Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Methanex Corporation 2023 Fourth Quarter Results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I would now like to turn the conference call over to the Director of Investor Relations at Methanex, Ms. Sarah Herriott. Please go ahead, Ms. Herriott.
Thank you. Good morning, everyone. Welcome to our fourth quarter 2023 results conference call. Our 2023 fourth 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 for making the forecasts or projections, which are included in the forward-looking information. Please refer to our fourth quarter 2023 MD&A and to our 2022 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, adjusted income, or adjusted earnings per share made in today's remarks reflects our 63.1% economic interest in the Atlas facility, our 50% economic interest in the Egypt facility, and our 60% interest in Waterfront Shipping. 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 and ratios that do not have any standardized meaning prescribed by GAAP, and therefore unlikely to be comparable to similar measures presented by other companies.
We report these non-GAAP measures in this way because we believe they are 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. Rich Sumner, for his comments and a question-and-answer period.
Thank you, Sarah, and good morning, everyone. We appreciate you joining us today as we discuss our fourth quarter and full year 2023 results. I'm excited to report that the G3 plant is in the process of starting up, and we expect that commercial production is imminent. G3 significantly increases our cash flow generation capability and has one of the lowest emission intensity profiles in the industry. We're extremely proud of our global team for safely delivering this high-quality addition to our asset portfolio. Turning to our results for the fourth quarter, our average realized price of $322 per ton and produced sales of approximately 1.7 million tons, generated adjusted EBITDA of $148 million and adjusted net income of $0.52 per share.
Adjusted EBITDA was higher compared to the third quarter due to the higher average realized price and higher produced sales. Our global team has delivered a strong year of operating results with production of 6.6 million equity tons. For the full year 2023, we recorded adjusted EBITDA of $622 million and adjusted net income of $153 million or $2.25 per share. We estimate that global methanol demand increased in 2023 to approximately 91 million tons. Through the fourth quarter, market conditions strengthened, with increased demand, primarily in China, outpacing an increase in supply, leading to a drawdown on inventories and increasing methanol prices.
Global methanol demand grew by over 3% compared to the third quarter, with significantly improved operating rates in methanol to olefins and growth in traditional demand in China. Outside of China, demand for traditional and energy applications remained relatively stable. We estimate MTO operating rates have increased from low 70s in Q3 to mid-80s% in Q4, driven by the completion of planned downstream expansions and an improvement in affordability during the quarter. On the supply side, production increased from coal-based producers in China, which was offset by planned and unplanned outages in the U.S., Southeast Asia, and the Middle East, as well as lower production from natural gas restrictions in Iran and China. Coal pricing in China was steady during the fourth quarter, ranging from around 950-1,000 RMB per ton.
We currently estimate the marginal cost of production to be between $280 and $300 per ton, based on current coal pricing in China. Overall, continued high energy pricing, low global inventories, and tightening supply-demand balances led to higher pricing throughout the fourth quarter and into the first quarter. Our February posted prices in North America, Asia Pacific, and China were posted at $570, $390, and $360 per ton, per metric ton, respectively, and our first quarter European price was posted at EUR 525 per ton, an increase from Q4 of EUR 150. Based on our January and February posted prices, we estimate our global average realized price to be approximately $335-$345 per metric ton for these two months.
Looking forward, we expect 2024 demand growth rates to be similar to 2023, based on current global economic forecasts. Supply additions in 2024 include our G3 plant, a plant in Malaysia, which is expected to start up in the second half of the year, and some limited new capacity in China. We expect to see increased supply from these new capacity additions to be partially offset by the rationalization of existing supply. Production in Trinidad will be lower by approximately 1 million tons annually, beginning in September 2024, when we shut down Atlas and restart Titan. We continue to monitor our competitors' operating rates in Trinidad and other factors globally that could further impact supply, such as the announced gas diversion from methanol to LNG in Equatorial Guinea.
