Cur­tis Williams

With high glob­al prices for petro­chem­i­cals and gov­ern­ment ur­gent­ly need­ing mon­ey from the en­er­gy sec­tor the Kei­th Row­ley ad­min­is­tra­tion has told one of the world’s largest methanol pro­duc­ers it wants all the down­stream plants up and run­ning and there is now hope that the idle Ti­tan plant could restart lat­er this year.

Chief Ex­ec­u­tive Of­fi­cer of Methanex John Flo­ren told an earn­ings call in Cana­da that Methanex saw the restart of its idled plant in Trinidad as one area of growth in pro­duc­tion for the com­pa­ny and was hope­ful that it could be restart­ed.

He said the com­pa­ny want­ed to en­sure it would get gas at a price that it can sus­tain through­out the cy­cle and was in dis­cus­sions with the gov­ern­ment to fi­nal­ly restart op­er­a­tions.

Flo­ren re­vealed that the gov­ern­ment has told Methanex that it want­ed to see all of the down­stream pro­duc­tion and was hope­ful that it could get a gas deal once ne­go­ti­a­tions were con­clud­ed be­tween the Na­tion­al Gas Com­pa­ny and the up­stream sup­pli­ers.

He said, “Our fo­cus will be on get­ting our idle plants in New Zealand and Trinidad restart­ed. So that will be our growth be­cause they are idle to­day....Right now the up­stream and the gov­ern­ment are ne­go­ti­at­ing, their con­tracts are com­ing up this year and you know un­til that ne­go­ti­a­tion gets fi­nalised I would say it is un­like­ly that Ti­tan will se­cure a gas con­tract to al­low that to restart, but those con­tracts will be ne­go­ti­at­ed this year and the gov­ern­ment has told us they want to keep all the down­stream alive and they just need to have their con­tracts ne­go­ti­at­ed with the up­stream and that is on­go­ing. We are con­tin­u­ing to di­a­logue with the gov­ern­ment and the task is to get gas at an eco­nom­ic price that al­lows us to op­er­ate Ti­tan through the cy­cle and that’s what we are fo­cused on.”

In what must be news to the ears of Fi­nance Min­is­ter Colm Im­bert Flo­ren is pre­dict­ing con­tin­ued strong prices for methanol for the next two quar­ters.

Flo­ren was asked what is the re­al val­ue of methanol at the mo­ment and said , “I think there are a num­ber we al­ways watch one is the MTO (Methanol to olefin) that’s the one on the af­ford­abil­i­ty curve, the one that get’s im­pact­ed first... In the High priced en­er­gy en­vi­ron­ment that we are see­ing to­day, that is al­so very good for olefin prices be­cause they are ob­vi­ous­ly pay­ing more for naph­tha to­day than they would have been this time last year, so that slipped in­to the cost curve nice­ly, so the MTO pro­duc­ers are run­ning like 95 per­cent to­day so un­less you saw a huge cor­rec­tion in olefin prices then that would mean en­er­gy prices falling quite a lot from where they are to­day I think we are go­ing to be fine on the de­mand side.”

He ac­knowl­edged that there is a lot of neg­a­tive sen­ti­ment in the mar­ket with the cur­rent lock­down in Chi­na and the in­fla­tion­ary pres­sure but said when Methanex looks at its sup­ply/de­mand bal­ance it feels de­mand is hold­ing up.

“MTOs are run­ning well, high en­er­gy prices make the oth­er en­er­gy ap­pli­ca­tions very very at­trac­tive for methanol, so we ex­pect de­mand to con­tin­ue to grow and we are watch­ing it very close­ly and we have vis­i­bil­i­ty through­out the globe…and we are not see­ing any im­pact on de­mand.”

He said there are like­ly to be a num­ber of planned out­ages and point­ed to the fact that there was al­ready a plant in T&T that is down. He not­ed this will lead to a con­tin­ued favourable sup­ply/de­mand bal­ance for Methanex.

Prices have been be­yond the cost curve and part of that is due to con­strained glob­al Methanex sup­ply.

Flo­ren said he does ex­pect some more sup­ply out of Iran as the coun­try emerges from win­ter.

