Earnings Call Transcript - MEOH Q2 2024

Operator, Operator

Good morning. My name is Aaron, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Methanex Corporation 2024 Second 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. Thank you. I would now like to turn our call over to the Director of Investor Relations at Methanex, Ms. Sarah Herriott. Please go ahead, Ms. Herriott.

Sarah Herriott, Director of Investor Relations

Good morning, everyone. Welcome to our second quarter 2024 results conference call. Our 2024 second quarter news release, management's discussion and analysis, and financial statements can be accessed from the Financial Reports tab of the Investor Relations page on our website at methanex.com. I would like to remind our listeners that our comments and answers to your questions today may contain forward-looking information. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Certain material factors or assumptions were applied in drawing the conclusions or making the forecasts or projections, which are included in the forward-looking information. Please refer to our second quarter 2024 MD&A and to our 2023 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, adjusted EBITDA, cash flow, adjusted income, or adjusted earnings per share made in today's remarks reflect our 63.1% economic interest in the Atlas facility, our 50% economic interest in the Egypt facility, and our 60% interest in Waterfront Shipping. In addition, we report 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. These items are non-GAAP measures and ratios that do not have any standardized meaning prescribed by GAAP and therefore are 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. Rich Sumner, for his comments and a question-and-answer period.

Rich Sumner, President and CEO

Thank you, Sarah; and good morning, everyone. We appreciate you joining us today as we discuss our second quarter 2024 results. Our second quarter average realized price of $352 per ton and produced sales of approximately 1.6 million tons generated adjusted EBITDA of $164 million and adjusted net income of $0.62 per share. Adjusted EBITDA was higher compared to the first quarter of 2024, primarily due to a higher average realized price. Our second quarter was negatively impacted by $13 million of G3 delay costs recognized in adjusted EBITDA, which were comprised of costs associated with monthly utilities, take-or-pay contracts, and employee costs. Excluding the G3 costs, adjusted EBITDA would have been $177 million. The safe restart of G3 continues to be our company's top priority. During the quarter, the G3 team completed the repair to the autothermal reformer and implemented conditions to allow us to progress back into startup. I'm very pleased to report that yesterday we reached our first methanol production from G3 and we expect the plant to ramp up to full rates in the coming weeks. The safety performance of our team and partners on the G3 project has been outstanding, and I would like to extend my personal thanks to the team for their continued hard work and dedication to completing this project safely. G3 significantly increases our cash flow generation capability and has one of the lowest emission intensity profiles in the industry. Now turning to the second quarter methanol pricing and market dynamics. Our second quarter global average realized price of $352 per ton was $9 higher than the previous quarter. Through the first part of the quarter, methanol markets tightened with increased demand outpacing supply, leading to a significant global inventory drawdown and increasing methanol prices. Markets remain tight in the Atlantic basin and rebalanced in China in June when demand slowed down with several Methanol-to-Olefins, or MTO, units undergoing maintenance or lowering operating rates. We believe operating rates from MTO producers are increasingly becoming the balancing factor in the global market as supply struggles to keep pace with demand growth. Overall, global methanol demand was higher compared to the first quarter of 2024. Traditional chemical applications and energy-related demand grew above 3% compared to the prior quarter, driven by increased economic activity globally, seasonally high construction and transportation activities, and favorable energy pricing, which continues to support methanol demand into energy applications. MTO demand decreased in the quarter, as plants took outages or lowered operating rates in line with methanol supply constraints and increasing methanol prices. MTO operating rates decreased from around 85% in the first quarter to operating rates between 50% and 60% through June and into July with various improvements in methanol supply throughout the quarter. We've recently seen one large MTO unit restart, but three large-scale units are currently idle, representing approximately 4 million tons to 5 million tons of annual demand. On the supply side, we saw various planned and unplanned outages and feedstock constraints restricting supply availability in the second quarter. This limited supply from various regions globally and in particular, methanol production from Iran was slower to enter the market after seasonal gas