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Methanex Corp
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Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation Q4 2020 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 Fourth Quarter 2020 Results Conference Call. Our 2020 fourth 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 conclusion or making the forecast or projections, which are included in the forward-looking information. Please refer to our fourth quarter 2020 MD&A and to our 2019 annual report for more information. I would also like to caution our listeners that any projections provided today regarding Methanex's 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 impact 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's President and CEO, Mr. John Floren, for his comments and a question-and-answer period.
Thanks, Kim. Good morning. We hope that everyone is continuing to stay safe and healthy. I'd like to take a moment to thank our team around the world who have shown incredible dedication and flexibility in a year where we've had to change how we work to ensure that our team remains safe while continuing to deliver reliable supply to our customers. In the face of these challenges, we achieved stronger Q4 results, demonstrating the resilience of our business. This morning, we will comment on our Q4 and full year 2020 results, provide an overview of what we are seeing in the methanol markets, review our operational results and share our near-term outlook, including how we will continue to manage our business, given that the economic recovery path remains uncertain. Now turning to our financial results. In the fourth quarter of 2020, we recorded adjusted EBITDA of $136 million and adjusted net income of $12 million or $0.15 a share. We recorded higher fourth quarter results compared to the third quarter, primarily due to the realized prices, highlighting our significant leverage to methanol prices. Our results were partly offset by changes in the mix of produced and purchased methanol sold. For the full year of 2020, our financial results were lower compared to 2019, primarily due to lower realized methanol prices. We recorded adjusted EBITDA of $346 million and an adjusted net loss of $123 million or $1.62 per share for 2020. Now turning to the methanol market. In the fourth quarter, the continued improvement in the global methanol demand, combined with various planned and unplanned methanol industry outages and delayed start-up of new industry capacity, led to tighter market conditions and lower inventory levels, supporting higher methanol prices. Global methanol demand began to recover in the second half of 2020 after falling in the first half of the year due to the impacts from the COVID-19 pandemic and a lower oil price environment. We estimate that global methanol demand increased by approximately 2% in the fourth quarter of 2020 compared to the third quarter. Overall, we estimate that the global methanol demand totaled approximately 82 million tonnes in 2020, which is a 3% decrease compared to 2019. Before COVID-19, we forecasted global methanol demand growth of approximately 3%. As a result, we estimate that 2020 global methanol demand is approximately 5% to 6% lower than pre-COVID expectations. The methanol industry ran at lower operating rates in 2020 due to plant shutdowns to respond to the lower methanol demand as well as various planned and unplanned outages. In the fourth quarter, there were a number of plant outages around the world, particularly in Iran and in China, where there was a diversion of natural gas to meet seasonal power demand instead of methanol production. The delayed start-up of new industry capacity additions also contributed to tighter market conditions. We estimate that the industry cost curve, which continues to be set in China, is approximately $260 per tonne. The cost curve is higher than the third quarter as a result of higher coal prices. Spot prices in China are above this range today. So far, in the first quarter of 2021, market conditions remain tight, and we posted higher prices for January and February 2021. We recently posted our February North American price, which increased to $492 per tonne; and our Asia Pacific price, which increased to $430 per tonne. Our European contract price is set quarterly, and our first quarter posted price is EUR 390 or $475 per tonne. We mentioned on our Q3 quarterly call that we will provide updated guidance to our discount rate to posted methanol prices. In 2021, we expect to see a higher discount rate of approximately 17% on average compared to our prior 15% guidance as we saw more competitive environment given broader economic uncertainty. Recall that when prices increase quickly, our discount rate tends to decrease and the reverse is true when prices decrease quickly. Now turning to our operational results. We will speak to our fourth quarter production results and provide comments regarding our production outlook for 2021, including ongoing natural gas curtailments that are expected in New Zealand, Trinidad and Chile. Our production levels were higher in the fourth quarter compared to the third quarter due to higher gas availability in New Zealand and Chile and record production at our Geismar facilities. In New Zealand, our production levels were higher in the fourth quarter due to improved gas supply. In 2021, our outlook for New Zealand production is uncertain. Our gas suppliers have recently advised that a major offshore gas deal, which supplies the New Zealand market and underpins a portion of our production, has experienced significant and unexpected production declines, which will result in lower gas deliveries. Given that gas deliveries are expected to be lower in 2021, we are consolidating production in our 2 large Motunui clients, which have a combined operating capacity of 1.7 million