(Trinidad Guardian) On the day that the world’s largest methanol producer announced that it had agreed to a two-month extension of its natural gas contract with the National Gas Company, President and CEO of Methanex, John Floren made it clear that the Canadian giant is prepared to shut down its plant rather than sign a bad deal with the NGC.
If the plant closes, 100 high-paying permanent employees will be sent on the breadline with another 40 contract workers also getting their pink slips.
It will also mean a loss of tens of millions of US dollars for the treasury should it close down.
In response to questions at an investor relations conference call on Friday, Floren said, “Where we can’t earn profits from that plant, we rather shut it down than to run it for no profit.”
Floren insisted that Methanex must get a gas deal that allows it to make profits at the high end of the cycle and at least meet its Earnings Before Interest, Taxes, and Amortisation (EBITA) target during the low cycle otherwise it will walk away from the Titan methanol plant.
“Well, I think we’re going to pay a higher price for gas in Trinidad. You know we want to pay a price where we can still earn EBITA and invest in the plant, so it’s usually a round price. So when you have these negotiations, that sliding scale with methanol will continue to be in place and we just want to be able to make sure we can survive in the low end of the cycle and do well at the high end of the cycle,” Floren told investors.
The Sunday Guardian has reported exclusively that Methanex had put things in place for the plant’s closure and mothballing because after a year of negotiations with the NGC, and having spent over a quarter billion dollars last year in an upgrade of its Titan plant, Methanex cannot reach an agreement with the state aggregator.
If a deal is not reached by the end of March, this would be the second plant in three months to close. At the end of December Yara shut down its plant sending workers home because it could not pay the price the NGC has been demanding for its gas.
In the last four years, thousands of workers in the energy sector have lost their jobs.
At the heart of the problem is the price that the NGC wants to charge the downstream companies for gas. The petrochemical companies have been saying that the higher prices will mean they operate at a loss position with global prices for both methanol and ammonia weak.
It is also a position that was predicted in a study done by economist Dr Terrence Farrell who found that the sustainability of the downstream petrochemical sector is under threat because of uncompetitive natural gas prices.
The economist said natural gas shortages and high prices led to a reduction in methanol and ammonia production and loss of jobs in the sector. He predicted that unless there is a change in policy, the sector will get to a point of no return and there will be a collapse of the Point Lisas Industrial Estate.
‘We will continue to negotiate in good faith’
OWTU president general Ancel Roget has also joined an increasing chorus of people urging a renegotiation of the gas price between the upstream and the NGC so that all in the value chain can survive.
The Methanex president said his team was working hard to get a deal done because they and the Government want the plant to be in operation.
“We’re trying to find a solution that’s a win-win for the upstream, the Government and ourselves. So that’s what we’ll continue to do, I’m not going to negotiate in public.
“Our teams are working hard, but there does come a point where you make a decision—are these negotiations going to get to a place where it makes sense for all parties or does it not.
“We’re not there yet and we’re happy to extend the interim agreement, we know what our cost structure is in Q1.”
Floren insisted that the company must know what its cost structure is and therefore signing month-to-month contracts don’t work for Methanex.
He said, “So, I always said I will not enter into running a plant without knowing my cost structure, I must know what my cost structure is and if it’s acceptable under current methanol prices.
“But we will continue to negotiate in good faith. I would say all parties want a deal and that’s always a good thing and we’re optimistic we can get it done.
“We’ll continue to negotiate with the Government and the NGC.”
Methanex produced 456,000 equity tonnes in the fourth quarter of 2019 compared to 476,000 equity tonnes in the third quarter.
