Methanex Corp (MEOH) Q2 2021 Earnings Call Transcript

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Methanex Corp (MEOH 4.52%)
Q2 2021 Earnings Call
Jul 29, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation Q2 2021 Earnings Call. I would now like to turn the conference over to Ms. Kim Campbell. Please go ahead, Ms. Campbell.

Kim Campbell -- Director, Investor Relations

Good morning, everyone. Welcome to our Second Quarter 2021 Results Conference Call. Our 2021 second 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 conclusions or making the forecasts or projections which are included in the forward-looking information. Please refer to our second 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 similar 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 manner.

I would now like to turn the call over to Methanex's President and CEO, Mr. John Floren for his comments and a question and answer period.

John Floren -- President and Chief Executive Officer

Thanks, Kim. Good morning, everyone. Today, I'm pleased to discuss our excellent second quarter 2021 financial results. In addition, we will share our view of the methanol markets, review our operational results and discuss our outlook entering the third quarter. We would also make a few remarks regarding our decision to restart construction on our Geismar 3 project, our strategic shipping partnership, and our priorities around capital allocation, including the recent announcement to increase the quarterly dividend. Then we will open up the call for your questions.

Turning to our financial results. We increased our average realized price in the second quarter to $376 per tonne, a $13 increase compared to the first quarter. Adjusted EBITDA increased to $262 million in the second quarter, an increase of $20 million compared to the first quarter. We also recorded higher adjusted net income of $95 million or $1.24 per share in the second quarter, an increase of $13 million or $0.17 per share compared to the first quarter. These results illustrate the significant leverage that our earnings have to methanol prices.

Now turning to the methanol market. Over the last 12 months, methanol prices have rebounded as the global economic recovery continues and vaccines rollout worldwide. Current methanol industry dynamics are favorable, supported by strong methanol demand, low global inventory levels, ongoing industry supply challenges, and a constructive energy price environment. We estimate that the global demand, methanol demand increased by approximately 3% in the second quarter compared to the first quarter, we anticipate that global methanol demand will surpass pre-pandemic level later this year. Strong methanol demand combined with ongoing industry supply challenges around the world and the delayed start-up of new industry capacity additions supported higher prices in the second quarter, with tight market conditions continuing into the third quarter. We estimate that the industry cost curve set in China has increased to approximately $300 to $320 per tonne, supported by rising coal and natural gas prices.

We recently posted our August prices which remained at $542 per tonne in North America and $420 per tonne for Asia Pacific. We set our European contract price quarterly and our third quarter posted price is EUR410 or approximately $485 per tonne. As we mentioned on our call in mid-July, over the last few months we completed a comprehensive review of the medium to long-term industry outlook. We reviewed our expectations for demand growth, the timing for new industry capacity additions, and industry operating rates for new and existing methanol plants over the coming years. Based on that work we believe that the methanol industry medium term outlook is positive. And new industry supply will be needed to meet growing methanol demand over the next 5 years.

Now turning to our operational results. Our second quarter 2021 production of 1.5 million tonnes was lower than the first quarter, primarily due to the lower gas availability in New Zealand and Chile. In New Zealand, our production was lower in the second quarter compared to the first quarter due to ongoing lower gas deliveries. In addition, we agreed to a short-term commercial arrangement with Genesis Energy to make natural gas available to support a tight New Zealand electricity market. As a result, we temporarily idled one of our Motunui plants for approximately 3 months. We expect the margin from the sale of gas will be offset, the margin loss from the lower forecasted production volume of 85,000 tonnes. We estimate that production in New Zealand for 2021 of 1.4 million tonnes. The upstream gas sector is completing several field development projects that could improve gas availability over the coming years. In Geismar our production in the second quarter was higher than the first quarter as we completed a planned turnaround at our Geismar 2 facility in the first quarter. We finished the debottlenecking project at our Geismar 2 plant in the second quarter of 2021, following the work completed at our Geismar 1 plant late in 2020. As a result, our operating capacity for our Geismar facilities is now 2.2 million tonnes on an annual basis, an increase of 10%.

Completed for [Phonetic] capital costs were approximately $125 per tonne for the addition of 200,000 tonnes of capacity. In Trinidad our production in the second quarter was higher than the first quarter, as we received full gas deliveries. Based on current gas delivery, we estimate that production in Trinidad for 2021 to be 1.1 million tonnes, reflecting Methanex's equity interest.

In Chile, as expected, our production in the second quarter was lower than the first quarter. We typically experience lower gas deliveries in the Southern Hemisphere winter months impacting our second and third quarters. We should receive higher gas deliveries in the fourth quarter and we estimate production in Chile for 2021 to be 800,000 tonnes to 900,000 tonnes.

