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Methanex Corp
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Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation Q3 2019 Earnings Call. I would now like to turn the conference call over to Ms. Kim Campbell. Please go ahead, Ms. Campbell.
Thank you. Good morning, everyone. Welcome to our Third Quarter 2019 Results Conference Call. Our 2019 third quarter news release, management's discussion and analysis and financial statements can be accessed from the Reports tab of the Investor Relations page on our website at methanex.com. I would like to remind our listeners that our comments and answers to your questions today may contain forward-looking information. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Certain material factors or assumptions were applied in drawing the conclusions or making the forecasts or projections which are included in the forward-looking information. Please refer to our third quarter 2019 MD&A and 2018 annual report for more information. I would also like to caution our listeners that any projections provided today regarding Methanex' future financial performance are effective as of today's date. It is our policy not to comment on or update this guidance between quarters. For clarification, any references to revenue, EBITDA, cash flow or income made in today's remarks reflect our 63.1% economic interest in the Atlas facility and our 50% economic interest in the Egypt facility. In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark-to-market impacts on share-based compensation and the impact of certain items associated with specific identified events. We report these non-GAAP measures in this way to make them a better measure of underlying operating performance, and we encourage analysts covering the company to report their estimates in this manner. I would now like to turn the call over to Methanex' President and CEO, Mr. John Floren, for his comments and a question-and-answer period.
Good morning. In the third quarter of 2019, we recorded adjusted EBITDA of $90 million and adjusted net loss of $21 million or $0.27 per share. Adjusted EBITDA was lower in the third quarter compared to the second quarter primarily because of lower average realized price, which is only partially offset by higher sales volume of Methanex-produced methanol and improved costs compared to the second quarter. Our average realized price was $272 per tonne in the third quarter, which reflects a decline of $54 per tonne from the $326 per tonne that we realized in the second quarter, as our posted prices were lower across all regions and we recorded a discount rate of 17.5%. When prices decline, our discount rate tends to be higher than our guidance of 15%. We estimate that the industry cost curve, which is set in China, is currently around $260 per tonne, and current prices in China are slightly below this range. We recently posted our November North American price, which remains unchanged at $342 per tonne, and our Asia Pacific price, which remains unchanged at $295 per tonne. Our European contract price is set on a quarterly basis, and our fourth quarter posted price is EUR 280 per tonne. Methanol industry demand in the third quarter of 2019 increased slightly compared to the second quarter of 2019. Traditional chemical demand declined slightly as a result of planned and unplanned downstream outages, nationwide safety and environmental inspections in China and a slowdown in manufacturing activity, particularly in the automotive and construction demand segments. Demand into energy-related applications was strong as 2 new methanol-to-olefins or MTO plants with a combined capacity to consume 3.6 million tonnes of methanol annually started up at the end of June. This new MTO demand was partially offset by planned maintenance activities at some existing MTO plants. We continue to see steady operating rates for most MTO facilities. Methanol industry supply outside China operated well in the third quarter of 2019. We observed some high-cost producers in China reduce operating rates in the quarter when spot prices dipped below the industry cost curve. We're excited to welcome 3 new ocean-going vessels powered by methanol fuel technology to our Waterfront Shipping fleet during the quarter. These vessels can run on methanol, fuel oil, marine diesel or gas oil. We have one additional methanol-powered vessel joining the fleet in the coming weeks. And with this addition, approximately 40% of our fleet will be capable of running on methanol fuel technology. Now turning to our operational results. In New Zealand, we produced 469,000 tonnes during the third quarter compared to 446,000 tonnes in the second quarter. Upstream natural gas producers in New Zealand are completing significant field development projects to increase production. However, we do not expect to see any impact of these activities in 2020. Based on our current contracted gas position, we are revising our guidance to approximately 80% operating rates for our New Zealand operations in 2020 or approximately 1.9 million tonnes. In Trinidad, our plants operated well. We produced 474,000 tonnes during Q3 compared to 384,000 tonnes in Q2. Production was higher in the third quarter as our second quarter production was impacted by a turnover at the Titan plant and a short unplanned outage at our Atlas facility. We continue to guide to approximately 85% operating rates for our Trinidad operations. In Chile, we produced 146,000 tonnes during the third quarter of 2019 compared to 290,000 tonnes during the second quarter. Production was lower in the