Earnings Call Transcript
Methanex Corp (MEOH)
Earnings Call Transcript - MEOH Q3 2021
Operator, Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation, Q3 2021 Earnings Call. I would now like to turn the conference call over to Ms. Kim Campbell. Please go ahead, Ms. Campbell.
Kim Campbell, Speaker
Thank you. Good morning, everyone. Welcome to our Third Quarter 2021 Results Conference Call. Our 2021 third quarter news release, management's discussion and analysis, and financial statements can be accessed from the reports tab of the Investor Relations page on our website at methanex.com. I would like to remind our listeners that our comments and answers to your questions today may contain forward-looking information. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Certain material factors or assumptions were applied in drawing the conclusion or making the forecasts or projections, which are included in the forward-looking information. Please refer to our third quarter 2021 MD&A and to our 2020 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, 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. These items are non-GAAP measures that do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to the measures presented by other companies. 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 matter. 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.
John Floren, CEO
Thanks, Kim, and good morning, everyone. This morning, a few members of our executive leadership team are joining me, including Ian Cameron, our SVP finance and CFO; Vanessa James, who previously led our marketing and logistics organization and now leads our Corporate Development Functions, including the execution of our Geismar 3 Project, as well as our sustainability function; and Rich Sumner, who was recently appointed to lead our market team and logistics organization after working for many years with the company in various finance and marketing roles around the world. Mike Herz, who led our Corporate Development Functions and Geismar 3 Project recently retired from the company after 26 years of exceptional and dedicated service. Today, we will review our strong third quarter 2021 financial results, discuss our latest views on the methanol market, talk about our operational results, and share our robust outlook as we enter the fourth quarter, and we will open up the call for your questions. Turning to our financial results, we recorded adjusted EBITDA results of $264 million in the third quarter and adjusted net income of $99 million or $1.29 per share. Our adjusted EBITDA results reflect continuing strong methanol price environment, partially offset by lower sales of Methanex produced ethanol. In the third quarter, we increased our average realized price to $390 per tonne, a $14 increase compared to the second quarter. Our results illustrate the significant leverage that our earnings have to methanol prices. In addition, amid a rapidly rising energy price environment, our results highlighted our low-cost structure and the value of our natural gas arrangements as approximately 65% of our near-term North American feedstock requirements are managed through fixed-price contracts. And the majority of natural gas agreements across the rest of the world are linked to methanol prices. Now turning to the methanol market. In the third quarter, methanol market conditions remain tight with ongoing industry supply challenges. Traditional methanol demand was flat as various factors, including supply chain disruptions, extreme weather events, and global energy shortages, impacted industrial production levels and constrained demand growth. Demand for methanol-to-olefins or MTO producers was lower in the third quarter due to plant maintenance activities and China's government-mandated industrial operating rate restrictions intended to limit energy consumption and energy intensity. Demand from other energy-related applications was steady. Ethanol industry resupply continues to be impacted by various factors. In North America, Hurricane Ida and technical issues affecting methanol industry production. In Europe, sharply rising natural gas prices and planned and unplanned outages constrained methanol industry production. In China, limited coal supply and government mandated industrial operating rights restrictions, as noted earlier, to manage total energy consumption and energy intensity curtailed methanol production. Over recent weeks, global energy shortages and increasing coal, oil, and natural gas prices are impacting methanol supply and methanol demand, leading to a sharp increase in methanol prices and a significant steepening of the industry cost curve. We estimate a sharp rise in the industry cost curve with an average range over the past several weeks for approximately $450 to $500 per tonne. We have seen significant volatility in coal markets, and more recently, we've seen downward pressure in the coal futures market as a result of announced government intervention in the coal market in China, giving historically high pricing levels. We recently posted our November prices, which increased by $83 to $692 per tonne in North America, and increased by $90 to $600 per tonne for Asia Pacific. We set our European contract price quarterly, and our fourth-quarter posted prices are €490 or approximately $575 per tonne. Starting in January 2022, we are introducing