Methanex Q1 2023 Earnings Call Transcript

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Provided by Quartr
April 27, 2023

Key Takeaways

  • Strong Q1 results: Methanex reported an average realized price of $371/tonne, sales of ~1.65 M tonnes, adjusted EBITDA of $209 million and adjusted net income of US$1.11/share.
  • Global methanol demand was flat Q4 2022 to Q1 2023 with slight gains in MTO and energy applications offset by seasonal chemical demand; average realized price dipped to $371/tonne with a ~21% discount rate.
  • G3 expansion on track: Geismar 3 is over 80% complete, fully funded at US$1.25–1.3 billion, on time and on budget for Q4 2023 start-up, and expected to generate ~$250 million in annual EBITDA.
  • Emerging marine fuel market grew to over 135 dual‐fuel vessels on order, with shipping demand for methanol forecast to rise from ~300 kt today to 4 Mt in the next few years, highlighted by the first net‐zero biomethanol voyage.
  • Balance sheet and returns: Q1 cash of $709 million (+$300 million liquidity), ongoing 5% NCIB, 6% dividend hike to $0.185/share (~$50 million/year) and unchanged 2023 production guidance of 6.5 Mt (ex-G3).
AI Generated. May Contain Errors.
Earnings Conference Call
Methanex Q1 2023
00:00 / 00:00

There are 11 speakers on the call.

Operator

Morning. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mesonex Corporation 2023 First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Followed by the number 1 on your telephone keypad. Thank you. I would now like to turn the conference call over to the Director of Investor Relations at Methanex, Ms. Sarah Harriott. Please go ahead, Ms.

Operator

Harriett.

Speaker 1

Good morning, everyone. Welcome to our Q1 2023 results conference call. Our 2023 Q1 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 atmechenix.com. I'd 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.

Speaker 1

Certain material factors or assumptions were applied in drawing the conclusions or making the forecast or projections, which are included in the forward looking information. Please refer to our Q1 2023 MD and A and to our 2022 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 guidance between quarters. For clarification, any references to revenue, average realized price, EBITDA.

Speaker 1

Adjusted EBITDA, cash flow, adjusted income or adjusted earnings per share made in today's remarks reflect our 63.1 percent economic interest in the Atlas facility, our 50 percent economic interest in the Egypt facility and our 60% interest in Waterfront Shipping. In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark to mark impact on share based compensation and the impact of certain items associated with specific identified events. These items are non GAAP measures and ratios that do not have any standardized meaning prescribed by GAAP and therefore unlikely to be comparable to similar measures presented by other companies. We report these non GAAP measures in this way because we believe they are 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.

Speaker 1

Rich Sumner, for his comments and a question and answer period.

Speaker 2

Thank you, Sarah, and good morning, everyone. We appreciate you joining us today as we discuss our Q1 2023 results. For the Q1, our average realized price of $3.71 per tonne and produced sales of approximately 1,650,000 tonnes, generated adjusted EBITDA of $209,000,000 and adjusted net income of $1.11 per share. Adjusted EBITDA was higher in the Q1 compared to the Q4, primarily due to higher sales of Methanex Methanol produced Methanol, driven by higher production in Egypt, Atlas and Chile. Throughout the Q1, we saw relatively balanced global market, which continues to be underpinned by high global energy prices.

Speaker 2

Global methanol demand in the Q1 was flat compared to the Q4 of 2022. Demand for traditional chemical applications decreased slightly due to the seasonal slowdown in manufacturing activity, including the slowdown in China during the Lunar New Year. Demand for Methanol's Olefins or MTO increased slightly in the Q1 with some improved operating rates through the quarter as several production units increased production on improving margins and increased methanol availability. Demand for energy applications including MTBE, biodiesel and various fuel applications in China increased slightly driven mainly by levels of economic activity as well as continued cost competitiveness in today's high energy price environment. During the Q1, industry operating rates in China and Iran were negatively impacted by the seasonal diversion of natural gas to meet power demand, and Atlantic operating rates were lower due to planned and unplanned outages.

Speaker 2

Starting near the end of the Q1, we saw strong operating rates in the U. S. Gulf and easing of gas curtailments in China and Iran, leading to increased production, which led to lower methanol prices globally. Our average realized price for the Q1 was $3.71 per metric ton compared to $3.73 per metric ton for the 4th quarter. And our Q1 discount rate was in line with our guidance for 2023 at approximately 21%.

