Earnings Call: Q2 2020

Jul 30, 2020

Welcome to Methanex Corporation Q2 twenty twenty earnings call. I'll now turn the meeting over to Ms. Campbell. Please go ahead, Ms. Campbell. Thank you. Good morning, everyone. Welcome to our second quarter 2020 results conference call. Our 2020 second 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 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 forecasts or projections, which are included in the forward looking information. Please refer to our second quarter 2020 MD and A and to our 2019 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, cash flow or income made in today's remarks reflects our 63.1 percent economic interest in the ABL 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. We report these non GAAP measures in this way to make them a better measure 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. Good morning. We hope that everyone is continuing to stay safe and healthy. We will start with a few comments about the current environment and then speak to our discuss how we are managing our business in this challenging environment while positioning ourselves to benefit from the recovery in the global economy. Our number one priority remains the safety of our employees, contractors and communities where we work. And we are thankful that our team is safe and healthy. We continue to evaluate the risk at each of our locations to ensure the safety of our team members and we continue to take extensive health and safety measures across our operations and offices as we begin to return to our workplaces at most of our locations. We have again demonstrated the resilience of our business model as our operations and global supply chain continue to run effectively in a different very difficult environment, and our ability to service customers has not been significantly impacted by the pandemic. A big thank you to for the methanol industry and our company. Due to the impact of COVID 19 and low oil prices, we recorded adjusted EBITDA of $32,000,000 and an adjusted net loss of $64,000,000 compared to our first quarter due to a lower average realized price and lower sales volume, which were partly offset by lower production and selling, general and administration costs. Also, our margins tend to be lower in the declining price environment compared to a stable price environment. Generally, the opposite applies when methanol prices are rising. We estimate that inventory timing differences reduced adjusted EBITDA by approximately $25,000,000 in the quarter. We estimate global or 1,000,000 tons in the second quarter of 2020 compared to the first quarter, reflecting significant declines in most parts of the world outside China. The demand impact in China resulting from manufacturing shut downs due to COVID 19 was felt the most in the first quarter. If we compare the second quarter of 2020, to the fourth quarter of 2019, we will see the full impact of COVID 19 where we estimate that quarterly global methanol demand declined by approximately 12 percent or 2,500,000 tons. Prior to COVID 19, Annual methanol demand was expected to increase by 3% to 4% or approximately 3,000,000 tons in 2020 compared to 2019. In China, methanol demand increased by approximately 4% in the second quarter of 2020, versus the first quarter as economic activity began to recover from seasonally lower levels and COVID-nineteen impacts. Ground transportation and increased and fuel demand improved. Methanol demand improved across, quote, traditional chemical applications, such as formaldehyde, and energy related applications such as MTBE, DME and other fuel applications. Methanol to olefin demand was particularly strong as several plants restarted and maintained high operating rates, following planned and unplanned outages in the first quarter and supported by significant improvement in ethylene pricing the second quarter. Outside of China, methanol demand declined by approximately 19% quarter over quarter. Traditional chemical demand declined due to significantly lower manufacturing activity, particularly in the automotive and construction markets. Which are both major consumers of methanol. Demand into energy related applications, including MTBE declined due to reduced ground transportation and fuel demand. Global Methanol Industry Supply also declined in the second quarter of 2020, compared to the first quarter due to various outages and shutdowns is falling below the cost curve in Q2. As we've previously announced, we idled our Titan plant in Trinidad in mid March in our Chile IV plant as of April 1. We have seen other producers in Trinidad, Argentina, the Netherlands, Russia, and China reduce operating rates or shut down. We estimate that global methanol supply declined by approximately 9% when comparing the second quarter of 2020 379,000 tons lower than the first quarter of 2020, primarily due to the idling of our Titan and Chile fork facilities. Early in third quarter of 2020, improving methanol demand and methanol plant outages in Southeast Asia and the Middle East have impacted market conditions and provided support for higher methanol prices. Was approximately $200 to $2.20 per ton. Spot prices in China are marginally below the cost curve today. We recently posted our August North American price, which remained at $2.76 per tonne in our Asia Pacific price, which increased