third quarter as only the Chile IV plant operated during the quarter. Later -- Late in the second quarter, we began the first phase of the refurbishment of our Chile I plant, which was scheduled to match lower natural gas deliveries during the Southern Hemisphere winter months. The Chile I plant restarted in early October. Both plants are operating at high rates today, and we expect significantly higher production in the fourth quarter compared to the third quarter from our Chile facilities during their summer months when we receive higher gas deliveries. In addition, we were very pleased to announce that we reached a longer-term natural gas supply agreement for our Chile operations that will underpin approximately 25% of a 2-plant operation through the end of 2025. This gas agreement and the completion of the first phase of the Chile I refurbishment reflect important steps to returning our assets in Chile back to full operating rates over the coming years at very low capital costs. In the near term, we continue to guide to annual operating rates of up to 75% of a 2-plant operation or annual production of up to approximately 1.3 million tonnes per year. In Egypt, we completed the necessary repairs at our facility and restarted our plant safely in August following the unplanned outage that began in early April. We estimate that the Egypt outage had an impact of approximately $20 million, reflecting our 50% share of Egypt on our Q3 adjusted EBITDA results. We have insurance that covers repairs and business interruption, subject to deductibles. However, no insurance recoveries have been recorded to date. Now turning to our approach to capital allocation. Our balanced approach to capital allocation remains unchanged. We believe we're well positioned to meet our financial commitments, execute on our growth projects in Chile and Louisiana and deliver on our commitment to returning excess cash to shareholders through dividends and share repurchases. In terms of our financial commitments, our expected maintenance capital expenditures for the remainder of 2019 are estimated to be $30 million primarily related to turnarounds planned for 2020. We continue to advance 2 near-term growth projects to increase our production capacity for very low capital cost. In Chile, we continue to work with gas suppliers in Chile and Argentina, and they were optimistic they will be able to secure sufficient gas to underpin a full 2-plant operation over the medium term. In Louisiana, we continue to make progress on the debottlenecking opportunities at our existing Geismar 1 and Geismar 2 facilities to increase production by approximately 10% or 200,000 tonnes per year for a few tens of millions of dollars. We are completing the necessary work required, including construction of a pipeline to bring CO2 to the site and the necessary work at the Geismar 2 plant. We expect that the incremental production capacity will be phased in over the next couple of years. We have begun construction of our third plant in Geismar, Louisiana, an advantaged growth opportunity for our company, which we believe will create significant long-term value for shareholders. Geismar 3 will be a 1.8 million-tonne methanol plant located adjacent to the Geismar 1 and Geismar 2 facilities. We expect this project will deliver outstanding returns based on its substantial capital and operating cost advantages. We believe we're well positioned to complete this project as we have a rigorous and well-defined execution plan, an experienced team in place and a robust and flexible financing plan. We ended the quarter with $857 million in cash on the balance sheet. In September, we issued $700 million in 10-year notes. And subsequent to the quarter end, we used $350 million of the proceeds to repay the unsecured notes that were due at the end of this year. The remaining proceeds are earmarked to fund Geismar 3 construction expenditures. In addition, we have a strong liquidity position with an $800 million construction loan facility for the Geismar 3 project that remains undrawn and a $300 million undrawn revolver -- revolving credit facility to provide further financial flexibility to manage potential unforeseen business stress. As we have stated previously, we have a preference for a strategic partner for the G3 project, and we continue to pursue that option. During the quarter, we paid $27 million to shareholders through our regular dividend. Up to June 30, 2019, we repurchased nearly 1.1 million shares of the approximately 3.9 million shares approved under the normal course issuer bid. We did not repurchase shares in the third quarter. Now turning to the outlook -- our outlook for the fourth quarter. Based on posted methanol prices so far this quarter, we expect average realized prices in Q4 to be slightly lower than Q3. We expect production in the fourth quarter to be substantially higher than the third quarter as both of our Chile plants are operating during the Southern Hemisphere's summer months and our Egypt plant is back online. We expect adjusted EBITDA in the fourth quarter to be higher than the third quarter. I would now be happy to answer any questions.
[Operator Instructions] The first question is from Mike Leithead with Barclays.
I guess first, if I look at the supply-demand commentary you provided in your release, it appears you saw methanol demand up a bit sequentially, yet prices were down, call it, 15%, 20% sequentially. So I was hoping maybe you could give a little bit more color on what you're seeing on the supply side? And maybe where you're seeing incremental supply that drove such a move in the quarter.
