. Three product will be flowing to all different areas within our supply chain, but there will be likely more flows.

Speaker Change: Into Asia as well so you know hard to say, how you model all that but we expect there could be some slight increases in our in our AR and our ocean freight just on based on shipping days in length, and the and the shipping and the supply chain.

Rich Sumner: We've seen declines happening a little quicker, so we're working with our gas suppliers really closely on the investments they're going to be making to improve the existing wells and also the impact that has on their future campaigns. So it's difficult to give you, you know, what that is going to result in for a long-term run rate. What I can say is our focus is on the two Montanui plants and keeping those, and trying to improve the production from those assets. That's super helpful.

Speaker Change: Okay. That's good to know and then just one follow up on New Zealand you mentioned the lower supply like is that like from a maintenance outage at wells versus general generally lower outputs.

Speaker Change: Would you say that.

Speaker Change: The generally lower trend of output is the is that the larger factor in terms of your your forecast for the the large decrease in.

Ben Isaacson: And then just one more, if I may, forgive my bad math here, but you said that the world grew at an annualized rate of 3% in Q4. And, ex-China, the world was stable, or maybe about roughly flat. So does that, and given that China's roughly half of global demand, does that mean that China really grew at 5-6% in Q4? And if you take MTO out, what did non-MTO China do? That's what I think investors are quite interested in because, you know, MTO will flock to it all the time, but we really want to see demand improvements from underlying China. Thank you.

Speaker Change: In methanol production in New Zealand or is it or is it specifically like a very big outage or a long outage youre expecting.

Speaker Change: For maintenance.

Speaker Change: It's about it's about half and half.

Speaker Change: I would say.

Speaker Change: For that like its about half because of the outage in half because of lower lower gas.

Speaker Change: Profile.

Speaker Change: Okay.

Speaker Change: And are those outages like.

Speaker Change: Every other year or once every several years like should we expect these outages to happen.

Speaker Change: Again in 2026.

Rich Sumner: Ben, yeah, so we did see some demand improvement in traditional applications in China as well as MTO, and overall growth rates were about 6% in China quarter over quarter. Traditional applications, obviously, it is something that we're watching really closely as well. For the year in China, we saw about 5% to 10% growth rates in China across all applications. So that was MTO, other energy applications, and traditional chemical applications. Traditional chemical applications were supported in industrial production in China and increased by over 5% for the year.

Speaker Change: Every few years yeah. Okay every two around every two or three years.

Speaker Change: Okay. So so base cases, we might see a modest increase in 2025 out of New Zealand, if if everything else remains unchanged.

Speaker Change: We'll keep we'll keep updating you on the progress and we're going to work really closely alongside them and be able to give you a better better a better view on that is as we get closer to next year.

Speaker Change: Okay.

Speaker Change: Your next question is from the line of Matthew Blair with a T. P. H. Your line is open.

Hey, good morning, Thanks for taking my questions I had a couple of modeling questions for G. III.

Rich Sumner: Export demand was weak, but they were exporting a meaningful amount, especially in comparison to the previous year, when they were in a COVID year. So, in a way, we were coming off of a lower base coming into 2023, but 5% to 10% growth rates across all those different applications when it represents 60% to 65% of annual demand, obviously, it's going to be meaningful for the industry. It's from the line by Josh Spector with UBC, You're a lot.

Matthew Blair: First are there any significant.

Matthew Blair: Startup costs that we need to incorporate into Q1 and then second this inventory build in Q1 is that going to be like just a permanent part of your working capital or or will it be temporary and if it's temporary or is that some.

Matthew Blair: That you think will reverse by the end of 'twenty four or something further out.

Matthew Blair: Okay.

Speaker Change: Thanks for that so far.

Speaker Change: The first question was about capital and there will be no other kind of startup cost to.

Speaker Change: To to be for us to be.

Joshua Spector: Yeah, hi, thanks for taking my questions. First, I just wanted to ask, just within Europe, and thinking about the Red Sea and Middle East disruptions, has that had any impact on the region? I know for some other commodities, you're talking about potentially limiting supply into Europe being an upward price catalyst, perhaps catalyst. I know methanol floats tend to be in the other direction, but what are you seeing and what do you think plays out near term there? That's exactly right.