by 14% $2.45 per ton. Our European contract price is set quarterly and our 3rd quarter posted price is per ton. We believe that the outlook over the coming months remains uncertain and is difficult to predict the full impact of COVID 19 pandemic and the lower oil price environment on methanol demand. As previously announced, we have taken several steps to further strengthen our balance sheet and preserve liquidity including deferring approximately $500,000,000 in capital spending on the Geismar III project for up to 18 months. Reducing our quarterly dividend to result in approximately $100,000,000 in annualized cash savings and reduced 2020 maintenance capital spending by $30,000,000. As you are aware, our cost structure moves with the price of methanol. The price we pay for approximately 60% of our natural gas consume, which is our most significant operating cost is linked to methanol prices. This means that our operating costs move up moved down as methanol prices declined, although there is a time lag of up to 1 quarter. Fact that a lower oil price environment will offset our previously anticipated increase in shipping costs due to the new international maritime 2020 regulations. We also continue to actively manage our operating costs across the organization during the current downturn due to COVID 19. We have a strong liquidity position and ended the quarter with nearly $800,000,000 in cash on the balance sheet. We expect that we only need to maintain a minimum We have no near term debt maturities. We also recently announced that we amended our 300,000,000 committed revolving credit facility and $800,000,000 on revolving construction facility, which provides meaningful financial covenant relief. As we've previously announced, we've placed our Geismar III project on temporary care and maintenance. Prior to making this decision, the project had been significantly de risked and our project execution was saved on time and on budget. We will consider a number of factors before deciding on whether to restart the project, including the pace of the global economic recovery, Methanol market conditions, our ability to effectively finance the project and the ability for suppliers to execute construction and to deliver material and equipment. Given the uncertainty in the broader economic environment due to COVID 19, continue to plan for a wide range of scenarios, including ones where we see a more prolonged period of lower methanol demand and continued bottom cycle pricing. We are focused on cash preservation and continue to evaluate all options to ensure we maintain financial capacity and flexibility to navigate the current environment and emerge stronger over the cycle as conditions improve. We will not undertake share buybacks in this environment as any excess cash will be used to further strengthen our balance sheet. Now turning to our outlook for the third quarter. We expect the outlook over the near term to be uncertain, and we cannot predict the full impact of the COVID 19 pandemic and lower oil price environment on the methanol market. While we have seen higher methanol pricing in the recent weeks, based on our posted methanol prices so far this quarter, We expect average realized prices in the third quarter to be similar to the second quarter. We expect our production levels in the third quarter to be lower than the second quarter. However, as prices stabilize, we expect that the timing differences due to our FIFO first in, first out inventory accounting will have less of an impact on costs. We expect adjusted EBITDA to be similar in the 3rd quarter compared to the 2nd quarter. Before pausing quick questions, we'd like to highlight a couple of points regarding the resilience of our business. While the near term outlook is uncertain, we expect continued long term demand growth for methanol. Methanol is a key ingredient that serves as a building block to produce a multiple multitude of everyday items used to construct and insulate our homes in automotive components to make cars lighter and in the technology that keeps us connected. In many cases, there are limited if any cost effective substitutes for methanol in many of these applications. Methanol is also used in an increasing number of energy related application and is a clean burning and economic alternative fuel. Demand for methanol will eventually rebound as global economic activity recovers. As the industry leader, with a global production footprint, integrated global supply chain and low cost structure, we have continued to deliver secure and reliable supply to our customers globally. Which is our competitive advantage enabled us to be the supplier of choice to customers around the world. Our production assets are well positioned on the industry cost curve competitive through the methanol price cycle, we have a strong cash flow potential with significant leverage to methanol prices. We estimate that every $10 change in our average realized methanol price results in approximately $60,000,000 increase to adjusted EBITDA on an annual basis. Finally, we have unique growth opportunities in Louisiana, allowing us to increase our production capacity at advantaged capital cost when conditions improve to enhance our global leadership position and create significant shareholder value in the stronger global economic environment. We remain focused on operating