Yes. So I mentioned already, pricing is just slightly below the cost curve in China. We've seen the industry outside China operate very well the last 2 quarters and better than on average over the past number of years, which has caused a little bit of extra supply.
Got it. That makes sense. And then just on Geismar 3, could you provide us with any update on your discussions for a potential partner for this project? Is that still on the table at this point? Or any update there would be helpful.
Yes. Our preference is to have a partner for the project, and we're pursuing that option. We're in discussion with a couple of parties about potential partnerships. And well, you should expect us to approach a couple of parties at a time to gauge interest, and discussions are ongoing. And our preference is still to have a partner for about 30% of the project.
The next question is from Eric Petrie with Citi.
You noted that the energy-related methanol demand increased 6% quarter-over-quarter. If I exclude the 2 new MTO plants, what was the underlying demand growth? Or was it flat?
Well, the traditional chemical, as we mentioned, was down slightly quarter-over-quarter. We saw quite a few unplanned and planned outages in the downstream. I already mentioned in my remarks that the automotive and construction sectors are a bit weak as well.
Okay. And secondly, China methanol inventories still look like they remain elevated, around 900,000 metric tonnes. Where is normalized levels? And is that an important driver to getting prices higher in the region?
Yes. We see inventory levels at that level, but I wouldn't call it high because remember, we've got a lot more demand as a result of the additions of MTO. I think the challenge in China today is lack of storage capability. Even though demand has gone up significantly over the past few years, storage has not kept pace. And here's -- we are experiencing, we see situations during the quarter where ships are lined up to try and unload cargoes because the tanks are full, and that's more of a -- as a result of not enough storage, which can lead to some pricing of distressed cargoes. So we think we need to see more storage built to meet the increased demand for methanol, especially on the coast in China.
The next question is from Jacob Bout with CIBC.
I wanted to ask some questions around the gas contracts in Chile and maybe a bit about the structure of these gas contracts. What was the origin? Is this conventional, nonconventional? And is there any price participation with the supplier?
Yes. So these are for about 25% of our requirements for the 2-plant operation. These are all -- this is all gases on the Chile side of the border, all unconventional. All the activity in Chile has been going after tight gas over the last 5 or 6 years. So this is tight gas, and there is a sharing mechanism in this contract that works similar to what I've guided to before. We're about 1/3. We share with the producer above $200 methanol in that kind of ballpark.
Okay. And then in Egypt, can you quantify what the losses were from the outages in the quarter? And then how much are you actually expecting to be covered by insurance?
Yes. So we -- in my opening remarks, I mentioned our half, about $20 million, EBITDA impact in the quarter. There are some deductibles like I mentioned, and we have made an insurance claim. And we expect to be able to collect on that insurance claim less the deductibles.
And is this going to extend into fourth quarter into 2020?
The outage or the insurance claim?
These outages, losses that you're taking there.
Yes. So with the plant came up back up in early October, it has been running extremely well since then. So that issue is behind us, and we made the insurance claim. And whether we get it in Q4 or Q1, it's too early to tell, but we expect to be able to collect on the insurance.
The next question is from Joel Jackson with BMO Capital Markets.
John, if you could give us some sort of valuation metrics around what you would be looking for in a 30% stake in some of the different conditions at G3? And then also, as you've been starting to price out long lead-time items, how maybe CapEx is faring -- your expectations for CapEx faring in that $1.3 billion, $1.4 billion range for G3?
Yes. So just to correct something I just said, the Egypt plant came up in early August, not October. I apologize. But for G3, yes, we're having partnership discussions, like I said, for about 30%, not just financial considerations but strategic considerations. We're talking to potentially other producers of methanol that may be looking to build their own facility somewhere around the world where we could partner together, or a customer, somebody that might be consuming 600,000 tonnes or so of methanol, have several locations around the world where they need methanol. And this would help them backward integrate into some equity tonnes. So both of those kinds of conversations are ongoing, not with Chinese companies, not with American companies but other parts of the world. What was the second part of your question, Joel?
Now that you're getting some long lead-time items starting to get priced, how your CapEx is faring within that $1.3 billion, $1.4 billion range?
Yes. So all of the long lead items that we placed the purchase orders for have come back either what we had been -- indicated in a quote or less. So we're not seeing any surprises on the capital side. I'd say -- I was just down there a few weeks ago. The -- some of the other competing projects that we expected to be FID-ed over the coming months seemed to be somewhat delayed. So as far as productivity and labor availability, I'm getting way more comfortable today than I was even 3 months ago about our ability to execute on this project within the range of capital we've provided.