restrictions. As a result, global inventory levels were under meaningful pressure, reaching 18-month lows. Low levels in China and increasing prices drove lower operating rates from the MTO sector, which led to a more balanced market in China. Towards the end of the quarter, we've seen various improvements in methanol supply and inventories globally, although markets remain tight, and, as I already noted, there remains considerable MTO demand available to restart. We are seeing methanol pricing around $290 per ton in China, and we continue to see premiums above these levels in all regional markets. We estimate the marginal cost of production based on coal pricing in China to be around $270 per ton to $280 per ton. Looking ahead to the third quarter, we expect to see continued tight methanol markets. We're seeing healthy demand growth across all traditional and energy-related downstream sectors, with MTO operating rates influenced by the availability of supply. We anticipate this increasing demand will be met by increased operating rates in the industry, as well as new supply from G3, which will be partially offset by our supply reduction in Trinidad in September when we shut down Atlas and restart Titan. Additionally, a 1.8 million ton plant in Malaysia has announced it will be starting in 2024. As always, we continue to monitor the macroeconomic environment and its impact on global methanol demand. Now, turning to our production, Methanex production in the second quarter was lower compared to the first quarter due to gas constraints in Chile, Egypt, and New Zealand. In Chile, we're currently in a period of lower gas supplies available from Argentina, so we're operating one plant at less than full capacity. We continue to make progress on gas availability from Chile and Argentina. Based on production year-to-date, a successful turnaround at Chile IV that will improve efficiency on restart, and the progress we've made securing gas from Argentina for the non-winter period this year, we expect 2024 production will be slightly above the high end of our guidance of 1.2 million tons. In Egypt, the plant produced at high rates after the syngas compressor maintenance was completed in mid-February. In early June, the plant was temporarily idle when significantly increased seasonal demand for power generation due to elevated temperatures in the country led to various measures by the government to manage gas balances, including curtailments to industrial plants. The plant restarted at reduced operating rates shortly thereafter and has operated at fluctuating rates based on gas availability with current operating rates at approximately 80%. We've seen some stabilization of gas balances in the country, but we expect to see some continued limitations on supply as we progress through the third quarter. In New Zealand, we operated one plant through the second quarter due to both lower-than-expected gas deliveries from upstream suppliers as well as redirection of some of our contractual gas for use in the broader energy sector. The country's overall energy balances are currently very tight, with demand seasonally high during the Southern Hemisphere winter combined with low hydro levels and relatively lower gas supply in 2024 compared with previous years. As a result, we believe some of our contractual gas has been redirected to the electricity and other domestic energy markets. We're in continuing discussions with our gas suppliers to ensure our contractual entitlements are being respected, as well as engaging with our gas suppliers and government agencies in supporting efforts to improve energy balances in the country. Based on our production year-to-date and current gas deliveries, we expect 2024 production will be below the low end of our previous guidance of 1 million tons. Now, turning to our current financial position and outlook. We ended the first quarter with approximately $390 million of cash. With the G3 plant now in the process of startup, the project is complete. The total final capital cost is slightly less than $1.3 billion, excluding fixed costs related to the delay, and we do not currently have any further growth capital commitments. Our primary focus for capital for the remainder of 2024 is to repay rather than refinance the $300 million bond due in December. Turning to the third quarter, our European quarterly price was posted at EUR535 per metric ton, a EUR10 per ton increase. Our North America, Asia Pacific, and China prices for August were posted at $695, $400, and $380 per ton, respectively. We estimate that based on these posted prices, our July and August average realized price range is between approximately $350 and $360 per metric ton. We expect adjusted EBITDA for the third quarter will be lower than the second quarter, due primarily to lower produced sales from Chile and New Zealand and G3's initial inventory build post startup. We expect sales of produced products and earnings for the fourth quarter of 2024 to be more representative of the run rate of our company with G3 at full production. We'd now be happy to answer questions.

Operator, Operator

Our first question comes from Ben Isaacson with Scotiabank. Your line is live.