our plants safely and reliably, delivering secure and reliable supply to our customers and protecting our balance sheet. We believe that our resilient business model and strong liquidity position will enable us to navigate this challenging environment, We positioned ourselves to generate significant long term value as global market conditions recover. We would now be happy to answer any questions. Perfect. Thank you. You. There will be a brief pause while the participants register for questions. The first question is from Jacob Bout. I want to start off on a G3. And maybe if you can just talk about your ability to push that out further than the 18 months, I, later than 2021 and any financial penalties to do so. Yes. When we renegotiated our, our recent, revolvers and including the construction facility. We did get some relief on the completion date for G3. So we have pushed that out a little farther. How far out? Another 12 months. Okay. And then Can you just talk about the incremental costs, if any, from COVID specific events in the quarter? The very minor incremental costs really to do with, working remotely, some technology probably, but very, very insignificant. Okay. And then just last question here on global methanol demand. So you gave the numbers of ex China down 19% in second quarter. The interest in hearing on how things actually improve through the quarter, and what July is looking like? Yes, I think it's difficult to predict demand in this environment, Jacob. We'll continue to watch it, but I'd say outside China, we're still seeing significant pressure on downstream and used products and demand is slow to recover. So we'll continue to watch it, but I think it's too early to predict demand recovery. Were things significantly worse in April than June? I don't want to go month by month because it's better to look at quarter by quarter, but I'd say demand is still significantly down from where it was, Q4 2019. All right. I'll leave it there. Thank you, John. Thank you. The next question is from Baix Ben Isaacson. Your line is open. Please go ahead. Good morning. Thank you. We've read that inventory levels that Chinese ports are reportedly high. Can you kind of put that into context as to how you see global inventory levels through the channel? Yes, well, China levels continue to go up. And so does the demand is quite a bit of higher because of MTO operating, in China. And we've said before that we haven't seen the terminal capacity increase in China to the extent it needs to do to accommodate Purdue demand on the coast. So We would characterize inventory levels today, probably more normal than high. I'd say they were certainly high as we entered the quarter. With all the uncertainty. You know, India basically shutting down. So most of the Iranian production ended up in China, which led to higher inventory levels. Globally, including our own levels, we wouldn't characterize as inventory levels as high, but more, I would say, normal. Suddenly stated yesterday that they see global acetic asset inventories as being low. Do you think that's a meaningful tailwind to reduce methanol inventories? Well, acetic acid of the chemical demand, I think it's about 9%. So, we'll take any new demand we can get versus where we've been, but I don't think even if it goes up by double digit, it's not going to have a significant impact on the overall methanol supplydemand balance. And my last question is, you realized $8,000,000 in savings in Q2 versus Q1. How much of that do you think is sustainable on a run rate basis going forward? Well, I guess it depends on how COVID nineteen continues to impact our ability to do things like travel and our company set up as a collaborative type company who have a lot of global teams that meet on a regular basis and all of that obviously has ended. And Obviously, in this environment, when we are looking at hiring and things like that, we're being very cautious. So, And to me, I think what the big question is, what is the longer term or medium term demand for methanol? We were setting up the company to be growing in line with the methanol market, which was 4% to 5%. And obviously, that's totally changed right now. So We may need fewer people, going forward if we don't see a rebound in methanol demand. And if we do, then, obviously, we'll adjust our cost structure sure, as a result. So I'd say it's main, the savings that we've achieved are maintained we can maintain them in the current environment. Thank you very much. Thank you. The next question is from Joel Jackson. Your line is open. I have a few questions. So the first one would be, if I heard your data points correctly in the prepared remarks, you talked about methanol market contracting about 12% between Q4 of 'nineteen and the second quarter, looks like your own sales volumes contracted between 16% 19%. Between Q2 and then Q4. So it looks like you lagged, you had worse contraction in the industry. Can you talk about that? Was that a strategic choice to help balance of high demand. You had some plants that closed part of that as well. Maybe you can just talk about that, please. Yes, it's not a strategic choice to not sell product. We sold all the product we could. Certainly, we took plans offline to get in front of what we saw declining demand environment, which should prove to be quite a good call in retrospect And the only