Speaker 2

Coal pricing in China continues to remain strong at a level above RMB 1,000 per tonne and we estimate the industry cost curve based on a marginal producer cost in China to be approximately $3.20 to $3.40 per tonne. Our May posted prices in North America, Asia Pacific and China decreased by $20.10 $15 per metric tonne respectively, and our Q2 European price was posted €10 per metric ton higher than Q1 2023. We continue to closely monitor the macroeconomic and energy price environment with inflationary pressures and resulting tight monetary policies presenting headwinds for Global Economic Growth. Notwithstanding these risks, we expect demand for traditional chemical applications to increase as we move into the housing and construction season and from continued growth in the Chinese economy after their COVID reopening and Chinese Lunar New Year holiday in the Q1. In addition, MTO operating rates have continued to improve and 2 MTO units representing approximately 1,500,000 tonnes of annual demand are in the process of restarting production.

Speaker 2

We also continue to see a high global energy price environment, which enhances methanol's cost competitiveness against alternative fuels supporting demand growth. In the short term, we expect the recent methanol operating rate increases mainly from Iran and China to support increasing demand. For the remainder of 2023, we do not anticipate capacity additions besides 1 plant in China and our Geismar 3 project with expected production in the 4th quarter. Regarding the emerging marine market, interest from the marine industry and orders for dual fuel vessels able to run on methanol continue to grow. During the Q1, approximately 35 additional vessel orders were placed, bringing the total number of dual fuel vessels on order to over 135.

Speaker 2

We estimate that demand potential will grow from approximately 300,000 tonnes today to 4,000,000 tonnes over the next few years. In February, we completed the first ever net zero voyage fueled by biomethanol produced from our Geismar plant in partnership with Mitsui OSK Lines or MOL. Our collaboration with MOL demonstrates utility of methanol as a brain fuel with a pathway to net 0 emissions. Turning to operations, our production levels were higher in the Q1 compared to the Q4 with limited unplanned outages. The team safely and successfully completed a plant turnaround at G1 with the plant restarting production in February.

Speaker 2

We ended the Q1 in a strong financial position with approximately $709,000,000 cash excluding non controlling interest and including our share in the Atlas joint venture and with $300,000,000 of undrawn backup liquidity. We remain committed to return excess cash to shareholders through our ongoing 5% normal course issuer bid that expires in September, and we announced that our Board approved an increase of our quarterly dividend by 6% to $0.185 per share. This increase is in line with our 5% share repurchase program and maintains our cash outlay for dividend payments at approximately $50,000,000 per annum. Construction on our G3 project is progressing safely on time and on budget with production expected in the Q4 of this year. Overall, the G3 project is over 80% complete and the team has started to shift from mechanical construction activities to commissioning activities.

Speaker 2

The expected G3 capital remains unchanged at $1,250,000,000 to $1,300,000,000 and we have spent approximately $995,000,000 before capitalized interest to the end of the Q1. The remaining 3 $30,000,000 to $380,000,000 of cash expenditures, including approximately $75,000,000 in accounts payable is fully funded with cash on hand. Looking ahead to the Q2 of 2023, we expect a lower methanol price environment And as a result, we're expecting a lower adjusted EBITDA in the Q2 of 2023 compared with the Q1. Our overall production guidance for the year of 6,500,000 metric tons of equity production excluding G3 remains unchanged. In the medium term, the methanol market outlook is positive and we will have growing cash flow generation capability with G3 production expected in the Q4 of this year.

Speaker 2

At a $3.75 per tonne realized price and $4 per MMBtu gas price, We expect G3 to generate approximately $250,000,000 of adjusted EBITDA per year. With our G3 project being fully funded with Cash on hand and our ability to generate meaningful cash flows across a wide range of methanol prices, we are well positioned during this period of economic uncertainty to maintain a strong balance sheet, pursue economic value, growth value added growth opportunities and continue returning excess cash to shareholders. We would now be happy to answer questions.

Operator

Then the number one on your telephone keypad. Your first question is from the line of Joel Jackson with BMO Capital Markets. Your line is open.

