Methanex Corporation to Temporarily Idle New Zealand Operations to Assist in Improving Energy Balances

Rhea-AI Summary

Methanex (TSX:MX) (NASDAQ:MEOH) has temporarily idled its New Zealand operations until the end of October 2024 to assist in improving energy balances. The company has entered into short-term commercial arrangements to provide its contracted natural gas into the New Zealand electricity market. These arrangements are expected to positively impact Methanex's Q3 and Q4 2024 earnings, with after-tax proceeds expected to meaningfully exceed the margin lost on New Zealand methanol production.

The decision comes as New Zealand's energy balances are currently strained due to seasonally high demand, low hydro levels, and relatively lower gas supply in 2024. Methanex will utilize its global supply chain to ensure continued methanol supply to customers. The company remains committed to working with all parties to improve structural energy balances in New Zealand, where it has natural gas contracted through 2029.

Positive

• Short-term commercial arrangements expected to positively impact Q3 and Q4 2024 earnings
• After-tax proceeds expected to exceed margin lost on New Zealand methanol production
• Potential for incremental value sharing based on electricity pricing
• Demonstration of flexibility in global supply chain management

Negative

• Temporary idling of New Zealand manufacturing operations until October 2024
• Potential disruption to local methanol production and supply

Insights

Financial Analyst

Methanex's decision to temporarily idle its New Zealand operations could have a positive impact on the company's financial performance. The short-term commercial arrangements are expected to boost Q3 and Q4 2024 earnings, with after-tax proceeds likely to exceed the lost margin from methanol production. This strategic move demonstrates the company's ability to adapt to market conditions and maximize profitability.

The base price structure with potential for incremental value based on electricity pricing suggests a favorable risk-reward profile for Methanex. Investors should note that while this arrangement is temporary, it showcases the company's flexibility in asset utilization and ability to capitalize on market opportunities. However, the long-term implications on Methanex's operations in New Zealand and its relationships with local stakeholders should be monitored closely.

Energy Market Analyst

Methanex's decision highlights the current energy crisis in New Zealand, characterized by high demand, low hydro levels and reduced gas supply. This situation presents both challenges and opportunities for energy companies operating in the region. The company's ability to redirect its contracted natural gas to the electricity market demonstrates the interconnectedness of energy systems and the potential for innovative solutions during supply constraints.

This move could potentially alleviate some pressure on New Zealand's electricity grid, benefiting both the company and the country. However, it also raises questions about the long-term sustainability of energy-intensive industries in regions with volatile energy supplies. Investors should consider how similar arrangements might be applied in other markets where Methanex operates, potentially creating new revenue streams or risk mitigation strategies.

Supply Chain Expert

Methanex's decision to idle its New Zealand operations while maintaining customer supply security showcases the company's robust global supply chain capabilities. This flexibility allows Methanex to optimize its production network in response to regional market conditions without compromising customer commitments. It's a testament to the company's strategic planning and risk management in a volatile commodity market.

Investors should note that this ability to shift production and sourcing could provide Methanex with a competitive advantage, potentially leading to improved margins and customer retention. However, the increased logistics complexity and potential costs associated with supplying New Zealand customers from alternative locations should be monitored. Long-term, this event underscores the importance of diversified production assets and flexible supply chains in the methanol industry.

VANCOUVER, British Columbia, Aug. 12, 2024 (GLOBE NEWSWIRE) -- Methanex Corporation (TSX:MX) (NASDAQ:MEOH) announced today that it has entered into short-term commercial arrangements to provide its contracted natural gas into the New Zealand electricity market. As a result, it is temporarily idling its manufacturing operations in New Zealand until the end of October 2024. These commercial arrangements are expected to positively impact Methanex’s Q3 and Q4 2024 earnings with after-tax proceeds expected to meaningfully exceed the margin lost on New Zealand methanol production delivered to customers. The commercial arrangements are structured to provide Methanex with a base price for each unit of gas delivered with further incremental value shared between the parties depending on electricity pricing over the period.

Rich Sumner, President and CEO, commented, “New Zealand’s energy balances are currently very strained due to seasonally high demand combined with low hydro levels and relatively lower gas supply in 2024 compared with previous years. We have been working closely with energy providers, other gas users and the government of New Zealand on how we can be part of the solution. We believe these agreements will play an important role to support the energy sector and to facilitate this we’re making the appropriate adjustments to utilize our global supply chain to ensure we continue to provide our customers with methanol supply security. We have natural gas contracted in New Zealand through 2029 and are committed to working with all parties to improve the structural energy balances in the country.”