a new posted price for the China market. We will continue to post the Asia Pacific price for customers in the region excluding China. We're making this change to better reflect the different market fundamentals in China compared with other countries in the region. Our outlook for the methanol industry is positive, and we believe that new industry supply will be needed to meet growing demand over the next five years. Now turning to our operational results. Our third quarter 2021 production of 1.5 million tonnes was slightly lower than the second quarter. Production in New Zealand was lower in the third quarter compared to the second quarter, primarily due to the short-term commercial arrangement to make natural gas available to support a tight New Zealand electricity market from early June to late August. Since then, we've operated both of our ordinary plants. We estimate production in New Zealand for 2021 of 1.3 million tonnes. The upstream gas sector is completing several field development projects that could improve gas availability over the coming years. In Geismar, during the third quarter, we shut down our Geismar 1 and 2 plants as a precautionary measure to ensure the safety of our team members during Hurricane Ida. Fortunately, the hurricane only caused very minor damage, and we restarted production after approximately two weeks. The production impact of this outage was approximately 100,000 tonnes, which offset higher production resulting from the completion of our Geismar 2 bottlenecking projects earlier this year. In Chile, our production in the third quarter was similar to the second quarter. We typically experience lower gas deliveries in the southern hemisphere winter months impacting our second and third quarters. We recently restarted production at our Chile IV plant, which was idle for the last 18 months, and expect to operate both plants during the southern hemisphere summer months to the end of April 2022. We estimate production in Chile for 2021 of 800,000 tonnes. Our Atlas plant in Trinidad, as well as our Egypt and medicine plants operated well during the quarter. Turning to our balance sheet, we ended the third quarter in a strong financial position with over $900 million in cash, and $900 million of undrawn backup liquidity. We previously announced the strategic shipping partnership with Mitsui, OSK Limited, or MOL, with proceeds of $145 million. We recently finalized definitive agreements for this partnership and closing is expected in the coming months, subject to regulatory approval and after all the customary conditions are met. Turning to our capital allocation priorities, we generate meaningful cash flow across a wide range of methanol prices. Our capital allocation priorities remain the same. We use the cash we generate to maintain our business, pursue valuable growth opportunities, and continue to have a strong track record of returning excess cash to shareholders. We recently restarted construction of our Geismar 3 project, a unique project with significant capital and operating cost advantages that will strengthen our asset portfolio and substantially improve our future cash generation capability. Our capital cost estimate for the project is $1.25 billion to $1.35 billion. We have committed approximately $455 million to the project as of the end of Q3 2021. And we expect approximately $800 million to $900 million of remaining capital costs to be capitalized before capitalized interest, or approximately $100 million per quarter from October 2021 onward. We are confident in our ability to complete this project on time and on budget, and we have substantially reduced the project execution risk profile. Our remaining budget includes allowances and contingencies for both cost escalation and the remaining risks of the project. We are targeting commercial operations at the end of 2023 or early 2024. With our strong liquidity position and cash flow generation, we are well positioned to fund the Geismar 3 project from cash and build on our long-term track record of returning excess cash to shareholders. We recently announced that we reset our quarterly dividend to 12.5 cents per share and commenced the 5% share repurchase program. At this time, guys, Murphy is the only significant capital growth capital in our plans over the next few years. We expect G3 will substantially increase our cash generating capability and support a significant increase in our future shareholder distribution potential. Now turning to our outlook for the fourth quarter; global energy shortages and escalating coal, oil, and natural gas prices are leading to a sharp increase in methanol prices. We expect realized methanol prices in the fourth quarter of 2021 will be significantly higher than the third quarter based on our current posted price. The forecasts suggest that our fourth-quarter production will be higher than the third quarter as we started our Chile 4 plant in early October. We restarted our Motunui plant in New Zealand in late August. And we expect to run our Geismar plants at full rates without an unplanned two-week shutdown due to Hurricane Ida, as well as realizing the benefits of the completion of the debottlenecking project. So, as a result, we anticipate our adjusted EBITDA results in the fourth quarter to be considerably higher than the third quarter. We would now be happy to answer any questions.
