Methanex Corporation (MEOH) Q3 2021 Earnings Call Transcript

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Methanex Corporation (MEOH 4.52%)
Q3 2021 Earnings Call
Oct 29, 2021, 11:00 p.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, 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 -- Investor Relations

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 forecast 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 reflects 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 GAAP and are therefore unlikely to be comparable than 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 -- President and Chief Executive Officer

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 lead our marketing and logistics organization and now leads our Corporate Development Functions, including the execution of our Geismar three Project, as well as our sustainability function; and Rich Sumner, who is 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 lead our Corporate Development Functions, and Geismar three 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 produce 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 rise -- a rapidly rising energy price environment, our results highlighted 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 is 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 steep -- steepening of the industry cost curve. We estimate a sharp rise in the industry cost -- 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 in our fourth quarter posted prices EUR490 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 methanol industry is positive and we believe that new industry supply will be needed to meet growing up and old 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, support a tight New Zealand electricity market from early June to late August. Since then, we've operated both from 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 one and two plants as a precautionary measure to ensure that 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 two bottlenecking projects earlier this year. In Chile, our production in the third quarter was similar to the second quarter.

We typically experienced 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 for in Chile for 2021 of 800,000 tonnes. Our Atlas plant in Trinidad as well as our Egypt and medicine have 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 previous announced the strategic shipping partnership with Mitsui, OSK Limited, or MOL, with the 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 creative growth opportunities and continue to have a strong track record of returning excess cash to shareholders.

We recently restarted construction of our Geismar three project, a unique project with significant capital and operating costs 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 at 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 come 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 were 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 [Phonetic] 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-energy shortages, 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 that our fourth quarter production will be higher than the third quarter, as we started our Chile four plant in early October.

We restarted our Motunui plant New Zealand in late August. And we expect to run our guys our 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.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question is from Joel Jackson from BMO Capital Markets. Please go ahead.

Joel Jackson -- BMO Capital Markets -- Analyst

Hi. Good morning, John. I have a couple of questions. I'll ask one by one, if that's OK. 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 the 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 -- President and Chief Executive Officer

Yeah. Well, its 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? Its probably changing every day, based on all the factors you mentioned, coal, natural gas, etcetera. 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 them themselves in the near term.

Joel Jackson -- BMO Capital Markets -- Analyst

That's really helpful. And then, I went after the buyback, could you able to comment on how much stock you be 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 -- President and Chief Executive Officer

Yes. I really can't comment on that Joel. But just in general, what we've said is, we want to have the cash on the balance sheet to compete complete G3, which we do now and another $200 million to $300 million. And then everything above that will be distributed to shareholders. So, Q4 is looking really solid and we're going to generate quite a bit of cash. And I think by the end of the quarter, we'll reach those targets.

And, we can then look to accelerate the buyback or -- and other options. But right now we have around 5% out there and we think another 3% to 4% possible in the 12 month calendar period. So that's our primary focus now, is to complete G3 and then return all excess cash above $1.1 billion, $1.2 billion to shareholders.

Joel Jackson -- BMO Capital Markets -- Analyst

Thank you.

Operator

Thank you. The next question is from Nelson Ng from RBC Capital Markets. Please go ahead.

Nelson Ng -- RBC Capital Markets -- 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 -- President and Chief Executive Officer

I guess it depends on your timeframe. Nelson, right now, we're still seeing the dual control, as they're called in China, which is impacting supply quite significantly and demand were coming into the winter months, and natural gas still is a fairly large, raw material for production of methanol in China. And we all know what the LNG prices have been like.

And yes, they've -- government has stepped in and made some policy decisions around coal, but we have no idea how long it's going to take for the coal to rebalance in China. And we're coming into their winter where they consume more coal. So, we don't expect it to be a light switch and things to return to the way they were before the crisis on coal and other energy. But directionally, it'll probably always get back to balance at some point, but it's probably going to take some time in our estimation.

Nelson Ng -- RBC Capital Markets -- Analyst

Okay, thanks. And then my next question relates to logistics. I know this is a different shipping market, but obviously, the container shipping side has seen a lot of issues, and part of that is due to tight labor markets. Have you seen any I guess, delays from your -- from a logistics perspective on your end?

John Floren -- President and Chief Executive Officer

No, this is one of our key competitive advantages that we all -- we speak about quite frequently. We have our own ships that we can move around the world to wherever we want. And we have terminal relationships. We have our own terminals. So nothing's really changed in the last quarter. I think I mentioned on the last call that we were seeing some slight delays, because of the shortage of pilots in China. That's adding like a week to two weeks for discharge longer time, and really doesn't impact our ability to service our customers. So fortunately, we're not experiencing the same supply chain issues that most of our customers are and even customers are our customers are.

