Industrial giant Methanex Corp. agreed Monday to bolster its global natural gas-dependent business with a $2.05 billion cash-and-stock transaction for Amsterdam’s OCI Global.
Among other things, the Vancouver, Canada-based company agreed to buy OCI methanol facilities in Beaumont, southeast of Houston.
The OCI Beaumont complex has 910,000 tons/year of methanol capacity and 340,000 tons/year of ammonia capacity. The transaction also includes OCI HyFuels, a green methanol facility that sells renewable natural gas (RNG) volumes with trading and distribution capabilities.
The facilities “benefit from access to North America's abundant and favorably priced supply of natural gas feedstock,” CEO Rich Sumner said during a conference call. “Together, they are expected to increase our global methanol production by over 20%.”
HyFuels “is one of the largest and newest methanol facilities globally and is based on the same technology as our Atlas plant in Trinidad,” Sumner said. “We have 20 years of experience operating this technology.”
OCI has been working in the low-carbon methanol business for about nine years, with volumes of 150,000 to 200,000 tons/year, according to the CEO.
“This is mainly into the UK road transport market, but they're also selling into the marine sector,” Sumner said. “Most of this volume today is off of renewable natural gas contracts. These contracts are likely difficult to replicate as we go forward, because they are legacy gas contracts, and pricing in the RNG markets is a lot higher and has become increasingly competitive.”
Methanex also is acquiring an indirect 50% stake in Natgasoline LLC, a joint venture with Proman USA, based in Beaumont. Natgasoline produces more than 1.7 million metric tons/year (mmty).
“Ammonia has a lot of complementary benefits to methanol,” Sumner said of the Natgasoline project. “We think ammonia isn't a big shift in strategy. We think this is a low risk way to build some capability, and it does have interesting complementary skills related to operations…”
Ammonia “also may be a potential alternative low-carbon fuel, both in power generation as well as a fuel,” he said. “So we think that this is a real opportunity for us to test it.”
OCI recently sold a Beaumont ammonia facility that is advancing carbon capture sequestration and storage to Woodside Energy Group Ltd.
“We also think there are opportunities around blue hydrogen and other utilities that provide some optionality for future investments there,” Sumner said.
With the OCI assets, Methanex would have around 6.5 mmty of methanol production capacity in North America, with a “stable source of gas in a favorable location,” the CEO said.
“Current gas prices are in the low $2/MMBtu range, with an attractive forward curve that provides our business with a favorable position well within the bottom half of the industry cost curve.”
The Henry Hub October fixed price average was $2.278 on Friday, according to NGI’s Forward Look data. The average for November was $2.601, while fixed prices ticked up to above $3.00 for Winter 2024/2025 and Summer 2025.
In addition, there are “opportunities to further integrate our options and our operations and supply chain,” Sumner said. The acquisition cost per ton is “less than brownfield replacement costs on a reinvestment basis, without the capital construction risk and timeline.”
Increased Pricing Ahead?
Third-party projections for methanol consumption indicate demand will outpace planned supply expansions, with “pricing to increase in the coming years,” Sumner noted.
Methanol demand is forecast to grow by around 3.5% a year or by 17 mmty-plus over the next five years, he said. “There is further upside to these demand numbers, since these projections do not include demand potential for methanol as a refuel.”
Limited methanol capacity additions are forecast over the next five years.
“In addition, we're seeing current supply in a number of jurisdictions constrained by feedstock restrictions…Significantly higher operator rates are forecast to be required to meet industry demand, underpinning tight methanol markets and improved pricing.”
Also included in the deal with OCI is an idle methanol plant in the Netherlands, which is able to produce 1 mmty. The facility is “not currently in production due to unfavorable pricing for natural gas feedstock,” Sumner noted.
Asked about plans for the idled methanol plant, Sumner said management was going to “watch and see what optionality we have with natural gas prices in Europe.”
OCI, he noted, has explored “alternative feedstock and other technologies for the site. So we're going to come to learn and understand that better. But we haven't made any decisions in regards to the longer term yet…It does seem difficult to restart based on gas prices in Europe, but it's something we're going to look at” when the deal is near closing.
Pro forma for the transaction, set to be completed by mid-2025, OCI would become a 13% shareholder in Methanex.
A court battle is underway between OCI and Proman over certain shareholder rights in the Natgasoline venture, CFO Dean Richardson noted. If the legal proceeding is not settled in favor of OCI before the scheduled closing, that portion of the transaction may be carved out.