Operator, Operator
Thank you. The first question is from Joel Jackson from BMO Capital Markets. Please go ahead.
Joel Jackson, Analyst
Hi. Good morning, John. I have a couple of questions. I'll ask one by one, if that's okay. I think we're in a very complex part of the methanol cycle right now, many of you would agree. When we look at some of the academic or theoretical numbers out there, like, it would seem like maybe methanol is pushing up against its theoretical maximum price, right? So it seems like the equivalent energy value is similar now for methanol and gasoline in China, which I think some could argue is potentially the maximum unless oil and gasoline prices rise further. I know you don't predict the future, but all the things going on, gas, coal, cost curves rising, methanol going up, gasoline prices catching up? I mean, how do you look at that right now in terms of the methanol price environment, where we go from here?
John Floren, CEO
Yeah. Well, it's supply-driven, the current issues and the price rises we've seen in a number of productions, as I mentioned in my remarks, have come off around the world, which is leading to less supply and more demand. And you're right to point out, when that happens, prices will rise, so the marginal demand is impacted to get the world back in balance. What is that price today? It's probably changing every day based on all the factors you mentioned, coal, natural gas, etc. So again, we're a bit surprised on how quickly prices have risen here in the second half, but nobody was planning on the tight energy environment and high prices that we're seeing there. So, again, you're right to say, the future is hard to predict. But I think we're enjoying the benefits of a higher energy environment and some supply challenges that we don't expect to solve themselves in the near term.
Joel Jackson, Analyst
That's really helpful. And then, I went after the buyback, could you able to comment on how much stock you have been able to buy back so far in October? Based on September public data listed, you're doing about 17 shares a day, which would put your 5% buyback kind of done in about a year or less. Is that the idea to try to keep that buyback evenly? And maybe if you want to comment on that, can you please comment on how much you bought back in October so far?
John Floren, CEO
I can't provide specific comments on that, Joel. Generally speaking, we want to maintain enough cash on our balance sheet to complete G3, which we currently have, along with an additional $200 million to $300 million. Any cash above that will be returned to shareholders. Q4 is looking quite strong, and we anticipate generating significant cash. By the end of the quarter, I believe we will meet those targets. We can then consider accelerating the buyback and other options. Currently, we have approximately 5% out there and believe we can achieve another 3% to 4% within the next 12 months. Our primary focus now is to complete G3 and return any excess cash above $1.1 billion to $1.2 billion to shareholders.
Joel Jackson, Analyst
Thank you.
Operator, Operator
Thank you. The next question is from Nelson Ng from RBC Capital Markets. Please go ahead.
Nelson Ng, Analyst
Great. Thanks. John, I want to follow up on your comment regarding the supply crunch and your view that it's not going to get resolved anytime soon. Like, in China, are you seeing any easing, given I think they had some energy consumption restrictions in China? That have you seen them easing? And I guess, there's the recent steps they're taking to improve or increase coal supply? So, does that help the supply side at all from your perspective?
John Floren, CEO
It really depends on the timeframe. Right now, we are still observing the dual control situation in China, which is significantly affecting both supply and demand as we approach the winter months. Natural gas remains a major raw material for methanol production in China, and we are all aware of the LNG price trends. While the government has intervened with policy decisions regarding coal, there’s uncertainty about how long it will take for coal to stabilize in China, especially as we enter their winter season, when coal consumption increases. We do not anticipate an immediate turnaround to conditions prior to the coal and energy crisis. However, we believe that over time, things are likely to rebalance, though it will probably require some time according to our assessment.
Nelson Ng, Analyst
Thank you. My next question is about logistics. Although the shipping market is different now, the container shipping sector has faced many challenges, partly due to tight labor markets. Have you experienced any delays from a logistics perspective on your side?