In Egypt, our production in the second quarter was slightly lower than first quarter due to minor technical issues that have been resolved. In Medicine Hat, our production in the second quarter was similar to the first quarter as the plant ran at nearly full operating rates.

Now turning to our balance sheet. We have a strong financial position with over $750 million in cash on our balance sheet at the end of the second quarter. This amount reflects our strong adjusted EBITDA results in the second quarter and the repayment of $173 million drawn on our G3 construction facility. We've previously announced a strategic partnership, shipping partnership with Mitsui O.S.K. Limited or MOL, with the proceeds of $145 million expected by the end of 2021. This transaction will not have a material impact on our earnings. Our Waterfront Shipping subsidiary generates revenue from shipping methanol to Methanex customers and third-party backhaul arrangements. As a result of the partnership MOL will be entitled to a proportional share of Waterfront net earnings, which fluctuate based on ship volume and tanker market rates. However in terms of our financial statements our ownership of Waterfront Shipping now and after this transaction is complete, is accounted for on a consolidated basis resulting in a 100% of the revenues and expenses being included in our financial statements. We continue to generate meaningful cash flow across a wide range of methanol prices and have an undrawn backup liquidity, including our $600 million G3 construction facility and our $300 million revolving credit facility.

Now turning to our Geismar 3 project. We were pleased to announce that our Board unanimously approved the restart of the construction of our Geismar 3 project, a unique project with significant capital and operating cost advantages that enhance the project returns. An abundant low cost natural gas supply in the US underpins production for this project. In addition, we estimate that G3 will have one of the lowest CO2 emission intensity profiles in the industry. Ultimately Geismar 3 will strengthen our asset portfolio and substantially improve our future cash generation capability. We believe that Geismar 3 will deliver significant long-term value to our shareholders. Our capital cost estimate for the project is $1.25 billion to $1.35 billion, we expect that approximately $435 million will be committed to the project as we end, as at the end of Q3 2020 [Phonetic] around, through the care and maintenance period. We expect approximately $800 million to $900 million remaining capital cost after resuming construction in October 2021. We are confident in our ability to complete this project on time and on budget. We have substantially reduced the project execution risk profile over the last 24 months. We are well positioned from a labor perspective as construction on our project is ahead of other major capital projects in the region. We have also secured prices for the majority of our bulk material costs, our remaining budget includes allowances and contingencies for both escalation and the remaining risks on the project.

And lastly, turning to our capital allocation priorities. Our capital allocation priorities remain the same. We use the cash that we generate to maintain our business, pursue value accretive growth opportunities and continue our strong record of returning cash, excess cash to shareholders. Going forward, we will increase our emphasis on financial flexibility in three ways. We plan to hold more cash targeting, targeting a minimum of $300 million of cash on hand, plus the remaining G3 capital cost during construction. We plan to target lower leverage and reduce our debt levels over time to a target of approximately 3 times debt-to-EBITDA at methanol prices between $275 per tonne to $300 per tonne. And we will increase our weighting on flexible vehicles for distribution such as share buybacks, combined with sustainable dividend to return capital to shareholders. We recently announced that we reset our quarterly dividend to 12.5 cents per share. We anticipate that we will have the ability to further de-lever and increase shareholder distributions such as share buybacks in a few quarters at methanol prices of approximately $325 a tonne or higher. Geismar 3 is the only significant growth capital in our plans over the next few years. We expect that G3 will substantially increase our cash generation capability and support a significant increase in our future shareholder distribution potential.

Now turning to the outlook for the third quarter. We expect to realize methanol prices in the third quarter of 2021 will be similar to the second quarter based on our posted prices so far. We forecast that our third quarter production will be similar to the second quarter. We anticipate our adjusted EBITDA results in the third quarter to be similar to the second quarter.

Finally, I wanted to mention that we recently published our Annual Sustainability Report, we have publicly reported on our sustainability performance since 1997 and continue to enhance our sustainability and ESG related disclosure to align with evolving best practice and to support greater transparency and comparability. This year our disclosure is aligned with the Sustainability Accounting Standards Board or SASB reporting standards for the chemical and marine transportation sectors. Also our disclosures reference some aspects of the Task Force on Climate-Related Financial Disclosures or TCFD and some requirements of the Global Reporting Initiative or GRI. We will continue to look at ways that we can improve our sustainability performance and reporting over the coming years.

I would now be happy to answer any questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And the first question is from Steve Hansen from Raymond James. Please go ahead, your line is now open.

Steve Hansen -- Raymond James, LTD -- Analyst

Yeah, good morning guys. John just thinking about Chile specifically for a minute. In the past you've gone through the effort of refurbing Chile I and then starting Chile IV, this is all pre-COVID. But just give us a sense for where the gas availability might lie there in the region right now and any plans you might have over time to think about two plant operation. I understand that COVID required some reshuffling of the production asset profile. But just getting it done for now that we're in a recovery mode here where you, what do think about that that complex moving forward.