Speaker Change: Focused on everything in terms of starting up and commissioning of the plant is included in our 125 to $1 3 billion.

Speaker Change: And that's all included in the numbers the 60 to 110, including what's in accounts payable today. So so there's you shouldn't see anything beyond beyond that.

Speaker Change: As it relates to inventories.

Speaker Change: But I think we'll see this this year as well inventory overall inventory levels will likely stay something similar or potentially even down like you know we could see inventories being down we were not significantly increasing our sales. So there isn't a need to increase overall inventory levels.

Rich Sumner: It hasn't had a big impact for us, nor for the methanol industry broadly. In our supply chain, we don't have any product flowing through the Suez and the Red Sea. We would if we were supplying Egypt to Asia, but Egypt is really an asset that supplies mostly our Mediterranean customers. We're not impacted. As a broad industry, the flows from the Middle East have really pulled back over time and are almost negligible

And I would expect that to see that these things moderate overtime in terms of the produced inventory buildup that youre seeing today, so I wouldn't I wouldn't be forecasting this to be a permanent AR and what we will see is that overall inventories stay the same but there's sort of a flip between.

Rich Sumner: That's on the basis that there's been a lot of new Atlantic production that's come online over the past many years, but it hasn't impacted methanol pricing or really tightened up the market in Europe. What we're continuing to monitor, which everyone will be monitoring, is potential escalation in the region. The Strait of Hormuz is where probably 15% to 20% of supply goes because all Middle East supply flows through that region. Given recent events with Iran, something we're watching very closely.

Speaker Change: Produced inventories and purchase inventories as we'll be buying a lot less proportion of purchased at producing more.

Speaker Change: Okay, and then does that mean.

Speaker Change: For 2024 that you or your sales volumes should be pretty close maybe a little bit less than that.

Speaker Change: Eight one of our production.

Speaker Change: Yeah that'll be pretty good it should be pretty close and it might be slightly lower because of the inventory build.

Speaker Change: Got it and then my follow up is just around R&D could you talk about what percent of your sales.

Rich Sumner: That would impact many different commodities. We'll continue to monitor that. So far, the impact has been pretty minimal. Thanks.

Speaker Change: Were based on a on an R&D feedstock in 2023, and how might that change in 2024 and beyond and what kind of customers are interested in in methanol from R&D is that mostly the shipping or anything changing on the customer front there. Thanks.

Rich Sumner: I appreciate that. And just a quick one on CapEx, if I could. As G3 winds down, I mean, you go more to maintenance levels, but you're talking about a little bit of growth when you think about marine fuel or some other applications. What's the range of CapEx you see over the next couple of years as I go forward? When we look out, we don't see any real meaningful capital in the next few years when it comes to either intrinsic organic growth opportunities or low-carbon methanol investments. It will take time to develop.

Speaker Change: Yeah, So I think.

Speaker Change: First and foremost the overall level is quite small we really today, we have you know.

Speaker Change: One one customer one customer purchasing a biomass at all but there's lots of interest. So there's lots of interest in an envelope and low carbon ethanol and an R&D based methanol I think the challenge is it's about cost and availability of R&D and R&D has other competitive.

Nelson Ng: We're developing these opportunities, but that will take time. So we're not standing still; we're developing them, but in terms of capital spend, we don't see a lot of outflows or outlays being needed in the next few years. So really, when we look at free cash flow generation, the focus again is the balance sheet and then excess cash to shareholders, which we've been pretty consistent with over the years. Your next question is from the line of Nelson Ng with RBC Capital Markets. Great, thanks, and good morning.

Speaker Change: Alternatives that debt.

Speaker Change: That have increased the cost quite significantly significantly and the premiums you need to pay.

Speaker Change: And so you know we have worked we are trying to work on arrangements, where we can maybe get a more favorable price by locking in longer term and then selling into those markets and those are the things that we continue to pursue and it's not just RMG in North America, we're looking at renewable natural gas and in all of our.

Rich Sumner: My first question is, in terms of the outage in Egypt, obviously, you still need to supply Europe. Did you see materially higher transportation costs in Q4 and maybe in Q1? And if so, should we assume that things kind of normalize, and Q-Tip? Yes, thanks Nelson.