Speaker 3

Hi, good morning. Hi, Joel. One trend that we've been watching Methanol has been that your posted price for North America versus U. S. Gulf Spot to the premiums of the North American posted price versus U.

Speaker 3

S. Gulf spot have been quite high, touching reaching

Speaker 4

some of the

Speaker 3

peaks that you've had in the last 7 years. Can you Talk about that? And typically, that's not been a bad time to own Methanex stock when the premium has actually been higher than normal.

Speaker 2

Yes. So maybe I'll just start a little history that over time there's been new capacity added in the U. S. The U. S.

Speaker 2

Is a heavily contracted market and we believe a lot of the New U. S. Producers, they've under contracted their overall production positions. And so in the Q1, We saw U. S.

Speaker 2

Golf production quite relatively low. And then as we move through the quarter, it all came back operating at relatively high levels. A lot of those producers are relying on exports and a very small spot market in the U. S, which is I think the spot market probably trades overall less than 5% of overall methanol business in the U. S.

Speaker 2

So at those times when there's a lot of volume, we see distressed pricing. And certainly, the pricing we saw in the spot market went to, I think, at one point went all the way down to $2.50 per tonne. It's now closer to I think back closer to $300 per tonne. So I think there's points in time, Joel, where that It's pretty low based on a small level of cargoes trading that doesn't have a home, especially when everyone's running at high rates at Same time. So certainly don't see that as indicative overall, methanol price globally, but there has been new supply on the market with Iran, China as well as U.

Speaker 2

S. Gulf Producers and that's why we've lowered our contract pricing for a couple of months in a row.

Speaker 3

Okay. Before I ask my second question, I just want to get a clarification. Did you say that Q2 earnings would be lower than Q1 of 23 or lower than Q2 of 2022?

Speaker 2

Lower than Q1 of 2023, just based on for decreased methanol prices that we've had over the last few months.

Speaker 3

And then my question would be then, So you're in the commissioning phases of G3, that's great, and still targeting first production for Q4. Is there a path if things go right, you could have first production in Q3, like what would have to happen to that first production in Q3 or is that not possible?

Speaker 2

Yes, maybe just I'll speak to G3. So during the quarter, We completed our 60% construction completion review. This is the kind of last real deep dive on both cost and schedule and that Confirm both our cost estimates of 1.25 to 1.3 as well as our expected start up timing in the Q4. We are really concentrated 1st and foremost on safety for this project and then of course quality as well. And so we're not we feel really good about the progress that we're making there.

Speaker 2

And the timelines we have is to deliver high quality projects on safely, on time, on budget.

Speaker 3

Okay. Thank you.

Operator

Your next question is from Ben Isaacson with Scotiabank. Your line is open.

Speaker 5

Thank you very much and good morning everyone. Two questions for me, 1 long term and 1 short term. On the long term, Rich, when you think out kind of 5, 7, 10 years into the future, can you talk about the possibility of a new project for Methanex. Is that something you're thinking about? And if so, what would the kind of time line be and what locations would you be thinking about?

Speaker 2

Yes. Thanks, Ben. When we look out, we are seeing favorable when we look out, we see favorable demand supply outlook. Certainly, in the medium and longer term, that's we are watching current economic headwinds for the pace Demand growth obviously, but when we take even modest growth rates without considering a lot of the potential demand for marine fuels, we don't see a lot of capacity additions. Now G3 positions us really well in the medium term, but to deliver a project even today With the work that has to be done, even when you're starting today, it wouldn't be until the end of the decade before you kind of add a project.

Speaker 2

So we are going to be what we're looking at right now is just advancing a portfolio of options that we have. This wouldn't be any meaningful capital in the next few years, but it's really just creating options for the company about deciding which of the next best growth opportunities are out there and which is the one we would want to focus on. That doesn't mean we are going to commit. Obviously, We would take our time to assess where the market is at and where we want to be from a growth perspective. But the timelines are if you start today, Even if you're in option select that will take a few years and then you get into feed activities and then FID and into construction and startup, you're already at the end of the decade before you'd have a new project.

Speaker 5

And just as a follow-up to that, how do you balance some of the idle plants such as relocating one of those plants or is this something that would be greenfield or is it just way too early right now?