tonnes, and temporarily idling our smaller Waitara Valley plant. We estimate production in New Zealand for 2021 of 1.5 million to 1.6 million tonnes compared to our 2020 production of 1.7 million tonnes. In Geismar, both plants ran at full operating rates during the fourth quarter. Our production benefited from the completion of our low-cost debottlenecking project at our Geismar 1 plant, and we have seen a 10% increase in our daily production capability of this plant. We expect to complete the debottlenecking work at our Geismar 2 plant in 2021. When the debottlenecking activities are complete, the Geismar facilities will have an operating capacity of 2.2 million tonnes on an annual basis. In Trinidad, our production levels in the fourth quarter were similar to the third quarter as planned turnaround activities at our Atlas facility impacted both quarters. Looking into 2021, we have been advised that upstream production declines and the delay of upstream maintenance work due to COVID-19 will result in lower gas deliveries. It is unclear how long these lower gas deliveries will persist. Based on our current gas deliveries, we estimate production in Trinidad for 2021 of 900,000 tonnes, reflecting Methanex interest compared with our 2020 production of 1 million tonnes. All 2021 production is expected to come from the Atlas facility, as we announced earlier this month that we expect that the Titan facility will remain idled indefinitely because we have not been able to reach an acceptable longer-term natural gas agreement. We continue to have discussions around opportunities for longer-term gas supply. In Chile, our production levels were higher in the fourth quarter as we received higher gas deliveries. However, due to lower gas deliveries later in the fourth quarter resulting from upstream production declines in Argentina, we are unable to run both plants in December. Our Chile IV plant remains idle today, and its uncertain how long these lower gas deliveries will persist. We estimate production in Chile for 2021 of 900,000 to 1 million tonnes compared to our 2020 production of 800,000 tonnes.In Egypt, production in the fourth quarter was similar to the third quarter. In Medicine Hat, our plants -- plant ran at nearly full operating rates after the completion of a planned turnaround that concluded at the end of October. Our 2021 production is forecasted to be similar to 2020 production of 6.6 million tonnes, although actual production may vary by quarter based on gas availability, planned outages, extended unplanned outages and unanticipated factors. Now turning to our balance sheet. We took a series of decisive actions in 2020 to further strengthen our business and our balance sheet. As a result, we ended the year with a strong liquidity position of over $800 million in cash, a $300 million undrawn revolving credit facility and no debt maturities until the end of 2024. Our disciplined approach to capital allocation has not changed, and over the long term, we believe we are well positioned to meet our financial commitments, execute on attractive growth opportunities that exceed our hurdle rate and deliver in our commitment to return excess cash to shareholders through dividends and share repurchases. Regarding our Geismar 3 project, as we personally -- previously discussed, this is a high-quality project with substantial capital and operating cost advantages. In April of 2020, we placed a project on temporary care and maintenance for up to 18 months, given the significant uncertainty regarding the global economy due to COVID-19. The project was in excellent shape and progress had been safe, on time and on budget, and the project has been significantly derisked. Construction on the Geismar 3 project remains on hold. We have a robust decision-making process for evaluating the project. And before deciding whether to restart construction, management and our Board will need to carefully consider many factors, including the strength of the global economic recovery and the overall methanol industry outlook. We are encouraged by the early signs of economic recovery that began in the second half of 2020. However, given that the COVID-19 pandemic continues to limit our near-term visibility, it is difficult to predict how methanol demand, industry supply and methanol prices will ultimately recover on a sustained basis. For now, we remain cautious, and we are prioritizing liquidity and financial flexibility. Now turning to our outlook for the first quarter. In the near term, based on our posted prices so far, we expect realized methanol prices in the first quarter of 2021 will be higher than the fourth quarter of 2020. We expect that our production levels will be similar compared to the fourth quarter, given the natural gas curtailments in New Zealand, Trinidad and Chile that we mentioned earlier. Adjusted EBITDA is expected in the first quarter to be higher compared to the fourth quarter. In 2021, we will remain focused on operating our plants safely and reliably, delivering secure and reliable supply to our customers and protecting our strong financial position and financial flexibility. We are well positioned to continue delivering significant value to shareholders over the medium to long term as market conditions improve. We would now be happy to answer any questions.
[Operator Instructions] The first question is from Joel Jackson of BMO Capital Markets.
John, I know you can't predict the future. Can you help us handicap, as you sort of plan your business, how you would see the different cast issues you're facing right now sort of normalizing? Like can you prioritize what you think will come back to be normalized faster? It would seem like you think New Zealand might be the one that's most likely not to normalize soon because of the consolidation of plants. Can you just give us, as much as you can, about how you see it happening?
