Methanex Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation Q4 2020 earnings call. I would now like to turn the conference call over to Ms. Kim Campbell. Please go ahead, Ms. Campbell.

Thank you. Good morning, everyone. Welcome to our fourth quarter 2020 results conference call. Our 2020 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 benthamx.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. Certain material factors or assumptions were applied in drawing the conclusions or making a forecast or projections which are included in the forward-looking information. Please refer to our fourth quarter 2020 MD&A and to our 2019 annual report for more information. I would also like to caution our listeners that any projections provided today regarding Mephinex'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, cash flow, or income made in today's remarks reflect our 63.1% economic interest in the Atlas facility and our 50% economic interest in the Egypt facility. In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark-to-market impact on share-based compensation and the impact of certain items associated with specific identified events. We report these non-GAAP measures in this way to make them a better measure of underlying operating performance, and we encourage analysts covering the company to report their estimates in this manner. I would now like to turn the call over to Methanex's President and CEO, Mr. John Florence, for his comments and a question and answer period.

Thanks, Kim. Good morning. We hope that everyone is continuing to stay safe and healthy. I'd like to take a moment to thank our team around the world who have shown incredible dedication, and flexibility in a year where we've had to change how we work to ensure that our team remains safe while continuing to deliver reliable supply to our customers. In the face of these challenges, we achieved stronger Q4 results demonstrating the resilience of our business. This morning, we'll comment on our Q4 and full year 2020 results, provide an overview of what we are seeing in the methanol markets, review our operational results, and share our near-term outlook, including how we will continue to manage our business, given that the economic recovery path remains uncertain. Now turning to our financial results. In the fourth quarter of 2020, we recorded adjusted EBITDA of $136 million and adjusted head income of $12 million, or 15 cents a share. We recorded higher fourth quarter results compared to the third quarter, primarily due to the realized prices, highlighting our significant leverage to methanol prices. Our results were partly offset by changes in the mix of produced and purchased methanol sold. For the full year of 2020, our financial results were lower compared to 2019, primarily due to lower realized methanol prices. We recorded adjusted EBITDA of $346 million and an adjusted net loss of $123 million, or $1.62 per share for 2020. Now, turning to the methanol market, in the fourth quarter, the continued improvement in the global methanol demand, combined with various planned and unplanned methanol industry outages and delayed startup of new industry capacity led to tighter market conditions and lower inventory levels, supporting higher methanol prices. Global methanol demand began to recover in the second half of 2020, after falling in the first half of the year due to the impact from the COVID-19 pandemic and a lower oil price environment. We estimate that global methanol demand increased by approximately 2% in the fourth quarter of 2020 compared to the third quarter. Overall, we estimate that the global methanol demand totaled approximately 82 million tons in 2020, which is a 3% decrease compared to 2019. Before COVID-19, we forecasted global methanol demand growth of approximately 3%. As a result, we estimate that 2020 global methanol demand is approximately 5% to 6% lower than pre-COVID expectations. The methanol industry ran at a lower operating rates in 2020 due to plant shutdowns to respond to lower methanol demand as well as various planned and unplanned outages. In the fourth quarter, There were a number of plant outages around the world, particularly in Iran and in China, where there was a diversion of natural gas to meet seasonal power demand instead of methanol production. The delayed startup of new industry capacity additions also contributed to tighter market conditions. We estimate that the industry cost curve, which continues to be set in China, is approximately $260 per ton. The cost curve is higher than the third quarter as a result of higher coal prices. Spot prices in China are above this range today. So far in the first quarter of 2021, market conditions remain tight, and we posted higher prices for January and February 2021. We recently posted our February North American price, which increased to $492 per ton, and our Asia Pacific price, which increased to $430 per ton. Our European contract price is set quarterly, And our first quarter posted prices 390 euros or $475 per ton. We mentioned on our Q3 quarterly call that we would provide update guidance to our discount rate to posted methanol prices. In 2021, we expect to see a higher discount rate of approximately 17% on average compared to our prior 15% guidance, as we saw more competitive environment given broader economic uncertainty. Recall that when prices increase quickly, our discount rate tends to decrease, and the reverse is true when prices decrease quickly. Now turning to our operational results. We'll speak to our fourth quarter production results and provide comments regarding our production outlook for 2021, including ongoing natural gas curtailments that are expected in New Zealand, Trinidad, and Chile. Our production levels were higher in the fourth quarter compared to the third quarter, due to higher gas availability in New Zealand and Chile and record production in our Geismar facilities. In New Zealand, our production levels were higher in the fourth quarter due to improved gas supply. In 2021, our outlook for New Zealand production is uncertain. Our gas suppliers have recently advised that a major offshore