John Floren, CEO
No, this is one of our key competitive advantages that we talk about quite frequently. We have our own ships that we can move around the world wherever we want, and we have terminal relationships along with our own terminals. Nothing has really changed in the last quarter. I mentioned on the last call that we were seeing slight delays due to the shortage of pilots in China, which adds one to two weeks for discharge, but it doesn't impact our ability to serve our customers. Fortunately, we're not experiencing the same supply chain issues that most of our customers are facing.
Nelson Ng, Analyst
Okay. And then just one last question on G3. I know you flagged that you've factored in a number of contingencies. But out of the remaining, like $800 million or $900 million of CapEx remaining, do you have a rough breakdown in terms of how it breaks down into like materials, labor, and equipment? I'm just wondering how large the labor component is?
John Floren, CEO
Yes. I think I've guided to that on projects before, and really there's three big components of the project and labor is the biggest one. Like I said before, most of the equipment is purchased. We still have some non-strategic equipment to get on site, but it's really labor. So the two big components are labor rates, which we've guided to, are about the same as when we did G2, and that's still the case today and then productivity. And we'll know more about what we expect in productivity as we ramp up the site. So I think we have about 500, 600 workers on the site today, and I think it will equal to be over 1,000. So we have a large owner's team, much larger than we had for G1 and G2, and we're really trying to manage the scheduling the productivity issue, working with our Kvr, the engineering contractor on the job.
Nelson Ng, Analyst
Okay, thanks. That's good color. I'll leave it there.
Operator, Operator
Thank you. The next question is from Jacob Bout from CIBC. Please go ahead.
Jacob Bout, Analyst
Good morning.
John Floren, CEO
Morning.
Jacob Bout, Analyst
First question is on methanol demand disruption. I know you said in the MD&A, that there was a 1% decline in global methanol demand in the third quarter. Are you seeing signs of demand destruction now? I know there's some industry reports talking with MTO being evidence to our flow rates and how are things shaping up in the fourth quarter versus the third quarter?
John Floren, CEO
So, we are seeing demand impacted by the controls I've mentioned in China. So, there's limits on how in certain provinces, how industries can operate in the third quarter, which has happened. Pricing is pretty volatile in that sector. So, when we're up at the 550-ish range, that would certainly have been economically challenged for some of the MTO players, not all. And then the rest of the world, like I've mentioned, we've seen these high energy prices in Europe, for example. So, some customers are cutting back production because the energy costs are so high, and we had some disruptions in the Gulf because of the hurricane. So, I don't expect gas prices to ease in Europe in the winter, but we're not counting on another hurricane in the Gulf. So we should see demand improvement there. We do worry about inflation as well. We have a high inflationary environment, maybe consumer demand wins probably not this quarter, but that's another thing we're watching. So, we're not anticipating a demand drop in Q4, but we're watching it closely.
Jacob Bout, Analyst
Okay, then my second question is just on gas costs. You touched a bit on this in the beginning of the call, but in your mind, how much of your gas right now is tied to spot versus linked in methanol price and how much of your gases is hedged?
John Floren, CEO
In North America, we have 65% of our gas hedged for fixed price. The rest of the world is really linked to methanol. So, as methanol prices move, our gas cost moves, and about 35% of our gas in North America is related to spot pricing.
Jacob Bout, Analyst
And then how far forward are you hedged in?
John Floren, CEO
We've implemented hedges over several years, resulting in a variety of different hedges. We have fixed prices secured for another 10 years, so the duration varies depending on the specific hedge or fixed price arrangement.
Jacob Bout, Analyst
Leave it there. Thank you, John.
John Floren, CEO
Thanks.
Operator, Operator
Thank you. The next question is from Edlain Rodriguez from Jefferies. Please go ahead.
Edlain Rodriguez, Analyst
Good morning guys. John, quick question. I mean with methanol prices up significantly, are you seeing or do you believe you might see that the supply response could change in terms of guys pulling forward, the supply coming in?
John Floren, CEO
Well, we would have expected anybody that could run last quarter should have run hard. And we certainly didn’t see a lot of new idle supply come on. We're not anticipating any other supply coming on in the quarter. The cost curve, as I mentioned, is still at 450 to 500 range today, over the last week or so. So, I think there's still a really high cost curve that's underpinning methanol pricing. So, we don't expect additional supply to come on in the next few quarters.