That's really difficult to predict. These -- the New Zealand news and the Trinidad news came late last year. Nobody was expecting that news, including our gas suppliers. So we're working with them to really understand the problem. I think in New Zealand, the suppliers have tried some things to see if they could impact what's happened in the field unsuccessfully. So I think what we understand is there has to be some drilling going on there to recover the field fully, and that's going to take some time to get rigs, et cetera. So hopefully, sometime later this year, but really hard to predict. And then we have to make an investment. We are planning to take our Waitara Valley plant down February 1 for a fairly significant turnaround from a statutory point of view. Obviously, without the gas, it doesn't make sense to spend any money on that plant. So we'll have to have a really good view that we'll have enough gas for a 3-plant operation for a sustained period before we invest any money in the Waitara Valley plant. Maybe better for us just to run the 2 larger ones for the foreseeable future, but early days. We're still working with our gas suppliers to understand the issue. I think Chile, Argentina didn't have much investment in gas because of COVID-19. That's changed in the fourth quarter. And we're being told by our gas suppliers to expect gas deliveries later this year. But until we see it, we'll continue to run one plant. And Trinidad is pretty opaque, so I really don't have anything to update with Trinidad other than we were told a few weeks ago that -- to expect gas deliveries at about 80%.
That's helpful. And then my last question would be, you know that U.S. Gulf spot methanol prices were somewhat weak in January, I think, down about $30 a tonne. You were able to set the February posted price contract at about like $10 a tonne higher month-over-month. Can you talk about some of the dynamic there despite a slower -- a weaker spot market, you're able to raise prices? I guess, spot prices don't matter. Your customers are happy. This is related to some of your now lower gas availability. Anything there would be helpful.
Yes. I've always said, in Europe and North America, the spot markets are pretty liquid. Very little product gets traded on the spot markets. They're an indication, but they don't really drive pricing decisions in those 2 markets. In Asia and China, especially, the spot market is very large. So -- and has a bigger impact in when we're thinking about prices. So I know our team look at supply demand and the fundamentals for the next period, 30, 60 days. They talk to the customers about what they're seeing in their supply demand balances, and then we make decisions on pricing. And based on those discussions, we increase our prices slightly. So we still continue to see inventories quite snug, and demand not back to '19 levels, but better than it was in the first half of last year. But I'd say this is -- this tightness is being driven by unplanned and planned maintenance around the world as well as gas availability issues in places like Iran and China. So when those will turn around? Who knows. We are above the cost curve all of 2018 by $100 a tonne, and that's kind of where we are today, $100 a tonne above the cost curve. When that changes, it really will be a factor of supply coming on. There's anticipated new supply as well from a plant in the United States and really around demand recovery. I think the hardest thing for us to predict today is demand recovery in this COVID-19 environment as we see the second wave and governments taking different actions. And really, the vaccine rollouts are starting, but probably going to take some time to work their way through and see restrictions lowered somewhat. So really tough environment to predict, Joel.
The next question is from Jacob Bout of CIBC.
Just a question on G3. Are you still targeting mid-2021 decision? And how far can you push up this decision before there's more financial penalties?
Yes. So our target to make a decision on G3 is in the summer. Obviously, our teams are working hard to see what different options we might have by that time, and we certainly will want to look at what's going on in the methanol markets as part of that decision. So I know our teams are working hard to see what are our options to defer or start or other things, and really don't have any numbers at this time around that.
Okay. And then thermal coal prices have actually moved quite a bit in China. Interested in getting your thoughts around where you think the cost curve floor is for methanol right now.
Yes. Today, we see it around $260, Jacob. It's based on coal and some natural gas as well. That coal has moved up to the higher end of the range that the government had stated after the 2016 price collapse in oil. It's really driven by supply/demand. I -- it's hard to predict, but I don't think coal is going to go much higher than where it is today, unless you see oil going to $60, $70, $80, which is not our view. So -- but we'll continue to watch it. We're a bit surprised how high the coal price is in China at this point.
The next question is from John Roberts of UBS.
Nice quarter. There's been a lot of disruption in freight for container ships. Are bulk liquid shipments being affected at all? I know you have your own ships, but is the methanol industry at all having any logistical challenges here?