gas field, which supplies the New Zealand market and underpins a portion of our production, has experienced significant and unexpected production declines. which will result in lower gas deliveries. Given that gas deliveries are expected to be lower in 2021, we are consolidating production in our two large Maunganui plants, which have a combined operating capacity of 1.7 million tons, and temporarily idling our smaller Baicha Valley plant. We estimate production in New Zealand for 2021 of 1.5 to 1.6 million tons, compared to our 2020 production of 1.7 million tons. In Geismar, both plants ran at full operating rates during the fourth quarter. Our production benefited from the completion of our low-cost e-bottlenecking project at our Geismar 1 plant, and we have seen a 10% increase in our daily production capability of this plant. We expect to complete the e-bottlenecking work at our Geismar 2 plant in 2021. When the demodeling activities are complete, the Geismar facilities will have an operating capacity of 2.2 million tons on an annual basis. In Trinidad, our production levels in the fourth quarter were similar to the third quarter as planned turnaround activities at our Atlas facility impacted both quarters. Looking into 2021, we have been advised that upstream production declines and the delay of upstream maintenance work due to COVID-19 will result in lower gas deliveries. It is unclear how long these lower gas deliveries will persist. Based on our current gas deliveries, we estimate production in Trinidad for 2021 of 900,000 tons, reflecting Methanex interest compared with our 2020 production of one million tons. All 2021 production is expected to come from the Atlas facility, as we announced earlier this month that we expect that the Titan facility will remain idle indefinitely because we have not been able to reach an acceptable longer-term natural gas agreement. We continue to have discussions around opportunities for longer-term gas supply. In Chile, our production levels were higher in the fourth quarter as we received higher gas deliveries. However, due to lower gas deliveries later in the fourth quarter resulting from upstream production declines in Argentina, we are unable to run both plants in December. Our Chile floor plant remains idle today, and it's uncertain how long these lower gas deliveries will persist. We estimate production in Chile for 2021 of 900,000 to 1 million tons compared to our 2020 production of 800,000 tons. In Egypt, production in the fourth quarter was similar to the third quarter. In Medicine Hat, our plant ran at nearly full operating rates after the completion of a planned turnaround that concluded at the end of October. Our 2021 production is forecasted to be similar to 2020 production of 6.6 million tons, although actual production may vary by quarter based on gas availability, planned outages, extended unplanned outages, and unanticipated factors. Now turning to our balance sheet. We took a series of decisive actions in 2020 to further strengthen our business and our balance sheet. As a result, we ended the year with a strong liquidity position of over $800 million in cash, a $300 million undrawn revolving credit facility, and no debt maturities until the end of 2024. Our disciplined approach to capital allocation has not changed, and over the long term, we believe we are well positioned to meet our financial commitments, execute on attractive growth opportunities that exceed our hurdle rate, and deliver in our commitment to return. access cash to shareholders through dividends, and share repurchases. Regarding our Guides Mark III project, as we previously discussed, this is a high-quality project with substantial capital and operating cost advantages. In April 2020, we placed the project on temporary care and maintenance for up to 18 months, given the significant uncertainty regarding the global economy due to COVID-19. The project was in excellent shape and progress has been safe on time and on budget, and the project has been significantly de-risked. Construction on the DeGeismar 3 project remains on hold. We have a robust decision-making process for evaluating the project, and before deciding whether to restart construction, management and our board will need to carefully consider many factors, including the strength of the global economic recovery and the overall methanol industry outlook. We are encouraged by the early signs of economic recovery that began in the second half of 2020. However, given that the COVID-19 pandemic continues to limit our near-term visibility, it is difficult to predict how methanol demand, industry supply, and methanol prices will ultimately recover on a sustained basis. For now, we remain cautious, and we are prioritizing liquidity and financial flexibility. Now turning to our outlook for the first quarter. In the near term, based on our posted prices so far, we expect realized ethanol prices in the first quarter of 2021 will be higher than the fourth quarter of 2020. We expect that our production levels will be similar compared to the fourth quarter given the natural gas curtailments in New Zealand, Trinidad, and Chile that we mentioned earlier. Adjusted EBITDA is expected in the first quarter to be higher compared to the fourth quarter. In 2021, we will remain focused on operating our plants safely and reliably, delivering secure and reliable supply to our customers, and protecting our strong financial position and financial flexibility. We are well positioned to continue delivering significant value to shareholders over the medium to long term as market conditions improve. We would now be happy to answer any questions.

Thank you. Please press star 1 at this time if you have a question. If you're using a speakerphone, please lift your handset before making your selection. Please limit your inquiry to one question plus a follow-up question. After that, if you have further questions, please rejoin the queue. There will be a brief pause by the participants register. Thank you for your patience. The first question is from Joel Jackson of BMO Capital Markets. Please go ahead. Your line is now open.