Edlain Rodriguez, Analyst
Okay. And also related to methanol prices being up so much, like any concerns that the rate of adoption for new applications, like an industrial process, could be slowed down because of prices getting up so high?
John Floren, CEO
Well, you know, when we're looking at new adoption, they're really being driven by environmental issues by clean burning fuels. So, we're competing with other potential clean burning fuels, and those prices have also gone up quite substantially. So we don't believe that it will be any impact on the adoption of methanol as a clean burning fuel as a result of current prices.
Edlain Rodriguez, Analyst
Okay. Thank you, guys.
John Floren, CEO
Thank you.
Operator, Operator
Thank you. The next question is from Mike Leithead from Barclays. Please go ahead.
Mike Leithead, Analyst
Great. Thanks. Good morning, guys and congrats on the quarter.
John Floren, CEO
Thank you.
Mike Leithead, Analyst
First question related to demand. I think excluding MTO, you talked about energy-related demand being flattish in the quarter. I guess, given the material move higher we've seen in all carbon prices globally, you expect to see a pickup in some of these energy markets the next few quarters? Or is there just something about the relative pricing of methanol that's limiting some uptake right now?
John Floren, CEO
No, I think those applications are really mainly for driving, not like biodiesel, MTBE, methyl, M100. And, you know, the world's not back to normal yet. People aren’t driving the way they used to. So that has impacted some of the other energy demand as things normalize and the world gets back to normal. And if people get back to their normal driving habits, we would expect those applications to increase for demand.
Mike Leithead, Analyst
Got it. That makes sense. And secondly, just on the buyback, I want to make sure I heard you right in your answer to an earlier question. It sounds like, given where the cash flow generation currently sits, you'll sort of get where you want to be by year-end, in terms of pre-funding G3, and then maybe you can get a bit more aggressive on the buyback. It sounds like you'd like to hit that 5% authorization. And then if I heard you correctly, maybe a few more percent within the next 12 months. Is that how you're thinking about it?
John Floren, CEO
Yes. So I'll be very clear. And so if we want to have around the cash on the balance sheet to complete G3 about $800 million to $900 million left about $100 million a quarter, we want to have $200 million to $300 million cash on the balance sheet to run the company. Everything above that will be returned to shareholders and right now it's through share buybacks. So that hasn't changed. And so the more cash you generate, the more we're going to turn to shareholders and the quicker we can do it.
Mike Leithead, Analyst
Makes sense. Thank you, John.
John Floren, CEO
Thank you.
Operator, Operator
Thank you. The next question is from Hassan Ahmed from Alembic Global Advisors. Please go ahead.
Hassan Ahmed, Analyst
Good morning. John.
John Floren, CEO
Good morning.
Hassan Ahmed, Analyst
I have a question about inventories. This year has been unusual, with events like Winter Storm Yuri and Hurricane Ida. Normally, in a rising pricing environment, we would expect to see restocking, but given everything that has happened, I assume inventories, which were already low, have become even leaner. What are you observing regarding global inventories? Additionally, how do you see this impacting demand growth as we move into 2022?
John Floren, CEO
Yes. I'll ask Rich Sumner, our Head of Marketing to take a crack at that.
Rich Sumner, Head of Marketing
Thanks, John. We are definitely observing low inventories throughout the supply chain. In China, we understand that over time, both growth and market demand have created limitations on storage capacity, particularly in coastal areas. We see reduced inventories in China’s coastal markets, and many of the supply and demand dynamics that John mentioned are unlikely to improve in the short term, which will likely continue to drive up prices. It will take some time to rebuild inventories within the industry, and these factors are certainly supporting the current pricing situation.
John Floren, CEO
Yeah, I mentioned earlier Hassan as well, in Europe with high gas prices, some of our customers have curtailed production as well, and that will have to be rebuilt. It really comes back to demand, so we believe there's pent-up demand out there still. And as we get back to normal, supply chains will at some point correct themselves, and people will be able to get what they want when they want it. So how long that takes, is a bit of a guess, but we do believe there's pent-up demand for sure.
