24 January 2013 17:42 [Source: ICIS news]
HOUSTON (ICIS)--A 10-year natural gas supply deal signed by Methanex made it likely that the methanol producer will move a second plant from southern Chile to Louisiana, a stock analyst said on Thursday.
Canada-based Methanex this week secured a 10-year agreement with Cheasepeake Energy to supply natural gas for a methanol plant in Geismar, Louisiana.
“Methanex’s ability to secure this first gas contract greatly increases the probability of a second Chilean relocation, in our view,” said a report by Steve Hansen at Raymond James in Vancouver.
Chesapeake is the second largest US gas producer.
Methanex’s new chief executive, John Floren, hinted in the announcement that the long-term deal with Chesapeake lowered Methanex’s natural gas price risk at the Louisiana site “if we decide to relocate a second plant to Louisiana”.
Floren said the company would decide whether to move a second plant by the first half of this year.
Hansen called the deal “momentous” for Methanex because it is linked to the price of methanol.
“In other words,” Hansen wrote, “the price the company will pay for its gas will be directly linked to methanol prices (not the Henry Hub market price), thereby helping preserve margins and cash flow across all points of the cycle.”
A US methanol source confirmed the strategic importance of the deal.
“Methanex has naturally hedged their raw material cost against the commodity price,” said the US source. “With depressed natural gas prices it makes sense.”
US spot methanol has jumped 2% this week, baffling traders because of what has been otherwise a dull market for most of January.
Traders said spot prices ranged from 125-126 cents/gal, up from 122-123 cents/gal at the end of last week. There was talk of suppliers in Europe bidding up prices because of low inventories and some delayed vessels.
Investors apparently approved of the deal, causing Methanex’s NASDAQ-listed stock (MEOH) to jump 9% in morning trading.
Methanex shares traded above $35 before falling back around $34.54/share. The stock closed Wednesday at $32.29.
Methanex has four plants in Chile, only one of which is still operating. Methanex plans to idle its methanol operations in Chile in March because it will unlikely have enough feedstock natural gas to operate.
Additional reporting by Ross Yeo and Al Greenwood
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