Nelson Ng -- RBC Capital Markets -- 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 -- President and Chief Executive Officer

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 get equals to be over 1,000. So we have a large owner's team, much larger than we had for G1 and G2, and really trying to manage the scheduling the productivity issue, working with our Kvr, the engineering contractor on the job.

Nelson Ng -- RBC Capital Markets -- Analyst

Okay, thanks. That's good color. I'll leave it there.

Operator

Thank you. [Operator Instructions] The next question is from Jacob Bout from CIBC. Please go ahead.

Jacob Bout -- CIBC -- Analyst

Good morning.

John Floren -- President and Chief Executive Officer

Morning.

Jacob Bout -- CIBC -- 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 third quarter?

John Floren -- President and Chief Executive Officer

So, we are seeing demand impacted by the controls I've mentioned in China. So, there's limits on how in certain provinces, how industry can operate in the third quarter, which is, which has happened. Pricing is pretty volatile in that sector. So, when we're up at 550-ish range, that would certainly would 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 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 -- CIBC -- 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 us 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 -- President and Chief Executive Officer

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 move and so about 35% of our gas in North America is related to spot pricing.

Jacob Bout -- CIBC -- Analyst

And then how far forward are you hedged in--

John Floren -- President and Chief Executive Officer

Different lengths -- we've layered in hedges quite some years. So, there's a number of different hedges and we've fixed price for another 10 years and so it's different lengths of time depending on which hedge or which fixed price deal it is.

Jacob Bout -- CIBC -- Analyst

Leave it there. Thank you, John.

John Floren -- President and Chief Executive Officer

Thanks.

Operator

Thank you. The next question is from Edlain Rodriguez from Jefferies. Please go ahead.

Edlain Rodriguez -- Jefferies -- 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 -- President and Chief Executive Officer

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 supplier -- 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 -- Jefferies -- 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 [Indecipherable] like that could be slowed down because of prices getting up so high?

John Floren -- President and Chief Executive Officer

Well, you know, we're -- when we're looking at new adoption, they're really the adoptions really being driven by environmental issues by clean burning fuels. So they're, 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 adoption of methanol as a clean burning fuel as a result of current prices.

Edlain Rodriguez -- Jefferies -- Analyst

Okay. Thank you, guys.

John Floren -- President and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from Mike Leithead from Barclays. Please go ahead.

Mike Leithead -- Barclays -- Analyst

Great. Thanks. Good morning, guys and congrats on the quarter.

John Floren -- President and Chief Executive Officer

Thank you.

Mike Leithead -- Barclays -- 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 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 -- President and Chief Executive Officer

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 in some of the other energy demand as things normalize and world goes -- 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 -- Barclays -- Analyst

Got it. That makes sense. And secondly, just on the buyback, I want to make sure I heard you write 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 G 3, 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 you're thinking about it?

John Floren -- President and Chief Executive Officer

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 are returned to shareholders and right now is through share buybacks. So that 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 -- Barclays -- Analyst

Makes sense. Thank you, John.

John Floren -- President and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from Hassan Ahmed from Alembic Global Advisors. Please go ahead.

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Good morning. John.

John Floren -- President and Chief Executive Officer

Good morning.

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Got a question on inventories. You know, obviously, it's been a very strange year, you know, Winter Storm Yuri, then obviously Hurricane Ida. I mean, historically, you know, in a rising pricing environment, typically you see restocking, but with all of these events that have transpired, I would imagine, inventories which were lean only got leaner. So, you know, what are you guys seeing in terms of global inventories? You know, how low are they? And how long do you think a restocking exercise would take? When would we get to normal inventory levels? You know -- and how would you see that factoring into demand growth, as you look into 2022?

John Floren -- President and Chief Executive Officer

Yes. I'll ask Rich Sumner, our Head of Marketing to take a crack at that.

Rich Sumner -- Senior Vice President, Global Marketing and Logistics

Thanks, John. Yeah, we definitely see low inventories across the supply chain. And when we look to China, we also know that over time, China's growth and market demand in China has put constraints on storage capacity on especially on the coastal markets. So -- and we see low inventories in China coastal markets, and lot of the supply/demand balances that John talked about that we don't think is going to be cured in the short-term is going to further strength to pricing, and it will take some time before we can rebuild inventories in the industry. So that factors definitely supporting current pricing dynamics.

John Floren -- President and Chief Executive Officer

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, it's a bit of a guest, but we do believe there's pent up demand for sure.

Hassan Ahmed -- Alembic Global Advisors -- 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, you know, 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 call a global supply growth, but particularly with a focus on China?