Beyond 2024, we expect to see continued methanol demand growth and do not see any meaningful supply additions outside of China for the next few years. Looking at long-term demand drivers, ship orders for dual-fuel methanol vessels accelerated at a rapid rate in 2023. This was the first year that orders for dual-fuel methanol vessels outpaced LNG-powered ships, and the current order book for methanol vessels would result in over 250 ships being on the water by the end of 2028. The momentum for methanol as a green fuel is clearly very strong, and we believe that methanol demand into marine applications will depend on a number of factors, including availability of low-carbon methanol, including green methanol, green fuel regulations, and the cost competitiveness of methanol versus other fuels.
Our low-carbon solutions team is in discussions with multiple shipping companies on how we can supply them with methanol as these ships start to come on the water in the 2025-2028 period. In the fourth quarter, we had higher production with no scheduled turnarounds, and both Chile plants operating at full rates with gas from Argentina. The Egypt plant had an unplanned outage in mid-October due to a mechanical failure in the synthesis gas compressor. The unit was sent to its manufacturer in Germany for repair, and I'm happy to report that it's now back on site, and we expect the plant to be able to start up in the first half of February. The G3 plant is in the process of starting up, and we expect that commercial production is imminent.
We expect the plant to ramp up to full rates over the month of February. I want to thank the project team, who worked tirelessly to deliver this high-quality project safely, and we expect the total capital cost to come within the budget of $1.25 billion-$1.3 billion. In 2024, we have one planned turnaround scheduled. Our forecasted production for 2024 is approximately 8.1 million equity tons, although actual production may vary by quarter based on timing of turnarounds, gas availability, unplanned outages, and unanticipated events. In Chile, both plants are currently operating at full rates with gas deliveries from Argentina.
We estimate production for 2024 will be between 1.1-1.2 million tons, which is underpinned by year-round natural gas supply from Chile for about 30%-35% of our requirements, with the remaining 60%-65% from Argentina during the non-winter period, allowing us to operate both plants at full rates. Natural gas development and related infrastructure investments in Argentina continues to progress, and we're working with our natural gas suppliers on extending the period of full gas availability to our plants. In New Zealand, we're expecting lower gas deliveries and lower production in 2024 of 1-1.1 million tons. 2024 natural gas supply is expected to be impacted by a combination of our suppliers' planned infrastructure maintenance outages, as well as lower-than-expected output from existing wells.
While upstream investment has been made by our gas suppliers in New Zealand over the past few years, recent production results have been lower than originally expected, which has contributed to the revised forecast for lower production in 2024. We ended the fourth quarter in a strong financial position, with $451 million of cash and $300 million of undrawn backup liquidity. Our capital priorities are to pay the remaining G3 capital of approximately $60 million-$110 million in the first two quarters of 2024, and to repay rather than refinance the $300 million bond due at the end of 2024. Moving forward, we expect to generate strong free cash flow with limited maintenance capital and higher production capability with G3 operating.
Looking ahead to the first quarter of 2024, we're expecting slightly higher Adjusted EBITDA, with a higher realized price and similar produced sales, as we will be building produced inventory with the G3 startup and the Egypt restart. With G3 expected to ramp up to full rates over the month of February, we expect the second quarter of 2024 to be more representative of our run rate production and cash generation capability. Our priorities for 2024 are to deliver strong operational results from our assets and supply chain, maintain a strong balance sheet, including the repayment of debt, and return excess cash to shareholders. We would now be happy to answer questions.
At this time, I would like to remind everyone, in order to ask a question, please press star, then 1 on your telephone keypad. We ask that you limit yourselves to one question and one follow-up question. If you have additional questions, please reenter the queue. Your first question comes from the line of Joel Jackson with BMO Capital. Please go ahead.
Hi, good morning. When you think about the buyback now, you talked about what your capital allocation priorities are to get through the last, I don't know, $80 million or $90 million of spending in G3, put enough cash on the balance sheet to pay back the bond later the year. When do you think you're gonna be in position to, you know, you have enough cash buffer on your balance sheet and, you're ready to start buying back stock?