Ben Isaacson, Analyst

Thank you very much, and good morning, everyone. Two questions for me. First one is on New Zealand. New Zealand seems to be disappointing on a fairly consistent basis. Does it make sense to indefinitely idle one of the two Motunui plants? I mean, there are several benefits for this: the risk profile of your portfolio of assets improves; you have reduced variability of free cash flow, which may result in a higher multiple; you take out a little bit of capacity from the market. Can you just comment on that? Thank you.

Rich Sumner, President and CEO

Thanks, Ben. Yeah. So, right now, we're working through a lot of, I'd say, two big issues right now. One is, as you say, I think the gas from the upstream, the investments that are being made in existing fields, both new wells as well as investing to enhance the performance of existing wells, have not met expectations. I think we also are working through short-term dynamics in the industry, where we believe some of our gas that would be coming to us may not be. So that's something we're also working through. But certainly, right now, I think you should be thinking about, in the foreseeable months here, a one-plant operation, and over the next few months, we'll be assessing our views for the rest of the year and considering how we should be operating those assets. So, I think there will be more to come as we evaluate the rest of the year.

Ben Isaacson, Analyst

Thank you for that. And my follow-up question is on the Entropy deal, which is really quite interesting, but it's also a little bit scary because there's the potential for others to do this as well. So, can you run through what are the constraints preventing everyone else from copying what you've done and adding another 5% to 10% of supply? That would be helpful. And actually, if you could maybe give a number in terms of how much capacity is there that could also do this? Thank you.

Rich Sumner, President and CEO

Yeah. Maybe I'll just give a bit of background on that project. I think, first and foremost, we're happy to be working with Entropy, which is a technology provider who already has this technology in place in a gas processing plant in Alberta with sequestration. I think when you think about the framework you need to make this work, you have to consider jurisdictions that, one, will have a regulatory and supportive regulatory framework. They also have to have sequestration available. And so, it's not just easy to replicate, but we're excited to be exploring this opportunity in the Pre-FEED stage here. Just to give you a sense, it will capture about 400 metric tons of CO2 per day. About two-thirds of that would be used in our production, and the remaining third would be sequestered in underground caverns close to our plant. That's all being worked on, with the infrastructure necessary to make this commercial. And so we're excited to do it. I think this debottlenecking will add around 50,000 tons of low carbon methanol. So, yeah, we'll work through everything in this Pre-FEED stage and aim to reach a decision point sometime in the middle of 2025.

Ben Isaacson, Analyst

Thank you very much.

Operator, Operator

Thank you for your question. Our next question comes from the line of Mike Leithead with Barclays Capital. Your line is live.

Mike Leithead, Analyst

Great. Thanks. Good morning, guys. First question just on G3. Congrats on successfully starting that up. What is your current expectation for when that should be fully running, fully utilized, and fully flowing through the P&L, and you guys are getting commensurate earnings? And then if we just kind of use where we are roughly today in terms of methanol and gas, just what's your sort of latest best estimate of the annualized EBITDA we should expect from this plant?

Rich Sumner, President and CEO

Thank you. In terms of the ramp-up period, we expect to ramp up to full rates in the coming weeks. As of today, the plant is operating at 70% operating rates, which is how we start up a plant, and then we steadily increase over time. There could be points in time where you're testing all the different elements of the plant, and you may take it down for a period to bring it back up. But as of right now, we're at 70% operating rates and we'll be there for a while before steadily increasing in the coming weeks. So the wrap-up is relatively quick. In terms of how it will impact earnings, we don't expect a lot of G3 coming through in the third quarter, but we would expect that to be a fairly significant contribution around the end of this quarter and the beginning of next quarter. Inventory flows are not all that easy to track through our system. However, we've guided that the fourth quarter should reflect something closer to a run rate with G3. Regarding the run rate EBITDA from G3, we've guided that at $350 a ton, which we think we are slightly above. That generates around $200 million to $250 million in EBITDA per year, depending on gas prices between $3 and $4 per MMBTU.