John Floren -- President and Chief Executive Officer

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 eating electricity, and they're moving up the value chain as well, in all industries, not just in methanol, cement, steel, etc. 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, etc. 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 -- Alembic Global Advisors -- Analyst

Very helpful. John. Thank you so much.

Operator

Thank you. The next question is from Eric Petrie from Citi. Please go ahead.

Eric Petrie -- Citi -- Analyst

Hi, good morning, John.

John Floren -- President and Chief Executive Officer

Good morning.

Eric Petrie -- Citi -- Analyst

You expected methanol demands to return to more historical rates of 3% to 4% next year, excluding China dual control and hurricane weather events?

John Floren -- President and Chief Executive Officer

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 -- Citi -- Analyst

Okay. And then will your production, methanol produce 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 and production with your turnaround next year versus this year?

John Floren -- President and Chief Executive Officer

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 this next year then this year. And hopefully in New Zealand, we won't have to sell on our gas to 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 will 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 -- Citi -- Analyst

Okay. Thank you.

Operator

Thank you. The next question is from Matthew Blair from Tudor, Pickering, Holt. Please go ahead.

Matthew Blair -- Tudor, Pickering, Holt -- Analyst

Hey, good morning, John. Given our methanol crisis are, are there any prospects for a short-term opportunistic restart at Titan in Trinidad?

John Floren -- President and Chief Executive Officer

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 we're focused.

Matthew Blair -- Tudor, Pickering, Holt -- 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 then from your North American peers, just on thought on that?

John Floren -- President and Chief Executive Officer

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, etc. 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 improved.

Matthew Blair -- Tudor, Pickering, Holt -- Analyst

Great, thank you.

Operator

Thank you. The next question is from Adam Starr from Gulfside Asset Management. Please go ahead.

Adam Starr -- Gulfside Asset Management -- 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 -- President and Chief Executive Officer

Yes, we're selling about a quarter in China and about 20% into Asia Pacific, 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. 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, you know, help with that issue. And that's why we decided to go that way.

Adam Starr -- Gulfside Asset Management -- 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 -- President and Chief Executive Officer

That's correct. That's right.

Adam Starr -- Gulfside Asset Management -- Analyst

Thank you very much. Also, higher gas prices making the Trinidadians more willing to discuss a longer-term contract?

John Floren -- President and Chief Executive Officer

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 -- Gulfside Asset Management -- Analyst

Okay, because they're missing a pretty good boat right now but and in Chili, do you-and there is still potential for higher gas supplies down the road or is there drilling going on? Is there new gas being developed?

John Floren -- President and Chief Executive Officer

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 -- Gulfside Asset Management -- Analyst

Okay, thank you very much and appreciate the outlook.

John Floren -- President and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from Ben Isaacson from Scotiabank. Please go ahead.

Ben Isaacson -- Scotiabank -- 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 on 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 -- President and Chief Executive Officer

Yes, I call it supply kind of interruptions are driving. There's not enough supply to meet demand and we're probably saying the same thing. There have been in Europe, you have to see gas prices fall quite substantially to even today's prices to allow restarts so the idle capacity there. And in China, we'll see how the coal market develops and there's many things that go into what methanol producers pay for coal in China.

It's not just the index that you may read Bloomberg or wherever -- wherever there's a lot of different factors. So you're right, I'd say the -- we've been about above whatever the cost curve has been most of this year and until supply catches up to demand that's probably going to going to be the case.

Ben Isaacson -- Scotiabank -- 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 -- President and Chief Executive Officer

Yeah, there's not really a link between oil and methanol, there's no real substitutable products and 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 because some supply has to come out. And demand for methanol into energy applications, which are really being driven by environmental issues, with containers to be to grow. So I think there's no really no link in our minds between the price of oil and the price of methanol on any given day.

Ben Isaacson -- Scotiabank -- Analyst

Thank you.

Operator

Thank you. The next question is from Roland Rausch from Crown Extra Investments. Please go ahead.

Roland Rausch -- Crown Extra Investments -- Analyst

Hey, John, it's Roland. How are you?

John Floren -- President and Chief Executive Officer

Good. How are you Roland?

Roland Rausch -- Crown Extra Investments -- Analyst

Hey, sorry, I might be the third person you're going after that share buyback disclosure. But can I just wrong a couple of probably common understanding points. So number one, the roughly 150 million cash in I assume you still expect in Q4 so its that pro forma that you are roughly at the 1.1 billion you mentioned before. Is that correct?

John Floren -- President and Chief Executive Officer

Yeah. And plus we're going to get some hopefully the money from the MOL sale at global.

Roland Rausch -- Crown Extra Investments -- 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 moving target. But is that roughly still what you guys expect us as capex may have for G3?

John Floren -- President and Chief Executive Officer

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 -- Crown Extra Investments -- 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 is that too, too aggressive to model?