Well, we're not. I'm not aware of any others. There seems to be available shipping for chemical liquids. No, I'm not aware of any, John, at all. I mean, I am aware of what's going on in the container industry, though. And I think that's more driven by lots of product coming from China and not much going back. So I think it's different in the liquids market.
Okay. And then earlier this year, you talked about your own maintenance being challenging during the pandemic. Is that a significant cause of the greater industry downtime? Are competitors either delaying maintenance and that's reducing their reliability in causing some of the outages or when they're doing maintenance, it's just being more disruptive to supply?
Yes. I can only speak to our own experience. But if you're following COVID-19 safety protocols, you've got a lot more time to follow those. So you do have extended from original schedules. You've got probably more investment because you have social distancing and all of those things, and it's tough to get people, experts into certain countries. When we did our Trinidad turnaround, it was really difficult to get our -- usually, we bring 40 or 50 global experts in to help. So a lot of that was done remotely by cameras and videos. And it takes a lot longer and not as efficient, and maybe not as good either. So that's been our experience. And I'm sure anybody in the petrochemical or anybody that's running a large plant that goes through these kind of turnarounds is experiencing the same thing.
The next question is from Mike Leithead of Barclays.
First, just a question on the higher discount rate that you mentioned for 2021. I was hoping you can maybe just talk a bit more about what's driving it, whether it's a specific region or start-up of new capacity. And is it more indicative of what's going on here at the beginning of the year or do you kind of expect this to be the ongoing level of discount kind of moving forward?
Yes, that guidance is for 2021. Most of the contracts globally for methanol are negotiated in the fourth quarter of any given year. Like I mentioned in my remarks, we were expecting 3 million to 4 million tonne growth in methanol demand, and we saw a 3 million tonne decline. So that's about 6 million tonne different than what the industry was expecting. That's 4 or 5 world-scale plants. So I think there was a lot more -- I don't think, I know there was a lot more rivalry as we negotiated contracts. And some competitors, maybe that didn't have home for their product, really offering all-time high discounts. So we're in this for the long term. We work with our customers over the long term, and we're certainly not going to be moved aside on a price basis because of a short term -- what we believe is a short-term demand situation. So we took the decision to be competitive, then it's a commodity and you need to be competitive, and that's what's going on here. So we've seen this before, but not to the extent of the rivalry that we saw at the end of last year.
Got it. That's helpful. And maybe just a broader industry question on methanol demand. There's obviously been a lot of talk lately about clean energy and the use of hydrogen. Obviously, methanol has a lot of merits as a clean burning fuel source and Methanex has done a lot of work advocating for that. Curious in your conversations if you've seen a change in the conversations with potential customers about methanols and energy opportunity and if that's changed your long-term view at all in that regard.
Well, we've had an investment in this clean burning methanol, clean -- I'm sorry, zero carbon methanol in Iceland for 10 years. It's a small plant, but it takes water and splits it into hydrogen and oxygen and take CO2 up our power plant, and we make methanol. So it's 100% carbon-free. The challenge is the cost. The cost of that kind of methanol is 2 to 3x methanol made from natural gas. Now there's the odd customer that will pay that kind of pricing based on they wanting to have a green footprint, but it's a very, very small part of the overall industry. The technology works. It's scalable to -- not to the extent that we see natural gas, but you can probably do 50,000 to 100,000 tonne plant. But you need 10 of those to meet a world-scale plant from natural gas. We don't have customers today that are asking for millions of tonnes of carbon-free methanol. Those really won't happen in the future. But we are ready to scale. We are ready to move, but we need a much higher price than even what we're seeing today in the methanol markets to make a return on capital. So it's a bit of a chicken in the egg. The technology is there. It's -- we can do it. But right now, we haven't had the customers lined up to pay $1,000 a tonne for that kind of methanol. So we're certainly not going to blindly invest in multiple plants based on this technology without having some secured contracts that make sense from a return on capital employed basis.
The next question is from Steve Hansen of Raymond James.
John, I know it's hard for you to comment on others specifically, but the challenges that you've seen here on your gas supply specifically, it sounds like there's some unique situations in each country. But as a general common theme, it sounds like some upstream or lack of upstream capabilities or maintenance or whatever it has been through COVID has had some impact across the board. Is there -- are there other instances in the industry that are suffering from the same challenges? I'm just trying to get a sense for whether it's going to be something more broad or if it's just, for whatever reason, isolated to yourself. And just as a related question, Trinidad strikes me as the most interesting, just given that we've seen the new plant start-up there recently. So just maybe walk us through your thoughts on that, if you could?