Mike Leithead, Analyst

Yep. That's super helpful. And then just a couple of quick follow-ups on the Entropy announcement. First, is it correct in hearing that if everything goes to plan, you should expect to make FID by mid-2025? Can you just speak to how dependent this project going forward is on receiving government funding? And then, just briefly, is this sort of a one-off opportunity just because of the plant and location, or if this goes well, is this something you could seek to replicate at some of your other plants as well?

Rich Sumner, President and CEO

I'll start with the initial phase and timelines for this project. It is part of a two-step phase, with the first phase involving a unit that will capture 400 metric tons per day. Approximately two-thirds of that will be used in our production, while the remaining third will be sequestered underground. In terms of value, we will pay for the CO2 value in methanol production for the two-thirds portion, and the third portion will generate carbon credits for sequestering CO2. Canada has a regime of carbon taxing and carbon credits that will support this project, along with various incentive programs at both provincial and federal levels that we believe we will qualify for. We will be evaluating all these factors during the Pre-FEED stage. The second phase of the project aims to scale up operations to capture all of our Scope 1 emissions, which will require additional work and infrastructure, as well as greater clarity regarding the carbon framework and support for investments. I hope this provides clarity on your question.

Mike Leithead, Analyst

Great. Thank you.

Operator, Operator

Thank you for your questions. Our next question comes from the line of Josh Spector with UBS. Your line is live.

James Cannon, Analyst

Hey, guys, this is James Cannon on for Josh. I just wanted to poke on what's going on with the discount rate. It seems like while it's crept up over time this year, it's been a lot higher so far. I think based on your comments on third quarter to date, it seems like we're relatively stable with the last quarter's levels. But looking beyond that, how should we think through the rest of the year and kind of into next?

Rich Sumner, President and CEO

Well, I think when we look at our pricing, we've been guiding for the second quarter, around $345 per ton to $350 per ton. I think we averaged $352 per ton for the quarter. For this coming quarter, we're guiding to $350 per ton to $360 per ton. And when I look at pricing, we have cost curve levels at $290 per ton to $300 per ton in China. Therefore, when we look at it, we're setting price at what a reasonable market price should be in all the regions we're selling into. We're achieving significant premiums, reflective of tight market balances, which we expect to continue for the rest of the year, as I mentioned in earlier remarks. So, we're not as focused on the discount; we're focused on realizations. I do think you've seen discounts creeping up mainly because that's the competitive way pricing into the market, not what we think is reflective of lower realizations.

James Cannon, Analyst

Okay. Got it. And then, I think, through the quarter, I saw some reports on curtailments to Trinidad gas. I think you called out a couple of unplanned outages. I was wondering if those were related and can you comment on how you're seeing that develop through this quarter?

Rich Sumner, President and CEO

Yeah. So those were not gas related. Our outages were due to maintenance of our air separation unit in Trinidad. We had to perform some maintenance on that. But there were gas outages in the upstream during the quarter which didn't affect our operations but did affect other producers at the Point Lisas Estate. So, they were unrelated to our Atlas operations.

James Cannon, Analyst

Okay. Thank you.

Operator, Operator

Thanks for your questions. Our next question comes from the line of Joel Jackson with BMO Capital Markets. Your line is live.

Joel Jackson, Analyst

Hi, Rich. I'm going to ask three quick questions if you allow me. First, on your maintained guidance for 7 million tons of Methanex produced volume, how round is that 7 million tons? Is it more like 6.5 million tons to 7 million tons? The reason I ask is that to make all your numbers work, it's hard. You say Q3 production will be a little lower than Q2. To get that 7 million tons for the full year, you need to run at like a 10 million ton run rate in the fourth quarter. That would be everything going full out. Can you maybe talk about how rounded the 7 million ton number is?