Speaker 2

I think that the few options we have, we're looking both at brownfield as well as so we have brownfield Within our portfolio, obviously Geismar, Medicine Hat, we have land in Egypt. We also look at greenfield sites in other regions as well. In terms of relocation, It's an option, but probably not the focus. I think when we look at moving plants, it's The economic advantages aren't necessarily there, but it's not something we're totally closed off to. Right now, our main focus This is getting enough gas to bring those plants online and our focus would be to try to have opportunities to utilize that capacity where it's in place.

Speaker 2

But yes, we're looking at both Brownfield as well as Greenfield Greenfield office. Great.

Speaker 5

And then just my quick short term question. You talked about the cost curve, you talked about supply and demand and a little bit about trade flow. Can you just talk about inventories? Where are inventories through the channel? Is it Are they elevated in terms of what you have visibility towards?

Speaker 2

I think it's probably a bit of a tale of It depends what you which market you're looking in. We've been had very, very low inventories in the Asian markets and China. And I think Even when you look today, we're probably not back to where average inventories would be. That's there is product, We would expect that that might be partially solved with some more product coming on from Iran, but still below average there. And then when you look in the Atlantic markets with recent operating rates.

Speaker 2

Certainly, that's why you saw some of the pricing you did in the U. S. Was because We had to get this volume that needs to be export from that market. Europe is probably in that balanced The inventory levels and then the U. S.

Speaker 2

Was getting high and having to export. So it depends on overall where you are in the world, but I'd Right now, we're in a kind of overall balanced market today.

Speaker 5

Great. Thanks so much. Appreciate it.

Operator

Your next question comes from the line of Hassan Ahmed with Alembic Global. Your line is open.

Speaker 6

Good morning, Rich. I just wanted to revisit near term supply demand fundamentals. Obviously, in the commentary, A bunch of puts and takes around supply. I mean, obviously, you guys mentioned Natgas being redirected in Q1 in Iran and China. And obviously now operating rates sort of picking up over there.

Speaker 6

Obviously, a new facility expected to come online in China this year, G3 as well, but some sort of positive commentary on the demand side with China reopening and the like. So I guess The question is that with all of these puts and takes, both in the supply and the demand side of it, do you still expect 2023 to be a year where demand growth outstrips supply growth. Also keeping in mind how sequentially obviously in Q1 Demand growth was relatively flat.

Speaker 2

Yes, it's a good question, Amit. So we're obviously looking at that really Closely right now, we saw demand sort of when we look at what happened coming into Q1, Demand came down quite meaningfully in Q4 and then that was our base heading into Q1. What we would say is that It started to starting to look better at the tail end of Q1, but overall we saw flat demand Q4 to Q1. What we see in the different segments is that we look at the traditional demand segment And it's a seasonally slow period in the Q1. So we'll be coming into the housing and construction season, which should help demand.

Speaker 2

In China, certainly the post Chinese Lunar New Year and the opening up impact, we are expecting some positivity there. We haven't seen It's been a little slower than what we would have anticipated for traditional demand. And then on the MTO side, We saw steadily increasing rates through Q1 and then we have 2 plants in the process of starting up, which is 1,500,000 tonnes of demand. So overall, we still need to see more demand growth from where we are today, I think, to balance off some of the supply that's coming into the market. And when we look overall, I think when we look at Q1 annualized, Q1 annualized is certainly not back to where 2022 full year was.

Speaker 2

So we need to see continued demand growth, See overall growth in the industry, which would mean a balanced market with new supply. Really, G3 is starting up in the Q4, so it isn't going to impact really the market until we get into the Q1 of 2024 really. So not a lot of new capacity being added. We are really closely watching demand and seeing Are we going to be in an overall growth for the year? We do expect that today, but we're watching very closely.

Speaker 6

Understood. Very helpful. And as a follow-up, kind of something you alluded to towards the end of your answer, just the G3 ramp up. I mean, you obviously talked about First production in Q4, but obviously you guys particularly in Geismar have had relatively recent sort of start up experiences. So how should we expect to see that ramp up through the course of Q4?

Speaker 6

And when do you think we will be at sort of full production with regards to G3.

