Methanex explores Chile for natgas source

Methanex sources Chile

06 November 2008 00:00  [Source: ICB]

Plagued with natural gas supply woes from Argentina and a subsequent layoff of workers at its Chilean site, Methanex turns to Chile for new gas resources

Moving away from Argentina as its main source of natural gas for methanol production, Canada's Methanex is exploring alternative gas sources, namely in southern Chile. In September, the company said it was investing $150m (€117m) for this purpose.

"To address the current natural gas supply challenges we face in Chile as a result of the Argentinean gas curtailment, Methanex's long-term solution is to replace contracted Argentine natural gas with new Chilean natural gas," says Methanex.

Methanex's $150m investment is being committed to three projects. The first is financing new gas development being conducted in the Fell Block by GeoPark Holdings, the Latin American oil and gas exploration and production company. GeoPark is a private company operating in the Magallanes region of Chile that has increased its natural gas supply to Methanex's site since 2006.

The Fell Block, located in Magallanes, is a 440,000 acre (178,000ha) production block being explored for oil and gas development. There is an existing market for gas production and significant infrastructure throughout the Fell Block that includes oil and gas pipelines, facilities and terminals, and good access roads, according to GeoPark.

The company began operations in the Fell Block in September 2005 and began producing from the area in May 2006.

The second project is the development of the Dorado Riquelme Block. "We signed an agreement with Empresa Nacional del Petroleo (ENAP), the Chilean state-owned oil and gas company, to accelerate gas exploration and development in the Dorado Riquelme exploration block to supply new Chilean-sourced natural gas to our production facilities in Chile," says a Methanex spokesperson. "Resources will be used to explore and develop new wells in the Dorado Riquelme Block."

Methanex will hold a 50% stake in the Dorado Riquelme block. The area has the potential to be a significant new feedstock source, says the company.

The third project involves Methanex's participation as a consortium member with Germany-based Wintershall Holding, which is a wholly owned subsidiary of German chemical giant BASF, and Chile's GeoPark, to operate the Otway Block - one of nine blocks recently awarded by the Chilean government to different international operators. The Otway Block is a 5,992km² (2,313 square mile) area in Magallanes, near the Fell Block.

"Methanex participates with other companies that specialize in the exploration and development business. Our main role is to contribute to the acceleration of gas development in southern Chile," says the company.

Methanex's 3.82m tonne/year methanol plant near Punta Arenas is operating at around 25% capacity, down from the 30% it had previously aimed for earlier this year. The company says it anticipates getting the plant back up to full capacity in the next few years.

The natural gas supply being used is from Chile, provided by GeoPark and ENAP.

NATURAL GAS WOES

Methanex's gas woes have plagued the company for most of this year. In March, the company laid off 15%, or 40 members, of its Chilean staff after Argentina raised its export duty on natural gas. Argentina had raised its export duty on gas from 45% to 100% of the highest contracted import price, translating to an export duty of $7/MMBtu of methanol.

As a result, Methanex has had to search for alternative sources. Argentina had previously supplied 60% of Methanex's natural gas needs.

In 2007, Argentina restricted its exports of natural gas to Chile, owing to domestic demand. But as a result, gas exports to Chile were just one-third of contract demand. Methanex's plan is to source entirely from Chile. 

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By: Feliza Mirasol
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