Hassan Ahmed, Analyst
Very helpful, John. And as a follow-up, a question around medium to long-term supply growth. It's very interesting, last week, on Celanese’s earnings calls, and as I'm sure you know, Celanese has a pretty sizable position in China. So one of the risks that the CEO, sort of, flagged was around their raw materials and raw materials sourcing and supply, and particularly Lori, the CEO mentioned methanol, and how supply growth in methanol will not be as robust as it was in the next decade as it was in the previous decade. And rather interestingly, she talked about how commissioning is a major issue in China, and now how historically the capital cost advantage that they used to enjoy isn't really there anymore, and a variety of other issues. So the point really being that she sounded quite negative, I guess, on supply growth prospects for methanol, in particular, in China. I mean, obviously, you guys have announced G3, the timing of which in light of these comments seems quite interesting. So what are you guys seeing in terms of global supply growth, but particularly with a focus on China?
John Floren, CEO
Yeah. We've been saying the same things for some time, I'm glad somebody's listening. I think we've said in China that directionally, they're not going to grow their methanol production, and where they'll grow it is in Inner Mongolia, not on the coast where a lot of consumption is. So they're going to need imports and more imports. Energy is an issue, you can see how quickly that's turned to an issue in China. And directionally, they're going to use their energy for heating and electricity, and they're moving up the value chain as well, in all industries, not just in methanol, cement, steel, et cetera. I mean, they're moving away from those industries, and more up the value chain. So those trends have been going on for some time. And then outside, trying to work, and you build a methanol plant today, and you have to have a price of $400 for 20 years in mind to get a double-digit return at $3 to $4 gas. So I think everybody's faced the same issues. And that looks hard to do today. And then how do you get it financed in that environment. So I think that hasn't changed, and we had a period here recently of $250 pricing for some time, and banks and lenders remember that. So I think unless you have a strong balance sheet like we do, and cash generation capability, financing these $1.3 billion to $1.5 billion projects are really difficult. As far as us, I mean, we're, yeah, G3 is going to be perfect as far as timing, as far as cost structure, as far as emissions and CO2 emissions, et cetera. It's going to be the best in the world, so we're quite happy about it. But for other growth, our focus is on getting our second plant in Trinidad restarted and our third plant in New Zealand restarted, that's the cheapest way we can grow our production, and that's what we're going to focus on.
Hassan Ahmed, Analyst
Very helpful, John. Thank you so much.
Operator, Operator
Thank you. The next question is from Eric Petrie from Citi. Please go ahead.
Eric Petrie, Analyst
Hi, good morning, John.
John Floren, CEO
Good morning.
Eric Petrie, Analyst
You expected methanol demand to return to more historical rates of 3% to 4% next year, excluding China dual control and hurricane weather events?
John Floren, CEO
Yes. Depends on your forecast for GDP, assuming MTO operates at around 70% to 80%. And we get 3% GDP growth? Yes, we would expect that kind of growth in a high inflationary markets. It's hard to know if GDP will probably be compressed. So that to me those are the two things we watch as GDP and MTO rates.
Eric Petrie, Analyst
Okay. And then will your production, methanol produced tonnes grow in lockstep with that, or do you think you'll do better with the recent G1, G2 expansions? Or how should we think about growth in production with your turnaround next year versus this year?
John Floren, CEO
Yes. So it depends on gas availability in Chile. That'll be what drives our production. We have right now we're running at high rates in Chile. And we'll see how it looks there next winter or next summer, but assuming it's similar to this year. I think we don't telegraph turnarounds. So I always say two to three per year. And that's still the guidance. But our debottlenecking is done in Geismar, and provided no hurricane events, we will do better there next year than this year. And hopefully in New Zealand, we won't have to sell on our gas to the electricity market next year. But who knows? Obviously, we don't want the country not to have heating electricity. So assuming that doesn't happen, we'll be better in New Zealand as well. So I anticipate I'd be very surprised if our production next year is not higher than this year.