The next question is from Hassan Ahmed with Alembic Global.
Sorry, I was on mute. John, wanted to revisit the demand side of things. It seems that the energy-related demand sort of ticked up quite nicely quarter-on-quarter in Q3, and conventional demand was down a tad bit. So I mean, Celanese recently reported their Q3 numbers, and they were talking about as much as 25% of their acetic acid capacity down in the quarter. And it seems also Sipchem and Saudi had a turnaround as well. So as I think through that and sort of think about the negative sort of conventional demand growth that you guys saw in Q3, should we expect a lot of that demand growth to come back now in Q4?
Yes. We saw the same thing you mentioned. We saw some unplanned and planned downtime from -- especially on the chemical side of the equation. We do plan and see this part of the 55% demand for methanol, the chemical side to grow at IP and GDP growth rates. So provided we're seeing positive GDP and IP growth rates, we would expect those demands to grow at those amounts. Now having said that, quarter-by-quarter, they do vary. But usually, Q4 in any given year is a strong demand quarter for methanol, especially in the chemical products. And we're not seeing anything that would change our beliefs around that.
Understood. Understood. And as a follow-up, in your earlier remarks, you talked about sort of Chinese environmental inspections, again, sort of popping up and the like. Are you seeing any sort of environmental sort of curtailments at all within the Chinese methanol industry?
Yes. We're seeing some in -- not only in the methanol but in the downstream products more. There have been quite a few industrial accidents in China, and that is leading to these inspections. And safety is a big concern for us and for the Chinese. So I think our -- we're probably going to continue to see these inspections both on methanol and methanol-derivative plants going forward.
The next question is from John Roberts with UBS.
The timing of the 10% debottlenecks for Geismar 1 and 2, is that being done to take advantage of any of the synergies with Geismar 3 or because of the upcoming downtime at those sites?
No. This should -- this has nothing to do with Geismar 3. This is totally isolated projects. Similar -- John, this is similar to what we did in Medicine Hat a number of years ago where we had a CO2 source across the fence from an ammonia plant. And by introducing CO2 into our production process, because we have excess hydrogen, we can get more methanol for the same kit. So we've contracted for CO2 in Louisiana with a supplier of CO2, and we're in the process of building a pipeline to bring that to our site. When we did the G1 turnaround earlier this year, we've put in the necessary equipment to be able to introduce CO2 into the system, and we'll do the same when we do the Geismar 2 turnaround in the coming quarters. So that work has been done. The CO2 pipeline has to be built. So you should think of the first G1 sometime in the end of next -- first quarter next year and then about a year after for G2. But that's just roughly guidelines for today, and we still have to complete the work.
And then are you seeing any higher shipping costs from IMO 2020? And do you expect to have to eat that or it will just reduce the netbacks?
Yes. So we are in our budgeting process right now for next year, and we're obviously trying to forecast what's going to happen to -- well, methanol, I guess, we have a better view, but the ultra-low sulfur diesel market. And when you see both sides, you see some people think that that's going to spike in price, and others think that there's enough refining capacity to meet the demand. And I guess, nobody will know until we actually get the demand in Q1. But yes, we will experience higher fuel costs, which will lead to higher freight in our supply chain. And we'll continue to price methanol based on the cost curve and based on the supply-demand balances. So we and other suppliers -- if nothing changes on the price side, we'd be eating that additional freight.
The next question is from Steve Hansen with Raymond James.
John, just a quick one here on the partners for G3. How should we think about the timing of your pursuit of a partner here, given that you've now started construction? I only ask because every month that passes now, the project arguably derisks a little more. And I'm just thinking that that's got to be a difficult or a sliding scale backdrop for ongoing negotiations. So are you able to think about a time line or some sort of like milestone that you would like to have a partner locked up by? And given the context of current negotiations, how should we think about that?
Yes. So we wanted to have the partner before we FID-ed, but here we are. I agree with you that as time goes by, the project does get considerably derisked. We still preference to have a partner for this project, and that may impact the buy-in price as the project gets derisked. But our -- still, our preference is to have a partner, and we'll pursue that. And like I said before, we're not talking to 10 parties at the same time. We're talking to a couple, and we've put some fairly aggressive time lines as we're talking to our potential partners because if there's no interest, we'd like to go on to some other potential partners. So we'll continue to pursue that strategy, and we're optimistic we'll secure a partner. And we'll continue to work towards that.
