Methanex Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation Q3 2022 earnings call. I would now like to turn the conference call over to Ms. Sarah Harriot. Please go ahead, Ms. Harriot.

Good morning, everyone. Welcome to our third quarter 2022 results conference call. Our 2022 third quarter news release, management's discussion and analysis, and financial statements. can be accessed from the Reports tab of the Investor Relations page on our website at methanx.com. I would like to remind our listeners that our comments and answers to your questions today may contain forward-looking statements. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcomes to differ materially from the actual outcome. Certain material factors or assumptions were applied in drawing the conclusions or making the forecasts or projections, which are included in the forward-looking information. Please refer to our third quarter 2022 MD&A and our 2021 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, average realized price, 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 and 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 our share-based compensation and the impact of certain items associated with specific identified events. These items are non-GAAP measures and ratios that do not have any standardized meaning prescribed by GAAP, and therefore unlikely to be comparable to similar measures presented by other companies. We report these non-GAAP measures in this way because we believe they are a better measure of underlying operating performance, and we encourage analysts covering the company to report their estimates in this manner. I would now like to turn the call over to Methanex President and CEO, Mr. John Florin, for his comments and a question and answer period.

Good morning. I hope that everyone is continuing to stay safe and healthy. This morning, we have Rich Sumner on the call, who will become our new president and CEO on January 1st, 2023. It has been a privilege to serve as Methanex president and CEO for the past 10 years. I look forward to seeing Rich continue to extend our global market leadership position, as well as continue to lead our strong performance and safety in operations as he assumes the CEO role. On the call today, We'll review our third quarter 2022 financial results, provide an overview of the methanol markets, discuss our operational results, and share our near-term outlook. Then we'll open up the call for questions. Our average realized price of $377 per ton generated adjusted EBITDA of $192 million and adjusted net income of $49 million or 69 cents per share. Adjusted EBITDA was lower in the third quarter compared to the second due to a lower average realized price, lower sales of Methanex-produced methanol because of planned turnarounds and some unplanned outages, and higher spot gas costs in North America that impacted EBITDA by approximately $10 million. This was partly offset by redirecting and selling our contracted natural gas in Egypt. Global methanol demand in the third quarter was flat compared to the second quarter of 2022. Demand from the traditional chemical applications was down slightly with acetic acid plant restarts in North America being offset by other plant outages and logistics constraints across various downstream sectors, as well as a slowdown in demand growth primarily in Europe and China. Demand for methanol to olefins, or MTO, remains stable with the startup of the new Bohai Chemical MTO plant, which can consume up to 1.8 million tons of methanol, ramping up to 70% in the third quarter. This offset lower operating rates from existing plants in July and August, as MTO affordability came under pressure. Demand from energy-related applications increased in the third quarter, as easing COVID-19 restrictions in China led to an increase in demand for MTDB and other fuel applications. Industry operating rates decreased in the third quarter because of extended turnarounds as well as planned and unplanned outages globally. We estimate the industry cost curve based on the marginal coal producer cost in China to be approximately $350 per ton. Our November posted prices remained healthy North American prices remain flat at $585 per ton. Asia Pacific and China prices remain flat at $410 a ton and $395 per ton respectively. Our European contract price is set quarterly, and we decreased our fourth quarter 2022 price by 45 euros per ton to 510 euros per ton. Less volatile spot prices in the third quarter, primarily in China, led to a lower discount rate of 21.5% compared to the second quarter. We're currently seeing demand similar in the third quarter, similar to the third quarter. We recognize there's potential downside risk in demand due to the energy crisis in Europe, extended COVID-19 lockdowns in China, global inflationary pressures, and rising interest rates impact on consumer sentiment and demand. High global energy prices enhance methanol's cost competitiveness against alternative fuels, which could lead to increased methanol demand. Demand from the shipping industry continues to grow. And based on existing dual fuel ships and orders today, we expect potential demand to increase from approximately 300,000 tons today to 2 million tons of demand over the next few years. Our production levels were lower in the third quarter compared to the second quarter. due to two planned turnarounds, some unplanned outages and a redirection of sale of our contracted gas in Egypt, which I will discuss after an update on the rest of our sites. Medicine Hat had lower production in the third quarter due to an unplanned outage in July caused by storm damage impacting the plant's power supply. Geismar