Yeah, I think, Joel, we're obviously monitoring the markets, methanol pricing, certainly where it is today. Methanol pricing is, you know, we generate strong cash flows at today's methanol price. So, you know, it will be a function of our outlook on, firstly, is building up the cash, for-- or at least having an outlook on the market, by the time we make that decision to maybe open up a bid. But I wouldn't say we're there yet. We're gonna monitor the markets. You know, we, we'd like to get G3 up and running and focus on getting that up to full rates. And, you know, I think if you look forward, you hold pricing where it's at today, you know, through Q2, with all of our assets running, you know, we'll be building cash.
If we can get confidence that the market's holding in, then we'll see. You know, maybe we don't have to wait until everything's built before we open up that flexibility, but we're not there yet. But you know, we're gonna pay attention really, really closely to how things build up over the next few quarters here.
Okay, that's helpful. So, you know, when G1 and G2 came on across 2015 and early 2016, there was another plant also in the U.S. that came on. I know there's a lot of pressure on methanol inventories in the States. I think prices went quite low. They bounced back across 2016. You're about to put a bunch of new methanol volume on the market coming out of the States. U.S. is about to go long methanol to, you know, greater amount now. What is the team doing to make sure, you know, that you're balancing the market? Are you gonna run full rates in a month? How do you make sure you don't, you know, hurt the market?
I mean, Joel, where we've been on from a sales perspective, we've really built up sales in advance of G3. So when we start up the plant, what it'll be is it'll be a displacement of purchased product. And like I said, we're already anticipating and building everything into our plans that we're getting up to full rates by the end of February. We plan our supply chain about two to three months out, so we've already pulled back on purchases, and market pricing has stayed stable, if not increasing. I would say a lot of G3 is in the market today without the plant operating.
You know, part of this is the fact that the timing at which we're doing this is fortunate because the market is typically structurally short within this time frame. But I would say a big portion of G3 is already in the market because of our supply chain decision making that's already there.
Your next question comes from the line of Steve Hansen with Raymond James. Your line is open.
Yeah, thanks, guys. Rich, as you think about the gas opportunity in Argentina, to bring on sort of those two plants at full rates, full time, you know, what is the time frame for those discussions with the Argentine gas suppliers and the time to contract all the different things you need to do in advance to get the secure supply so that you can run those, basically at full rates?
Thanks, Steve. I think when we look at Argentina, it's a real, you know, it's a real positive story for us right now. And I think, you know, you have to go back to where is development, how is what's the pace of development in that country? Really good progress through 2023 with the tie-ins that they made to the Vaca Muerta and, you know, just how they're phasing that in. The first tie-in happened where it added about 11 million cubic meters a day of gas into the grid. The compression they're gonna add to that pipeline is gonna double that capacity. That's supposed to happen in the first half of this year. And then there's a twinning of that pipeline that's gonna double all of that. So...
That's about a third of the gas supply demand in Argentina. That twinning is supposed to happen through 2025. In addition to that, there's a project that's happening in the Southern Basin, which is Total and Wintershall and others. It's the El Fenix project that's in the south as well, and that's, that gas is meant to come online at the end of 2024 into 2025. So I see, you know, it's already positive. We're already seeing more gas availability in the, in the non-winter months, and that's allowed us to operate both plants. You know, what I see is there's gonna be a lot more positive developments in the next few years.
What I would say is our goal is to contract on a longer-term basis this full gas in the non-winter periods, and then over time we shorten those shoulder periods to the point where we can move towards full gas supply. You know, so I can't give you exact time frames, but I think there's gonna be a lot of positive things happening in the next few years, and certainly we're gonna be working very closely with our gas suppliers then.
Okay, that's great. And then just, just on your reference to discussions with some of the shipowners around, methanol supply arrangements, is there, is there something you need to do to sort of carve out a new stream of methanol, whether it's RNG based or some sort of carbon-based, low carbon-based fuel stream, to, to provide that kind of fuel type for the, the methanol operators? Or are they, are they just looking for the regular methanol, as a starting point?