Okay. Helpful. And then just one quickly on the supply side as it relates to Iran, lots of talk about potentially Iranian start-ups at some point. What is your supply chain telling you? What have you seen in the channel? And have there been any indications on shipping from either [ Bashir ], one of the other projects as yet? Just anything you're seeing on that front would be helpful.
Yes. We don't have any special intelligence from Iran because being a U.S.-traded company, we obviously can't be doing any business at all with Iran. We have seen the Iranian production in the quarter operate much better than we had anticipated. So they continue to run, and they continue to be able to ship mainly to China and India. So that was a bit of the upside on the supply side as well. I read the same things you do, Steve, about the next plant. I really don't have any special intel over and above what you read and I read.
And then just squeezing one last one, if I may, on the Chile ramp for Q4. Can you just give us some better context? I know you noted that Chile I has restarted. But can you just give us a sense for what kind of ramp or what kind of utilization route we should expect in Q4?
Yes. So what I've guided to is 75% operating rates for the year for the 2-plant operation. And what I've said is full rates for plant 1 and plant 4 for the 9 months when we're not experiencing their winter and 1-plant operation during their winter. So I would expect, provided everything goes well with the operational plants, full rates in Q4.
And the next question is from Jonas Oxgaard with Bernstein.
When looking at your non-U.S. margins, historically, there's been a strong correlation between the margins and the price presumably due to the raw material formula. But that seems to have broken down lately. The margins have been much lower than the pricing suggests. Has something changed in your formulas? Or how should I think about this?
No. I think we've guided to this in the past. So about 55% to 60% of our gas today is this formula-based gas, and that's mainly in -- outside North America. When inside North America, you should think of more fixed-price gas in our portfolio. We do have some fixed-price gas in other parts and -- but mainly, it's formula outside North America and fixed in North America.
Yes. I was only looking at the non-U.S. or non-North America margins. Because nothing has really changed. And is there a good reason for why the margin is lower than it's historically been at these methanol prices then?
I'd have to take it offline. I have -- I don't have the numbers in front of me. So I mean Egypt didn't run during the quarter, and we have -- that's a very high-margin business for us. So we didn't have any sales. There were very few sales from Egypt. So that could have impacted, but I'd have to look at the numbers.
The next question is from Nelson Ng with RBC Capital Markets.
So John, just for New Zealand, could you just give a bit more color in terms of the gas market there? And I guess the -- I presume there isn't a spot market, so you can't really get more gas in 2020 in terms of that 80% utilization. And then I guess the second question relates to kind of longer term for New Zealand in 2021, like do you generally expect the utilization and gas availability to improve?
Well, we've been experiencing a lot of maintenance activities in the upstream in the last number of quarters. So I thought it would be best to guide to what we expect as opposed to disappointing each and every quarter. Just how we think about New Zealand, it's 2.4 million tonnes at full capacity. That's assuming we get the high CO2 gas, which we haven't gotten for 10 years. So the actual capacity we've gotten in the last 10 years is around 2.2 million. Now there is high CO2 gas available, and we're still actively trying to contract that. But we haven't done that yet. So the way I think about it without the high CO2 gas, it's a 2.2 million-tonne facility, and we've been experiencing, like I said, shortages because of maintenance and other activity. I guess the good news is Shell has sold their business to OMV, and OMV have -- are investing hundreds of millions of dollars not only in the infrastructure but in developing existing reserves as well as lots of other activities from Todd and others. You're right, there is no spot market there for gas or very little spot market. So all the gas that we would consume in our plants is contracted. So the country itself just redetermine the reserves in Egypt, up by 20% year-over-year, which I think is very positive. So yes, I think we're going to have probably similar operating rates that we had this year next year. But '21 and beyond, we're optimistic we can get to the 2.2 million and possibly the 2.4 million if we can get the high CO2 gas. And I know our team there is working hard towards that goal.
Okay. Got it. And then the next question relates to the NCIB. Like obviously, you've taken a pause in Q3. I was just wondering what your -- what you need to see in your balance sheet or cash flow to start repurchases again.