plants where we had total flexibility was Chile IV and tightened. That's why we chose those plants. If you look at the impact on us, we're underway in China versus the rest of the world. China recovered in Q2 while the rest of the world declined 19%. Our larger exposure to Asia Pacific Europe And North America saw us decline more than Q2 than the market. So not unexpected based on our mix. And MTO saw growth in Q2 and high operating rates. And we have less supply into MTO in Q2 as they I think switch to buy more Iranian product that was being sold at a discount in China by up to $50 a ton during the quarter. So we would have not chosen to compete at some of those MTO accounts at those price levels. So we chose not to sell, but we sold everything that we could that made sense for us. That's helpful. I had a question about turnaround. You talked about having maintenance outages about G1 and G2 in the second quarter. I believe the turnaround at G1 last year, maybe G2 was due does this mean you don't need to do a turnaround at either G1 or G2 in the next couple of years? And then do you have any other turnarounds planned any other plans this year? Yes, when G1, usually we get 4 years between turnarounds. And so we did G1. And so I don't expect to do a turnaround at G1 for 3 years. As far as G2, it hasn't had a turnaround yet since it started. And you can do the map drill. It's coming up to 4 years. So I think that'll be due at some point, not too distant future. The outages we took in Q2 were really minor maintenance outages. I mean, pricing was low. Demand was poor. So we just took advantage of those conditions to make some minor corrections to make those plants safer and more reliable, over the medium term. We've always guided to 2 to 3 turnarounds per year. Obviously, in the COVID 19 environment, we had to delay some of our planned turnarounds at some of our plants and, assuming everything remains the way it is today, which is a big assumption. We plan to do those turnarounds in the second half of the year, but we're monitoring, the spread of COVID and our ability to get these turnarounds done safely and effectively in the current environment. That's helpful. And just finally, so, you talked about the set of conditions you'll be looking at, whether to restart G3 in 14 or 15 months, let's just say that you come to conclusion maybe around now that you're not going to pursue G3 anymore. I'm sure you've gone back to look at your if you were to stop the project and penalties or how much payment you'd have to make or what you'd want to finish just to have ready for if you restart the project down the road. Can you maybe just talk about as much as you can, what flexibility, what options you have, how much you'd have to spend, what the penalties might be if you stop G3 now? Yes, I think it's early. And we've said that, you know, to stop it, when we made the decision just a quarter ago or to get or to put it on care and maintenance is about the same and we haven't changed our view on that. As we've announced that, we're obviously negotiating with all of our buyers and different equipment, different construction labor and engineering, etcetera, etcetera, on all these different components. I would also say we've had a number of, equipment suppliers to clear force majeure on us or interrupted because of COVID-nineteen. So there's 100100 of these contracts that are being negotiated back and forth. So if we make the decision to not go forward with G3, sometime middle next year, we'll certainly highlight those costs that we would incur at that time. Thank you. The next question is from Hassan Ahmed. Good morning, John. Good morning, Hassan. John, if I heard you correctly, you talked about relative to end of last year, supply being down roughly 9%. So my question to you is that with the economics looking the way they are right now, I mean, could you venture a guess as to what percentage of that 9% will maybe potentially be permanently sort of curtailed or do you think most of that supply is going to come online? And then part and parcel with that how are you thinking about the pace of near term new capacity additions? Yes. So we've highlighted two plants that we expected completed sometime this year. The Yohang plant in the United States and the at Mitsubishi plant, in Trinidad. I think they total about $2,800,000. I think, both are probably under some challenges in the current environment based on our experience with labor availability and how you, have to manage your workforce in this this type of environment. So we think they'll start. They will start at some point possibly delayed, but really hard for me to give you an exact on that, Hassan. As far as, methanol supply that's offline gone forever really hard to predict. You know what we are going through in Trinidad and our competitor has 5 plants there. And the gas dynamics are really difficult. So they've shut down some capacity and whether that comes back or not, I think will be a factor of gas price. And whether, we and they can negotiate a gas price that makes sense through all points of the cycle of methanol. So I think we'll have to watch that. And and see how that evolves. But it's really hard to predict where that's going to end up. I think in other parts of the world, if pricing was to rebound to more normal methanol cycle levels, mid-300s, we would expect