I would say there's a combination of discussions going on. You know, there's regulations in Europe that are really driving the desire for low-carbon and/or green methanol. And so our discussions with a lot of those shipping companies do focus more into investments in renewable, whether that be RNG or E-methanol, biomethanol or E-methanol. You know, those discussions are ongoing. There's also discussions about conventional methanol happening as well outside of Europe and with other shipping companies. But, you know, like I said, there's a number of different factors I think that the marine industry is working with, and that will influence their ultimate choice in fuels.
Certainly, our low carbon solutions team is working right along with them on how we can provide solutions, be it investments in green or conventional methanol, or both. So, you know, I think we're gonna have more to report here as we move through this transition to have these ships on the water, and it's gonna evolve. So, hard to give you exact time frames and volumes as it relates to methanol. Certainly, these are dual fuel ships, and there's options for traditional bunker fuels. We think that methanol looks is competitive to the alternative low-carbon solutions in the diesel space. But again, that's also gonna evolve.
Your next question is from the line of Hassan Ahmed with Alembic Global. Your line is open.
Morning, Rich. You know, you guys saw a good bump up in pricing over the last couple of months, particularly in Europe. So my question kind of is around the variances or divergences in pricing. You know, there still seems to be a fairly large delta between, call it, U.S./European pricing and Asian pricing. So would love to hear your views around that delta.
Sure. Thanks, Hassan. It's you know, I think, I think when we look at the markets, we, you know, we, we tend to start with China. China becomes, is, is the, is the cost setter in the market. And today, we say cost curve is around $280-$300. And we see MTO affordability, which is a big buyer to the industry, kind of in the same, in the same range. And so that we've, we've seen that price holding, I would call it, relatively firm for quite some time. And then what we see is that the, the, depending on the, I'd call it, the tightness in the market, we see pricing in other regions at a, at a premium to China, which varies depending on supply and demand into those markets and availability of methanol.
So if you have, you know, unplanned outages in the US, then the premium to, you know, premium in the US market will go up for a period. But what we're seeing is things kind of settling in at around, you know, on average, we're in this $30-$50 over China. And like I said, for the first quarter here, we're at $335-$345 per ton on an average realized basis, with China in that 280-300. So we're very happy with the pricing that is happening in the market, which is reflective of tight market conditions.
Fair enough. Fair enough. And, just moving on to, the natural gas side of things, particularly in the U.S. I mean, I know, you know, between sort of last year and this year, you know, we've obviously seen natural gas prices in the U.S. coming down, you know, a fair bit. Can you talk a bit about, the differences in your hedging strategy between 2023 and 2024? Because I know you guys had obviously hedged out a fair amount of U.S. natural gas last year. Where does that stand, this year?
Yeah, we are. So our strategy is kinda to have, you know, three to five y ear rolling hedges, and we actually go beyond that, but at much lower quantities. And we target in the near-term years to have about 70% of our position in North America hedged. And that's where we're at today with G3 operating at full rates. So, you know, so we're effectively, you could say we're participating, we'll be participating in the spot market at around 30%. We set that level based on the minimum operating rates in our plant, 'cause and we target a delivered cash cost that we're comfortable with to operate at all points in the methanol price cycle. And so we've been successful in putting in those hedges. We're happy with where we are.
We're not seeking to hedge in the short term to be hedging up beyond that level, and we continue to be active in the market, layering hedges in the outer years as the new years roll in. So hopefully that helps you with that question.
Your next question is from the line of Ben Isaacson with Scotiabank. Your line is open.
Thank you very much, and good morning. First question is on New Zealand. Just looking back at my model, I see in 2016, you produced or sold 2.2 million tons from that region. And now, eight years later, we're down about 50% to, you know, one- 1.1. What should we be modeling as a run rate for New Zealand going forward? Not in 2024, but beyond 2024. What's the realistic game plan there? And is there an opportunity to monetize an asset that's not being used right now?
So thanks, Ben. You know, for modeling purposes, we're giving guidance right now at one year out, and a lot of this is based off of developments that are happening in the natural gas fields in the Taranaki Basin, as well as other factors. You know, I think what we've seen, if you know, we look at the decline over that time period that you referenced, it's all about what's happening in the different fields in New Zealand. And we did see that there was a revision in reserve estimates at one of the major fields that brought... That was quite some time ago, that brought production down.