John Floren -- President and Chief Executive Officer

Yeah, the gas profile in Argentina has improved a lot in the last 12 months. We're running our plant right now on Chile Gas and that profile has also improved in the last 12 months. So our expectation Steve today is by the third, late third quarter, early fourth quarter, that we'll be running both plants in Chile.

Steve Hansen -- Raymond James, LTD -- Analyst

Okay, great. That's very helpful. And just, just can you clarify, I missed the number, but the metric that you cited on the cost per tonne to complete the G1, G2 debottlenecking and just now that those two projects are now complete. Any other debottlenecking projects that you might be contemplating across the portfolio? Thanks.

John Floren -- President and Chief Executive Officer

Yeah, we're always looking to get more methanol out of our existing [Indecipherable]. So we're always, have lots of ideas that we look at and execute if they make sense. So we are continuing to look for other debottlenecking opportunities, but nothing to report today Steve. The cost for completing the 200,000 additional debottleneck in Geismar was $125 per tonne.

Steve Hansen -- Raymond James, LTD -- Analyst

Very helpful, thanks, I'll jump in the queue.

John Floren -- President and Chief Executive Officer

Thanks, Steve.

Operator

Thank you. The next question is from Ben Isaacson from Scotiabank. Please go ahead, your line is now open.

Ben Isaacson -- Scotiabank -- Analyst

Thank you very much. First question is, given the changing operating in your portfolio over the past year or so, can you update us as to what percentage of your sales go into each of the three or four major methanol markets, depending on whether you grade China out of Asia or not? And based on the review that you conducted at the methanol market to restart G3, do you see G3 impacting your regional sales allocation in the future? How do you see that changing?

John Floren -- President and Chief Executive Officer

Yes, so we've earmarked 100% of G3 to go to Asia in the modeling that we've done for the economics and the IRR calculations that we've shared. So that hasn't changed. So if we're able to do better than that and place some in the Atlantic Basin, obviously that makes the economics even more attractive than what we've already published, really attractive economics. We don't disclose Ben where our product goes around the world. It's a very fluid supply chain and we move product to optimize our net-backs as well as to take advantage of certain spot situations that may arise in different parts of the world and to balance out our supply chain and inventory. So we don't really disclose what product goes where.

Ben Isaacson -- Scotiabank -- Analyst

Thank you. And my follow-up is, can you just talk about how the freight market is impacting the company, maybe discuss the magnitude of freight rates versus normal, who is bearing the additional cost, is it Methanex or is it built into prices? And I guess you being an active shipper and an owner of Waterfront, do you have an outlook in terms of how freight rates will evolve?

John Floren -- President and Chief Executive Officer

Well, we wish there were a lot higher, I mean despite what we're seeing in container markets and dry bulk liquid tankers for chemicals are still not that great, below what I'd call average prices. So we'd like to see higher prices because obviously we make more money with higher prices and we think we have a competitive advantage on our shipping. So there seems to be still lots of tanker capacity in the world and we're not seeing the same thing that the world is seeing on dry bulk and containers.

Ben Isaacson -- Scotiabank -- Analyst

Great, thank you.

Operator

Thank you. The next question is from John Roberts from UBS. Please go ahead, your line is now open.

John Roberts -- UBS Securities, LLC -- Analyst

Thank you. LyondellBasell had an unfortunate incident yesterday with their acetic acid plant. Is that methanol unit running, do you know? And will that come into the merchant market here until they can get the acetic acid plant back up again?

John Floren -- President and Chief Executive Officer

Yeah, I don't have any more information about that site than what's been reported in the press and I haven't seen anything reported regarding operations. My understanding, based on what I've read, they were in planned turnaround for the acetic acid unit. So it was a planned and they were just starting the turnaround is what I understand, and that's why their contractors were entering the unit. I don't know any more than that, John.

John Roberts -- UBS Securities, LLC -- Analyst

Okay.

John Floren -- President and Chief Executive Officer

Yeah, I agree. A really tragic event. And I think it really illustrates all the attention that we've put on safety and process safety, and you can never take your eye off the ball because there was another event in Germany this week as well in Leverkusen where two other people were killed. So really tragic events.

John Roberts -- UBS Securities, LLC -- Analyst

And then since you just updated your longer-term industry outlook, what did you assume longer term for your gas constrained plants, did you, do you assume an eventual restart at Titan or eventual restart Waitara Valley in the longer term outlook or how long do you wait before you think about other options for the equipment that's there.

John Floren -- President and Chief Executive Officer

Yeah, we're optimistic that over time we'll get those plants restarted, we've put a little bit in our 5-year outlook, but certainly not full rates for those two sites.

John Roberts -- UBS Securities, LLC -- Analyst

Thank you.