Rich Sumner, President and CEO

I think we feel good about the 7 million ton guidance with G3 where it is right now and our expectations for G3. I've talked about some ups and downs as it relates to Chile and New Zealand, and I think most of the other factors are considered. So, we feel pretty good at the 7 million ton range for the year.

Joel Jackson, Analyst

Got you. And then second question on the Egypt repair that you had, you obviously put it back online seven months ago, and you've got some insurance settlement maybe coming from that. Can you talk about that? That's not included in your EBITDA forecast, but I imagine that would be included in EBITDA in one of these quarters coming up?

Rich Sumner, President and CEO

Yeah. We expect to collect on insurance in the coming quarter. So, we should expect to see the insurance proceeds coming in in Q3.

Joel Jackson, Analyst

But that's not included in your guidance in the outlook last night?

Rich Sumner, President and CEO

No, that's not included in the guidance.

Joel Jackson, Analyst

And finally, now that you've got G3 starting up, what's the signpost now to be confident to buy back stock? When are you ready to go again on the buyback?

Rich Sumner, President and CEO

Our first priority is to the debt, and we still have some cash to build in advance of that. So, that's our main focus today. I think, once we move past that, we don't have any major growth capital. We can start looking at other uses of capital beyond that. We have said that there would be room for considering share repurchases alongside the debt, but we think we can balance things post building up for our $300 million debt repayment. So, we want to focus on that today and once we are confident we're there, we can consider other uses of capital beyond.

Joel Jackson, Analyst

Thank you.

Operator, Operator

Our next question comes from the line of Steve Hansen with Raymond James. Your line is live.

Steve Hansen, Analyst

Yeah. Good morning, guys. Thanks for the time. I wanted to follow up on Joel's question indirectly about the buyback. I think in the past, you said that $200 million to $250 million of cash is a comfortable position you'd like to keep on the balance sheet at any given time just to operate the business methodically. Has that changed at all with G3 production coming online? Do you need slightly more than that? Just trying to get a sense of that comfort position so we can think about the excess cash build and how that might go to other uses?

Rich Sumner, President and CEO

I think we would be in the range of $250 million to $300 million. Just when we look at where our cash is earned and how we need to move it around to run the business, that's sort of our comfort level. So, I wouldn't think that there's a meaningful change with G3 and not having significant capital spend there. But, yeah, that's the range we'd be using.

Steve Hansen, Analyst

Okay. That's helpful. And then jumping over to Chile, you've obviously been successful at procuring some additional gas there. You've talked about increased availability before, but it's taken some time to ultimately execute on getting the gas. What's changed in the market down there that's allowed you greater comfort to secure more gas? Or what are we seeing down there?

Rich Sumner, President and CEO

I'm very comfortable around securing gas outside the winter period. We've got a lot of gas available to us from Argentina outside the winter period and we're being offered more than we need for our Chilean operations, which is positive. The challenge will be through the winter period; gas is restricted from an export perspective. We are in early discussions there about the winter period, as the country is increasingly trying to ramp up pipeline connections and gas takeaway capability out of the Vaca Muerta. They're developing fields in the South, which will add another 5 million cubic meters into the grid. We're a logical purchaser for that gas. So, I think these developments will progress, but our goal is to have year-round gas in Chile, given the dynamics in Argentina.

Steve Hansen, Analyst

Okay. That's helpful. And then just one final one, if I may, going back to Ben's question at the very outset about the challenges in New Zealand. Is there any possibility to move either of those plants over time? You've done it in the past. Those are older facilities, of course. But is there any context around whether relocating a facility might optimize your footprint?

Rich Sumner, President and CEO

The first thing is the relocation economics and how they work. Relocation economics aren't significant savings over capital. Usually, if you're looking at those, it's more about executing a project to grow methanol supply in a shorter timeframe. I don't think we're in that position today. These plants are not the ones you would look to move, and we aren't in a position today to make that decision or explore that based on our gas outlook at this point. We need to get a better feel for medium-long term in the country before considering anything like that.

Steve Hansen, Analyst

Okay. Very good. Appreciate the help.