“As of to­day we are not see­ing any im­pact on de­mand. There are ob­vi­ous­ly head winds and we are watch­ing and cer­tain­ly the lock­downs are not as se­vere as they were in the spring of 2020 but it is some­thing we are watch­ing. On the sup­ply side most of the plants are out­side the lock down ar­eas, so we are not see­ing our cus­tomers or even our com­peti­tors hav­ing to shut down at this time. Hav­ing said that if you look at pric­ing in Chi­na its about $365 equiv­a­lent US dol­lar per tonne, that’s be­low the cost curve in Chi­na as we see coal and nat­ur­al gas. If they were to shut down it would be more about cost curve than covid at this point.” Flo­ren posit­ed.

Rus­sia/Ukraine war

Methane CEO said it seemed that Eu­rope is set on mov­ing away from Russ­ian en­er­gy, so that means they are go­ing to have to be re­placed from else­where and he pre­dict­ed it it is go­ing to lead to high­er prices.

He told the earn­ings call, “There is high­er gas prices in Eu­rope, its go­ing to mean less pro­duc­tion of methanol, cer­tain­ly the Nor­we­gians might de­cide to sell gas in­stead of mak­ing methanol, that could be an op­tion for them as well. Rus­sia it­self con­tin­ues to make methanol and they con­sume methanol in coun­try as well, they ex­port 1.5 to 1.8M tonnes. Al­most from day 1 of the war, our cus­tomers told us they did not want to get Russ­ian ma­te­r­i­al and I think that is pret­ty much across the board in the Eu­ro­pean cus­tomers.”

The high glob­al gas prices has not had sig­nif­i­cant ef­fect on Methanex as it has hedged the prices in 65 per­cent of the feed­stock it re­ceives.

Methane CEO ex­plained it was the ma­jor rea­son for the hedg­ing that Methanex has en­gaged in is be­cause it want­ed to be able to land its prod­uct in Chi­na at US $200 a met­ric tonne

Flo­ren not­ed, “When we look at the gas mar­ket fun­da­men­tals in North Amer­i­ca we still have that US $4. We are buy­ing a lot of gas in that range and there are times when we will see what we are see­ing out­side that range and we will prob­a­bly see less than $4. Hav­ing said that, there has not been a lot of ex­plo­ration and de­vel­op­ment in the last two years be­cause of covid and now be­cause of ESG is­sues so you know what hap­pens when there is no de­vel­op­ment drilling there is less sup­ply that lead to high­er prices.”

He said with the price of nat­ur­al gas in Eu­rope he does not know how they can make a prof­it at this point in time.

“The LNG mar­ket to­day is at $17/$20 per mmb­tu and Eu­rope’s go­ing to wean it­self off Russ­ian gas, its go­ing to come from LNG and you just can’t make methanol at that price un­less you get thou­sand dol­lars plus a tonne for the prod­uct, so I think un­less some­thing was to change with the di­rec­tion of the prod­uct, for Rus­sia and Eu­rope, its go­ing to be dif­fi­cult for methanol, for am­mo­nia and ni­tro­gen and a lot of things that re­ly on nat­ur­al gas.”

Flo­ren not­ed that to­day’s methanol prices in the US are be­tween US $7 to US $8 and at that price com­pa­nies are still cash pos­i­tive but that it can­not go on for much longer.

Green Methanol too ex­pen­sive

The cost of mak­ing green methanol, or car­bon neu­tral methanol is too ex­pen­sive and at to­day’s price point would re­quire buy­ers to pur­chase it at US $1000 a met­ric tonne.

Flo­ren said, “It’s one thing to want to use green methanol but it’s an­oth­er thing to pay for green methanol. If you look at re­new­able nat­ur­al gas or the oth­er path­ways to mak­ing green methanol, you need about $1000 a tonne in the sell­ing price to make it work. So we have that abil­i­ty, we are in dis­cus­sions with Maer­sk and I know they are in dis­cus­sions with a num­ber of dif­fer­ent par­ties and they are go­ing to be fac­ing those same eco­nom­ics. Our view has al­ways been as the ship­ping in­dus­try con­verts to use nat­ur­al gas based methanol, the in­ten­tion is as the eco­nom­ics gets bet­ter and the abil­i­ty to af­ford green methanol gets through the sys­tem, they are go­ing to want to want to con­vert, but they will use it in com­bi­na­tion.”