Operator

Thank you. The next question is from Joel Jackson from BMO Capital Markets. Please go ahead, your line is now open.

Joel Jackson -- BMO Capital Markets -- Analyst

Hi, good morning, John. Coming to a couple of, a couple of questions. I'll go one by one. John, thanks for giving the guidance for Q3, it looks like you're guiding to a 19% discount rate again in the third quarter, so third quarter in a row of back. Is it fair to say that based on your contracts and what's going on here and that we should be modeling as a placeholder now 19% discount rate, not 17. Now last quarter, you had said that the 19% discount rate, a little bit higher than 17 was because of some weak Chinese spot prices, the Chinese spot prices rose a fair bit in the third quarter. Can you help us reconcile all of it?

John Floren -- President and Chief Executive Officer

Yes, I'm not changing my guidance, Joel, on the discount rate at this time. If we think it's a permanent structural change we'll certainly change the guidance, we're comfortable on 17. I think I would look at the overall net-back price, that's what we look at-375 for the quarter was an excellent quarter and generated over $1 billion run rate. So we're very happy with the realized price in the quarter. And we're expecting strong pricing to continue in the second half of this year.

Joel Jackson -- BMO Capital Markets -- Analyst

Thank you for that. So, my other question is obviously different investors want different things. You know that being in this role for a long time. And you've laid out and thank you for this, couple of weeks ago what your strategy is will be around buybacks, now you want to make sure on your balance sheet you have your cash buffer, I think you said $300 million and then you would have enough cash on the balance sheet build up to finish G3, so, one other question for you is looking at what the share price is doing, there's a clear valuation disconnect, I think, between the stock price and where your earnings and cash flow power are, where commodity price levels are, typically the finance book says you should be doing share buybacks right, you should be going in the market buying your stock and reducing that disconnect. You have G3, it makes sense why you're doing it, but does this all make you think about maybe changing some of the thought that, maybe you should take on a bit more risk and buyback stock a bit earlier before having all the cash for G3 on the balance sheet.

John Floren -- President and Chief Executive Officer

Yes, so our financial strategy has not changed. I mean we fine-tune it, as you point out a couple of weeks ago, but uses for cash that's generated from the business are to maintain the business, grow the business with value accretive projects like G3 and then return excess cash to shareholders. The slight tweak is to have a little bit less on a fixed return to shareholders. So we reset the dividend at 12.5 and have more flexibility to returning cash in a flexible way to shareholders, so at $325 per tonne and higher methanol realized prices, we think in a few quarters as we de-lever a little bit and increase a little bit of cash on the balance sheet for G3 that we'll be able to enter into a share buyback, but our policy of borrowing money is not to buy back share. So any money that we borrow is for the project G3 and remind you we did change our strategy there during COVID where our plan was to use the construction loan and to draw on it as we continued on a project and with COVID we decided and then replaced that. So the construction with bonds over time and we decided to because the markets were open last September to just go out and get all the bonds, at that time. So that's why we have quite a bit of cash on our balance sheet. But it's allocated for G3 and we're not going to use it to buy back shares.

Joel Jackson -- BMO Capital Markets -- Analyst

Thank you.

Operator

Thank you. The next question is from Eric Petrie from Citi. Please go ahead, your line is now open.

Eric Petrie -- Citigroup Global Markets -- Analyst

Hey, good morning, John.

John Floren -- President and Chief Executive Officer

Good morning.

Eric Petrie -- Citigroup Global Markets -- Analyst

Methanex's posted methanol price spread between Asia and North America is kind of at a record of roughly $100 a tonne. So how do you think about it? Is it sustainable and going forward how do you see that level trending?

John Floren -- President and Chief Executive Officer

Yeah, we've said for a number of years despite lots of analysts writing to the contrary, that we think the basin balances and price differentials will continue and they are higher than we would have even assumed and that's based on production issues in the Atlantic Basin. So how long this record, I don't know if it's a record, but it is on the higher end of the differential goes. It really depends on what we and our competitors do with product that we're producing in the Atlantic Basin. So I can't predict what our competitors are going to do. We know what we're going to do and we would expect that the basin differentials to continue, maybe not at the current levels but they will continue.

Eric Petrie -- Citigroup Global Markets -- Analyst

Okay, helpful. And my follow-up question, you mentioned the higher China coal prices and natural gas prices, I think, you know coal was trading around a thousand RMB per metric tonne, double that from recent lows. So how do you see prices of coal going forward and the cost curve evolving into 2022?