Speaker Change: Actions to find out where we can source it economically and and.

Speaker Change: And securely overtime.

Speaker Change: In terms of the customers its shipping the shipping customers.

Rich Sumner: Yes, we did see higher logistics costs, and I would say part of that was because of Egypt. Additionally, it does depend on your supply chain movements. With more Chilean products in our asset base, we do see more flows from Chile to Asia, so a little lengthening of the supply chain there. As we move forward, our supply chain will be partially lengthened with G3. G3 product will be flowing to all different areas within our supply chain, but there will likely be more flows into Asia as well. So, hard to say how you model all that, but we expect there could be some slight increases in our ocean freight, just based on shipping days and length of the supply chain. Okay, that's good to know. And then just one follow-up on New Zealand.

Speaker Change: Customers are interested in R&D.

But also traditional traditional chemical applications are also interested in fact, the one contract. We have is into the AR is into is it traditional chemical.

Speaker Change: Application and you know what it is it's really our customers that are seeking to have a.

Speaker Change: Green or bile.

Speaker Change: You know kind of.

Speaker Change: Attached to their to their end product.

Speaker Change: So we're seeing that in certain segments. Its consumer markets is where we're seeing it also ultimately landing in consumer markets that would be able to demonstrate.

Rich Sumner: You mentioned the lower supply. Is that from a maintenance outage at wells versus generally lower outputs? Would you say that?

Speaker Change: Our feedstock that's that's more a lower lower carbon are green. So you know we're continuing to develop it lots of interest obviously getting securing long term affordable renewable natural gas is the key and then working with them with customers on their willingness to pay.

Rich Sumner: The generally lower trend of output, is that the larger factor in terms of your forecast for the large decrease in methanol production in New Zealand, or is it specifically like a very big outage or long outage you're expecting? It's about half and half, I would say, for that.

Speaker Change: Yeah.

Speaker Change: Again, if you would like to ask a question Press Star then the number one on your telephone keypad.

Speaker Change: Your next question is from the line of Laurence Alexander with Jefferies. Your line is open.

Good morning could you give a bit more detail on what youre seeing in China.

Rich Sumner: It's about half because of the outage and half because of the lower gas profile. Okay, and are those outages like every other year or once every several years? Like, should we expect these outages to happen again in 2026 or every few years? Yeah, every two, around every two or three years. Okay, so in base cases, we might see a modest increase in 2025 out of New Zealand. Thank you for everything else you mean to me.

Laurence Alexander: <unk> demand.

Laurence Alexander: Industrial boiler application the amount of pull through.

Laurence Alexander: Yeah, I mean, I'll I'll, yeah, I'll I'll speak to China, a little bit deeper here.

Laurence Alexander: Maybe across all the applications in particular the ones you're focused on so.

Speaker Change: In other energy applications, we saw growth rates again, 5% to 10% that includes MTB D. M E. Other thermal applications boilers in kilns as well as.

Speaker Change: Fuel and other fuel applications.

Rich Sumner: We'll keep updating you on the progress, and we're going to work really closely with you and be able to give you a better view on that as we get closer. Thanks. Your next question is from the line of Matthew Blair with TPH. Hey, good morning.

Speaker Change: Such as cooking fuels and so we saw a very strong growth rates across all of those applications in terms of boilers and kill them.

Speaker Change: Where are we see boilers that are today is that you know.

Speaker Change: These are residential and industrial applications, but I would say that the originally there was a thought that it would replace big Big industrial boilers, we haven't seen that where we see is in smaller applications in commercial and smaller in industrial changeover. So the it's a.

Matthew Blair: Thanks for taking my questions. I had a couple of modeling questions for G3. First, are there any significant startup costs that we need to incorporate into Q1? And then second, this inventory build in Q1, is that going to be just a permanent part of your working capital, or will it be temporary? And if it's temporary, is that something that you think will reverse by the end of 24 hours or something further out? Thanks for that.

Speaker Change: It's a decent growth rate, but it's not the some of the projections that were made early I think in this space where were quite dramatic.

Speaker Change: But we are probably seeing 5% to 10% would have seen that this year.

Speaker Change: That in that segment.