that, that supply to come back on. Very fair. And as a follow-up, John, maybe early days, but a lot of sort of news releases coming out about flooding at the Yangtze river. So what are you guys hearing in terms of, be it methanol output as well as methanol trade that may or may not get impacted by this flooding that's being reported in the press. Yes, I don't have anything to add on to that, Hassan, sorry. Thank you. The next question is from Mike Lifehead. Your line is open. Please go ahead. Great, thanks. Good morning, John. I have just two kind of higher level questions today. First, I believe Methanex owns its own vessel fleet that I think is worth, call it, roughly $200,000,000 on your balance sheet today curious as you think about improving your financial flexibility in this environment, if you'd consider some sort of sale leaseback arrangement to help generate cash flow near term or you would consider owning your own ships strategically important to where you are today with Methanex? Yes, we don't own them all. We have a combination of long term time charters, which would be 15 years, some we own in partnership, And some, we have COAs, a contract of affreightment. So there's a mix there. I'd say whether we own them or not is not crucial to water front shipping. We started owning a few vessels just to understand more around the operations. Obviously, we wanted to promote methanol as a alternative fuel. So there were some strategic reasons. It's an integral part of our overall supply chain. Our competitive advantage is the care reliable supply, to our customers. And you know, Waterfront Shipping is a key component of that. But I've said earlier, all options are on the table. But we want to preserve our balance sheet, enhance liquidity but not destroy the future of the company at the same time. So I think these things will be ordered. And we'll end ability to execute is also, in this environment, selling assets could be quite challenging in this environment. So there's a number of factors, but we'll consider everything to protect our balance sheet and to enhance liquidity, going forward. Great. And then second question on the energy opportunity for methanol. I think there's been a lot of talk investment in recent months around clean hydrogen. And earlier this month, there was a major hydrogen project announced in the Middle East where effectively they're using ammonia as a transport medium to take hydrogen gas to the end market. My understanding is someone could do something similar with methanol as a liquid hydrogen carrier for fuel cells. So I guess just between what's going on and seeing hydrogen or even just direct fuel blending, Can you just maybe update us on your thoughts on how you see methanol playing a part in this move towards clean fuel? Well, methanol has always been a great hydrogen carrier. That's not news. We had a fuel sales project team going back 20 years ago. Working with people like Ballard, for example. And, that continues to go forward, not for automobiles in a big way, but for no smaller applications like generators and etcetera. So still a very small part of overall demand, but, as a hydrogen carrier, Methanol is a great alternative. I'd say that kind of application is really a medium to longer term. To build out the infrastructure, etcetera. So yes, certainly possible, but as far as impacting demand in the next 5 years, I would expect not. Perfect. Thank you. The next question is from John Wallace. Your line is open. Please go ahead. Think it sounded like you were also curtailing New Zealand a little bit, going forward in the back half of the year. Could you give us an update there? No, we're not curtailing New Zealand at all. I think I guided, last year that we expected our production to be 1,800,000 tons. In New Zealand, for the 3 plants based on gas availability in the country for 2020. We haven't changed that guidance at this time. Okay. And I think there's been a shortage of plywood in particle board. Is formaldehyde at least a bright spot in the methanol market? Yes. I know there's a shortage and not from Mt. High, but Plywood and Particle board. And I think that's more of a factor of makers of those products curtailed production, in the second quarter as well. And for reasons that we think the renovation market is doing quite well as people are hunkered down at home and trying to make their their space is more palatable and if they have to be there all the time, that that's created a short term, demand for those products, which is good for formaldehyde resins. Absolutely. But again, the amount of formaldehyde resins that goes into plywood in North America Well, interesting, it's not going to move the needle from a demand point of view. Thank you. The next question is from Steve Hansen. Yes, good morning guys. Just a couple of quick operational ones, John, if I may. Just firstly on the maintenance schedule going forward, I know you're taking down maintenance capital. For the year. Just give us a sense for how much more flexibility there might be in that budget and whether you have any major turnarounds planned through the balance of the year. I know you don't give specific timing on those downtimes, but just trying to get a sense for whether we should expect any more disruptions And then there's a follow-up note or a question just on the CO2 levels that I think you