John Floren -- President and Chief Executive Officer

Yeah, there's coal remains quite, we understand not readily available in China and they're consuming a lot for power generation. So if economic activity continues, we would expect coal to continue to be priced higher than what we were thinking. There is two markets in China for coal let's remember, there's the power generation market, which is really set by the government and that's not anywhere near thousand RMB per tonne. And then there is the spot market or the other traded market which, where chemicals and others get their coal and the reason it's a thousand is because of supply demand fundamentals. You're right to point out, gas has really shot up, not only in North America. You know it's almost close to $4 an mmbtu now, but in Europe it's at $12 and nobody was predicting that a year ago and that's really impacted methanol, methanol production in Europe. There is two plants in Holland. One is shut down and the other one is operating at minimal rates because of the high gas prices and you know it's hard to see at this point that those gas prices coming down in the near future based on the, on the inventories that we see in the United States, but you know these things have a way of changing quickly and nobody predicted $12 gas. But I think it's a function of a couple of years 150 gas with no investment. So I always say the cure for high prices is high prices and the cure for low prices is low prices, and that's what we see in commodities.

Eric Petrie -- Citigroup Global Markets -- Analyst

Great, thank you.

Operator

Thank you. The next question is from Hassan Ahmed from Alembic Global Advisors. Please go ahead, your line is now open.

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Morning, John.

John Floren -- President and Chief Executive Officer

Morning.

Hassan Ahmed -- Alembic Global Advisors -- Analyst

John a question on demand. You mentioned sequentially global demand was up according to your estimates by, I believe 3%. And if I remember correctly, sequentially in Q1 demand was down. So the question is, what are you guys seeing or what are you forecasting in terms of demand growth for the remainder of the year? And I guess where I'm going with this question is that again and again you mentioned it, a bunch of other chemical companies mentioned it, about obviously supply chain disruptions that have happened over the last couple of months. Inventory is being lean, people sort of back filling sort of orders, probably a function of Winter Storm Uri as well. So just trying to get a sense of where you feel underlying demand is and could we even expect a further bump up from this 3% that we saw in Q2?

John Roberts -- UBS Securities, LLC -- Analyst

Yeah, like I said in my remarks we expect to get back to pre-pandemic levels later this year. So that is increased demand in Q3. There are some MTO plants that are taking some planned maintenance, the MTO industry has been operating at really high rates for a couple of years. And in Q2, they operated at 92% which is above our even estimate. So we expect to have them to have some maintenance, which could impact demand, but we expect demand to continue to grow through the second half of this year. A couple of applications are still lagging are the fuels applications, MTBE, biodiesel, those kinds of applications, because we're still not seeing globally a return to normal driving habits, because of the pandemic. So, but we expect those to improve as we get back to more normal habits as people are vaccinated and the pandemic is brought under somewhat of a control.

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Understood. And the other side of the equation. On the supply side, obviously a healthy pricing environment and pricing continues to tick up, obviously you guys announced the restart of, or work on Geismar 3 but what are you guys seeing broadly speaking in terms of the broader industry supply response and are you seeing any sort of project delays or maybe even people sort of ratcheting up their plans in terms of bringing online new supply.

John Floren -- President and Chief Executive Officer

Yeah, I think having the price environment that we just come through for almost 2 years. A lot of projects that were being thought about were shelved or cancelled altogether. We expect the Koch plant to run at some point, now we understand they ran for a bit in July, but they will, they will get lined up and run at some point during this year is our current expectation. Beyond that, we have a bit of supply coming on in Iran, how it runs is anybody's guess, certainly the track record has not been great. And then, China will add a bit of capacity in the Inner Mongolia, backward integrate a couple of MTO plants and some other plants will come out as more and more restrictions on, on the east coast of China. So net-net, we're not expecting much new supply beyond what's coming in from Koch and Iran over, over the coming 3 years to 5 years.

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Understood, very helpful. John. Thanks so much.

John Floren -- President and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from Nelson Ng from RBC Capital Markets. Please go ahead, your line is now open.

Nelson Ng -- RBC Capital Markets -- Analyst

Great, thanks, good morning, John.

John Floren -- President and Chief Executive Officer

Morning.

Nelson Ng -- RBC Capital Markets -- Analyst

Just a quick question for you, so you mentioned earlier that you were optimistic on gas availability in the various regions going forward. In New Zealand, in particular, I think gas production has been pretty low this year. Do you have any color on production levels going forward in terms of like production issues, drilling activity, and whether current prices are like incentivizing lower exploration?

John Floren -- President and Chief Executive Officer

Yeah, I'll remind you, the gas in New Zealand is very wet gas. So there are lots of barrels of liquids and oil prices have any [Phonetic] that really helps the economics and they're really going after the liquids. So a higher energy complex in general is positive for our business and that's one of the reasons it incentivizes more exploration and development. Yeah, situation in New Zealand really was the [Indecipherable] field failed and that lost 30% of its production late last year and nobody was expecting that and that's caused the gas market to tighten up quite substantially. The current situation in their winter as well.