had lower production in the third quarter due to an unplanned outage in July, which we extended due to elevated gas prices at the time. Also, at the end of September, the utility supplier for the Geismar site experienced an extended loss of power due to a failed transformer, which lasted until mid-October. The team took this opportunity to advance some critical Geismar 3 tie-ins. We are forecasting a natural gas price of approximately $580 in the MMBTU for the fourth quarter for the 35% spot portion of natural gas purchases that are not contracted. In Chile, production was lower in the third quarter, although higher than the third quarter of 2021, as only Chile 1 was operating due to limited gas availability from Argentina. We typically experience lower gas deliveries in the southern hemisphere winter months, impacting our second and third quarters. Chile 4 restarted in mid October with gas deliveries from Argentina that we expect will allow us to operate both plants through the first quarter of 2023. We estimate the 2022 production to be approximately 9.9 million tons. In New Zealand, we completed a successful turnaround at Mata Nui 1, which restarted in mid-September. Mata Nui 2 operated throughout the third quarter, but at lower levels due to gas availability restrictions from the Maui gas field. We expect both plants to be operating at full rate sometime in the fourth quarter. Based on the production today and our outlook for natural gas in New Zealand, we estimate that 2022 production to be between 1.2 and 1.3 million tons. We had low levels of production from Egypt in the third quarter as we completed an extended plan turnaround. The timing of the turnaround enabled us to enter into an agreement to redirect and sell the plants contracted natural gas from late July to late October. This was a unique opportunity to utilize excess LNG capacity in Egypt during a period of elevated LNG prices in Europe, and was done in collaboration with our Egyptian government partners. We estimate that the sale and redirection of our gas resulted in an incremental benefit to the third quarter of approximately $35 million, compared to using this gas for production of methanol for the period of time it was not scheduled to be under turnaround. The plant is in the process of restarting. We ended the third quarter in strong financial position with approximately $890 million of cash, excluding non-controlling interest and including our share of cash in the Atlas Joint Venture, and we have $600 million of undrawn backup liquidity. We remain committed to our disciplined approach to capital allocation. We continue to focus on maintaining our business, pursuing economic value-added growth opportunities that exceed our cost of capital by three percentage points and returning excess cash to shareholders. Construction of our Advantage G3 project is progressing safely and is scheduled to be completed in the fourth quarter next year. We have spent approximately $810 million before capitalized interest to the end of the third quarter and expect approximately $450 million to $500 million remaining capital cost before capitalized interest, which is fully funded with cash on hand. Our asset portfolio and cash flow generation capability will be significantly enhanced when G3 comes online next year. With our G3 project being fully funded, our strong cash position and our ability to generate meaningful cash flow across a wide range of methanol prices, we are well positioned during this period of economic uncertainty to the continued returning cash to shareholders through a sustainable growing dividend and share buybacks, including our 5% share buyback announced in mid-September. Production in the fourth quarter is expected to be approximately 1.6 million tons, much higher than the third quarter. We anticipate a build of produced inventory through the quarter as the methanol sold in the quarter will be more weighted to purchase product as a result of our FIFO inventory flows. Based on our posted prices in October and November and higher expected produce sales, we expect higher adjusted EBITDA in the fourth quarter compared to the third quarter if the one-time benefit of the Egypt natural gas sale of $35 million is removed. In the medium term, the methanol market outlook is positive and we have growing cash flow generation capability with G3 coming online in the fourth quarter next year. At $375 a metric ton methanol price and $4 MMBTU gas, we expect G3 to generate approximately $250 million of EBITDA per year. We have a strong balance sheet and committed to deliver on our capital allocation commitments of returning excess cash to shareholders. Looking forward, our geographic diversity advantage feedstock cost position with 85% of natural gas needs in North America hedged next year and our unique global supply chain will continue to allow us to be the methanol supplier of choice and deliver value to shareholders. We would now be happy to answer questions.

At this time, if you would like to ask a question, please press star then 1 on your telephone keypad. Our first question is from Joel Jackson with BMO Capital Markets. Your line is open.

Hi, good morning, John. Hey, Joel. We're running out of calls like this. I don't think you said, I don't think you gave a production volume kind of forecast for Q4. Could you tell us what you think Q4 might look like versus Q3? And then also, a second part of that question would be, should we expect the gas resale benefits in Egypt to be on a monthly basis, like a lot lower than the kind of the $17.5 million per month rate you got in Q3? in August and September because obviously gas prices have come down?