Speaker Change: Your question about D. M D M B, it's been relatively flat right because that.

Speaker Change: That industry has kind of operated at a certain grade it isn't growing or expanding and the existing industry sort of operates at or around a kind of an 80% at 80% right and so we don't see D N a growing growing at all it's really the other applications like.

Rich Sumner: So, the first question was about capital. There will be no other, you know, kind of start-up costs for us to be focused on. Everything in terms of starting up and commissioning the plant is included in our $1.25 to $1.3 billion, and that's all included in the numbers, to 110, including what's in account and payable today. So you shouldn't foresee anything beyond that.

Speaker Change: Cooking fuels.

Speaker Change: Boilers in kilns, and 100 vehicles and Geely is it has a fleet of vehicles, but they're also developing heavy duty trucks and so that's where we see more of the momentum is less so in the I would call. It the older New applications via me.

Rich Sumner: As it relates to inventories, what I think we'll see this year is that overall inventory levels will likely stay something similar, potentially even down, like we could see inventories be managed down. We're not significantly increasing our sales. So there isn't a need to increase the overall inventory level, and I would expect to see that these things moderate over time in terms of the produced inventory buildup that you're seeing today. So I wouldn't be forecasting this to be permanent, and what we will see is that overall inventories stay the same, but there's sort of a flip between produced inventories and purchased inventories as we'll be buying a lot less proportion of purchased Okay, and then so does that mean that for 2024, your sales volumes should be pretty close, maybe a little bit less than the 8.1 of production? Yeah, it'll be pretty, it should be pretty close, and it might be slightly lower because of the inventory bill. I got it.

Speaker Change: And more into these newer applications.

Speaker Change: And if I may just one follow up on that and then when the structural question.

Speaker Change: With respect to the kind of the frothy your expectations you know I remember when the first industrial boiler discussions happened a lot of it was about.

Kind of the.

Speaker Change: Need for clear policy at the federal level for a fourth or trigger kind of the adoption at the larger size.

Speaker Change: Does that policy ever Joe or is the absence of that sort of why you received through the shift in demand to mostly be any small applications.

Speaker Change: What happened there was that in.

Speaker Change: Desk trail sites large industrial sites got connected to the gas grid.

Speaker Change: So it was they needed to reduce down there they're powered by coal and we saw a lot of those as much as possible. Those GAAP. Those those industrial sites are more connected to gas and we're using that as an alternative versus versus methanol and so methanol is actually being developed more in spaces.

We're connecting the gas isn't available and it tends to be in it tend to be smaller.

Rich Sumner: And then my follow-up question is just around RNG. Could you talk about what percent of your sales were based on an RNG feedstock in 2023 and how might that change in 2024 and beyond? And what kind of customers are interested in methanol from RNG? Is that mostly the shipping or anything changing on the customer front there? Thanks.

Speaker Change: And smaller are industry or residential or commercial applications.

Speaker Change: Yeah.

Speaker Change: So your policy didn't change.

Speaker Change: No.

Speaker Change: Yeah.

Speaker Change: My apologies. Our next question is from the line of Stephen Hanson with Raymond James This is a follow up your line's open.

Stephen Hanson: Oh, yeah. Thanks, just a quick follow up.

Rich Sumner: So, I think first and foremost, the overall level is quite small. Today, we have one customer purchasing biomethanol, but there's lots of interest. So, there's lots of interest in low-carbon methanol and R&G-based methanol. I think the challenge is about cost and availability of R&G. R&G has other competitive alternatives that have increased the cost quite significantly in the premiums you need to pay.

Stephen Hanson: Wanted to circle back on the supply picture Rich I think you referenced.

Stephen Hanson: The Malaysian facility coming on in Q3 of course, but I don't think you referenced anything out if I ran this year.

Stephen Hanson: Wondering if you've got sort of a view specifically on both facilities that have been sort of amused about for some time and whether they're going to be contributing at all to any incremental for quite a few of them.

Speaker Change: Thanks, Steve Yeah, so for for Iran.

Speaker Change: It's a it's obviously.

Speaker Change: Getting information out of Iran, and understanding what's going on there is often opaque.

So we rely mainly on what we hear in the market as well as what we see on trade flows.