They had a lack of rainfall, which is leading to lower than expected hydro power, it's rained again in New Zealand. So that situation is behind us now and there is drilling going on. I think that's the positive thing for us is that the upstream owners of the field, Maui and Pohokura are drilling and planning to drill more, so we'll know a little bit more in the next 12 months. The results of those drilling and like I said, we're certainly contracted for two plants for the, to the end of the decade and we're optimistic the drilling will be successful and we'll see a third might have a reasonable opportunity to start-up as well.

This is not new in New Zealand, we've seen this before, and they pretty well develop the reserves and the country needs them. So yeah, we're optimistic, but really I think we'd be modeling a two-plant operation at this point until we see the results of what's happening in the upstream.

Nelson Ng -- RBC Capital Markets -- Analyst

Great, thanks for the additional color. I'll leave it there.

John Floren -- President and Chief Executive Officer

Thanks.

Operator

Thank you. The next question is from Laurence Alexander from Jefferies. Please go ahead, your line is now open.

Laurence Alexander -- Jefferies, LLC -- Analyst

Hi there, could you give a update on what line of sight you have to the amount of global shipping capacity that is ordered or under construction, that would, could use methanol as a flex-fuel and what that could mean for methanol demand over the next 4 years or 5 years. And similarly, what you're seeing in the Chinese industrial boiler market development?

John Floren -- President and Chief Executive Officer

Yeah. So, we have eight of our owned ships on order. Proman, our competitor out of Trinidad [Indecipherable] and Maersk has one that's what's on order at this time. A loss of other interest. So takes about 2 years to build a ship, Laurence. So I don't know how many more orders are going to be placed in the next few years, but we would expect more. Each ship around a 50,000 deadweight vessel running on methanol 100% of the time would consume between 10,000 tonnes and 12,000 tonnes. So you can do the math there.

As far as boilers. Yeah, we continue to see that market replacing coal, but there's other potential natural gas as well and diesel. So that market continues to be a couple of million to 3 million tonnes of methanol demand and we would expect it to grow.

Laurence Alexander -- Jefferies, LLC -- Analyst

And do you have a sense in your more industrial or the formaldehyde applications and so forth. What's the kind of level of pent-up demand is? I mean downstream companies are talking about having lost 1% to 2% of volume because of supply chain issues, but there is probably some kind of multiplier effect when we get back up to the commodities that you supply.

John Floren -- President and Chief Executive Officer

Yeah, I'd be guessing Laurence and I probably don't have a good guess. But I would agree with the assumptions there is pent-up demand.

Laurence Alexander -- Jefferies, LLC -- Analyst

Yeah, thank you.

Operator

The next question is from Matthew Blair from Tudor, Pickering, Holt. Please go ahead, your line is now open.

Matthew Blair -- Tudor, Pickering, Holt & Co. -- Analyst

Good morning, John. It looks like Trinidad natural gas production is down about 21% year-to-date versus same period last year. You raised your Trinidad volume guidance pretty meaningfully. So, that's just good work from your procurement team or is there anything else going on there?

John Floren -- President and Chief Executive Officer

Yeah, we did [Indecipherable] the supply to 100% of our gas allocation for Atlas for most of the year and that's what we've been told to expect for the balance of the year and that's the guidance we provided.

Matthew Blair -- Tudor, Pickering, Holt & Co. -- Analyst

Great. Sounds good. And then on our modeling, your implied costs seem to drift up a little bit in Q2. Would you agree and were there any factors that you can point to? And then as we look at Q3. I'm just thinking about the higher net gas environment in the US. I know you're hedged, but could you talk about whether this would be something we should be thinking about for Q3 modeling?

John Floren -- President and Chief Executive Officer

Yeah, nothing abnormal in our cost structure. Quarter-to-quarter, some, there could be a few things here and there, but nothing really, our cost structure is actually quite a bit lower than it was last year as we've taken a lot of steps to reduce it. And as far as, yeah, you're right, we've hedged about 70% of our requirements for G1 and G2. So we're exposed about 30% to the spot market. So depending on what price you're using for Q3 versus what you have in your model it would impact us by about 30% of our gas requirement.

Matthew Blair -- Tudor, Pickering, Holt & Co. -- Analyst

Great, thanks for the color.

John Floren -- President and Chief Executive Officer

You are welcome.

Operator

Thank you. The next question is from Roland Rausch from Crown Extra Investments. Please go ahead, your line is now open.

Roland Rausch -- Crown Extra Investments AG -- Analyst

Hey, good morning John. How are you?

John Floren -- President and Chief Executive Officer

Good morning. Good, thanks.

Roland Rausch -- Crown Extra Investments AG -- Analyst

Well, congratulations on another good quarter. I would like to ask a two-pronged question around liquidity and capital returns also coming back to one of your comments previously around there is quite a bit of cash on your balance sheet. So if I round the updated numbers, I see that the company has paid down 2 net million in debt for this year. It's on over $750 million in cash, if up to four [Indecipherable] shipping transaction that's around $900 million in cash, plus there is a $900 million in lines of credits with the $300 million undrawn RCF and the $600 million unutilized construction loan. So I got to a total of $1.8 billion of liquidity.