Speaker 2

Yes. I probably wouldn't get too specific here with this. I mean, we have our schedule and there's a lot of puts and takes to that. But maybe just give you a sense of where we're at on the actual project and how that startup phase happens. Today, where we're at, we were in mechanical construction has been the focus.

Speaker 2

We've been working on a lot of the piping and piping installation, the welding that all that takes to build the plant. We've now shifted into electrical Installation, fireproofing, painting and we're working on system turnover. So that means handing the systems over to the different parts of the plant. We're also getting into activities like steam blowing and hydro testing of the piping system. So all of those things have to take place and we've got it all scheduled in for a startup.

Speaker 2

So that once we actually go to startup the plant, it's a period of weeks, not months. So we're very we're confident in the startup schedule in the Q4 and I wouldn't get too precise at the actual timing there.

Speaker 6

Got it. Thanks so much Rich. Very helpful.

Operator

Your next question comes from Steve Hansen with Raymond James. Your line is open.

Speaker 7

Yes. Good morning, guys. Just a quick follow-up, Rich, to some of your remarks earlier On Joel's question, I believe, can you remind us as to how the G3 contract structures work in terms of the sales, where you're targeting geography wise, How much of the volume is already contracted? Just we can get a sense for how the volumes are going to flow here once we go live.

Speaker 2

Sure. So maybe the way to think, we grew our sales position last year And we probably grew our sales position to a level. I think you'll see that we're kind of trending in 11,500,000 ton sales range. When we think to next year, we don't need a lot of sales growth to position in G3. So we've already really pre marketed at least half of that plant today.

Speaker 2

What we did last year is we grew and I think we grew a pretty balanced with a more of a heavily weighting to the Atlantic markets. And As we think this year, we'll you'll probably see a modest increase in our sales position, but we aren't looking to we don't need to be in the market to in a heavy way for re contracting or more contracting for What you'll likely see is a lower level of purchasing in our system once G3 starts up. So it will be a balance between lower seeing and some increased sales for next year.

Speaker 4

Okay. That's helpful. Thank you.

Speaker 7

Yes, I know that's really good perspective. Just I guess trying to think about it in the context to some degree of where the price points will be hit. There's quite a delta between Asian contracted prices in North America. I know you talked about underwriting the economics of the plant as an export facility to Asia, but I I didn't know that volume was going to flow necessarily.

Speaker 2

Yes, I think last year we were we did increase a fair amount in the Atlantic markets and that was on the basis of a lot of with the Russian sanctions and a lot of Russian material flowing to different needing to flow to different markets. So I think we were successful there. We'll be looking at where we'll be marketing. We don't have a huge need for sales growth for next year. So I think we're in a really good position to be selective on what markets we'll be selling into.

Speaker 7

Okay, helpful. And then just one quick follow-up on the capital allocation, the dividend going up in line roughly with the buyback. Is that a good Way to think about future allocation going forward, you're going to have a lot of cash flow, of course, in the next year and beyond. I I presume the buyback will continue, but should we expect the dividends or increase with the same pace that this year buyback goes out?

Speaker 2

Yes. I think what we want On the dividend is we have we want it to be sustainable and I think part of that will be when we see improvements in the dividend sorry, improvements in the business. I think we will look at the dividend. We have had a preference for flexible distributions with share repurchases. But with G3 coming online, it's a chance to look at the dividend as well.

Speaker 2

So I don't want to say that that's just That's the only way to think about it going forward.

Speaker 7

Very helpful. Thank you.

Operator

Your next question is from the line of Laurence Alexander with Jefferies. Your line is open.

Speaker 8

Good morning. I guess, first of all, as China reopens, where do you see the combination of MTO, DME and Industrial boiler demand going in the next couple of years. How much flex should we be thinking about for the supply demand balance?

Speaker 2

Sure. I mean, when we maybe starting from today, Laurence, we look at maybe Q1, when we look at MTO today. I think MCO operating rates in the Q1 around 65% or so This is the number we have that represents around 14,000,000 to 14,500,000 tonnes. There's about 21 1,000,000 tons of capacity. So a 10% increase in that operating rate is about 2,000,000 tons of demand.