noted in New Zealand. Just trying to get a sense of what's happening there. Yes. So, as far as turnarounds, we've guided to 2 to 3 per year. Obviously, we in the environment, we found ourselves in the first half of this year. We couldn't do any turnarounds. So assuming conditions remain similar to how how they are today will proceed, with our planned turnarounds for 2020. And we're going to obviously practice all of the safety, things that we need to do today in social distancing, etcetera, etcetera, as we do, these turnarounds. There's a bit of, room, maybe to push them off a little bit if we need to because we can't conclude them safely. But there's limited ability to do so. These are statutory turnarounds that we need to change catalyst and do some maintenance work. Every 3 to 4 years. So we have limited ability to further, postpone or these turnarounds and So that you should expect us to do 2 to 3 a year in a normal environment. And I didn't really understand the CO2 by related to New Zealand. Are you talking about the high CO2 gas or CO2 emissions in the country? There were just a very brief comment in the MD and A about CO2 levels being slightly down. I wasn't too sure what that meant. I think it referred to the CO2 gas. Oh, that was Medicine Hat seed. So we take, yes, we take CO2 across the fence from a nitrogen plant. And, we have min max rates in that and we decided to go to min rates on the CO2 we were taking, which impacted our production there a little bit. Understood. And then just one follow-up if it may is on Trinidad. Where we at with the broader Trinidad discussion and debates. We all know the backdrop there, but just trying to get a sense for how that broader discussion or negotiation is ongoing there and treat what we can expect through the next 12 to 24 months? Yes. So we're negotiating, as we said, and we're looking to to secure an arrangement that allows us to be somewhat profitable at all points of the cycle. And certainly, the NGC understands that. And they're working hard to, to, create the conditions to allow us to sign a deal with them that makes sense for us, makes sense for them, and makes sense for the up stream. So we have nothing to report today, but we will continue to negotiate. We're not alone. I mean, there's others that on the island, in our business in methanol as well as in fertilizer that are in the same, conditions that we are. So think the government wants to have a solution, to this issue and are working hard, to make things happen to allow the island to to be a significant producer of methanol and ammonia. And, again, we'll report as we have something to report. But right now, the plant is down. And you should expect it to come up here in the near term. Perfect. Thank you. The next question is from Matthew Blair. Your line is open. Please go ahead. Yes. Hey, good morning, John. I was hoping you could provide just a general update on what you're seeing with MTO. Just been some chatter recently that MTO really offers in a low crude price environment, what kind of operates did you see in MTO both in Q2 as well as currently? Yes, quite high. I mean, that was one of the bright spots in the, in the whole, methanol demand environment in Q2. So we saw increasing, rates of production. And as we had new plants year over year, operating, We did see low pricing for ethylene and propylene, which, could have impacted the demand, but we didn't see anybody turn off for economic reasons. So, yeah, I'd say MTO continues to operate in that 90% range. We understand recently that 1 or 2 plants are doing maintenance, one may be planned, one may be unplanned. And with the number of plants that are running, I think a 90% operating rate is is pretty good. And we would continue to expect in the 80% to 90% going forward. And year over year, that gives us more demand, because the plans worth running all of 2019. Sounds good. And then the discount rate on the met small contracts was quite high in Q2. I think you referenced, just following methanol prices as the driver there. With methanol stabilizing, do you see that Q3 discount rate getting closer to kind of like a long term normalized level around 15% or so? Yes. What we've guided to when prices are increasing, the discount will go down a bit when prices are decreasing rapidly, like we saw in Q2, our discount will go up. I think that's our highest discount since the financial crisis was the last time we had pricing of this order of magnitude. Yes, but our guidance is still applicable in a, in a, stable environment where prices are flat, we should experience around a 15% discount. And, Q3 might be a little higher than that. It's early days, but, that's still our guidance. Thank you. Thank you. The next question is from Roger Spitz Your line is open. Please go ahead. Thanks very much. Just on that MTL, a large chemical company on the future earnings call. Claimed MTO isn't comparable below $50 a barrel. It's no doubt more complicated by that. You you've said clearly, the MTO guys were operating at 90% just a moment ago. Do you have a if you don't know how you feel about that $6 a barrel, but do you have a level where you think it isn't unprofitable or a way to think whether it's when it does become unprofitable? Yes, again, I've said this many times, each site is a little different. And when you calculate profitability for MTO, you've got