IN WHAT Prime Minister Dr Keith Rowley described as “some not so good news,” Canadian methanol giant Methanex on Monday announced that it had “idled” its Titan methanol plant, effective immediately.
The closure of Titan, along with Methanex’s Chile IV plant on April 1, is for an indefinite period, the Vancouver-based methanol company said in a statement.
Methanex president John Floren, in a statement, said: “We anticipate that methanol demand could be impacted in the second quarter of 2020 as there has been a substantial reduction in manufacturing activity in countries that have had significant outbreaks of COVID-19. As a result, we are reducing production at our methanol facilities, where we have flexibility in our gas agreements, to prepare for lower demand for methanol. We do not expect this production change to have a significant impact on our cash flows in the current price environment.
“Given the uncertainty in the global economy and challenging commodity price environment, we are taking steps to strengthen our balance sheet while maintaining financial flexibility. We are evaluating all capital and operating spending, including our advantaged Geismar 3 project.”
Methanex said it currently has significant liquidity of approximately US$700 million, including cash on hand and an undrawn committed revolving credit facility, as well as an US$800 million undrawn construction facility for the Geismar 3 project.
Methanex operates two methanol plants at the Point Lisas Industrial Estate: Titan, which was commissioned in 1999, has the capacity to produce 850,000 metric tonnes of methanol a year and Atlas, whose start-up was in 2004 with an annual production capacity of 1,700,000.
Methanex owns 100 per cent of Titan and 63.1 per cent of Atlas. British energy giant, BP, owns the remaining 36.9 per cent of Atlas.
Titan’s existing natural gas supply agreement expired on December 31, 2019 and the interim agreement will enable Methanex to continue operations at Titan while continuing negotiations with NGC for a longer-term natural gas supply agreement.
On December 18, 2019, Methanex announced it had entered into an interim agreement with the wholly state-owned National Gas Company (NGC) for the supply of natural gas to Titan between January 1, 2020 and January 31, 2020. Methanex and NGC extended the interim sales agreement to April 1, 2020.
At a meeting of analysts on January 30, Floren said of his company’s negotiations with NGC: “We are working hard to get this done. We want to run the plant. The Government wants us to run the plant. We are trying to find a solution that’s win-win for the upstream, the Government and ourselves and that’s what we’ll continue to do.
“I am not going to negotiate in public. Our teams are working hard, but there does come a point where you make a decision: Are these negotiations going to get you to a place where it makes sense for all parties or does it not? We are not there yet.”
Floren said Methanex was happy to extend the interim agreement because it knows what the cost structure is in the first quarter of 2020.
“I always said I would not enter into running a plant not knowing my cost structure. I do know what my cost structure (in Trinidad) is and it’s acceptable under current prices. So we will continue to negotiate in good faith. I would say that all parties want a deal and that’s always a good thing. We are optimistic that we can get it done. So we’ll continue to negotiate with the Government and the NGC.”
Floren was asked by Raymond James analyst, Steven Hansen, what was NGC’s issue in the negotiations: was it a desire for a higher natural gas price, some sort of certainty or a floating-scale formula.
Floren responded: “Well, I think we are going to pay a higher price for gas in Trinidad. But we want to pay a price that we can still earn (positive) EBIDTA and reinvest in the plant. It’s usually around price when you have these negotiations. That sliding scale relates to methanol (prices) will continue to be in place.
“We just want to make a deal that we can make sure we can survive at the low end of the cycle and do well at the high end of the cycle.
“I think you should model it (NGC’s gas price) higher but we are not going to sign a deal where we can’t earn profits on that plant. We would rather shut it down than to run it for no profit.”
Addressing a news conference on Monday after a special Cabinet meeting to update T&T on the Government’s coronavirus preparedness, Rowley said: “We, as part of the international economy, received some not so good news this morning, that Methanex, one of our largest methanol producers, has taken a decision from outside of Trinidad and Tobago to shut down, temporarily I hope, one of its two plants in Trinidad.
“This is as a direct result of the international marketplace having no space for what is being produced by these plants. The marketplace is saturated.
“You know that would mean...there are jobs at stake. It would also mean that the support services are not going to be there. The earnings are not going to be there. The minister of finance is not going to expect any taxes because nothing is being produced from that plant. And those are the kinds of knock-on effects of the coronavirus pandemic. That is what we are facing. That is what the world economy is facing”
Switzerland’s Proman is the largest methanol producer in T&T and one of the largest producers of the commodity in the world.
Proman owns five methanol plants on the Point Lisas Industrial Estate with a total capacity of over 4 million metric tonne a year.
Responding by email to questions following the Methanex announcement, David Cassidy, chief executive of Proman told Express Business that one of the company’s five methanol plants, M1, is currently idled as is one of its melamine plants.
“We are also watching the industry supply and demand balance and would expect to see some softening of demand during the year due to the extraordinary events around the coronavirus and the oil pricing discussions between Saudi Arabia and Russia,” said Cassidy.
“Unlike Methanex we have no major standalone capital projects planned, although we continue to invest significantly via our rolling programme of plant turnarounds. The timings of these are likely to be impacted by the evolving coronovirus situation, but we are reviewing developments closely and will continue to guided by the latest advice from the T&T Government and relevant ministries. In the meantime we will be carrying on trying to manage the business and supporting our teams during this complicated and difficult period globally.”