Speaker 2

And Typically, we've seen 80% to 90% operating rates. And so I think if Olefins is in a healthier position and is operating at what we've seen in historical rates. There's probably 3,000,000 tons of structural demand there. When we think about China reopening on other derivatives, obviously, traditional derivatives will Those will run with GDP and economic growth, and there's a considerable amount of traditional derivative demand in China. And then on the other energy applications, similarly with more movement around the country and the economy growing, you're going to have higher demand for transportation fuels, heating and cooking.

Speaker 2

So that will also impact demand. I think that the numbers for Traditional demand in China is equivalent about 20,000,000 tonnes per year. And then the energy demand in China is about 15,000,000 to 20,000,000 tonnes. So obviously, we think China reopening has a meaningful impact. We haven't seen it really translate yet today, But you can kind of apply those growth rates to those volumes to if it's hopefully that's helpful.

Speaker 8

Very helpful. And then can you give us a sense, I know we've had a bit more time to digest the U. S. And European stimulus packages, where you See kind of the various proposed green methanol platform showing coming on the cost curve after subsidies. And then I guess related to that, we're hearing a lot more about ammonia as a competitor for methanol and in the to replace the bunker fuel.

Speaker 8

Can you give a sense for where you see the arbitrage there playing out?

Speaker 2

Sure. Maybe start with the first question on regulations. I think probably the most significant regulations that are We're looking at right now is the Inflation Reduction Act is the one that I know a lot of companies are looking at opportunities under under the Inflation Reduction Act. So certainly, we're looking at the economics of carbon capture in Geismar under the Inflation Reduction Act on both because of that government incentive as well as the infrastructure that's being built for carbon capture. Preliminarily, those the capital costs are large.

Speaker 2

And certainly, the government sends Help, but there's premiums still required in the market to make that project go forward. As it relates to green fuels, there's various subsidies that are out there that are driving Some demand, the U. K. Fuel blending market, we think is around 150,000 to 200,000 tons of green methanol going into that market. A lot of the demand though is being driven on just customers' willingness to pay.

Speaker 2

We're seeing increased interest in paying a premium for low carbon methanol. So and we're in discussions with a lot of shippings and shipping companies in that regard. So that's a bit about the regulations on the competitiveness side when we think about the shipping market. The shipping market by itself represents on an energy equivalent basis probably 400,000,000 to 500,000,000 tons of annual methanol demand. So the shipping market is huge.

Speaker 2

And when we think about methanol, ammonia, hydrogen, the future shipping fuels, there's a lot of room for everyone. And as shipping companies commit to vessels, which is already at 4,000,000 Tons of demand potential and growing because we already are hearing other commitments. So I expect that number is going to continue to grow. Once that decision is made, it becomes not a competing against ammonia or hydrogen. It's really about economics to the diesel alternative.

Speaker 2

And so I think there's going to be demand potential there and it's going to come down to methanol's cost competitiveness against diesel and as well the cost to decarbonize both those fuels as well. So we're Really excited about that opportunity and our low carbon solutions group is actively working in this space to see what opportunities lie ahead and what solutions we can provide to the shipping industry.

Speaker 8

And if I may, as you mentioned, kind of Customers already discussing in some areas sort of the green premium. Is that showing up in terms of can you give a sense for what size of premium is being discussed? And is it also showing up in terms of longer term offtake agreements? Or is it really just for transactions?

Speaker 2

I'm going to say it's early and certainly something that with the 0 carbon voyage that Zero carbon voyage I mentioned in the opening remarks, that was based on renewable natural gas And we're obviously active in the renewable natural gas market. We're having discussions with shipping companies about whether that makes sense to do longer term for their needs. And So we're hoping to be able to announce things going forward, but still early discussions.

Speaker 8

Okay. Thank you.

Operator

Your next question is from the line of Matthew Blair with GBH. Your line is open.

Speaker 9

Hey, good morning. Thanks for taking my question. I was hoping you could talk a little bit more about the operations in New Zealand in the quarter. Our rates looked quite strong, but you held your 2023 guidance unchanged, I believe. So yes, any more details on New Zealand would be great.

Speaker 2

Yes. So we did have a strong quarter in New Zealand And it was in line with our expectations. When we look actually for the remainder of the year, we said that We have 3 turnarounds this year and we will be doing some maintenance in New Zealand this year. So we are holding to our production forecast for the year. When we look at New Zealand, We have 2 primary suppliers there, OMV and Todd.