Yeah, so the AGF, we realized all the benefit in Q3. So, you know, that was all realized in Q3. So that $35 million is all the benefit of redirecting that gas for LNG and, you know, obviously sharing with the government, et cetera. So it's based on, you know, selling prices through the three-month period. As far as production, yeah, it's 1.6 million tons for Q4. It's our forecasted productivity.

So my next question is a fun one. Are you ready? I'm ready. Okay. So John, during your tenure at Meth, it's been a long time, but over the last decade or so as CEO, what would you say is sort of the thing that you're most proud about? And what is the one that you'd say maybe the one that got away, the opportunity or something that got away?

Yeah, I would say our safety record is the thing I'm most proud about and our internal succession process and developing people. Those would be the two things I'm most proud about. One thing, many things got away. You know, I think we had a lot of volatility during the time in the last 10 years. And, you know, I think we came out of a stronger company as a result of the teamwork. So I don't want to go through all the things that got away, but, you know, certainly, you Lots of noise during the last 10 years.

Okay, thank you. Thanks, Joel.

The next question is from Ben Isaacson with Scotiabank. Your line is open.

Thank you very much, and good morning, everyone. In other petrochemical chains, we've seen volume down 10%, 15% in Europe, similar in China. generally hanging in the rest of Asia and North America. Now, you did say that Q3 volume was flat versus Q2, and right now what you're seeing is that it's flat, and you also highlighted the risks in Europe and China already. But when you say that it's flat right now, does that mean it's stronger in some regions and it's weaker in other regions? So is what you're seeing consistent with what we're seeing in other chemical chains? And if not, maybe can you just talk about real-time demand on a regional basis?

Yeah, I'll ask Rich to answer that question. Yeah, morning, Ben. Yeah, so you're right to say that it's not the same across all regions. So in the third quarter, we saw stronger demand. And this is mainly on the traditional side, stronger demand in North America. Part of that was return of operating rates for acetic acid producers. But we are seeing still healthy demand in North America. um things are pulling fairly strong there and we actually do think that there is some impact of lower operating rates in europe that may be shifting some industrial production into into north america in europe we are seeing traditional demand down and um and and so that in that region there's a bit of a some offset there we're continuing to track china for traditional demand growth we would say that that's been relatively flat and there is some pressure obviously with zero COVID lockdowns and also a slowdown in housing there. So we're watching those things closely, but we haven't seen a significant pullback in demand in any region. Europe is the one that we have seen some modest pullback. So we're continuing to watch all of it across all applications. We have had some offset, obviously, with higher, stronger demand into other energy applications in China, and Q2 was a period where COVID lockdowns were quite restrictive, and Q3, some of that eased off, which meant there was better demand for transportation fuels as well as other thermal applications, and we would see that continuing with higher energy pricing as well as as well as if COVID lockdowns continue to ease. So we're watching all markets right now, and things are still probably trending at Q3 levels.

Yeah, and I'd just add the MTO, right? We've added a new plant in Bohai. So that's new demand, and that's 1.7 at full rate. So we watch our customers, what they're reporting as well. We're just not seeing that in our business yet, but we're certainly – cautious about what could be coming.

Thank you. And then just a quick follow-up. You mentioned, John, that I think you said both plants in New Zealand will be up and running sometime in Q4. Does that mean that this Maui gas field issue is now behind us? And as we look into 2023, in the absence of any turnarounds, we should be kind of back to normal production in New Zealand, all else equal?

Yeah, both plants are running now, Ben. I think my remark was that full rates in the quarter. So that's our expectation. So we expect to be running both plants at full rates next year, provided there's not any further disruptions in the gas supply. That's what our gas suppliers have told us, and that's what we're expecting. Great.

Thank you very much.

The next question is from Nelson Ng with RBC Capital Markets.

Your line is open. Great, thanks. And congrats, John, on your upcoming retirement and congrats to you, Rich, on your new role. So first question is, it sounds like Egypt was a special situation where you were able to use excess LNG capacity to divert gas. But can you talk about whether there's any other opportunities to resell gas or divert gas? Because I remember in New Zealand, Recently, you agreed to reduce production to allocate more gas to power plants. Can you just give us a bit of color on whether there's other opportunities in other regions to divert gas?