John Floren -- President and Chief Executive Officer

No, we are buying back shares every day to day. So I feel as we get closer to our targets flow can accelerate that buyback and think about a second one --first in the next 12 months.

Roland Rausch -- Crown Extra Investments -- Analyst

And just one more on this, I assume there are certain blackout periods on when you can buyback share, right?

John Floren -- President and Chief Executive Officer

No, there are blackout periods when we can change the rate of buybacks. But we can saw 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 -- Crown Extra Investments -- Analyst

Okay. All right. That's all I had. Thanks.

John Floren -- President and Chief Executive Officer

Thanks, Roland.

Roland Rausch -- Crown Extra Investments -- Analyst

And best of luck for the next quarters. Yeah.

John Floren -- President and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from John Roberts from UBS. Please go ahead.

John Roberts -- UBS -- Analyst

Good morning.

John Floren -- President and Chief Executive Officer

Good morning, John.

John Roberts -- UBS -- Analyst

Yeah. How far out do you think the first sequestration project is for a world scale methanol plant? Would that be more than five years out do you think?

John Floren -- President and Chief Executive Officer

Capital we're looking at it ourselves, especially in North America for Medicine Hat and for Geismar and the capital costs is quite substantial. So I think without some sort of government help, subsidy or involvement, it's probably longer than that is what I would say, John, but governments are pretty bullish on reducing carbon and this is one way to do it.

So I know the Alberta government and Louisiana government are both very interested in carbon capture and storage. So we have a team working on it. And if and when, you get the FID on it, it's probably a couple of years to build it into the plants. So five years? I would guess five. I'd be hopeful that within five years, we'd have one invoice.

John Roberts -- UBS -- Analyst

Okay. And then there was some MTO in China that was being back integrated into coal. Has the coal situation in China setback those projects or are they still proceeding on plan do you think?

John Floren -- President and Chief Executive Officer

Yeah, two have been completed and they're running. We haven't seen any impact. So how we manage that, as we include those in our supply additions were some of the publications include them as demand losses, so it's a little bit of eggs, apples, oranges, sorry. So those are -- those have happened. And we are expecting another MTO plant consuming 1.8 million tonnes of methanol to come on in the next six months. So that will have an impact on demand as well. But we haven't seen any change in the backward integration recently based on the coal prices.

John Roberts -- UBS -- Analyst

Okay. Thank you.

John Floren -- President and Chief Executive Officer

Thanks, John.

Operator

Thank you. [Operator Instructions] The last question is from Joel Jackson from BMO Capital Markets. Please go ahead.

Joel Jackson -- BMO Capital Markets -- Analyst

Hi. Thanks for squeezing one more for me. John, if I remember how some of your gas contracts work with your price -- the methanol price share mechanisms, that after kind of the limit, like when methanol prices are very, very low, the bad part of the cycle, or methanol price are very, very highly, I guess now it's high end cycle, did some of those -- some of those price sharing is different may not be as linear? Can you just comment on that? Do you know as ethanol prices now versus say $100 lower to the contracts, did price mechanism farmers look a little bit differently?

John Floren -- President and Chief Executive Officer

You're right, they're all a little different. So the guidance we give is on average. And in general, I've used this for years. At $200 methanol, we're paying about two bucks for gas, at $300 about three bucks and at $400 about four bucks. So that's the guidance we give. It's not exact, obviously because each contract is different. And as we renegotiate, they're all changing, depending on the price markers, etc, etc. But just in general, the higher we go from ethanol, the more we're going to pay for gas.

Joel Jackson -- BMO Capital Markets -- Analyst

Thanks.

John Floren -- President and Chief Executive Officer

Okay. Well, thanks very much for all the questions. We're very pleased to share excellent financial results with you today. We generate meaningful cash flow across a wide range of methanol prices. Our capital allocation priorities remain the same. We use the cash to 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. We'll speak with you again early in 2022. And thank you for the interest in our company.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Kim Campbell -- Investor Relations

John Floren -- President and Chief Executive Officer

Rich Sumner -- Senior Vice President, Global Marketing and Logistics

Joel Jackson -- BMO Capital Markets -- Analyst

Nelson Ng -- RBC Capital Markets -- Analyst

Jacob Bout -- CIBC -- Analyst

Edlain Rodriguez -- Jefferies -- Analyst

Mike Leithead -- Barclays -- Analyst

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Eric Petrie -- Citi -- Analyst

Matthew Blair -- Tudor, Pickering, Holt -- Analyst

Adam Starr -- Gulfside Asset Management -- Analyst

Ben Isaacson -- Scotiabank -- Analyst

Roland Rausch -- Crown Extra Investments -- Analyst

John Roberts -- UBS -- Analyst

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