Speaker 2

And the production volumes and forecast we provider based off of us working with them on the results of their production and their upstream activities that they're working on. So we continue to hold to the forecast today and we're quite comfortable at this level for the next few years and we're working with them on the results of their work that they are doing in the Taranaki Basin and we'll continue to provide guidance on where that leaves us on production forecast. But That's why we're holding to the number that we have for the year.

Speaker 9

Sounds good. And then Could you expand a little bit more on your RNG efforts? I guess what percent of your total feedstock is RNG And how might that change going forward? Do you ever see yourself moving into the actual RNG production market? And what's the driver here?

Speaker 9

Is this coming from customer requests or is this Methanex looking to comply with or GHG targets and ESG targets.

Speaker 2

So maybe just in terms of the size of that business today. It's relatively small. So today we have really one contract that's on a longer term RNG contract, very, very small volume, but it's a good starting point. And then on terms of what's driving it, it really is based on customers. So we have interest from the shipping industry as well as some traditional chemical customers that are interested in green methanol.

Speaker 2

Of course, this comes at a meaningful premium. And so we're working with them on and the way to contract the best contract is to have longer term offtakes and longer term customer commitments. So we're working with both of those segments on their interest in green methanol. In terms of the RNG market, The total RNG market in North America is about the equivalent of 3,000,000 tons of methanol demand. And there's competition for that as well because a lot of the RNG goes into natural gas vehicles.

Speaker 2

So it's certainly an area that we want to explore and we want to work with our customers on. We're not the only offtaker for that RNG. So there's a additive perspective to it that we also have to consider. And so, yes, we're exploring that certainly off of customer interest and We're excited about the opportunities and working with customers on that.

Operator

Your next question is from the line of Nelson Ng with RBC Capital Markets. Your line is open.

Speaker 4

Great, thanks. First question is just a follow-up to Steve's question about production and sales mix. So, I guess based on your commentary, should we assume that after G3 is up and running and fully producing. The sales mix within the regions like Asia, China, U. S.

Speaker 4

And Europe. Should we assume that the sales mix will be relatively stable or will more products go into China?

Speaker 2

I think assuming a relatively stable sales mix is what we would guide to, similar to what we've guided in the past.

Speaker 4

Okay. Thanks. The next question, it sounds like based on your commentary, the China reopening ramp up is taking place slower than expected. Do you have any kind of early signs in terms of how things are progressing after, I guess, after the Lunar New Year? And Like are you seeing any recent ramp up or are things still kind of slow going in China?

Speaker 2

Well, on the MTO side, certainly we're seeing ramp up there. I think that's based off of some improved economics as well as increased methanol availability. Just a reminder that a lot of Iranian supply is does get supplied into MTO and we believe that that gets supplied at a discount to international prices as well. So That makes it more attractive and helps the affordability for MTO the MTO industry. On the other energy applications, I think we're seeing some signs of strength in the MTBE vehicle fuels and cooking and thermal applications.

Speaker 2

And that's just based on general movement and more economic activity in the country. We haven't seen on the traditional chemical side yet, the demand pull from those segments. And so that's something we're watching closely. And as we do see signs of manufacturing, numbers seem to be indicate growth, Number seem to be showing up better. Sometimes this does take its way time to get back to methanol because We're kind of in the starting point of the value chain.

Speaker 2

And so sometimes that's bit of inventories and things that have to be worked through. But We're watching it closely to see when the timing when we start to see demand there. But as of today, I haven't seen the traditional chemical applications growth that we would anticipate with a 5% GDP growth, for example.

Speaker 4

Okay. Thanks for all the color, Rich. I'll leave it there.

Speaker 2

Yes. Thanks.

Operator

Your next question is from the line of Jacob Bout with CIBC. Your line is open.

Speaker 10

Good morning.

Speaker 2

Jacob?

Speaker 10

Yes. I have a question here just on your thoughts around M and A. I know historically the focus has been either greenfield or brown But how do you think about M and A in the current market even with, say, some of your competitors looking at strategic reviews or that type of thing. Is that something on your radar or how are you pushing that?