Operator, Operator

Thank you for your questions. Our next question comes from the line of Hassan Ahmed with Alembic Global. Your line is live.

Hassan Ahmed, Analyst

Good morning, Rich.

Rich Sumner, President and CEO

Good morning.

Hassan Ahmed, Analyst

I just wanted to revisit questions earlier about New Zealand. I understand you have gas contracts in place over there. Can you provide insight into the structure of those contracts? Are there any restitutions involved? Could you receive any payments for the gas deliveries that did not happen?

Rich Sumner, President and CEO

These contracts allow us entitlement to gas per year, but that is based on what they bring to market. There is a priority regarding gas. So if the gas is available and our contracts should be fulfilled, yes, restitution may be paid. That's a discussion we're having with our gas suppliers. If the gas is not available and their portfolio isn’t delivering, that’s a different issue. We don’t have deliver or pay obligations on those gas contracts if the gas is not producing. So we’re addressing both of those matters right now.

Hassan Ahmed, Analyst

Very helpful. And as a follow-up, on the demand side, you mentioned global methanol demand being up sequentially. What does the inventory situation look like? Is demand improving, possibly due to restocking? Additionally, regarding Chinese demand, are you observing any shutdowns in Chinese capacity?

Rich Sumner, President and CEO

In terms of overall demand, last year the market was roughly around 92 million tons, with a slow start in China. Today, for the first half of 2024, we're likely at 95 million tons to 96 million tons. When looking at demand growth, it's been strong and healthy across different sectors compared to last year. Outside China, growth rates are about 3% over last year, while in China, we’re seeing traditional demand growth at around 4% to 5%. Energy-related demand in China is also increasing at similar rates. So, we’re in a structurally tight market now with inventories tight. There's potential fluctuations with MTO shutting and starting, but overall inventories are reflective of the tight market.

Hassan Ahmed, Analyst

Very helpful, Rich. Thank you so much.

Rich Sumner, President and CEO

Thanks.

Operator, Operator

Thank you for your question. Our next question comes from the line of Nelson Ng with RBC Capital Markets. Your line is live.

Nelson Ng, Analyst

Great. Thanks, and good morning, everyone. First question is on Trinidad in terms of Titan restarting and mothballing Atlas. Now that you're approaching that point, should we expect any kind of one-time costs to impact EBITDA in Q3? Additionally, does the current gas contract set to expire at the end of September?

Rich Sumner, President and CEO

In terms of costs, you shouldn't expect any significant costs. We're planning for a seamless transition from Atlas to Titan, so we don't expect a lot of downtime or production loss in Trinidad. The gas contracts should change over mid-September.

Nelson Ng, Analyst

And to clarify regarding the Atlas asset, are there any expectations around write-downs or remaining debt past the current transition?

Rich Sumner, President and CEO

No debt at Atlas. When we think about asset values there, we view Trinidad as a group. We do assess those values annually, but I don't foresee angle asset write-downs at this time. These assets are older, so we don’t have a ton of book value associated with them.

Nelson Ng, Analyst

Great, thanks. My next question relates to the Entropy development. If I understand correctly, Methanex is not investing significantly in capital for this project. It seems most will come from the partner or grants. From your perspective, will Methanex mostly incur operating costs and CO2 feedstock costs? In that case, will it be somewhat neutral from a cost per metric ton of methanol production, or will it cost you more due to producing lower carbon-intensive methanol?

Rich Sumner, President and CEO

The commercial arrangements aren't finalized yet, which is important to say at this point. Part of the Pre-FEED will involve examining what those commercial structures should look like. In initial press contact, we indicated that Entropy would own the unit, being the technology provider and experts on this. The economics will involve two-thirds of the value coming from methanol production and the other third coming through carbon credits for sequestering CO2. We need to ensure the project's viability based on current economics and regulatory support available for moving forward during this stage.