You know, today, I wouldn't- you know, we don't, we don't forecast to have Waitara Valley, the smaller plant, in our, in our plans. We're really focused on the two Motunui plants and, and getting gas for, for those, for those plants. I think when you look longer term, how do you think longer term for these, these assets is, is you, you have to look at both above ground and below ground factors. And what I mean by that, above ground, you know, we play a huge role in, in New Zealand, in the natural gas market. The, the country, it uses most of the power, is, is, is renewable, power, but natural gas is an important power source when, when there's intermittent gas, intermittent power supply, and it's a low-emission power source to... Otherwise, you're dependent on imported coal.
We represent 50% of the market, and we're the baseload customer for the natural gas industry. So I think that is an important factor, and the second one is the government. You know, there's just been a new government put in place in New Zealand, the center-right coalition. Their platform is much more favorable towards the gas industry in comparison to what we've seen for the last six years. And that is a clear direction that they've set coming into power. So that's positive. And then obviously, looking at below ground, some of the campaigns that have been run for the last year or so, they haven't delivered the results, which is, you know, what you kind of expect.
Sometimes you're going to have results, sometimes you won't. These have not delivered results, and the wells that have been producing, we've seen declines happening a little quicker. So we're working with our gas suppliers really closely on the investments they're gonna be making to improve the existing wells and also their impact that has on their future campaigns. So it's difficult to give you, you know, what is that going to result in for a long-term run rate? What I can say is our focus is on the two Motunui plants and keeping those, you know, trying to improve the production from those assets.
That's super helpful, and then just one more, if I may. Forgive my bad math here, but you said that the world grew at an annualized rate of 3% in Q4, and ex-China, the world was stable or maybe about, you know, roughly flat. So does that... And given that China is roughly half of global demand, does that mean that China really grew at, you know, 5%-6% in Q4? And if you take MTO out, what did non-MTO China do? That's what I think that's what investors are quite interested in, because, you know, MTO will fluctuate all the time, but we really want to see demand improvements from underlying China. Thank you.
Ben, yeah. So we did see some demand improvement in traditional applications in China, as well as MTO, and overall growth rates were about 6% in China quarter-over-quarter. Traditional applications, obviously, it's something that we're watching really closely as well. For the year in China, we saw, you know, we saw about 5%-10% growth rates in China across all applications. You know, so that was MTO, other energy applications, and traditional chemical applications. And traditional chemical applications were supported, and industrial production in China increased by over 5% for the year. Export demand was weak, but they were exporting a meaningful amount, especially in comparison to the previous year, where they were in a COVID year.
So in a way, it was, we were coming off of a lower base coming into 2023. But 5%, 5%-10% growth rates across all those different applications, when it represents 60%-65% of your demand, obviously is gonna be meaningful for the industry.
... Your next question is from the line of Josh Spector with UBS. Your line is open.
Yeah. Hi, thanks for taking my questions. First, I just wanted to ask, just within Europe and thinking about Red Sea and Middle East disruptions, has that had any impact on the region? I know for some other commodities, you're talking about potentially limiting supply into Europe being an upward price, perhaps catalyst. I know methanol floats tend to be in the other direction, but what are you seeing, and what do you think plays out here near term there?
That's exactly right. It hasn't been a big impact for us, nor for the methanol industry broadly. Our supply chain, we don't have any product flowing through the Suez and the Red Sea. We would if we were supplying Egypt to Asia, but Egypt is really an asset that supplies mostly Mediterranean, our Mediterranean customers. So we're not impacted. And then, as a broad industry, the flows from the Middle East have really pulled back over time and are almost negligible. And that's on the basis that there's been a lot of new Atlantic production that's come online over the past, you know, many years. And so it hasn't impacted the methanol pricing or really tightened up the market in Europe.