Yeah, we're in the business of producing methanol and selling methanol. I think the Egypt opportunity was unique because we had a planned turnaround at the same time, which only happens every four years, and the conditions were that there was excess LNG capacity and a high price in Europe. So, I mean, but those were very unique conditions. Would those conditions happen at some point in the future? Well, they haven't happened in the last 30 years, so who knows, but certainly we're in the business of producing and selling methanol.

Okay, got it. And then you talked about G3 and your expectation of, I think, $250 million of heat protect contribution per year. Is that assuming that it's operating close to or 90% to 100% utilization. And then on the back of that, can you give us an update on your hedging position in North America?

Yeah, so our hedging position hasn't changed during the quarter. We haven't added any hedges, so it remains unchanged. And yeah, we plan to run G3 at full rates.

Okay, thanks. I'll leave it there.

Thanks.

The next question is from Steve Hansen with Raymond James. Your line is open.

Good morning, guys. I'll just echo the congratulations comments earlier to both of you. The question to start is just around regional contract spreads. I know we've been in a position like we have for some time now, but I just want to ask about the regional spreads being extremely wide relative to history here, particularly in the Atlantic Basin. Is that a situation that you expect to carry through 2023 and perhaps beyond, just given the market dynamics you're seeing, or how would you think about that spread going forward?

Yeah, I'll ask Rich to answer that one. Hi, Steve. Yeah, this certainly has been a dynamic we've seen. We're in contract season now. It's just starting, so it's hard to give you guidance on that. Obviously, the Atlantic is where we've seen that spread, and that's been on the back of a lot of new capacity that's been added over time. We haven't seen any new capacity or, in our outlook, any new capacity other than G3, so we're going to have to watch and see what happens. But we'll obviously go through that, and we'll give guidance on where we see levels going forward. Yeah, I think as well.

I mean, we look at realized price. That's what's important. And I think, you know, the Atlantic Basin is still our best realized price throughout our company. So, yeah, spreads are certainly something people watch, but we look at realized price. So 377 is, you know, if I can take that for the next 10 years, or Rich could take that for the next 10 years, I'm sure he'd be very happy.

No, fair enough. That's helpful. And just Maybe as a related question then, because you've introduced this new China contract that sort of breaks apart the traditional Asia-China combined contract. Maybe just could you speak to the benefit that you've seen from that and whether it's been effective from what you originally planned? Thanks.

Yeah, I think probably the biggest benefit is that just the Asia-Pacific region is a as a whole, there's a lot of unique elements to it. So having the China market separate from the Asian market, those markets don't move the same way. And we're able to obviously stay competitive with our customers in those markets in a lot more timely fashion. So I think it's working well with our customers in those regions and helping us stay competitive on a monthly basis to to those markets. So, yeah, it's working the way we would have hoped.

Yeah, I think when we put APCP in many years ago, you know, the Iranian product wasn't only destined for China. And I think that dynamic has really changed the Chinese import market. So, you know, the traditional freight differential from China to the other parts of Asia changed as a result. So having the two prices, I think, allows us to stay more in tune with the different markets in Asia.

Appreciate that. Thanks.

The next question is from Josh Spector with UBS. Your line is open.

Hey, thanks for taking my question. So just to follow up on the Egypt gas sale, and I understand that you don't want that to be your normal mode of operation, but assuming your prices for gas go up again, was this a unique kind of discussion with the government to make this happen and you'd characterize it as more one-off? Or if that arm opened up, Is that something you could quickly switch to if it was advantageous for you to do that?

Well, we own 50% of that plant. We operate, so we have a partner there, and that's mainly the government. So, you know, any ideas we talk about with our partners and look at them, I'd say, you know, this is a unique opportunity for us because we are in a planned turnaround anyways, and we won't have another planned turnaround for probably three, four years. so that the dynamics would be different if we're operating fully versus a planned turnaround. So I don't like to predict the future. I'm not very good at it, but certainly this was very unique and hasn't happened in our 30-year history. Yeah, we did do something in New Zealand, but that was more as a need for the country needing the gas for electricity. So it was very different circumstances than what happened here in Egypt.

Okay, thanks. That's helpful. And just... a follow-up on the methanol for fuel demand in the marine market. I mean, you talk about the 2 million tons of potential demand to be added. I'm curious if you could provide any color, like within that calculation, are you assuming a mix of fuel in those dual feed engines similar to what it's at today, which is kind of a low level of methanol? Are you assuming that's all methanol? Just curious about how that shakes out today versus how you're you're seeing that maybe shift over the next couple of years.