Eric Petrie, Analyst
Okay. Thank you.
Operator, Operator
Thank you. The next question is from Matthew Blair from Tudor, Pickering, Holt. Please go ahead.
Matthew Blair, Analyst
Hey, good morning, John. Given our methanol crisis, are there any prospects for a short-term opportunistic restart at Titan in Trinidad?
John Floren, CEO
Yes, short-term is not possible. We don't have the people, if you recall, we have to spend some capital. So we don't have the opportunity to start it off in an opportunistic way. And even if we did, it probably doesn't make sense the amount of money you spend to start it up and not knowing how long high prices are going to last. So we're still focused with the government on a five-year contract that allows us to be profitable through the cycle. And that's still what we're focused on.
Matthew Blair, Analyst
Got it. And then I think on the original modeling functions. You got all the incremental production from G3 going to Asia? Is that still a good assumption? And I just asked, given the case of demand recovery. And also because it seems like given the size of G3, it's probably lower on the cost curve than from your North American peers. Just thoughts on that?
John Floren, CEO
Yes, we're still modeling it that way. But obviously, we're going to try to sell as many of those molecules closer to home, because the economics are better. But I think from a modeling perspective, and we're talking about returns, et cetera. It was intellectually the right thing to do to say, the worst-case scenario, we have to bring 1.8 million tonnes to Asia or China and Asia. And so we're still modeling it that way. But as things evolve here, if we can sell more in the Atlantic Basin, obviously the economics improve.
Matthew Blair, Analyst
Great, thank you.
Operator, Operator
Thank you. The next question is from Adam Starr from Gulfside Asset Management. Please go ahead.
Adam Starr, Analyst
You mentioned that you're going to have a separate price sheet for China at the beginning of the year. Based on past history, how will the Chinese price compare with the rest of Asia Pacific? And how does your volume breakdown between those markets?
John Floren, CEO
Yes, we're selling about a quarter in China and about 20% into Asia Pacific in any given year. You know, in the recent history, I'd say China has been setting the cost curve. So the pricing in China has been lower by the freight differentials to the other markets like Japan, Korea, Southeast Asia, it's about $20 to $25 lower today, and I think the last call, I was grilled quite hard about the discount. I don't know it hasn't come up today. But, you know, part of the challenge there is we were trying to maximize our overall profitability by setting an Asia Pacific price that, you know, made sense for all the markets and with China being on average, $20 to $25 lower, it was impacting our discounts. So having the two separate prices, hopefully will help with that issue. And that's why we decided to go that way.
Adam Starr, Analyst
But it's really not going to affect what you make. It's just going to be a little more transparent to us.
John Floren, CEO
That's correct. That's right.
Adam Starr, Analyst
Thank you very much. Also, are higher gas prices making the Trinidadians more willing to discuss a longer-term contract?
John Floren, CEO
Well, the way, at least the offers that we got, I mean, even at these prices, we'd be making very little EBITDA from a price sharing mechanism that we saw. So I don't know what our competitors are paying, but that's what we were offering.
Adam Starr, Analyst
Okay, because they're missing a pretty good boat right now. And in Chile, is there still potential for higher gas supplies down the road or is there drilling going on? Is there new gas being developed?
John Floren, CEO
Yes, there's new gas on both sides of the border Chile and Argentina. You know, and I think I've mentioned before, we need to do some maintenance work on our Chile I plants in the next few years as well to get to higher rates, but the gas availability is improving in the southern basin.
Adam Starr, Analyst
Okay, thank you very much and appreciate the outlook.
John Floren, CEO
Thank you.
Operator, Operator
Thank you. The next question is from Ben Isaacson from Scotiabank. Please go ahead.