I would say what we're continuing to monitor, which, you know, a lot—everyone will be monitoring, is potential escalation in the region, and the Strait of Hormuz is, you know, where probably 15%-20% of supply, 'cause all Middle East supply flows through that region. And just given recent events with Iran, you know, something we're watching very closely, but that would impact many, many different commodities. And so we'll continue to monitor that, but so far, the impact's been pretty muted.
Thanks. I appreciate that. Just a quick one on CapEx, if I could. Just as, you know, G3 winds down, I mean, you go more to maintenance levels, but you're talking about a little bit of growth when you think about, marine fuel or some other applications. What's the range of CapEx you see over the next couple of years as I go forward?
When we look out, we don't see any real meaningful capital in the next few years when it comes to either intrinsic organic growth opportunities or low-carbon meth- low-carbon methanol investments. You know, it will take time to develop. We're developing these opportunities, but that will take time. We're not standing still. We're developing these, but in terms of capital spend, we don't see a lot of outflows or outlays being needed in the next few years. You know, really, when we look at free cash flow generation, you know, the focus again is, is the balance sheet, and then, and then excess cash to, to shareholders, which we've been pretty consistent with over the years.
Your next question is from the line of Nelson Ng with RBC Capital Markets. Your line is open.
Great, thanks, and good morning. My first question is, in terms of the outage in Egypt, like, obviously, you still need to supply Europe. Did you see materially higher transportation costs in Q4 and maybe in Q1? And if so, should we assume that things kinda normalize in Q2?
Yeah. So thanks, Nelson. Nelson, it's yes, we did see higher logistics costs, and I would say part of that was because of Egypt. Additionally, it does depend on your supply chain movements. With more Chile product in our asset base, we do see more flows from Chile to Asia, so a little lengthening of the supply chain there. As we move forward, our supply chain will be partially lengthened with G3. G3 product will be flowing to all different areas within our supply chain, but there will be likely more flows, you know, into Asia as well.
So, you know, hard to say how you model all that, but, you know, we expect there could be some slight increases in our ocean freight, just based on shipping days and length in the shipping supply chain.
Okay. That's good to know. And then just one follow-up on New Zealand. You mentioned the lower supply. Like, is that, like, from a maintenance outage at wells versus generally lower outputs? Would you say that the generally lower trend of output is that the larger factor in terms of your forecast for the large decrease in methanol production in New Zealand, or is it specifically, like, a very big outage or long outage you're expecting for maintenance-
I would-
at the wells?
It's about, it's about half and half, I would say, Nelson, for that. Like, it's about half because of the outage and half because of lower, lower gas profile.
Okay. And are those outages, like, every other year or once every several years? Like, should we expect these outages to happen again in 2026?
Every few years. Yeah.
Okay.
Yeah, every two, around every two or three years.
Okay. So base cases, we might see a modest increase in 2025 out of New Zealand if everything else remains unchanged?
We'll keep updating you on the progress, and, you know, we're gonna work really closely alongside and be able to give you a better view on that as we get closer to next year.
... Your next question is from the line of Matthew Blair with TPH. Your line is open.
Hey, good morning. Thanks for taking my questions. I had a couple of modeling questions for G3. First, are there any significant startup costs that we need to incorporate into Q1? And then second, this inventory build in Q1, is that going to be, like, just a permanent part of your working capital, or, or, will it be temporary? And, and if it's temporary, is that something that you think will reverse by the end of 2024 or, or, or something further out?
Thanks for that. So I'm gonna. The first question was about capital. There will be no other, you know, kind of startup costs for us to be focused on. Everything in terms of starting up and commissioning the plant is included in our $1.25-$1.3 billion. And that's all included in the numbers, the $60-$110, including what's in accounts payable today. So there's. We shouldn't foresee anything beyond that. As it relates to inventories, what I think you will see this year is we'll, you know, inventory overall inventory levels will likely stay something similar, potentially even down. Like, you know, we could see inventories be managed down.