So the 2 million number that we've provided is demand potential that assumes all those vessels run on methanol 100% of the time. You know, what fuel will be the choice will be dependent on each of the shipping companies and what they're operating at the time. We think certainly that The shipping companies are choosing methanol because of its clean burning attributes as well as its future pathway to low carbon. We think that methanol has been the choice they've made because of that. They're looking and seeking the economics of methanol as well as our ability to decarbonize over time. So all of that will have to play out. We think that that 2 million tons is what's on order today and there's a lot of other discussions that are going on which we would expect to see that order book continuing to increase over time.

Regulations will continue to get tighter and tighter and maybe some of the alternatives today won't be alternatives in the future. So it's really if all the ships that are on order or on the water today were to run 100% on methanol, it would be $2 million in demand.

Got it. Very helpful. Thank you.

The next question is from Jacob Belt with CIBC. Your line is open.

Good morning. I wanted to go back to methanol demand and you know, increasing concern about a recession here going into 2023. Maybe just walk us through how you're thinking about methanol demand in either kind of a moderate or severe recession scenario and what, you know, could be different this time than what we've seen historically.

So I think, you know, when you break out the demand in the industry, we're kind of somewhere between 85 and 90 million tons. Around $45 million of that is in the traditional demand segment. That would be the segment we'd be monitoring very closely in terms of any recessionary impact. Right now, we would have forecast at the beginning of this year a 3% to 4% demand growth for those derivatives, and we're seeing that trend flat today as we talked about for the third quarter. we'd be watching that 45 million tons of demand and really looking at what impact that will have across the different jurisdictions. So knowing exactly or predicting exactly what the impact would be, it tends to follow GDP. So however we would forecast GDP growth will tend to be how that segment is driven. I think the other thing that we're seeing, though, is we're seeing potential recessionary impacts in a high-energy price environment, and that tends to be a driver for demand growth for methanol. So how those two things interplay will ultimately determine demand. So we think that the high-energy price environment certainly is a positive for supporting demand growth.

And are you more or less concerned about China this time around?

we're watching China really closely. You know, I think that zero COVID has had an impact certainly on demand. What happens, you know, post the National Congress and around policies there will ultimately determine, you know, how that's going to impact us. So we're watching the China market very closely right now.

Yeah, we're probably most concerned about the MTO. So, I mean, that's always been Our biggest concern by the operating rates, although they're a little bit lower, they're still quite healthy. So again, that's something our team watches on a very regular basis.

I'll leave it there, and good luck to you, John.

Thanks, Jacob. The next question is from Hassan Ahmed with Alemdic Global. Your line is open.

Good morning, John, and congratulations.

John, a question around demand. You know, just revisiting something you said earlier. I mean, obviously, sequentially, you know, you guys talked about demand being flat. Obviously, a bit different from other commodities, you know, which has seen, you know, a fair bit of destocking, you know, in some cases, 10%, 15%, 20%. You know, can you chat a bit about inventory levels, where they are right now, you know, as more of these recession fares sort of... spread through the market? Is there a genuine concern around maybe heightened degrees of destocking?

Hi, Hassan. This is Rich here. In terms of inventory levels, we saw flat demand during the quarter, but we did see industry operating rates pull back in the quarter by about 2% to 3%. Overall, we saw actually a draw on inventories through the quarter. The production outages were mainly in Iran, where we saw outages across a number of plants. There were outages in North America. The European refinery units are operating at low rates. There are other issues, including our own turnarounds in Egypt and New Zealand. Industry operating rates were actually, when we balance out demand and production, we saw a draw during the quarter that was most pronounced in the import markets into China, where we see actually quite low inventory levels today. And that obviously led to some strengthening in pricing in the China market during the quarter. We're seeing tight balance to tight inventory levels everywhere today.

I think the dynamic is that as we get into Q4 and Q1, those are traditionally the low end for the production because of gas diversion for heating and electricity in places like Iran. We've got the higher gas prices in North America impacted supply in Q3. Obviously, prices of gas now have come down. to around 5, 6, which is somewhat a little bit more affordable if you're not edged or fixed like we are. And then you've got the high cost curve in China, right? The coal price there is setting a very high cost curve. So yeah, even if demand was to go down somewhat, I think the supply issues are going to be probably more impacting what the ultimate price of methanol is going to be versus somewhat of a drop in demand.