Hi. Good morning, John. John, I know you can't predict the future. Can you help us handicap, as you sort of plan your business, how you would see the different gas issues you're facing right now sort of more normalizing? Can you prioritize what you think will come back to be normalized faster? It would seem like you think New Zealand might be the one that's most likely not to normalize soon because of the consolidation of plants. Can you just give us as much as you can about how you see it happening?

That's really difficult to predict. The New Zealand news and the Trinidad news came late last year. Nobody was expecting that news, including our gas suppliers. So we're working with them to really understand the problem. I think in New Zealand, the suppliers have tried some things to see if they could impact what's happened in the field unsuccessfully. So I think what we understand is there must have to be some drilling going on there to recover the field. and that's going to take some time to get rigged, etc. So hopefully sometime later this year, but really hard to predict. And then we have to make an investment. We were planning to take our Whitechapel Valley plant down February 1st for a fairly significant turnaround from a statutory point of view. Obviously, without the gas, it doesn't make sense to spend any money on that plant, so You know, we'll have to have a really good view that we'll have enough gas for a three-plant operation for a sustained period before we invest any money in that Voyager Valley plant. It may be better for us just to run the two larger ones for the foreseeable future. But early days, you know, we're still working with our gas suppliers to understand the issue. I think Chile, you know, Argentina didn't have much investment in gas because of COVID-19. That's changed in the fourth quarter. And, you know, we're being told by our gas suppliers to expect gas deliveries later this year. But, you know, until we see it, we'll continue to run one plant. And Trinidad is pretty opaque, so I really don't have anything to update with Trinidad other than we were told, you know, a few weeks ago to expect gas deliveries of about 80%.

That's helpful. Thank you. And then my last question would be, you know that U.S. Gulf spot methane prices were somewhat weak in January, I think down about $30 a tonne. you were able to set the February posted price contract at about $10 to $10 higher month over month. Can you talk about some of the dynamic there despite a slower, weaker spot market? You're able to raise prices because spot prices don't matter if customers are happy. This is related to some of your lower cash availability. Anything there would be helpful. Thank you.

Yeah, I've always said in Europe and North America, the spot markets are pretty illiquid. You know, very little product gets traded on the spot markets. They're an indication, but they don't really drive pricing decisions in those two markets. You know, in Asia and China especially, the spot market's very large, so it has a bigger impact than when we're thinking about prices. So I know our team looks at supply-demand, the fundamentals for the next period, 30, 60 days. They talk to the customers about, you know, what they're seeing in their supply-demand balances, and then we make decisions on pricing. And based on those discussions, we increase our prices slightly. So we still continue to see inventories quite snug and demand, you know, not back to 19 levels, but better than it was in the first half of last year. But I'd say this is, you know, this tightness is being driven by unplanned and planned maintenance around the world, as well as gas availability issues in places like Iran and China. So, you know, when those will turn around, who knows? So, you know, we were above the cost curve all of 2018 by $100 a tonne. And that's kind of where we are today, $100 a ton above the cost curve. When that changes, it really will be a factor of supply coming on. There's anticipated due supply as well from a plant in the United States. And really around demand recovery. I think the hardest thing for us to predict today is demand recovery in this COVID-19 environment as we see the second wave and governments taking different actions and really the vaccine rollouts are starting, but, you know, probably going to take some time to work their way through and see restrictions lowered somewhat. So, really tough environment to predict, Joel. Thank you very much.

Thank you. The next question is from Jacob of CIBC. Please go ahead.

Good morning, John. Just a question on G3. Are you still targeting, you know, mid-2021 decision, and how far can you push up this decision before there's more financial penalties?

Yeah, so our target to make a decision on G3 is in the summer. Obviously, our teams are working hard to see what different options we might have at that time, and, you know, we certainly will want to look at what's going on in the I know our teams are working hard to see what are options, you know, to defer or start or other things, and really don't have any numbers at this time around that.

Okay. And then, you know, thermal core prices have actually moved quite a bit in China. Interesting getting your thoughts around where you think the cost curve floor is for methanol right now.

Yeah, today we see it around $2.60, Jacob. It's based on coal and some natural gas as well. Coal has moved up to the higher end of the range that the government had stated after the 2016 price collapse in oil. It's really driven by supply-demand. It's hard to predict, but I don't think coal is going to go much higher than where it is today unless you see oil going to $60, $70, $80, which is not our view, so... But we'll continue to watch it. We're a bit surprised how high the coal price is in China at this point.

Thank you, John.

Thanks.

Thank you. The next question is from John Roberts of UBS. Please go ahead.

Thank you. Nice quarter. There's been a lot of disruption in freight for container ships. Are bulk liquid shipments being affected at all? I know you have your own ships, but... Is the methanol industry at all having any logistical challenges here?