Yes. So what I've said is that we've had this target of about $200 million of cash on the balance sheet that's not borrowed money, that's actually generated -- excess cash to the operations. We're increasing that guidance to $300 million as we're completing the G3 project. Beyond the $300 million, we would plan to return excess cash to shareholders through the dividend and share repurchases. The dividend is going to be -- we look at it once a year, around April time, and make a call whether we grow it or keep it the way it is, and we'll look at it again around the AGM time. When we look at our internal numbers, above $300 methanol realized, we believe that we can complete the project on our own and have a little bit of excess cash to repurchase shares. So it'll be a factor of methanol price. And like I said, we'll still want to build that cash balance up to $300 million before we would start to exercise the NCIB again.
The next question is from Matthew Blair with Tudor, Pickering.
So your net leverage is moving up with the debt issuance. Can you remind us of any sort of, I guess, like max targets or parameters? And what are the chances that you have to issue equity down the road here?
Yes. Issuing equity is probably -- I never say never but highly unlikely. Maybe I'll ask Ian, our CFO, to comment on the leverage.
Yes. Our target leverage from a balance sheet perspective is 2x to 3x debt to EBITDA. And as we've described before, we live within that range in methanol prices above $300 a tonne. So at $300 a tonne, we achieve a leverage ratio of around 3x. And if you go higher than that, obviously, it goes a lot lower. And that's how we've been running our balance sheet.
Sounds good. And then just a clarification on the commentary on global methanol demand side. I think in Q2, you said that your estimate for global methanol demand was up 3% year-over-year. And then the commentary talked about a slight improvement in Q3. So I guess should we be thinking about like a 3% to 4% year-over-year growth rate for global methanol demand this past quarter?
Yes. I think going forward, it's about 3% to 4%, including the MTO. So it depends on how the MTO runs. And it's hard for us to forecast the future operating rates of our customers, whether they have problems or take downtime. But I think that's a good range of growth.
The next question is from Chris Shaw with Monness, Crespi.
I have a question or clarification on the $20 million EBITDA impact from Egypt. Is that just cost that you guys had to spend? Or was that just sort of reflective of the volume you didn't produce as well? Or can you just give color on that?
Both. So as I mentioned, we obviously have an insurance for both the equipment and business interruption with a deductible. So that's the combination of both.
Okay. And then I had a question about the new Trinidad plant that's coming up. I thought Trinidad was -- I think you guys were always having some problems getting gas down there. And I'm just curious, do you have any like color on why -- how that plant was developed? And I'm not even sure who's the owner down there. And will they have enough gas? And will that impact your gas availability at all?
Well, since that isn't my project, I'm not going to make any comments on it. I've guided to 85% operating rates for our plants based on what we've been told to expect for gas, and I'm comfortable with that guidance at this time.
Do you know who the owner of that plant is? Or is it...
Yes. It's Japanese, plus they hold a small shareholding of a local Trinidad company.
[Operator Instructions] The last question is from Cherilyn Radbourne with TD Securities.
Most of my questions have been asked, so I'll just ask a couple of quick ones. I was also looking for a clarification on the $20 million referenced with respect to Egypt. Would that have related just to the plant outage? Or would that have also included additional logistics costs that you might have incurred from a supply chain perspective?
That's just the insurable amount, which is the equipment plus lost margin, I would say, business interruption. So I think one of the reasons our logistics costs were higher in the quarter was because of the outage, and we had to reconfigure our supply chain as a result. So bringing product into the Mediterranean from farther distances, which led to higher costs on our logistics. And that would be shown in our logistics costs as opposed to in the insurance claim.
Okay. So that should normalize in Q4 and going forward then as well?
Yes. But I'll -- again, I'll remind you that we will be paying higher for fuel starting January because of the new IMO regulations. So we expect it to normalize in Q4 but see our logistics costs go up starting next year because of the higher fuel cost.
Okay. And then just in terms of the gas supply in Chile, can you just clarify how far out you've now contracted gas to support up to 75% of a 2-plant operation?
Yes. So we have 25% contracted out through 2025, and that's the Chile contract. The balance we're getting from Argentina, different lengths of contracts, but they're shorter term, and we're in the process of renegotiating those.
This concludes the question-and-answer session. I would now like to turn the meeting back over to Mr. Floren.
Thank you. We remain focused on strengthening our global leadership position in the methanol industry, enabling us to deliver secure, reliable methanol supply, which is our competitive advantage and makes us a preferred supplier to customers around the world. Our balanced approach to capital allocation remains unchanged. We believe we're well positioned to meet our financial commitments, execute on our growth projects in Chile and Louisiana, and deliver on our commitment to returning excess cash to shareholders through dividends and share repurchases. Thank you for the interest in our company.
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