And then you just guided for another Q3 in line, so I assume we are looking at $2 billion in cash and lines of credits by the end of September. Where this is a total G3 that's only kicking in next year of 800 to 900, so why do you and your board do not think the shareholders deserve a large dividend or a clear share buyback program? And I want to come back to one comment you made on your recent announcement on the call, where at what prices you would start buy back the shares, obviously, we're on year-to-date lows, so do you consider the current share price level as attractive to buy back shares? Thank you.

John Floren -- President and Chief Executive Officer

Yeah. It's attractive to buy back shares, the current price level. I would agree with that. We stated pretty clearly our financial strategy around what we want to do with our balance sheet and returning cash to, to shareholders. That hasn't changed. So we want to maintain $300 million of cash, plus the additional whatever G3 spend is left on the balance sheet. Once we've achieved that, we will start to return more cash to shareholders flexibly like we've described and that could, would include buybacks, we reset the dividend and fixed dividend at 12.5 cents and our plan hasn't changed that we'll grow the company and we've over the last 10 years growing the company in down [Phonetic], spending about $3 billion and we've returned over $2 billion to shareholders in the same period through dividends and buybacks. So our balanced approach is the same, right now we're spent, having cash generation going toward the G3 project in addition to what's on our balance sheet. And once that is achieved. Then we will look to return cash to shareholders. So, nothing's really changed.

Roland Rausch -- Crown Extra Investments AG -- Analyst

Okay.

Operator

Thank you. The next question is from Cherilyn Radbourne from TD Securities. Please go ahead, your line is now open.

Cherilyn Radbourne -- TD Securities, Inc. -- Analyst

Thanks very much and good morning. In terms of the outlook for methanol supply. I was hoping you could give some perspective on what you think the current environment is like to contemplate a new methanol plant as far as being able to lock in a fixed cost with an E&C partner in light of inflationary pressure and what sort of price deck financial institutions might be prepared to lend on?

John Floren -- President and Chief Executive Officer

Yeah, it's a good, it's a good question. Obviously that's going to impact us as well post-G3. So it's something we look at all the time, we may have some other brownfield opportunities. But if we're assuming greenfield there's two projects that have been recently completed our public information around and that's the Koch Methanol plant that's in the process of starting up and the OCI Natgasoline plant. Both of them are around 1.7 tonnes or 1.8 million tonnes, give or take. And they were well north of $2 billion to complete based on public information that we saw, so if you use those numbers that's public that's over $1100 a tonne. And assuming gas pricing in the 300 to 350 range.

And a double-digit return of around 10% to 11%, you would need $400 methanol to get or higher to get that return. So we certainly like and we love $400 methanol for 20 years to get a payback on a project like that, but we've seen quite a bit that of volatility in the last 12 years in our commodity and I think that if I'm a bank looking to lend money to a potential project with those kinds of returns and what you doing on methanol price, it seems in the hard to do category, but having said that, there's lots of, seems to be lots of money out there trying to find a home. So we'll see what happens, but those are the kind of the number Cheryl.

Cherilyn Radbourne -- TD Securities, Inc. -- Analyst

And then, second one is, just could you speak to the company's confidence in the view that MTO demand for methanol will be stable over the coming 5 years.

John Floren -- President and Chief Executive Officer

Yeah, well I guess, we can only look at what has happened in that industry. And what's been going on in a high price and low price environment. So the industry started up 4 years or 5 years ago. That was what we call the first wave, which is just about being completed now, there's a couple of more plants that one is close to completion and one trying to get completed in the next couple of years, and that's what we call the first wave. And as the first wave was being commissioned. There was a second wave and certainly with oil prices in the $40 range and naphtha in the $400 range, it made more sense to look to naphtha crackers than 2 MTO plants. So we never expected the second wave and we're not, we're not anticipating. So what we think will happen is what's there will run. We have 85% to 90% operating rates, and I think we can only go on the history when we had $400 plus methanol pricing in 2018. They all ran at high rates, when we had a low olefins cycle last year because of COVID, they ran at high rates and they continue to run at high rates. So it's something we watch very closely because it is a big demand driver for methanol and like most things. It's hard to predict the future. But based on what we've seen today. We would expect that 85% to 90% operating rate.

Cherilyn Radbourne -- TD Securities, Inc. -- Analyst

[Indecipherable] Thanks.

Operator

Thank you. The next question is from Chris Shaw from Monness Crespi. Please go ahead, your line is now open.

Chris Shaw -- Monness Crespi, Hardt & Co. -- Analyst

Good morning, John. How are you doing?