Well, we're not. I'm not aware of any others. There seems to be available shipping for chemical liquids. I'm not aware of any, John, at all. I am aware of what's going on in the container industry, though, and I think that's more driven by lots of product coming from China and not much going back. So, you know, I think it's different in the liquids market.

And then earlier this year, you talked about your own maintenance being challenging during the pandemic. Is that a significant cause of the greater industry downtime? Are competitors either delaying maintenance, and that's reducing their reliability and causing some of the outages, or when they're doing maintenance, it's just being more disruptive to supply?

Yeah, I can only speak to our own experience, but if you're following COVID-19 safety protocols, You've got, you know, a lot more time to follow those. So you do have extended from original schedules. You've got probably more investment because you have, you know, social distancing and all of those things. And it's tough to get people, experts into certain countries. You know, when we did our Trinidad turnaround, it was really difficult to get our, you know, usually we bring 40 or 50 global experts in to help. So a lot of that was done remotely by cameras and videos. And it takes a lot longer and not as efficient and maybe not as good either. So that's been our experience. And I'm sure, you know, anybody in the petrochemical or anybody that's running a large plant that goes through these kind of turnarounds is experiencing the same thing.

All right. Thank you.

Thank you. The next question is from Mike of Barclays. Please go ahead. Your line is open.

Great. Thanks. Good morning, John. Great. First, just a question on the higher discount rate that you mentioned for 2021. I was hoping you could maybe just talk a bit more about what's driving it, whether it's a specific region or start up a new capacity. And is it more indicative of what's going on here at the beginning of the year, or do you kind of expect this to be the ongoing level of discount kind of moving forward?

Yeah, that guidance is for 2021. Most of the contracts globally for methanol are negotiated in the fourth quarter of any given year. Like I mentioned in my remarks, you know, we were expecting three to four million ton growth in methanol demand, and we saw a three million ton decline. So, you know, that's about 6 million tons different than what the industry was expecting. That's four or five world scale plants. So I think there was a lot more, or I don't think, I know there was a lot more, uh, rivalry as we negotiated contracts and some competitors, maybe that didn't have home for their product, really offering, uh, all time high discounts. So, you know, we, we're in this for the longterm. We, you know, work with our customers, um, over the long term, and we're certainly not going to be moved aside on a price basis because of a short-term, what we believe is a short-term demand situation. So we took the decision to be competitive, and it's a commodity, and you need to be competitive, and that's what's going on here. So, you know, we've seen this before, but not to the extent of the rivalry that we saw at the end of last year.

Got it. That's helpful. And maybe just a broader industry question on methanol demand. There's obviously been a lot of talk lately about clean energy and the use of hydrogen. Obviously, methanol has a lot of merit as a clean burning fuel source, and Methanex has done a lot of work advocating for that. I'm curious, in your conversations, if you've seen a change in the conversations with potential customers about methanol as an energy opportunity, if that's changed dramatically. your long-term view at all in that regard?

Well, we've had an investment in this clean burning methanol, clean zero-carbon methanol in Iceland for 10 years. It's a small plant, but it takes water and splits it into hydrogen and oxygen and takes CO2 off of a power plant. We make methanol, so it's 100% carbon-free. The challenge is the cost. The cost of that kind of methanol is two to three times methanol made from natural gas. Now there's the odd customer that, you know, will pay that kind of pricing based on they wanting to have a green footprint, but it's, you know, a very, very small part of the overall industry. The technology works. It's scalable to, you know, not to the extent that we see natural gas, but you can probably do a 50 to 100,000 ton plant But, you know, you need 10 of those to meet a world-scale plant from natural gas. We don't have customers today that are asking for millions of tons of carbon-free methanol. That doesn't mean it won't happen in the future. But we are ready to scale. We are ready to move. But we need a much higher price than even, you know, what we're seeing today in the It's a bit of a chicken and the egg. The technology is there. We can do it. But right now we haven't had the customers lined up to pay $1,000 a ton for that kind of methanol. So we're certainly not going to blindly invest in multiple plants based on this technology without having some secure contracts that, you know, make sense from a return on capital employee basis.

Great. Thank you.

Thank you. The next question is from Steve Hansen of Raymond James. Please go ahead.

Good morning, John. John, I know it's hard for you to comment on others specifically, but the challenges that you've seen here on your gas supply specifically, it sounds like there's some unique situations in each country, but as a general common theme, it sounds like some upstream challenges. or lack of upstream capabilities or maintenance or whatever it is been through COVID has had, you know, some impact across the board. Are there other instances in the industry that are suffering from the same challenges? I'm just trying to get a sense of whether this is going to be something more broad or if it's just for, you know, whatever reason, isolated to yourself. And just as a related question, you know, Trinidad strikes me as the most interesting, just given that we've seen the new plant start up there recently. So just maybe walk us through your thoughts on that, if you could.

