Petrochemicals: Methanex outlines investment plans

30 January 2012 00:00  [Source: ICB]

Methanex

The Canada-based methanol producer is making moves in global production

Canadian methanol producer Methanex has confirmed plans to move one of its idled plants in Chile to Geismar, Louisiana, in the US. Site-specific engineering work has begun and the plant is expected to be operational in the second half of 2014.

Bruce Aitken, CEO of Methanex, said: "The outlook for low North American natural gas prices makes Louisiana an attractive location in which to produce methanol. We have a number of parallel work paths ongoing and expect to make a final investment decision on this project in the third quarter of this year."

The project will cost $400m (€312m) - much less than constructing a new plant, which Aitken estimates would cost $700m or more.

Aitken said that Methanex is talking with gas suppliers about long-term contracts, but he added that gas prices are so low in the US now that he is not worried about it. "We would be happy to proceed with this project without a gas supply contract," Aitken said.

"The timing of this project is excellent: there is strong demand growth for methanol globally and there is little new production capacity being added to the industry over the next several years," he added.

Methanex has four methanol plants at the Cabo Negro complex in Chile, but only one plant with a capacity of 850,000 tonnes/year is running because of problems securing consistent supplies of natural gas.

SECOND MOVE POSSIBLE

One US analyst believes Methanex could move a second plant from Chile to the US. Charles Neivert, analyst at US-based investment bank Dahlman Rose said he has been told that the property Methanex has purchased in Geismar, about 60 miles (97km) south of Baton Rouge, could easily accommodate two methanol units.

"We expect that there is likely to be another announcement later this year to move a second unit to the US, following closely on the heels of the first," Neivert said in his research note of January 18. Neivert added that two plants could be moved for $500m-600m.

Paying for the move would not be an immediate concern, Neivert said, because of the two to three years it would take. "They've certainly got the cash flow to pay for this," he added.

Methanex restarted a plant in Medicine Hat, Alberta, Canada, last year for around $45m and has already recouped that cost.

Hassan Ahmed, partner and head of research with US analyst Alembic Global, said that although Methanex could move a second plant to the US, he does not expect such a move in the near term.

"If they move another facility, it certainly will require a fair bit of capital and I don't see that happening until at least 2016 or beyond," he said.

Steve Hansen, analyst at Canada-based investment bank Raymond James said moving a second unit from Chile to the US could make sense "over time."

However, Hansen said it was a low probability considering Methanex' recent announcements, which include investing $60m in restarting a plant in New Zealand (ICIS Chemical Business January 23-29, 2012).

GAS SUPPLY SECURED

Methanex announced on January 17 that its second plant at Motonui would recommence production in mid-2012, adding 650,000 tonnes/year of capacity. The unit has been idle since 2004.

The restart follows the signing of a 10-year agreement with New Zealand-based Todd Energy to supply natural gas for up to half of the 1.5m tonne/year capacity at the site.

Aitken said: "The quantity of gas supply under this contract potentially allows us to produce about 7.5m tonnes of methanol over the next 10 years."

Neivert said that the New Zealand assets are well positioned to take advantage of the strong growth in Asia, particularly China. "Methanol for fuel use has been especially high in the region, and Chinese imports have increased substantially on a year-on-year basis and remain high despite strong Chinese internal methanol production," Neivert said.

OTHER OPTIONS MULLED

Another possibility that Methanex has been exploring is converting one of the idled units in Chile to use coal feedstock, thus moving away from its dependence on natural gas. Methanex said a decision on this is planned for mid-2012.

Ahmed estimates that a conversion to coal gasification would take at least six to twelve months and cost in excess of $50m.

Lastly, Methanex is awaiting a decision on its bid to purchase UK-headquartered BP's 36.9% stake in the Atlas joint venture in Trinidad. Methanex owns the other 63.1% of the plant. Aitken said the bid is still under consideration and that he understood BP is talking to others as well.

Ahmed noted that BP's share of Atlas's methanol capacity is around 627,000 tonnes, which at a replacement value of $700/tonne would imply a price tag of $439m.

He added that each of Methanex's four investment options could be substantially earnings and valuation accretive for the company. "If the company were to embark on all of these options, we could easily see Methanex's normal earnings power and in-turn share price double from current levels," he said.

Additional reporting by Lane Kelley in Houston and Heng Hui in Singapore

Only one of four plants at Methanex's Cabo Negro site is running

Methanex


By: Elaine Burridge
+44 20 8652 3214



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