By Collin Gallant on November 11, 2017.
Methanex has locked in a 14-year gas supply contract for its Medicine Hat production plant, giving it security to maintain current levels until 2032.
The methanol producer and Painted Pony Petroleum jointly announced the deal Thursday, stating it gives both parties long-term cost certainly.
That, along with plant refurbishment in 2015, “solidifies the long-term future of Methanex’s methanol operation in Canada,” stated Methanex CEO John Floran.
It does not however, either make or break the case for further expansion.
Starting in 2018, Painted Pony will sell up to 10,000 gigajoules per day to Methanex at a fixed price, then increase the volume to 50,000 per day in 2023 as other contracts expire.
That larger amount accounts for about 80 to 90 per cent of the feedstock delivered to the plant, which transforms gas into industrial chemical and fuel additive methanol.
“Having a long-term agreement in place to support our Medicine Hat facility underpins a competitive cost position for years to come,” stated Floren.
The company began exploring long-term gas contracts several years ago as a step for possible plant expansion.
It reopened the Medicine Hat facility in 2013 when gas entered a prolonged trough after high prices led to its mothballing in the early 2000s.
The plant produces 600,000 tonnes of methanol per day. A proposal to add a second facility to boost local production to 1 million tonnes has not progressed since it was revealed in 2013. Company officials have said a rail contract — needed to move Asia-bound production westward — was a key stumbling block.
Gas prices, which have remained low on the spot market, and are expected to remain low, were an ancillary concern.
More recently Floren and the company have taken the view that capital expansion elsewhere, particularly at undersupplied plants in Chile, would be cheaper and have greater benefit.
Officials with Painted Pony said the deal diversifies the customer base for the northeast B.C. exploration company, and cuts highly volatile pricing out of its business model.
“The agreement with Methanex will yield a stable stream of cash flow to Painted Pony while providing additional market diversification for us,” said Pat Ward, president of Painted Pony. “(It) will help mitigate the impact of market volatility on our realized prices.”
For comparison purposes, a typical home uses about 120 gigajoules of gas in an average year for heating.
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