I don't have any specific information about gas issues in other countries other than what we've already reported on productions in places like Trinidad and Venezuela as two examples. We understand there could be issues maybe in Indonesia as well, but we don't have any specific information on why or how come. It seems to be more and more gas is diverted in places like China and Iran in the wintertime, which has been a phenomenon we've seen for the last, geez, 10 years, but it seems to be more acute this year. Is that because of colder weather? It could be. Is that because of more demand? Probably. But, you know, we're not at the table if these governments are making these decisions. I would say I'm really happy that we have three plants in North America where there are no gas issues and it looks like no gas issues for the foreseeable future And Egypt's a really good news story, where there's a lot more gas than there is demand right now, and that's because of all of the success they've had in the exploration of the upstream. So, yeah, we've seen these issues. I can go on. You remember Medicine Hat was shut down for 10 years, and they had to shut 4K in Louisiana, and we're down to one small plant in New Zealand. So this has been an issue for us for the 20 years I've been at the company. So it's really hard to predict. when these things happen and how long they last. But we'll work with our suppliers and we'll get through this. We don't think this is a significantly long-term issue in any region, but we need to be cautious about when and if we can resolve these problems.

Okay, that's fair. And just to follow up, if I may, on the discount question earlier, you're suggesting this is a somewhat short-term issue, but, I mean, if we're thinking about into 2022, you know, should we think about that 17% rate holding or do you think we'll get back to that more normalized 15%? And just as related to that, is this a regional-specific issue or is this, you know, more globally as you negotiate contracts?

Yeah, so, again, I don't like predicting the future, but I'd say, you know, not all of our contracts come up every year, you know, there's a portion of them come up. So you can see the impact of even a portion of the business being renegotiated in a very competitive environment. See, I think it's going to be a factor of what's demand look like. You know, how do we recover demand and how does the new supply get absorbed? So beyond, you know, the coke plant in the United States, there's not a heck of a lot coming on in the next five years. So it could be, you know, depends on what your view of short term is, but, you know, We're pretty excited about the medium-term supply-demand fundamentals as long as we can get beyond this pandemic and get some more normal activity on a global basis.

Okay, very good. Thank you.

Thank you. The next question is from Hassan Ahmed of Olympic Global Advisor. Please go ahead.

Morning, John. We're on the question. John, once you sort of touch on, you know, the outages that the industry experienced, particularly, you know, in the back half of the year, I mean, you know, if my numbers are correct, I believe it was like slightly north of 8 million tons of methanol capacity that was going through, you know, be it planned or unplanned outages. Now, you touched on, you know, certain sort of gas issues out in Trinidad, you know, issues out in New Zealand as well. I mean, where would you see that number being through the course of 2021?

Yeah, again, I have no idea. You know, what are unplanned outages? We know what planned outages are. These plants need to turn around every three to four years. But, you know, what else is going to go on with those plants and what other vulnerabilities? I have no idea at this time.

Okay, okay.

Now, as a follow-up, you know, obviously an administration change here – in the U.S., and, you know, I'd like to think that, you know, the current administration would not be as hawkish on the Iranian side of things. Are you seeing any sort of early signs of Iranian products sort of making it into the export market, you know, currently, and what are your expectations, you know, call it over the next couple of months?

Iran has been experiencing quite a few restrictions, we understand, on gas. They've had some technical issues, we understand as well. So we haven't seen normal amounts of product coming out of Iran, which is a phenomenon we've seen this time every year for the last number of years. I'd say it's more acute right now. What the new administration of the United States decides to do with the Iran nuclear deal and sanctions is beyond my pay grade level, so I'll take a pass on that one. Thanks so much.

Thank you. The next question is from Sherilyn Radborn of QD Securities. Please go ahead.

Thanks very much, and good morning. Steve sort of asked my question on gas availability, but with respect to New Zealand in particular, can you just comment on what you would need to see in order to undertake a significant turnaround at the Waitere Valley plant, and what sort of lead time you would need to undertake that kind of decision?

Yeah, well, we were in the midst of planning that turnaround when we got the news, and So the planning is done. It's a matter of people and a bit of equipment. But, you know, I'd say we need to see gas availability and the technical issues resolved on that field to allow us to have run a three-plant operation for a significant period of time. That's what we were set up to do when we planned to turn around in Whitechapel Valley. And this is a very significant field. And we're half the gas market in New Zealand. So you can imagine... the impact not only on us but the electrical generation and others in New Zealand. So our suppliers weren't expecting this to happen, and they tried other things to resolve it, and they've been unsuccessful. So we rely on them to give us information on what they see, and I think there's going to have to be some grilling done in this field to correct the problem if it's correctable. So that's going to take some time.