Very helpful. And as a follow-up, I noticed that sequentially logistics costs were up around $12 million. Now looking at shipping rates coming down pretty hard, should that be a nice tailwind for you guys as we think about Q4 and beyond?

Well, this is one of our key competitive advantages, our integrated logistics. And yeah, we paid more for logistics for fuel. When fuel was quite high, it's come down a little bit and we're running methanol wherever we can on our ships as well. But the tanker market, if you look at what happened in the dry cargo market a few years ago, the tanker market didn't have the same reaction. It kept to be quite low. With what's happened in Russia and the supply chains and shipping days becoming much longer the tanker market has gone up quite significantly. So the rates in the tanker market, if you're not integrated like we are and you're buying spot, you're paying double and sometimes more versus this time last year. And I'll remind you about 35% of what we carry is on a backhaul basis. So the rates we're getting for that would be quite a bit higher this year versus last last year so I think our supply chain and our own shipping and integrated logistics is a key competitive advantage not only to deliver product on time and the quality our customers want but now that the shipping market looks to be in the tanker market you know quite strong going forward and with the further restrictions now in Europe where Russian methanol and other clean petroleum products will not be allowed to be exported in Europe, those supply chains are only yet longer, which will lead, we believe, to a tight tanker market for most of next year.

Very helpful. Thank you so much. The next question is from Matthew Blair with TPH. Your line is open.

Hey, good morning. Could you talk about MTO economics currently? Is it fair to say that they're a little bit better than Q3 levels? And what are your expectations for MTO operates in Q4 into 2023?

Yes. Hi, Matthew. So, MTO affordability, when we look at it on a straight ethylene propylene basis is around $280 today, thereabouts. It's below $300. What we've seen is a bit of a disassociation between that's in a high oil price environment. Traditionally, we'd see higher oil MTO affordability. So there's been a little bit of disassociation from oil because of what's happening in their downstream, some weaker demand into olefins markets, combined with ample supply. So that's something we're monitoring very closely. There's other factors that are at play for true economic operating decisions for the MTO units. You'd have to look further downstream into what they're producing downstream as well as the synergies that a lot of these units have with their other parts of their facilities. So it's not a straight mathematical number that you can rely on in terms of knowing their operating decisions. Today, we know that there's a few plants that aren't operating today and that's been offset, as John said, with the startup of the 1.8 million ton plant in North China. So as of today, we'd say operating rates for MTO are around just under 80% operating rates, so there's latent demand there. It's hard for them to start up when inventories in China are really tight today, and at current pricing in China at $330 a ton, we're going to watch and see what operating rates to expect, but we would probably hold operating rates at levels at around the 80% today and then watch decisions that will be made, so.

Great, thanks for all the color. You also mentioned your ships are running on methanol whenever possible. What's the economic benefit there? What's the spread between methanol and like a low sulfur fuel oil or low sulfur diesel?

Yeah, so earlier in the year when oil pricing was well above $100 a barrel, we saw a methanol on an energy equivalent basis being quite a bit more affordable than than the other alternatives of marine gas oil or ultra low sulfur diesel oil um there's probably a discount on an energy equivalent basis about 20 to 30 percent um we've seen those prices come down uh recently to where it's actually more on a on a fairly uh neutral uh level of pricing so still

looks attractive to be burning methanol against the alternatives. Great, thank you.

As a reminder, if you'd like to ask a question, that's star 1 on your telephone keypad. Our next question is from Chris Shaw with Moness Crespi. Your line is open.

Yeah, hi. Good morning, everyone. How are you doing? Hey, Chris. I have a longer-term question around... natural gas availability, both for, say, your current operating plants and any, I guess, potential future plants or expansions. Given what's happened with Russian gas and protracted conflict in Ukraine, Europe's bringing in a lot more LNG and look like they're trying to expand their capacity to do so in store. Do you see any shifts in, like, supplies where you are now, again, or, you know, other places, you know, with maybe producers of natural gas looking to liquefy more and send it to Europe in the future? I mean, or is this actually something that's spurring probably more development and you'll actually have better supplies? Like, how do you see that, I don't know, four, five, ten years down the line? How does this all play out?

