Methanex Corporation and Chesapeake Energy Corporation recently announced the execution of a 10-year agreement to supply all of the natural gas required for Methanex’s one million tonne per year methanol plant in Geismar, Louisiana. Commencement of natural gas deliveries will coincide with the startup of the plant, which is expected by the end of 2014.
John Floren, President and CEO of Methanex commented, “We are thrilled to have entered into this agreement with Chesapeake, the second largest natural gas producer in the U.S. This contract will enhance our ability to reliably supply quality product to our U.S. customers for at least the next 10 years. The agreement is structured so that the natural gas price is linked to the methanol price, and both Methanex and Chesapeake will share in the risks and rewards resulting from the changing price of methanol over the decade of this contract. This gas pricing formula, in addition to the capital cost advantage of relocating a methanol plant as compared to a new-build facility, enables the project to be profitable across a broad range of methanol prices.”
Mr. Floren continued, “Having a 10-year contract in place for 1 million tonnes of methanol production per year reduces our exposure to short-term natural gas price fluctuations, which will lower the natural gas price risk for the site if we decide to relocate a second plant to Louisiana. We expect to make a decision during the first half of 2013 on whether to proceed with a second relocation project.”
James C. Johnson, Chesapeake’s Senior Vice President of Marketing added, “We are excited to support the ongoing revitalization of the U.S. manufacturing sector through our long-term gas supply arrangement with Methanex, the world’s leading methanol producer. The unique structure of this transaction provides return certainty and price diversification for Chesapeake while providing margin protection and price stability for Methanex. Furthermore, Methanex’s investment and plant relocation to Louisiana demonstrates the compounding economic and employment benefits to be derived from the shale gas revolution. We believe this is truly a “win-win” arrangement for both companies.”