to look at all the derivatives producing at any given site. It's not so much the oil price. It's more of the ethylene and the propylene prices. And for oil and therefore, naphtha, substitute, you'd have to have excess capacity of NAFTA in order to do that, which is not there today. So we've said clearly that growth in, Olefins is probably going to be in the form of ethane and naphtha in today's environment and not so much MTO, and that's what we're planning for. But the existing capacity will continue to run, provided that they're cash positive on a site by site basis. And that's the case today. And that's why we see them running at high rates. To make a prediction on the future, you'll have to tell me what the ethylene appropriately and all the derivative price will be, and then we could calculate the affordability for each and every, every site. So, I think it's a pretty basic analysis to say $50 oil below, they're all going to turn off. And I think history would show that's not the case. All right. Thank you very much. Thank you. The next question is from Nelson Ng. Please go ahead. My first question just relates to the working capital. I know that's in Q2. That was a big positive working capital move. I know $60,000,000 of that was due to the insurance proceeds from Egypt. But can you give a bit more color as to whether that will or whether a lot of that will reverse in the coming quarters or whether that's, some of that's permanent? I hope it does. That means we've got higher methanol prices. So I'm tiering for the working capital draw to reverse? So most of that is just due to methanol driven by methanol prices. Rather than inventories, yes, inventories, gas, different things like that, but, yes, we'd like to see it go back up. Now, so we're operating our place our company really tight right now. We're really trying to manage our working capital really well. So that's we're going to keep a lid on that obviously. Inventories, as John mentioned earlier, a little lower than they've been. And so there's been some really good work in terms of managing our working capital. So if you know, for this environment, we're going to we're going to probably stay there. And as John says, if we get higher pricing, then it goes the other way, which is a good news story. Okay, got it. And then just on your credit facilities, I know you're sitting on a lot of cash. But I think during the quarter, you repaid $100,000,000 in your revolver, but you drew down $37,000,000 on your construction facility. Can you just give a bit more color as to your strategy with your cash balance and your decision to to draw things down. So I was just wondering why did you make a prepay all of your revolver? Is there some risk that it won't be available in the future? Is that why it's still draw on that, I think about $200,000,000 is drawn right now? Yes. So in terms of, let me start with the construction loan on a $37,000,000 draw. We're going to draw as we spend money on G3. We're entitled because it's a fixed term loan. It's a revolver. Non revolving facility. So we'll continue to do that. And then in terms of cash and liquidity, we're going to have a balance in terms of how much cash we want in terms of having an option, versus the negative carry. And right now, as we've noted in the quarter, we've obtained a really think a good covenant relief, that allows us to get through the next, few, 12 months, you know, lots of flexibility. So we'll be evaluating over the next little while in terms of how much cash we'll keep in our balance sheet versus returning and repaying the operating facility. We haven't made any decisions yet. Thank you. The next question is from Rick Petrie. Your line is open. Please go ahead. Hey, good morning, John. Good morning. With lower methanol prices, have you seen any increased demand for industrial boilers or is methanol still less competitive versus either coal or gas? Yes. So the switch to Industrial Boire Smethaw is really driven by cleaning up the air rather than straight economics Most of the boilers in China today are coal and they're quite polluting. So especially on the coast, there's a drive to clean up the air. So three things you can do, use instead of coal are methanol natural gas and diesel fuel. And natural gas is not readily available throughout China. It's not like a reticulated system like we see here in North America. I think natural gas is a good choice to go to, from coal. But a lot of areas that you can't get natural gas, and I think that's where methanol plays its role. So I don't think whether methanol is at $200 or $300 a ton or $400 is going to make any impact on the switching rate of coal to methanol in the boiler market. It's more of a technology works and methanol, I can get it delivered So it's more of a supply chain issue than actual price of methanol. We continue to see conversions, not only on boilers, but more recently on kilns as well. So coal based kilns are starting to convert to those same three fuels. And we see that as a trend that will continue, especially as China looks to clean up its hair. Okay. So my follow-up question, I wanted to ask on the longer term dynamics of marine fuel. I think Lloyd's recently approved an ammonia fuel vessel. So how do you see Methanol competing against ammonia and meeting IMO 2030 standards? Yes. Well, methanol is a great I'll turn a few