Ben Isaacson, Analyst
Thank you very much and good morning. Two back to basics questions for you, John. First one is on the cost curve. You mentioned marginal cost is somewhere in the 450, 500 range. Over the last few weeks prices have been higher than that, which suggests we're in a demand-driven market right now where pricing is based off of affordability and not on the cost curves. So my question is, now that we're seeing pressure by the Chinese government to push coal prices lower, and at some point we will see European gas prices coming off in the spring. Will that not push methanol prices lower? Or are we truly demand-driven and affordability is pumping all else right now?
John Floren, CEO
Yes, the supply interruptions are indeed impacting the market. There isn't enough supply to meet the current demand, and that aligns with what we’ve observed. In Europe, gas prices would need to drop significantly to encourage the restart of idle capacity. In China, the situation with the coal market is still evolving, and various factors influence what methanol producers pay for coal, not just the index prices found on financial news platforms. I would say that for most of this year, we've been operating above the cost curve, and until supply meets demand, that trend is likely to continue.
Ben Isaacson, Analyst
Thank you for that. My second question is, the relationship between oil and methanol is quite complex. There's direct relationships, there's indirect relationships, there's perceived ones, etc. And I'm just trying to understand we're at $80 oil now, a $10 change in the price of oil? Can you just remind us what does that mean for methanol and from Methanex, whether you think about demand or pricing cost curves, affordability, whatever it may be?
John Floren, CEO
Yeah, there's not really a link between oil and methanol. There's no real substitutable products in the demand where a higher oil price or lower oil price will lead to less demand for methanol. But generally, I mentioned a higher energy complex is good for methanol pricing because of cost curve moves up since some supply has to come out. And demand for methanol into energy applications, which are really driven by environmental issues, is expected to grow. So I think there's no real link in our minds between the price of oil and the price of methanol on any given day.
Ben Isaacson, Analyst
Thank you.
Operator, Operator
Thank you. The next question is from Roland Rausch from Crown Extra Investments. Please go ahead.
Roland Rausch, Analyst
Hey, John, it’s Roland. How are you?
John Floren, CEO
Good. How are you, Roland?
Roland Rausch, Analyst
Hey, sorry, I might be the third person you're going after that share buyback disclosure. But can I just roll a couple of probably common understanding points? So number one, the roughly $150 million cash in I assume you still expect in Q4 so it's that pro forma that you are roughly at the 1.1 billion you mentioned before. Is that correct?
John Floren, CEO
Yeah. And plus we're going to get some hopefully the money from the MOL sale at global.
Roland Rausch, Analyst
Yeah. Okay, understood. And then I know you guys did a great job. And I guess it was July 16, where you laid out kind of, I think it was 865 actually, I'm talking about G3 CapEx? Is any of that changed? I think it was 100 in Q4. And then I think the large 410 in 2022, and then around 300, 350 in 2023. And again, I don't want to pinpoint you, because I know that it's a moving target. But is that roughly still what you guys expect as CapEx may have for G3?
John Floren, CEO
Yeah, so our guidance hasn't changed on the CapEx for G3. We have large contingency as I've mentioned in those budget numbers, as well I mentioned in my opening remarks about $100 million a quarter is how you should model the spend on G3 until completion.
Roland Rausch, Analyst
Okay, so basically, again, I know you answered it in five different ways already but if that sale proceeds come in, are you there to redeploy any free cash flow back to share buybacks or is that too aggressive to model?
John Floren, CEO
We are actively buying back shares every day. As we approach our targets, I believe we can increase the pace of that buyback and consider a second one within the next 12 months.
Roland Rausch, Analyst
And just one more on this, I assume there are certain blackout periods on when you can buy back shares, right?
John Floren, CEO
No, there are blackout periods when we can change the rate of buybacks. But we can see it at certainly month like getting close to quarter end, we can't change the rate, but we can give an order to buy X amount of dollars per day throughout a blackout period.
Roland Rausch, Analyst
Okay. All right. That's all I had. Thanks.
John Floren, CEO
Thanks, Roland. And best of luck for the next quarters. Thank you.
Operator, Operator
Thank you. The conference has now ended. Please disconnect your lines at this time and thank you for your participation.