I guess it depends on what your LNG price forecast is. I mean, certainly if it's $30, $40, if that's your forecast, then it makes more sense to use gas to make LNG than making methanol. Unless you have a view of methanol price being $800 a ton, then I don't think there'd be many new methanol plants being built if your alternative is $30 to $40 LNG. So I don't know what the future is going to hold for gas prices on LNG, Usually economics prevail and it's a price that gets you a return on your capital employed above your cost of capital that people make investment decisions on. And certainly there's an abundance of gas around the world. It's unfortunately today because of what's happened in Europe, it's not in the right place and that's leading to dislocations on pricing. I think when we look at the forward curves on gas in North America, it's still in the $4 to $5 range. So there's lots of gas in North America that can be developed at very economically that $4 to $5 range. So assuming past capital allocation and capital decisions are in the future, you would expect producers of gas to be investing in production if the demand is there and those kinds of prices. That's usually how commodities work. And I don't see anything that I've seen that changes that because of a short-term dislocation, because of a war in Europe.

And then I guess North America is your only market that has the excess gas to liquefy and sent to Europe, right? I mean, New Zealand, Chile, Argentina, all those places, if they had that much, that'd be probably a good problem to have, right?

Yeah, I don't think there's enough gas in Chile or Argentina today. I mean, maybe at some time in the future as the Neuquen gets developed, they'll develop an export LNG market, but that's sometime in the future as they continue to develop the Neuquen Basin. New Zealand certainly not enough gas to think about an LNG plant. Obviously, Trinidad has LNG production and so does Egypt, but Egypt's gas outlook is only getting more and more favorable as it's wanting to become a regional hub for Cyprus and Israel gas plus their additional gas that they're developing. So if all those regions, I would probably expect Egypt to be the most likely to develop more LNG capacity at some point in the future.

Great. That's helpful. Thank you. Our last question is from Steve Hansen with Raymond James. Your line is open.

Yeah, thanks. Just one quick follow-up. If we think forward here, 12 or 15 months, G3 is up and running full, which would be a great outcome. How are you going to feel about capital allocation at that time? It might be too early to ask, but if we think about the backdrop of very little incremental capacity being built over the next couple of years, arguably the market will start to need it. But then at the same time, you're going to have to play this off with your idea around returning cash to shareholders. So You know, I know you've got a strong focus on a balanced approach, but when a lot of that cash flow is flowing, I mean, are you going to be keen on adding the capacity again, or are you going to be more tilted towards the returning cash side? Thanks.

Yeah, it's a great question. I'm glad you asked it. Yeah, you're right to point out, you know, at any price around where we are today, or even much lower, we're going to generate a lot of cash as G3 comes up we don't have any significant projects in the in the pipe today i mean g3 is going to certainly satisfy our demand aspiration or supply aspiration growth and we'll focus on getting titan and white chevalier back up and running if we're able to secure additional gas which you know will take some time so i think we'll have lots of cash to distribute whether we invest a little bit in green methanol or or other projects like that to be determined but uh I think that's somewhere post G3, you know, one or two years at least. So, you know, we do want to grow in line with the market. Most of the questions today have been about demand, and we've seen very little demand growth overall since COVID-19. So it's really since 2020, we've seen basically very, very little demand growth. So we don't need to grow if we want to maintain our market share, and G3 is going to more than satisfy our growth aspirations. you know, assuming it will come up and it will run well. We're convinced of that. You know, we've got a great commissioning team. It's been a great project. It's been a great executed project. There's nothing that leads us to believe it's not going to, you know, commission well and run well. And we'll take the excess cash beyond maintenance capital and the dividend we have and buy back shares. That's our plan.

Okay, great. Thanks, John. Appreciate it.

I'll add one thing that we do plan to retire the debt that's coming due as well, $300 million. Retiring the debt and buying back shares.

No further questions at this time. I'll turn it over to John Florin for any closing remarks.

Thank you for your questions and interest in our company. Before we close the call, I want to emphasize we produce an essential chemical building block was used in hundreds of consumer and industrial products. Methanol is also a cleaner burning fuel that has increasing demand as a marine fuel. We believe that the methanol industry has a positive outlook with growing demand and minimal new capacity additions. Our well-positioned asset portfolio generates meaningful cash flow across a range of methanol prices, which allows us to execute on our capital allocation priorities. We are well positioned in this period of economic uncertainty with a strong balance sheet, our G3 project fully funded and coming online next year, which we'll expect to add approximately $250 million of EBITDA at $375 methanol price and $4 gas, which will significantly enhance our cash flow generation capability. We hope you'll join us in January when we'll update you on our fourth quarter results. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.