and we'll meet the IMO standards going forward. And, with the thing about it, it's easy to handle. It's readily available at ports around the world. It can be stored in regular tanks that are on the ship. So from a storage and handling and availability, it checks all those boxes. But I've always said it's not going to be either or there's going to be a number of solutions that people are going to promote, including LNG and, ultralowsulfur diesel in the short term and methanol and ammonia has been used in diesel trucks in North America for quite some time. So I think it'll it's not going to be a one size fits all solution. And we're pretty pleased with the progress that we're making on methanol as a fuel on board shifts. The nice thing. I think that methanol has an advantage is it's flexible. So you can have the same engine use, ultra low sulfur diesel or methanol. So to me, anytime you can provide flexibility on fuel of choice, it gives you a leg up on your competition. So we would continue to see methodolized fuel on ships growing, again, significantly probably mid next decade, mid this decade because it's a, mainly a new build story retrofitting, we don't think is going to happen. People will just, probably use ultra lowsulfur diesel, especially in the current environment. Okay. How would you size the market opportunity in terms of tons? Yes, it's about if every ship was to convert to methanol, which not, it's about 500,000,000 tons. So we don't need very much penetration to have a significant impact on the supply demand balance for methanol. So a ship like ours, one of our ships, just to give you order of magnitude, there are about 50,000 deadweight tons. If they run on methanol 100 percent of the time, it's about 10,000 to 12,000 tons of methanol per year per shift. The last question is from Sheridan Radbourne. Thanks very much. Good morning. In terms of the new methanol supply that's scheduled to come online, could you just give some color around what sort of logistical issues you think COVID-nineteen could have in terms of the timing of those plants coming online? Well, it's really around construction. If you've ever been to a large plant that's being constructed, people are working in pretty close quarters. So you have to put in quite a bit of safety procedures that you wouldn't normally put in without a virus around social distancing, masks, cleaning, all the things that are being done everywhere that we see, COVID present in a big, big way. So that adds time and probably as people. And then you've got the commissioning process. Usually, when you're commissioning a plant, you're bringing people in from all different parts of the world. That have expertise in a particular piece of equipment or particular system or particular part of the plant. And I think in Trinidad today, that's pretty difficult. In the United States, maybe a bit easier, but, maybe some people don't want to travel, they're going to do it remotely. And that'll add complications. So I think not only will construction times be, extended, but commissioning could be a lot harder, than in a normal environment. But, I'm always amazed at what people are able to do when they don't have choice of being in person. So, people will find ways. And, but I think it'll be a bit more cost and probably a bit longer is what I would add state, but those plants will get commissioned at some point, here in the coming year or 2. Okay. And then last one for me. Can you comment on what you're seeing as far as the impact of the sanctions on Iran and the flows of Iranian methanol? Yes. Really no impact on their ability to produce. I think the impact of sanctions is more getting spare parts and and developing the gas fields to allow them to deliver gas on a reliable level throughout the year. So we're still continuing to see methanol being shipped. And really the only place that can be sold is China. Now India is back open. So there's some going to India. And we've seen pricing rebounded in India as a result. So I'd say it's more not the ability to sell the methanol. It is at a discount to other material, but they're still selling it. It's the production and the ability to run their plants reliably going forward. Thanks for the time. I'll turn the meeting back to you. Okay. Thank you. So just a couple of clarifying points. I think I mentioned the extension on the 3 completion was 12 months. It's really 9 months. So it's now July 2023. I apologize Joel for, being off by 3 months. We have a crack finance team here. So during the call, I didn't realize this, but we have a COVID-nineteen category for all expenses that are in addition to our normal operating costs related to COVID-nineteen. And so far today, it's $37,000. So just to answer that question, thanks to the finance team for providing that information. And I wanted to reiterate that our top priority is keeping our team members safe and healthy. We will continue to operate our plan safely and reliable reliably, deliver secure and reliable supply to our customers and protect our balance sheet. We believe we're well positioned to sustain our business in this uncertain environment and generate significant long term value as global market conditions recover. Thank you for joining us today. Stay safe. And we look forward to connecting with you in October. Thank you for the interest in our company. Thank you.