Rich Sumner: And so, you know, we are trying to work out arrangements where we can maybe get a more favorable price by locking in for the longer term and then selling into those markets. And those are the things that we continue to pursue. And it's not just RNG in North America; we're looking at renewable natural gas in all of our jurisdictions to find out where we can source it economically and securely over time. In terms of customers, it's shipping.

Speaker Change: The you know the news in the market that potentially the area on plant.

Speaker Change: Started production sometime this year, we have seen some new some supply in the winter greater than what we'd seen previous years, but we think that's more based on whether it's been a warmer weather than a lot of new supply coming out of new assets, It's something we continue to.

Rich Sumner: The shipping customers are interested in R&G, but traditional chemical applications are also interested. In fact, the one contract we have is a traditional chemical application. It's really customers that are seeking to have a green or bile, you know, kind of..., attached to their end product.

Speaker Change: A watch we think that the you know when we think about around we think the structural constraints.

Speaker Change: Are going to be the same which is a nurse under sanctions environment you have.

Speaker Change: Its difficult to operate these plants a lot of them have been built.

Speaker Change: With with a local EPC resources.

Speaker Change: Difficult to run from a technical perspective, and the gas grid.

Speaker Change: Is is constrained for a big part of the year. So I think we will watch to see what happens when when the winter ends and we see you know potentially more gas availability and it will tell us whether we see any new incremental supply coming from new plants, but we think those struck.

Rich Sumner: So we're seeing that in certain segments, it's consumer markets that are where we're seeing it ultimately landing in consumer markets that would be able to demonstrate, you know, a feedstock that's more lower carbon or green. So, you know, we're continuing to develop it, and there's lots of interest. Obviously, securing long-term affordable, renewable natural gas is the key, and then working with customers on their willingness to pay. Again, if you would like to ask a question, press star, then number one on your telephone keypad. Your next question is from the line of Lawrence Alexander with Jeffreys. Your line is open. Good morning.

Speaker Change: Real constraints are there and they're going to continue so we don't factor in a big amount of net supply coming out of Iran. Irregardless of whether plants start up.

Yeah.

Speaker Change: That's helpful. And then just just the obvious thrown one question is I know <unk> just turning on so it's probably a bit premature, but but when do you start scoping the next facility.

Speaker Change: Presuming you have probably already happening, but when does the actual sort of hard dollars going into the ground start to enter the equation are we talking three years out five years out what do you think about that longer term things.

Laurence Alexander: Could you give a bit more detail on what you're seeing in China in terms of DME demand and industrial boiler applications, the amount of pull through? Yeah, I'll speak to China a little bit. Thank you for joining us today. So in other energy applications, we saw growth rates of again 5% to 10%. That includes MDB, DME, other thermal applications, boilers, and kilns, as well as other fuel applications, such as cooking fuels. And so we saw a lot, very strong growth rates across all of those applications. In terms of boilers and kilns, where we see boilers today is that, you know, these are residential and industrial applications, but I would say that originally it was thought that they would replace big, big industrial boilers.

Speaker Change: So the the phases for us will be.

Speaker Change: We'll be looking at doing commercial work to really explore our options in and it'll be partly commercial partly technical looking at our different options that are available.

Speaker Change: That's where we are today that process, well that'd be narrowed down into which are the ones. You want to progress then you'll you know then we would talk about a pre feed which would be really still fairly limited capital and then and then the next step is to move it to a feed which you start spending more money, but still.

Speaker Change: I don't think is the capital Youre talking about you don't get there until you reach a final investment decision. So we're we're we're a we're a ways away from from that from a final investment decision, we start turning it to spend meaningful capital at a new project.

Speaker Change: Yeah.

Speaker Change: Your next question is a follow up from the line of Josh Spector with UBS. Your line is open.

Laurence Alexander: We haven't seen that yet where we see it in smaller applications, commercial, and smaller industrial changeover. So the, it's a, it's a decent growth rate, but it's not some of the projections that were made early. I think in this space, we're, we're, quite dramatic, but we are probably seeing 5 to 10% would have seen that this year in that, in that segment.

Joshua Spector: Yes. Thanks, just a quick one to clarify when you were talking about the kind of guide or the walk. The first quarter, you said slightly higher sequentially I guess pricing is up a decent amount understanding Q3, it's probably not in the math until second quarter, but Egypt was down last quarter I guess what.