And then just with respect to capital allocation, I'm going to ask this in a couple of ways. So just comment on how you think about Gaismar 3 versus share buybacks versus dividends. And is there a scenario over the next couple of years where you, you know, don't resume spending on Gaismar 3 but do feel comfortable allocating some cash to buybacks or dividends or increased dividends, I should say?

You know, like I mentioned in my remarks, nothing's really changed with our capital allocation strategy. You know, grow the company at the rate of growth of the methanol market, which obviously didn't grow in 2020, and then return excess cash through dividends and share buybacks. That's been our strategy. That hasn't changed. I'd say in this environment where, you know, financial flexibility and liquidity trump all of those, And, you know, if we have pricing like we see today for a couple years, we'll have tons of cash to grow the company, to return money to shareholders through dividends and buybacks. So, to me, it's all about demand. You know, what happens with demand? Do we get back to a more normal situation of demand growth? And if we do, then beyond the coke plant that's coming up, we think the supply-demand fundamentals are very attractive, which will lead to pricing that allows us to generate a lot of cash and fulfill our strategy on capital allocation. But today it's really uncertain, so we'll keep our powder dry. And when we look to the G3 decision in the summer, we'll have a bit more information around how the pandemic is impacting demand for methanol.

Okay. Thank you for the time, John.

Thank you.

Thank you. The next question is from Nelson Ng of RBC Capital Markets. Please go ahead.

Great, thanks, and good morning, John. Good morning. My first question relates to Trinidad. In terms of the CGCL methanol plant being fully commissioned, does that materially reduce the availability for natural gas potentially for Titan or any other facilities or needs in Trinidad? I was just wondering in terms of, like you've recently mentioned, I don't tighten indefinitely, but I'm just wondering if conversations are still taking place and whether the outlook doesn't look very favorable there.

Yeah, so I mentioned before the upstream and the government are negotiating. different terms than what are today. The terms that there are today don't allow us to run that Titan plant through the cycles. So we kept it down and ready to go for eight months and had no solutions. We decided to pilot more on an indefinite period. The supply and demand balance and gaps in Trinidad is really a factor of price. We don't know where the gas is coming from for the new plant, but obviously it will impact the overall supply-demand balance. But many of our, you know, other people on this site, ammonia and methanol, have also experienced the same thing we have and shut down capacity. So there's a lot of capacity in ammonia and methanol that's not running. And I think we're going to need to see more gas development and get back to a, a balanced market there so it's complicated and you know we were unsuccessful and some of our you know people that manufacture ammonia have been unsuccessful and made the same decision we did so let's continue to talk to the government and secure something that makes sense on a medium-term basis we'll look to restart that plant then it'll pay capital as well so not too dissimilar to what we're seeing in Huaycha Valley. We'll have to spend money and hire people, and that takes time.

Okay, got it. And then moving on to Chile, based on all the various supply agreements you have in place, are you able to give a bit of color in terms of how much gas you typically expect from Argentina?

Yeah, so I mentioned before we had gas contracts signed up to run two plants throughout the year, except for their winter time or summer time for about three months. So we expected to have 75% operating rates throughout the year. I also mentioned the Argentinian gas was interruptible both by us and by the supplier. And we chose to interrupt that gas in April when COVID happened and shut down one of our plants because of demand. So they've also exercised their rights on interruptible gas because of the lack of exploration and development in 2020. Well, that's changed now that there's a lot more being spent and we're being told to expect gas to run both plants sometime this year, but until we see it, we'll continue to be cautious and run the one plant.

And is all the gas from Argentina on that tolling arrangement where they send you gas and you process it into methanol and send it back?

No, we haven't had that arrangement for four or five years now.

Okay, got it. All right, thanks for that.

Thank you.

Thank you. Once again, please limit yourself to one question and one follow-up question. For further questions, please rejoin the queue. The next question is from Eric Petrie of Citi. Please go ahead. Your line is now open.

Hi. Good morning, John. Good morning. As North America turns to a net exporter of methanol, do you see any change in pricing relationship between the reasons?

Yeah, we watched that pretty closely, and up to now we haven't seen any impact. I guess the next milestone will be the Coke methanol plant, but What else happens in the basin? It's not just the North American situation. It's the whole Atlantic Basin and the supply-demand fundamentals there. You know, we'll dictate if there's any impact, but up to now, we haven't seen any impact on the pricing of the basin balances.

Okay. And then on G3, you know, there's your preference to do a partner on that project. Can you discuss, you know, what the pool of potential parties looks like, or has that solved given COVID-19?

Yeah, we're pretty well in stall mode on partner discussions. If you recall, this time last year, we had hired a banker to run the process for us. And then it's actually one year to date that we had our first case in D.C. So obviously when COVID happened, those discussions, people weren't looking to invest in methanol plants at that time. So I think it's difficult in this environment to – pursue partnership discussions, but that's still our preference.