Yes, I don't have any specific information about gas issues in other countries other than what we've already reported on productions in places like Trinidad and Venezuela as 2 examples. We understand there could be issues maybe in Indonesia as well, but we don't have any specific information on why or how come. It seems to be more and more gas is diverted in places like China and Iran in the wintertime, which has been a phenomenon we've seen for the last, geez, 10 years, but it seems to be more acute this year. Is that because of colder weather? Could be. Is that because of more demand? Probably. But we're not at the table at these governments making these decisions. I would say, I'm really happy that we have 3 plants in North America, where there are no gas issues and looks like no gas issues for the foreseeable future. And Egypt is a really good news story, where there's a lot more gas than there is demand right now, and that's because of all of the success they've had in the exploration of the upstream. So yes, we've seen these issues. I can go -- I mean, you remember, Medicine Hut was shut down for 10 years, and we had to shut Fort in Louisiana. And we only -- we're down to one small plant in New Zealand. So this hasn't been an issue for us the 20 years I've been at the company. So it's really hard to predict when these things happen and how long they last. But we'll work with our suppliers, and we'll get through this. We don't think this is a significantly long-term issue in any region, but we need to be cautious about when and if we can resolve these problems.
Okay. That's fair. And just a follow-up, if I may, on the discount question earlier. You're suggesting this is a somewhat short-term issue. But I mean, if we're thinking about into 2022, should we think about that 17% rate holding or do you think we'll get back to that more normalized 15%? And just as related to that, is this a regional-specific issue or is this more globally as you negotiate contracts?
Yes. So again, I don't like predicting the future. But I'd say not all of our contracts come up every year. There's a portion of them come up. So you can see the impact of even a portion of the business being renegotiated in a very competitive environment. Steve, I think it's going to be a factor what's demand look like, how do we recover demand and how does the new supply get absorbed. So beyond the coke plant in the United States, there's not a heck of a lot coming on in the next 5 years. So it could be -- depends on what your view the short term is, but we're pretty excited about the medium-term supply-demand fundamentals as long as we can get beyond this pandemic and get some more normal activity on a global basis.
The next question is from Hassan Ahmed of Alembic Global Advisors.
John, I want you to sort of touch on the outages that the industry experienced, particularly in the back half of the year. I mean, if my numbers are correct, I believe it was, like, slightly north of 8 million tonnes of methanol capacity that was going through, be it planned or unplanned outages. Now you touched on certain sort of gas issues out in Trinidad, issues out in New Zealand as well. I mean, where would you see that number being through the course of 2021?
Yes. Again, I have no idea what are unplanned outages like. We know what planned outages are. These plants need to turn around every 3 to 4 years. But what else is going to go on with those plants, and what are the vulnerabilities, I have no idea, Hassan.
Okay. Okay. Now as a follow-up, obviously, an administration change here, in the U.S., and I'd like to think that the current administration would not be as hawkish on the Iranian side of things. Are you seeing any sort of early signs of Iranian products sort of making it into the export market currently? And what are your expectations, call it, over the next couple of months?
Yes. Iran has been experiencing quite a few restrictions, we understand, on gas. They've had some technical issues we understand as well. So we haven't seen normal amounts of product coming out of our end, which is the phenomenon we've seen this time every year for the last number of years. I'd say it's more acute right now. What the new administration in the United States decides to do with the Iran deal and sanctions is beyond my pay grade levels. So I'll take a pass on that one.
The next question is from Cherilyn Radbourne of TD Securities.
Steve sort of asked my question on gas availability. But with respect to New Zealand, in particular, can you just comment on what you would need to see in order to undertake a significant turnaround at the Waitara Valley plant and what sort of lead time you would need to undertake that kind of decision?
Yes. Well, we're in the midst of planning that turnaround when we got the news. So the planning is done. It's a matter of people and a bit of equipment. But I'd say we'd need to see gas availability and the technical issues resolved on that field to allow us to have run a 3-plant operation for a significant period of time. That's what we were set up to do when we plan to turn around the Waitara Valley, and this is a very significant field, and we're half the gas market in New Zealand. So you can imagine the impact not only on us but the electrical generation and others in New Zealand. So our suppliers weren't expecting this to happen, and they tried other things to resolve it and they've been unsuccessful. So we rely on them to give us information on what they see. I think there's going to have to be some drilling done in this field to correct the problem. It's correctable, so that's going to take some time.