We're not significantly increasing our sales, so there isn't a need to increase overall inventory levels. And, and I would expect it to see that these things moderate over time in, in terms of the produced inventory buildup that you're seeing today. So I wouldn't, I wouldn't be forecasting this to be a permanent. And what we will see is that overall inventories stay the same, but there's sort of a flip between produced inventories and purchased inventories, as we'll be buying a lot less proportion of, of purchased and producing more.
Okay. And then so, does that mean that, for 2024, that your sales volumes should be pretty close, maybe a little bit less than the 8.1 of production?
Yeah, it'll be pretty good. It should be pretty close, and it might be slightly lower because of the inventory build.
Got it. And then my follow-up is just around RNG. Could you talk about what percentage of your sales were based on an RNG feedstock in 2023, and how might that change in 2024 and beyond? And what kind of customers are interested in methanol from RNG? Is that mostly the shipping or anything changing on the customer front there? Thanks.
Yeah. So I think first and foremost, the overall level is quite small. We really today we have, you know, one customer purchasing biomethanol, but there's lots of interest. So there's lots of interest in low-carbon methanol and RNG-based methanol. I think the challenge is about cost and availability of RNG. And you know, RNG has other competitive alternatives that have increased the cost quite significantly in the premiums you need to pay. And so, you know, we have worked... We are trying to work on arrangements where we can maybe get a more favorable price by locking in longer term and then selling into those markets, and those are the things that we continue to pursue. And it's not just RNG in North America.
We're looking at renewable natural gas in all of our jurisdictions to find out where we can source it economically and securely over time. In terms of the customers and shipping, the shipping customers are interested in RNG. But also traditional chemical applications are also interested. In fact, the one contract we have is into a traditional chemical application. And, you know, it's really customers that are seeking to have a green or bio, you know, kind of, you know, attached to their end product. So we're seeing that in certain segments.
It's consumer markets that is where we're seeing it, ultimately landing in consumer markets that would be able to demonstrate, you know, a feedstock that's more lower carbon or green. So, you know, we're continuing to develop it. Lots of interest. Obviously, securing long-term, affordable, renewable natural gas is the key, and then working with customers on their willingness to pay.
Again, if you would like to ask a question, press star, then the number one on your telephone keypad. Your next question is from the line of Lawrence Alexander with Jefferies. Your line is open.
Good morning. Could you give a bit more detail on what you're seeing in China, in DME demand and the industrial boiler applications, the amount of pull-through?
Yeah, I mean, I'll speak to China a little bit deeper here. Maybe across all the applications, in particular, the ones you're focused on. So in other energy applications, we saw growth rates, again, 5%-10%. That includes MTBE, DME, other thermal applications, boilers and kilns, as well as other fuel applications, such as cooking fuels. And so we saw a lot, very strong growth rates across all of those applications. In terms of boilers and kilns, you know, where we see boilers at today is that, you know, these are residential and industrial applications. But I would say that originally there was a thought that it would replace big industrial boilers. We haven't seen that.
Where we see is in smaller applications, commercial and smaller industrial changeovers. So it's a decent growth rate, but it's not some of the projections that were made early, I think, in this space were quite dramatic. But we are probably seeing 5%-10% would have seen that this year in that segment. Your question about DME. DME has been relatively flat, right? Because that industry has kind of operated at a certain rate. It isn't growing or expanding, and the existing industry sort of operates at around, you know, kind of an 80% rate. And so we don't see DME growing at all.
It's really the other applications like cooking fuels, boilers and kilns, M100 vehicles, and Geely has a fleet of vehicles, but they're also developing heavy duty trucks. And so that's where we see more of the momentum, less so in the, I would call it, the older new applications, DME, and more into these newer applications.
If I may, just one follow-up on that and then one structural question. You know, with respect to the kind of the frothier expectations, you know, I remember when the first industrial boiler discussions happened, a lot of it was about kind of the, you know, the need for clear policy at the federal level to sort of force or trigger kind of the adoption at the larger sites. Did that policy ever gel, or is the absence of that sort of why you're seeing sort of the shift in demand to mostly being these small applications?