Methanex is a Vancouver-based, publicly traded company and is the world’s largest supplier of methanol to major international markets. Methanex shares are listed for trading on the Toronto Stock Exchange in Canada under the trading symbol “MX” and on the NASDAQ Global Market in the United States under the trading symbol “MEOH”. Methanex can be visited online at www.methanex.com.

Inquiries:
Sarah Herriott
Director, Investor Relations
Methanex Corporation
604-661-2600 or Toll Free: 1-800-661-8851
www.methanex.com

Forward-Looking Statements:

These statements relate to future events or our future performance. All statements other than statements of historical fact are forward-looking statements. Statements that include the words “expects”, “believe”, and “will”, or other comparable terminology and similar statements of a future or forward-looking nature identify forward-looking statements.

More particularly and without limitation, any statements regarding the following are forward-looking statements:

• expected shutdowns (either temporary or permanent) or restarts of existing methanol supply (including our own facilities), including, without limitation, the timing and length of planned maintenance outages,
• expected methanol and energy prices,
• expected levels, timing and availability of economically priced natural gas supply to each of our plants,
• anticipated operating rates of our plants,
• expected operating costs, including natural gas feedstock costs and logistics costs,
• expected tax rates,
• expected cash flows, cash balances, earnings capability, debt levels and share price, and
• expected actions of governments, governmental agencies, gas suppliers, courts, tribunals or other third parties.

We believe that we have a reasonable basis for making such forward-looking statements. The forward-looking statements in this document are based on our experience, our perception of trends, current conditions and expected future developments as well as other factors. Certain material factors or assumptions were applied in drawing the conclusions or making the forecasts or projections that are included in these forward-looking statements, including, without limitation, future expectations and assumptions concerning the following:

• the supply of, demand for and price of methanol, methanol derivatives, natural gas, coal, oil and oil derivatives,
• our ability to procure natural gas feedstock on commercially acceptable terms,
• operating rates of our facilities,
• receipt or issuance of third-party consents or approvals or governmental approvals related to rights to purchase natural gas,
• operating costs, including natural gas feedstock and logistics costs, capital costs, tax rates, cash flows, foreign exchange rates and interest rates,
• absence of a material negative impact from changes in laws or regulations, and
• enforcement of contractual arrangements and ability to perform contractual obligations by customers, natural gas and other suppliers and other third parties.

However, forward-looking statements, by their nature, involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. The risks and uncertainties primarily include those attendant with producing and marketing methanol and successfully carrying out major capital expenditure projects in various jurisdictions, including, without limitation:

• conditions in the methanol and other industries, including fluctuations in the supply, demand and price for methanol and its derivatives, including demand for methanol for energy uses,
• the price of natural gas, coal, oil and oil derivatives,
• our ability to obtain natural gas feedstock on commercially acceptable terms to underpin current operations and future production growth opportunities,
• actions of competitors, suppliers and financial institutions,
• conditions within the natural gas delivery systems that may prevent delivery of our natural gas supply requirements,
• competing demand for natural gas, especially with respect to any domestic needs for gas and electricity,
• actions of governments and governmental authorities, including, without limitation, implementation of policies or other measures that could impact the supply of or demand for methanol or its derivatives,
• changes in laws or regulations, and
• other risks described in our 2023 Annual Management’s Discussion and Analysis and this Second Quarter 2024 Management’s Discussion and Analysis.
  

FAQ

Why is Methanex (MEOH) temporarily idling its New Zealand operations?

Methanex is temporarily idling its New Zealand operations until October 2024 to provide contracted natural gas to the electricity market, assisting in improving energy balances due to strained conditions in New Zealand's energy sector.

How will the temporary idling affect Methanex's (MEOH) earnings in 2024?

The commercial arrangements are expected to positively impact Methanex's Q3 and Q4 2024 earnings, with after-tax proceeds expected to meaningfully exceed the margin lost on New Zealand methanol production.

What is causing the strain on New Zealand's energy balances in 2024?

New Zealand's energy balances are strained due to seasonally high demand combined with low hydro levels and relatively lower gas supply in 2024 compared to previous years.

How long does Methanex (MEOH) have natural gas contracted in New Zealand?

Methanex has natural gas contracted in New Zealand through 2029 and is committed to working with all parties to improve the structural energy balances in the country.