And then, just with respect to capital allocation, I'm going to ask this in a couple of ways. So just comment on how you think about Geismar 3 versus share buybacks versus dividends. And is there a scenario over the next couple of years where you don't resume spending on Geismar 3, but do you feel comfortable allocating some cash to buybacks or dividends or increased dividends, I should say?
Yes. Like I mentioned in my remarks, nothing has really changed with our capital allocation strategy. Grow the company, the rate of growth, the methanol market, which obviously didn't grow in 2020, and then return excess cash through dividends and share buybacks, that's been our strategy. That hasn't changed, I'd say, in this environment, where financial flexibility and liquidity trump all of those. And if we have pricing like we see today for a couple of years, we'll have tons of cash to grow the company, to return share -- money to shareholders through dividends and buybacks. So to me, it's all about demand. What happens with demand? Do we get back to a more normal situation of demand growth? And if we do, then beyond the coke plant that's coming up, we think the supply-demand fundamentals are very attractive, which will lead to pricing that allows us to generate a lot of cash and fulfill our strategy on capital allocation. But today, it's really uncertain. So we'll keep our powder dry. And when we look to the G3 decision in the summer, we'll have a bit more information around how the pandemic is impacting demand for methanol.
The next question is from Nelson Ng of RBC Capital Markets.
My first question relates to Trinidad. In terms of the CGCL methanol plant being fully commissioned, does that materially reduce the availability for natural gas potentially for Titan or any other facilities or needs in Trinidad? I was just wondering in terms of, like, you recently put Titan -- you idled Titan indefinitely, but I'm just wondering if conversations are still taking place and whether the outlook has -- so it doesn't look very favorable there.
Yes. So I've mentioned before the upstream and the government are negotiating different terms of what they are today. The terms that there are today don't allow us to run that Titan plant through the cycle. So we kept it down and ready to go for 8 months and had those solutions. We decided to isolate more on an indefinite period. The supply-demand balance of gas fitted out is really a factor of price. And we don't know where the gas is coming from the new plant, but obviously, it will impact the overall supply-demand balance. But many of our other people on the site, ammonia and methanol, have also experienced the same thing we have and shut down capacity. So there's a lot of capacity in ammonia methanol that's not running. And I think we're going to need to see more gas development and get back to a balanced market there. So it's complicated, and we were unsuccessful in some of our people that manufacture ammonia have been unsuccessful and made the same decision we did. So we continue to talk to the government, and here's something that makes sense on a medium-term basis. We'll have to restart that plant, but it will take capital as well. So not too dissimilar to what we're seeing in Waitara Valley. We'll have to spend money and hire people, and that takes time.
Okay. Got it. And then moving on to Chile. Based on all the kind of various supply agreements you have in place, are you able to give a bit of color in terms of how much gas you typically expect from Argentina?
Yes. So we -- I mentioned before we had gas contracts signed up to run 2 plants throughout the year except for the winter time or summer time for about 3 months. So we expect it to have 75% operating rates throughout the year. I also mentioned the Argentinian gas was interruptible, both by us and by the supplier. And we chose to interrupt that gas in April when COVID happened and shut down one of our plants because of demand. So they've also exercised their rights on interruptible gas because of the lack of exploration and development in 2020. Well, that's changed now that there's a lot more being spent, and we're being told to expect gas to run both plants sometime this year. But until we see it, we'll continue to be cautious and run the one plant.
And is all the gas from Argentina on that tolling arrangement where they send you gas and you process it into methanol and send it back?
No, we haven't had that arrangement for 4 or 5 years.
[Operator Instructions] The next question is from Eric Petrie of Citi.
As North America turns to a net exporter of methanol, do you see any change in pricing relationship between the regions?
Yes. We watch that pretty closely, and up to now, we haven't seen any impact. I guess the next milestone will be the coke methanol plant. But what else happens in the basin, it's not just a North American situation. It's the whole Atlantic Basin and the supply-demand fundamentals there will dictate if there's any impact. But up to now, we haven't seen any impact on the pricing and the basin balances.
Okay. And then on G3, you noticed your preference to do a partner on that project. Can you discuss what the pool of potential parties look like or has that stalled given COVID-19?
Yes. We're pretty well in the stalled mode on partner discussions. If you recall, this time last year, we had hired a banker to run the process for us. And then it's actually one year today that we had our first case in BC. So obviously, when COVID happened, those discussions, people weren't looking to invest in methanol plants at that time. So I think it's difficult in this environment to pursue partnership discussions, but that's still our preference.