What happened there was that industrial sites, large industrial sites, got connected to the gas grid, right? So it was. They needed to reduce down their power by coal, and we saw a lot of those, as much as possible, those industrial sites got more connected to gas, and were using that as an alternative versus methanol. And so methanol is actually being developed more in spaces where connecting to gas isn't available, and it tends to be in smaller industry or residential commercial applications. So your policy didn't change, but-
My apologies. Your next question is from the line of Steve Hansen with Raymond James. This is a follow-up. Your line's open.
Oh, yeah, thanks. Just a quick follow-up. Wanted to circle back on the supply picture, Rich. I think you referenced the Malaysian facility coming on G3, of course, but I, I don't think you referenced anything out of Iran this year. Just wondering if you've got sort of a view specifically on those facilities that have been sort of mused about for some time and whether they're gonna be contributing at all to an incremental supply this year. Thanks.
Thanks, Steve. Yeah, so for Iran, it's obviously getting information out of Iran and understanding what's going on there is often opaque. So we rely mainly on what we hear in the market as well as what we see on trade close. You know, the news in the market that potentially the Arian plant started production sometime this year. We have seen some supply in the winter, greater than what we've seen in previous years, but we think that's more based on weather, as it's been a warmer weather than a lot of, you know, new supply coming out of new assets. It's something we continue to watch. We think that the...
You know, when we think about Iran, we think the structural constraints are gonna be the same, which is under sanctions environment, you have, you know, it's difficult to operate these plants. A lot of them have been built, you know, with local EPC resources. Difficult to run from a technical perspective, and the gas grid is constrained for a big part of the year. So I think we will watch to see what happens when the winter ends, and we see, you know, potentially more gas availability, and it will tell us whether, you know, we see any new incremental supply coming from new plants. But we think those structural constraints are there, and they're gonna continue. So we don't factor in a big amount of net supply coming out of Iran, irregardless of whether plants start up.
That's helpful. Just the obvious follow-on question is, I know G3 is just turning on, so it's probably a bit premature, but when do you start scoping the next facility? Presumably that's probably already happening, but when does the actual thought of hard dollars going into the ground start to enter the equation? Are we talking three years out, five years out? How do you think about that longer term? Thanks.
So the phases for us will be, you know, we'll be looking at doing commercial work to really explore our options, and it'll be partly commercial, partly technical, looking at our different options that are available. That's where we are today. That process will then be narrowed down into which are the ones you want to progress. Then you'll, you know, we would talk about a pre-FEED, which would be really still fairly limited capital. And then the next step is to move into a FEED, which you start spending more money, but still, I don't think is the capital you're talking about. You don't get there until you reach a final investment decision.
So we're a ways away from that, a final investment decision where you start turning it to spend meaningful capital on a new project.
Your next question is a follow-up from the line of Josh Spector with UBS. Your line is open.
Yeah, thanks. Just a quick one to clarify. When you're talking about the kind of guide or the walk to first quarter, you said slightly higher sequentially. I guess pricing up is up a decent amount. Understanding G3 is probably not in the math until second quarter, but Egypt was down last quarter. I guess, what's offsetting that when you're expecting Egypt to start? Is it a big cost of the repair, maintenance associated with it, or something else which limits your first quarter increase?
Yeah, I think it's really. You know, we're gonna be building inventory through the first quarter, rather than seeing that product flowing through sales. So I think really when we look at our inventory as we bring G3 and Egypt up, our overall produced sales for Q1 are looking really similar to Q4, and really it's about price. So I think we're, you know, when we look at quarter-over-quarter, it's more of a price story than a, than seeing that, that incremental. And then when we get to Q2, is where you start to see kind of what we would call the run rate production coming through the actual sales. And that's why we kind of point to Q2 as being more indicative of our run rate and cash flow capability, with all our assets running.
Okay. Thank you.
There are no further questions at this time. I will now turn the call back over to Rich Sumner.
All right. Well, thank you for your questions and interest in our company. We hope you'll join us in April when we update you on our first quarter results.
This concludes today's conference call. Thank you for joining. You may now disconnect.