Okay. And then last, could you just give an update with your plan operating changes? Would a $10 per ton price change in methanol translate to EBITDA and free cash flow?

Yeah, we'll take that offline. Okay. Thank you.

Thank you. The next question is from Ben Isaacson of Scotiabank. Please go ahead. Your line is now open.

Thank you, and good morning, John. First question is, where is methanol demand the weakest right now? If you want to answer that by region or by end-use market, would that be fuel blending or MTBE, and what gives you the greatest concern about demand recovery going forward? Did you say the deepest concern?

Yeah, so if I look at 2020 versus 2019, which I think is the most recent data we have, traditional demand was down 5%. Energy was flat, but really driven by MTO, which is up 12%. And then the other energy that's really, you know, for transportation, like MTBE, GME, fuel, they were all down, you know, 5% to 6%. So the only shining star in 2020 was MTO. and that was up 12% year over year. I'd say as far as regions, China's back to where it was as far as demand, 2020 versus 2019. The rest of the world, I'd say North America's down the most by about 9%, the rest of the world between 4% to 6%. That's year over year.

Great, thank you. And as a follow-up, is there a market for... China or others buying used plants. I'm just thinking, like, if you think about Titan or Chile 4 or Waikara in New Zealand, is there a way to offset the CapEx or partially offset the CapEx at G3 by selling some of these plants to the Chinese for a few hundred million dollars and that would reduce the risk profile for G3?

Yeah, well, we've looked at, you know, the Chile 4, you remember, was a bolt-on to Chile 1, 2, 3, and now only Chile 1, so that's not really a stand-alone plan except for what we've been able to do integrating it to Chile 1. We looked at moving Titan, and, you know, the way it's built, it's probably worth, you know, not very much, you know, some equipment and some steel. And White Valley is pretty old. It needs quite some tender loving care, so I don't think we're at the point today where we're going to be selling these plants for cents on the dollar. We're going to try and, you know, see a little bit more visibility on the gas situations in all three. We've had these challenges before. There were lots of attempts to buy our Medicine Hat plant. Over the 10 years, it was down, and we sold two and kept one. I'm glad we kept the one because, you know, we got cents on the dollars for the other two, and would it be nice to have a three-plant operation there today? So the future is very hard to predict, so... I think we're not in that mode yet, Ben. Okay. Thank you so much.

Thank you. The next question is from Jonas Oxgaard of Bernstein. Please go ahead.

Thank you. A question. Right now, LNG prices spiked up to, I think, $20 from MBTU. Coal prices spiked, and they seem to be on the way back again. In your experience, when you've seen these things in the past, does that have any material impacts on global production? Do producers take a brief hiatus during a spike like this?

Methanol producers?

Yeah.

Yeah, in the past, when these spikes have happened, we haven't seen any impact on the LNG. Now, coal was the spike beyond where we are today. It's just a matter of moving the cost curve up, but Like I mentioned earlier, we're already $100 a ton above the cost curve. So we would think in this environment, anybody that could run a methanol plant is running as hard as they can. So there's lots of room for coal prices to go up and still be cash positive in China. So it's really a factor of how high the price is and how long we think the price is sustainable. But there's lots of room today to have every plant they can run run at full rates.

Okay. Then I have a separate question. I just want to follow up on that carbon-free methanol in Iceland. So you mentioned it's expensive to produce, but if you think of it as a carbon sequestration, how does the cost compare to sequestering CO2? And this seems to be a potential solution for places like Iceland that can sequester CO2. So how does it compare to other possible CO2 elimination efforts?

Yeah, it's more favorable. I mean, when we looked around the world at technologies to produce methanol carbon-free, this was the one that made the most sense to us, expensive and smaller scale. I haven't dusted off the sequestration numbers for a bit, but it was very expensive for one of our plants like him. Louisiana or Medicine Hat to sequester carbon, but I haven't dusted those numbers off, so I'll have to take that offline and get back to you.

Okay, thank you.

Thank you. The next question is from Matthew Blair of TPH. Please go ahead. Your line is now open.

Hey, good morning, John. The release noted that global methanol demand rose 2% quarter-by-quarter last in the fourth quarter, could you share any insights on how that might be progressing so far in Q1-21 here?

Yeah, Q1 is usually the low quarter for methanol demand. So when we look at quarter over quarter, we see it pretty well flat down a little bit, but that's based on forecast. So, you know, I'm not very good in the forecasting business, but that's our expectation today.

Sounds good. And then, John, you always have helpful commentary on China. Could you talk about the current dynamics in the country with natural gas being diverted to home heating use? And do you have any numbers you can share on just what kind of impact that's having on methanol production in the region?