Okay. And then last, could you just give an update what your planned operating changes, what the $10 per tonne price change in methanol translates to EBITDA and free cash flow?
Yes, we'll take that offline. I'll have Kim follow up with you.
The next question is from Ben Isaacson of Scotiabank.
First question is where is methanol demand the weakest right now, if it's -- if you want to answer that by region or by end use market. Would that be fuel blending or MTBE? And kind of what gives you the greatest concern about demand recovery going forward?
Did you say it was the deepest?
The weakest.
Yes. So if I look at 2020 versus 2019, which I think is the most recent data we have, traditional demand was down 5%. Energy was flat, but really driven by MTO, which is up 12, and then the other energy that's really for transportation. Like MTBE, fuel, they were all down 5% to 6%. So the only shining star in 2020 was MTO, and that was up 12% year-over-year. I'd say as far as regions, China is back to where it was as far as demand in 2020 versus 2019. The rest of the world, I'd say North America is down the most by about 9%, the rest of the world between 4% to 6%, and that's year-over-year.
Great. And as a follow-up, is there a market for China or others buying used plants? I'm just thinking like if you think about Titan or Chile IV or Waitara in New Zealand, is there a way to offset the CapEx or partially offset the CapEx at G3 by selling some of these plants to the Chinese for a few hundred million dollars, and that would reduce the risk profile for G3?
Yes. Well, we've looked at the Chile IV, remember, was a bolt-on at Chile I, II, III, now only Chile I. So that's not really a stand-alone plant, except for what we've been able to do, integrating it to Chile I. We looked at moving Titan, and the way it's built, it's probably worse, not very much some equipment and some steel. And Waitara Valley is pretty old. It needs quite some tender loving care. So I don't think we're at the point today where we're going to be selling these plants for cents on the dollar. We're going to try and see a little bit more visibility on the gas situation in all 3. We've had these challenges before. There was lots of attempts to buy our Medicine Hat plant over the 10 years it was down, and we sold two and kept one. I'm glad we kept the one because we got sense on the dollars for the other two, and it would be nice to have a 3-plant operation there today. So the future is very hard to predict. So I think we'll -- we're not in that mode yet, Ben.
The next question is from Jonas Oxgaard of Bernstein.
A question. Right now LNG prices spiked up to, I think, $20 per MMBtu. Coal prices spiked. This seemed to be on the way back again. In your experience, when we've seen these things in the past, does that have any material impact on global production? Do producers take a brief hiatus during a spike like this?
Methanol producers?
Yes.
Yes, in the past, and when these spikes have happened, we haven't seen any impact on the LNG. Now coal was to spike beyond where we are today. It's just a matter of to move the cost curve up. But like I mentioned earlier, we're already $100 a tonne above the cost curve. So we would think, in this environment, anybody that could run a methanol plant is running as hard as they can. So there's lots of room for coal prices to go up and still be cash positive in China. So it's really a factor of how high the price is and how long they think the price is sustainable. But there's lots of room today to have every plant that can run, run at full rates.
Okay. Then I had a separate question. I just want to follow up on the -- on that carbon-free methanol in Iceland. So you mentioned that it's expensive to produce. But if you think of it as a carbon sequestration, how does the cost compare to sequestering CO2? And this seems to be a potential solution for places like Iceland that can sequester CO2. So how does it compare to other possible CO2 elimination efforts?
Yes, it's more favorable. I mean when we looked around the world at technologies to produce methanol carbon-free, this was the one that made the most sense to us, expensive and smaller scale. I haven't dusted off the sequestration numbers for a bit, but it was very expensive to -- for one of our plants like in Louisiana or Medicine Hat to sequester carbon. But I haven't dusted those numbers off. So I'll have to take that offline and get back to you.
The next question is from Matthew Blair of TPH.
The release noted that global methanol demand rose 2% quarter-over-quarter in the fourth quarter. Could you share any insights on how that might be progressing so far in Q1 '21 here?
Yes. Q1 is usually the low quarter for methanol demand. So when we look at quarter-over-quarter, we see it pretty well flat to down a little bit, but that's based on forecast. So I'm not very good in the forecasting business, but that's our expectation today.
Sounds good. And then, John, you always had helpful commentary on China. Could you talk about the current dynamics in the country with natural gas being diverted to home heating use? And do you have any numbers you can share on just what kind of impact that's having on methanol production in the region?