Speaker 2

Yes, I'd say we always keep it want to keep it on our radar. Obviously, When we look out, we certainly see the industry growing and notwithstanding there is some slowdown today. But We look further out, we see demand growing with not a lot of capacity additions and obviously M and A doesn't achieve the growth. But when we think about M and A, it's not something we want to be closed off to. If there's opportunities out there that makes sense, then we'll look at It is a lot it is harder sometimes depending on the location of those assets, what kind of synergies do you pick up.

Speaker 2

We've got G3 coming online, which is we're very excited about. It's an Atlantic based asset. And We'd have to think carefully about what kind of synergies are created by any M and A activity and ensuring the value is right that we get out of it. So but certainly not closed off to it and remain open to discussions on it.

Speaker 10

And then my second question is just how you're approaching gas hedging right now. I mean, gas prices You've down quite significantly over the past quarter or so. How are you approaching it and how much have you locked in?

Speaker 2

So right today, we're 85% hedged for 20 2023. Our target is to be in the outer years, kind of 1st 1 to 3 years is to be around 70% hedged across our North America portfolio and we're but we're all the way there for 20242025 with G3 operating. When we look beyond the kind of 2025 timeframe, we're less hedged. So we're obviously actively watching what happens at the kind of medium or longer end of the curve. The pricing notwithstanding the current pricing, the pricing at that longer end has come down to where the levels that we'd like to see.

Speaker 2

And so we were still being patient to bring more hedges in there, but we're watching it closely. We've heard that obviously there's some in today's environment, there's a lot of anticipation of LNG capacity additions being added and more demand in that longer timeframe. We've heard some of that's under pressure with increased capital costs as well as regulatory potential regulatory changes. So we're watching that and to see if that moves the back end of the curve down and creates an opportunity for more hedging.

Speaker 4

Okay, great. Thank

Speaker 2

you.

Operator

Your next question is from the line of Josh Spector with UBS. Your line

Speaker 2

is open. Yes. Hi.

Speaker 4

Thanks for taking my question. I actually wanted to follow-up on the gas side of things. So I mean, understanding you're pretty heavily hedged here, but With lower U. S. Gas costs and your FIFO reporting, your first quarter numbers, I mean, I assume that's not fully reflecting the $2 to $3 gas.

Speaker 4

So how much of a benefit would you expect to see as you go into next quarter? Or would we see minimal because of the hedges?

Speaker 2

Not we're 85% hedged Yes, that spot the spot movement is certainly helping our 15% unhedged position. There might have been a little trailing impact from last year in our Q1, but I'm not I wouldn't expect a big impact into the Q2 because that moves There wasn't a lot of that inventory that would have impacted Q1. So I wouldn't be factoring that in terms of a big earnings It's a tailwind for Q2. Okay.

Speaker 4

And just to be clear, okay. And just on the hedging, we're talking about U. S. Gas Explicitly not your whole portfolio, correct?

Speaker 2

That's correct, yes.

Speaker 4

Okay. And just I wanted to ask on the agreement announced in Egypt on that structure development pipeline. Does that change anything for you? Is there any additional capacity creep needed to feed that at some time? Or does that change the mix or pricing of that product.

Speaker 4

Just curious on any thoughts around that. Thanks.

Speaker 2

No, no. This is a formaldehyde build out right next door. So this has been a plant that's been in the plans for quite some time. Really pleased that we signed a supply agreement. It's relatively modest volume in terms of methanol supply Per year in the kind of 40,000 tons of methanol supplies, which will be pipeline supplied right next door.

Speaker 2

Well, that's The best business we can do with our customers is just pipeline right next door. So we're very happy to be supporting that project. It doesn't Given that level of sales, that doesn't move the needle really in terms of anything to think about in our sales mix or anything like that. But we're very happy to be supporting that project and supporting any customers downstream demand build out.

Speaker 4

Got it. Appreciate the thought. Thanks.

Operator

There are no further questions at this time. I will now turn the call back over to Mr. Rich Sumner.

Speaker 2

Thank you for your questions and interest in our company. Looking forward, we are well positioned with our current asset portfolio on a strong balance sheet. Our G III project is fully funded, progressing safely on time and on budget, and we expect to be in production in the Q4 of this year. We hope you will join us in July when we update you on our Q2 results.

Operator

This concludes today's conference call. You may now disconnect.

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