Yeah, like I mentioned, anybody that can produce methanol today will be producing at full rates because of the pricing dynamics. You know, it was already mentioned on the call, LNG prices have spiked. You know, China's a large importer of LNG. $20 an MMBTU doesn't make sense to make methanol. So we've seen this in the past, and we would expect as temperatures come into the summertime and prices for methanol stay where they are, that we would expect more natural gas producers to be making methanol. But until we see it, like I said, in 2018 – Because of supply issues, we saw the price remain above the cost curve by $100 the whole year. Kind of unusual to see that, but it's really hard to predict in this environment. To me, it's all about demand and demand recovery that will lead to sustainable good pricing.

Sounds good.

Thank you. Thank you. The next question is from Adam Starr of Gulfside Asset Management. Please go ahead. Your line is now open. Thanks.

Thank you for keeping me in the queue. What do you expect capital spending to be this year, excluding any decision on Geismar? And what do you think the cost of completing Geismar would be if you go ahead with that?

Yeah, our maintenance capital spend this year will be about $110 million. And to complete, guys, my whole team's doing that work right now. But based on our initial numbers, if we decide to restart the construction later this year, the budget that we're looking at is not too different than what we had already signaled to the market, which is a range of $1.3 million. to $1.4 billion. And up to the end of this year, we had spent $365 million. So we've got about $900 to a billion to go.

Yeah, and we have about $80 million of costs to spend this year on the care maintenance program. And then after that, it's about $900 million to get to John's number of the $1.3 to $1.4 billion total.

And that care and maintenance, is that within the 110 of maintenance capex for the whole company? No, that's in addition to the 110. Gotcha. That's very helpful. I appreciate it. And the Argentine situation, does that have anything to do with the most recent change in government? Has there been policies that have affected gas production? or is this entirely business-related and has nothing to do with the political situation?

Yes, there were a number of reasons, including politics. No investment happened for most of 2020, but that has changed in the fourth quarter, and we're seeing more development of gas. So that doesn't mean it can't change again, but there are policies in place today that are very helpful and encouraging to suppliers in the upstream.

Okay. Thank you very much. I appreciate your answers.

Thank you.

Thank you. The last question is from Steve Hansen of Raymond James. Please go ahead. Your line is now open.

Yeah, sorry, John, just to follow up here on G3. So if we presume, and I'm not going to say that's the conclusion yet, but if we presume that there is a deferral of G3 this summer, if there's a decision not to proceed, what happens next? you know, what is the next gating milestone after that? I know you can put these projects on care and maintenance for a longer period of time, but, you know, will you revisit it annually, quarterly? What is the process here coming into this important decision?

Yeah, well, we're going through that now, so what are our options? I think the more you delay, the more risk to the project. That's clear. You know, project team's still in place, and a lot of the things that we put in place are still there through this care and maintenance period. If you have a further deferral extended time, that adds more risk to the project. So our teams are working through what are our options and probably comes down to start, restart, or defer for a period. And depending on how long that period is, you'll have different risks and different costs. So our teams are working on that. It's too premature to be sharing any of that data yet, Steve.

Okay. No, that's fair. And just to follow up, you know, thinking back a few years now, You reported to have some Chinese partners, potential partners at the table. A lot of that got squashed with some of the political dynamics taking place. A new administration in the U.S. again. I mean, how do you feel about reengaging on one or two of those Chinese partners that you had in previous discussions with?

Yeah, we'd love to have a Chinese partner for the Geismar project, Geismar 3, but I think China's going to take a wait-and-see attitude towards the new administration. You know, I'm not a political expert, but are things going to change significantly between the two countries? I don't know. So we'll see. I think they're going to take a wait-and-see attitude as well.

Okay. That's fair. Thanks. Appreciate that.

Okay. Well, thanks very much. We continue to demonstrate the strength of our business model throughout the pandemic and our competitive advantage on delivering secure and reliable supply to our customers around the world. We are encouraged by the continued improvement we have seen in methanol demand and prices, although the near-term economic recovery path remains uncertain. We remain focused on operating our plants safely and reliably, delivering secure and reliable supply to our customers, and protecting our strong financial position and financial flexibility. We continue to believe that the long-term outlook for methanol remains intact, Methanol is a key chemical building block that is used to produce a variety of everyday consumer and industrial items. Methanol is also used in a growing number of clean burning and economic alternative energy applications. While there are limited industry capacity additions expected beyond 2022 based on lower investment in the current environment, we expect the demand for methanol to rebound and grow as global economic activity recovers. We will emerge from this pandemic stronger than ever, and we will continue to execute on our consistent strategy to deliver significant value to shareholders over the medium to long term. Thank you for joining us today, and we'll speak with you in April. And thank you for the interest in our company.

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