Yes. Like I mentioned, anybody that can produce methanol today will be producing at full rates because of the pricing dynamics. As already mentioned on the call, LNG prices have spiked. China is a large importer of LNG. At $20 an MMBtu, it doesn't make sense to make methanol. So we've seen this in the past, and we would expect as temperatures come into the summer time. And prices for methanol stay where they are that we would expect more natural gas producers to be making methanol. But until we see it, like I said, in 2018 because of supply issues, we saw the price remain above the cost curve by $100 the whole year. Kind of unusual to see that, but it's really hard to predict in this environment. To me, it's all about demand and demand recovery that will lead to sustainable good pricing.
The next question is from Adam Starr of Gulfside Asset Management.
Yes, what do you expect capital spending to be this year, excluding any decisions on Geismar? And what would -- what do you think the cost of completing Geismar would be if you go ahead with that?
Yes. Our maintenance capital spend this year will be about $110 million. And to complete Geismar, well, the team's doing that work right now. But based on our initial numbers, if we decide to restart the construction later this year, the budget that we're looking at is not too different than what we had already signaled to the market, which is a range of $1.3 billion to $1.4 billion. And up to the end of this year, we had spent $365 million. So we've got about $900 million to $1 billion to go.
Yes, Adam, we have about $80 million of cost to spend this year on the care and maintenance program. And then after that, it's about $900 million to get to John's number of the $1.3 billion to $1.4 billion total.
And that care and maintenance, is that within the $110 million of maintenance CapEx for the whole company?
No, that's in addition to the $110 million.
Got you. That's very helpful. And the Argentine situation, does that have anything to do with the most recent change in government? Has there been policies that have affected gas production or is this entirely business related and has nothing to do with the political situation?
Yes. There were a number of reasons, including politics. No investment happened for most of 2020, but that has changed in the fourth quarter, and we're seeing more development of gas. So that doesn't mean it can't change again, but there are policies in place today that are very helpful and encouraging to suppliers in the upstream.
The last question is from Steve Hansen of Raymond James.
Yes. Sorry, John, just a follow-up here on G3. So if we presume -- and I'm not going to say it's the conclusion yet, but if we presume that there is a deferral of G3 this summer, if there's a decision not to proceed, what happens next? What is the next gating milestone after that? I know you can't put these projects on care and maintenance for a longer period of time. But will you revisit it annually, quarterly? What is the process here coming into this important decision?
Yes. Well, we're going through that now. So what are our options? I think the more you delay, the more risk to the project. That's clear. Product team is still in place. And a lot of the things that we put in place are still there through this care and maintenance period. If you have a further deferral extended time, that adds more risk to the project. So our teams are working through what are our options, and probably comes down to start, restart or defer for a period. And depending on how long that period is, you'll have different risks and different costs. So our teams are working on that. It's pretty -- too premature to be sharing any of that data yet, Steve.
Okay. No, that's fair. And just as a follow-up, thinking back a few years now, you reported to have some Chinese partners, potential partners at the table. A lot of that got squashed with some of the political dynamics taking place, new administration in the U.S. again. I mean, how do you feel about reengaging on 1 or 2 of those Chinese partners that you had in previous discussions with?
Yes. We'd love to have a Chinese partner for the Geismar project, Geismar 3, but I think China is going to take a wait-and-see attitude towards the new administration. I'm not a political expert, but are things going to change significantly between the 2 countries? I don't know. So we'll see. I think they're going to take a wait-and-see attitude as well.Okay, well, thanks very much. We've continued to demonstrate the strength of our business model throughout the pandemic and our competitive advantage on delivering secure and reliable supply to our customers around the world. We are encouraged by the continued improvement we have seen in methanol demand and prices, although the near-term economic recovery path remains uncertain. We remain focused on operating our plants safely and reliably, delivering secure, reliable supply to our customers and protecting our strong financial position and financial flexibility. We continue to believe that the long-term outlook for methanol remains intact. Methanol is a key chemical building block that is used to produce a variety of everyday consumer and industrial items. Methanol is also used in a growing number of clean burning and economic alternative energy applications. While there are limited industry capacity additions expected beyond 2022 based on lower investment in the current environment, we expect the demand for methanol to rebound and grow as global economic activity recovers. We will emerge from this pandemic stronger than ever, and we'll continue to execute on our consistent strategy to deliver significant value to shareholders over the medium to long term. Thank you for joining us today, and we'll speak with you in April, and thank you for the interest in our company.
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