John Floren -- President and Chief Executive Officer

Good morning, good Chris.

Chris Shaw -- Monness Crespi, Hardt & Co. -- Analyst

If one were to take a really pessimistic view on I guess global gas availability going forward. Outside of say Medicine Hat, Geismar, what can you mind me what both the potential for moving any of your other plants, ala the first few Geismar plants or to another site and it doesn't have to be I guess Geismar specifically, but not only the potential, but I guess the economics and I mean is that a possibility at all, any of those plants in the future?

John Floren -- President and Chief Executive Officer

I would say, very unlikely. What we've looked at the kit that we have in the other locations. The way it was built, the way it's installed, pretty expensive to move. We had a unique opportunity, we had two twin plants in Chile, and the way they were built, we could lift them up and move them, but I think that was unique to Chile I. Sorry to Chile II and III, which are now Geismar 1 and 2, but we look at things all the time. But right now our focus is to get those plants running and where they are and we're not giving up any hope yet that we won't be able to achieve gas contracts to allow us to run all of our kit over time. So we've seen this in the history of our company. I mean, we didn't have any production in North America for the longest time and we're going to have 4.5 million here pretty soon, 4.7, I guess with the debottlenecking. So yeah, so our focus is trying to get those plants running based on gas there and not moving them at this time.

Chris Shaw -- Monness Crespi, Hardt & Co. -- Analyst

Thanks. And then just a reminder, do you know. I can probably jot down the math, but not off the top of my head, but the, your cost per tonne for Geismar 3 relative to what it would be for the, when you say Geismar 2, when you move similar or it's one lower?

John Floren -- President and Chief Executive Officer

No, about the same. We've got it to bit lower, but not significantly. And that's probably going to [Indecipherable]. The gas efficiency on the Geismar 3 spot is much superior to Geismar 1 and 2.

Chris Shaw -- Monness Crespi, Hardt & Co. -- Analyst

Okay, got it. Thanks a lot.

Operator

Thank you. And the last question is from Steve Hansen from Raymond James. Please go ahead, your line is now open.

Steve Hansen -- Raymond James, LTD -- Analyst

Hey John, just one quick follow-up, if I may. How do you feel about your human resources capabilities across the existing operating complex today? It strikes me that everywhere we look, we're hearing about strained labor resources both skilled and unskilled, I'm not so focused on the G3, but just on your existing operating complex today, are you, are you well positioned right now, are you looking for people? How you actually think about that and whether you're well positioned going forward here?

John Floren -- President and Chief Executive Officer

Yeah, one of the benefits that we've enjoyed in our company is a low turnover rate, I mean if you compare our turnover rate on average to the industry, not just, not [Indecipherable] chemicals and other industry, industry applications like that. We were very low. So where, it doesn't mean we don't have turnover and retirements are becoming a bigger and bigger issue as especially in the western countries as we tend to the aging to retirement age. So I don't have any concern today that we're at risk of not being able to run our plants efficiently because of labor. But it's something we talk about all the time. So things like diversity inclusion are really important to our company and to really expand our labor potential where we can look for new team members is really, really important and each region is a little unique. Trinidad, we have all kinds of labor today because of what's happened on that island. In Egypt we're employer of choice. And certainly, I'm not concerned in the short-term, but it's something we think about all the time and we want to make sure that we're a great place to work. We pay good wages and that we have people stay for a long, long time, and we're not planning on changing that strategy and philosophy.

Steve Hansen -- Raymond James, LTD -- Analyst

Okay, great. That's helpful, thank you.

John Floren -- President and Chief Executive Officer

Thanks, Steve.

Okay, well thanks. We're very pleased to share our excellent financial results with you today. We continue to generate meaningful cash flow across a wide range of methanol prices. Our capital allocation priorities remain the same. We use the cash that we generate to maintain our business, pursue value accretive growth opportunities, and continue our strong track record of returning excess cash to shareholders.

Thank you for joining us today and we will speak with you again in October, and thank you for the interest in our company.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Kim Campbell -- Director, Investor Relations

John Floren -- President and Chief Executive Officer

Steve Hansen -- Raymond James, LTD -- Analyst

Ben Isaacson -- Scotiabank -- Analyst

John Roberts -- UBS Securities, LLC -- Analyst

Joel Jackson -- BMO Capital Markets -- Analyst

Eric Petrie -- Citigroup Global Markets -- Analyst

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Nelson Ng -- RBC Capital Markets -- Analyst

Laurence Alexander -- Jefferies, LLC -- Analyst

Matthew Blair -- Tudor, Pickering, Holt & Co. -- Analyst

Roland Rausch -- Crown Extra Investments AG -- Analyst

Cherilyn Radbourne -- TD Securities, Inc. -- Analyst

Chris Shaw -- Monness Crespi, Hardt & Co. -- Analyst

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