Joshua Spector: Offsetting that when you're expecting Egypt to start is it a big cost of the repair maintenance associated with it or or something else, which limits your first quarter increase.

Rich Sumner: Your question about DME: DME has been relatively flat, right? Because that industry has kind of operated at a certain rate. It isn't growing or expanding, and the existing industry sort of operates at around, you know, kind of an 80%, 80% rate. And so we don't see DME growing, or expanding at all. It's really the other applications, like cooking fuels, boilers, and kilns, M100 vehicles, and Geely has a fleet of vehicles, but they're also developing heavy-duty trucks. And so that's where we see more of the momentum is, less so in the, I would call it the older new applications DME and more into these newer applications.

Speaker Change: Yeah, I think it's really.

Speaker Change: We're gonna be building inventory through the first through the first quarter, rather than seeing that product flowing through sales. So I think really when we look at our inventory as we bring G. Three in Egypt up our overall produce sales for Q1 are looking really similar to Q4.

Speaker Change: Sure.

Speaker Change: And really it's about price.

Speaker Change: So I think were focus you know when we look at quarter over quarter, it's more of a price story than that seeing that incremental and then when we get to Q2 is where you start to see kind of what we would call the run rate production coming through the actual sales and that and that's why we kind of point to Q2 as being more eight inch.

Rich Sumner: And if I may just follow up on that and then one structural question. You know, with respect to the kind of frothier expectations, you know, I remember when the first industrial boiler discussions happened. A lot of it was about the need for clear policy at the federal level to sort of force or trigger kind of the adoption at the larger site. Did that policy ever gel, or is the absence of that sort of why you're seeing sort of the shift in demand to mostly these small applications? What happened there was that industrial sites, large industrial sites, got connected to gas. So they needed to reduce their power by coal, and we saw a lot of those, as much as possible, those industrial sites got more connected to gas, and we're using that as an alternative versus methanol. And so methanol is actually being developed more in spaces where connecting to gas isn't available, and it tends to be in smaller industries or residential commercial appliances. So your policy didn't change. My apologies.

Speaker Change: Ticket above our run rate and cash flow capability.

Speaker Change: With all our assets running.

Speaker Change: Okay. Thank you.

Speaker Change: There are no further questions at this time I will now turn the call back over to rich Sumner.

Rich Sumner: Alright, well. Thank you for your questions and interest in our company, we hope you'll join US in April when we update you on our first quarter results.

Speaker Change: This concludes today's conference call. Thank you for joining you may now disconnect.

[music].

Speaker Change: Okay.

Speaker Change: [music].

Rich Sumner: Your next question is from the line of Steven Hansen with Raymond James. This is a follow-up. Oh, yeah, thanks.

Steve Hansen: Just a quick follow-up. I wanted to circle back on the supply picture, Rich. I think you referenced the Malaysian facility coming on G3, of course, but I don't think you referenced anything out of Iran this year. Just wondering if you've got sort of a view specifically on those facilities that have been sort of mused about for some time, and whether they're going to be contributing at all to an incremental supply this year. Thanks, Steve.

Rich Sumner: Yep, so for Iran. It's obviously... getting information out of Iran and understanding what's going on there is often opaque. So we rely mainly on what we hear in the market as well as what we see in trade flows. The news in the market that the Arion plant could start production sometime this year, we have seen some supply in the winter greater than what we've seen in previous years, but we think that's more based on weather. It's been warmer weather than a lot of new supply coming out of new assets. It's something we continue to watch.

Rich Sumner: We think that the, you know, when we think about Iran, we think the structural constraints are going to be the same, which is, under a sanctions environment, you have, you know, it's difficult to operate these plants. A lot of them have been built, you know, with local EPC resources, difficult to run from a technical perspective, and the gas grid is constrained for a large part of the year. So I think we will watch to see what happens when the winter ends, and we see, you know, potentially more gas availability, and that will tell us whether, you know, we see any new incremental supply coming from new plants. But we think those structural constraints are there, and they're going to continue. So we don't factor in a large amount of net supply coming out of Iran, regardless of whether plants start.