Nelson Ng, Analyst

So, to summarize, Methanex's goal is to be cost neutral while generating lower carbon-intensive methanol? Is that the essence of your financial objectives?

Rich Sumner, President and CEO

It’s important to clarify that there isn’t a developed Blue Methanol market that we expect will support this project. The focus is primarily ensuring that the value created by this methanol production remains competitive within the conventional methanol market.

Nelson Ng, Analyst

I see. That makes sense. I'll leave it there. Thank you.

Operator, Operator

Thank you for your questions. Our next question is from the line of Matthew Blair with TPH. Your line is live.

Matthew Blair, Analyst

Thank you. Good morning, Rich. Could you give us a sense of how much inventory you're looking to build in the third quarter or any sort of metrics like days inventory that you're targeting with G3 online?

Rich Sumner, President and CEO

I think, first and foremost, a lot of the inventory will be managed through our sales levels. We don't expect a dramatic change in sales levels with G3. What we will see is a mix of inventory—we'll have more produced product and less purchased product in our system. So, we're not targeting a change in inventory specifically to support G3. What we want is primarily lower cost inventory that we'll be holding compared to market prices, leading to potential positives on our working capital.

Matthew Blair, Analyst

Sounds good. And the G3 delay costs were $25 million in the first quarter, down to $13 million in the second quarter. Should we pencil in anything for the third quarter?

Rich Sumner, President and CEO

One month of G3 delay cost for July, so that can be taken from our second quarter figure divided by three.

Operator, Operator

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

Laurence Alexander, Analyst

Good morning. Could you give a quick update on how quickly the marine demand should be growing in the next couple of years? We see the longer-term build rate, but just how much of an impact should we consider for next year? How are those companies discussing their reliance on supply given the tight market?

Rich Sumner, President and CEO

On the marine demand, we discussed last year being the first year where methanol ships outpaced LNG in terms of the order book. Currently, we expect that order book will exceed 300 ships on the water by 2028 or 2029 timeframe. Demand potential should start off next year around 1.5 million tons, increasing to approximately 3.5 million tons, and then building up to 7 million tons, finally trending towards 10 million tons. The question of operational fuel use remains because these are dual fuel vessels. We’re having many discussions with shipping companies about securing supply, focusing mainly on low-carbon or green methanol. Many shipping firms are realizing that availability is low and costs are high right now. Conventional methanol discussions are also ongoing. Securing supply will be critical. It's hard to provide precise numbers until we can establish contracts and work with the shipping industry as they make their fuel choices. More insight will come as we get closer to the timeframes when these ships hit the water.

Laurence Alexander, Analyst

Thank you.

Operator, Operator

Thank you for your question. Our next question comes from the line of Charles Neivert with Piper Sandler. Your line is live.

Charles Neivert, Analyst

Good morning, guys. You talked about MTO being the tipping or balancing point for the industry. Can you discuss where the price of methanol needs to be to push it out or pull it back in? We're balancing on the line, so can we go higher and still keep MTO plants operational? Assuming ethylene and polyethylene markets remain approximately where they are, what's the pricing perspective?

Rich Sumner, President and CEO

We're at historically low pricing, so it's hard to envisage it getting worse. Ethylene and propylene prices in Asia have ranged between $800 and $900 per ton for some time. This would correlate with about a $40 oil price environment. Currently, methanol pricing is around that $280 level. Many MTO operations are integrated downstream, which generally increases the overall value along the value chain. As methanol pricing moves above around $320 to $350, we start to witness some production pressure. Presently, pricing is around $290 and holding, and we've seen recent activity with one large-scale MTO unit starting up. I view that we're in this dynamic between the cost curve and MTO affordability around the $280 to $320 level.

Charles Neivert, Analyst

Thanks very much.

Operator, Operator

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

Rich Sumner, President and CEO

Great. Well, thank you for your questions and interest in our company. We hope you'll join us in November when we update you on our third-quarter results.

Operator, Operator

Thank you. And this does conclude today's conference call. You may now disconnect. Have a great day.