Methanex Company (NASDAQ:MEOH) Q1 2023 Earnings Convention Name April 27, 2023 11:00 AM ET
Firm Contributors
Sarah Herriott – Director of Investor Relations
Wealthy Sumner – President and Chief Government Officer
Convention Name Contributors
Joel Jackson – BMO Capital Markets
Ben Isaacson – Scotiabank
Hassan Ahmed – Alembic International
Steve Hansen – Raymond James
Laurence Alexander – Jefferies
Matthew Blair – TPH
Nelson Ng – RBC Capital Markets
Jacob Bout – CIBC
Joshua Spector – UBS
Operator
Good morning. My identify is Brent and I shall be your convention operator at the moment. At the moment, I want to welcome everybody to the Methanex Company 2023 First Quarter Outcomes Convention Name. All strains have been positioned on mute to stop any background noise. After the audio system remarks, there shall be a question-and-answer session. [Operator Instructions]
I’d now like to show the convention name over to the Director of Investor Relations at Methanex, Ms. Sarah Herriott. Please go forward, Ms. Herriott.
Sarah Herriott
Good morning, everybody. Welcome to our first quarter 2023 outcomes convention name. Our 2023 first quarter information launch, administration dialogue and evaluation and monetary statements could be accessed from the Stories tab of the Investor Relations web page on our web site at methanex.com.
I would wish to remind our listeners that our feedback and solutions to your questions at the moment might comprise forward-looking info. This info, by its nature, is topic to dangers and uncertainties that will trigger the acknowledged end result to vary materially from the precise end result. Sure materials elements or assumptions had been utilized in drawing the conclusions or making the forecasts or projections, that are included within the forward-looking info.
Please confer with our first quarter 2023 MD&A and to our 2022 annual report for extra info. I’d additionally wish to warning our listeners that any projections offered at the moment concerning Methanex’s future monetary efficiency are efficient as of at the moment’s date. It’s our coverage to not touch upon or replace steering between quarters.
For clarification, any references to income, common realized worth, EBITDA, adjusted EBITDA, money movement, adjusted earnings or adjusted earnings per share made in at the moment’s remarks displays our 63.1% financial curiosity within the Atlas facility, our 50% financial curiosity within the Egypt facility and our 60% curiosity in Waterfront Transport. As well as, we report our adjusted EBITDA and adjusted web earnings to exclude the mark-to-market affect on share-based compensation and the affect of sure objects related to particular recognized occasions.
This stuff are non-GAAP measures and ratios that shouldn’t have any standardized which means prescribed by GAAP, and subsequently, unlikely to be similar to related measures introduced by different corporations.
We report these non-GAAP measures on this manner as a result of we consider they’re a greater measure of underlying working efficiency and we encourage analysts overlaying the corporate to report their estimates on this method.
I’d now like to show the decision over to Methanex’ President and CEO, Mr. Wealthy Sumner for his feedback and a question-and-answer interval.
Wealthy Sumner
Thanks, Sarah, and good morning, everybody. We admire you becoming a member of us at the moment as we talk about our first quarter 2023 outcomes. For the primary quarter, our common realized worth of $371 per ton and produced gross sales of roughly 1.65 million tons generated adjusted EBITDA of $209 million and adjusted web earnings of $1.11 per share.
Adjusted EBITDA was greater within the first quarter in comparison with the fourth quarter, primarily as a consequence of greater gross sales of Methanex-produced methanol pushed by greater manufacturing in Egypt, Atlas and Chile. All through the primary quarter, we noticed a comparatively balanced international market, which continues to be underpinned by excessive international power costs.
International methanol demand within the first quarter was flat in comparison with the fourth quarter 2022. Demand for conventional chemical purposes decreased barely as a result of seasonal slowdown in manufacturing exercise, together with the slowdown in China throughout the Lunar New 12 months.
Demand for methanol to olefins, or MTO, elevated barely within the first quarter with some improved working charges by way of the quarter as a number of manufacturing models elevated manufacturing on enhancing margins and elevated methanol availability. Demand for power purposes, together with MTBE, biodiesel and numerous gasoline purposes in China elevated barely, pushed primarily by ranges of financial exercise in addition to continued value competitiveness in at the moment’s excessive power worth atmosphere.
In the course of the first a part of the quarter, trade working charges in China and Iran had been negatively impacted by the seasonal diversion of pure fuel to satisfy energy demand, and Atlantic working charges had been decrease as a consequence of deliberate and unplanned outages. Beginning close to the tip of the primary quarter, we noticed robust working charges within the U.S. Gulf and easing of fuel curtailments in China and Iran, resulting in elevated manufacturing, which led to decrease methanol costs globally.
Our common realized worth for the primary quarter was $371 per metric ton in comparison with $373 per metric ton for the fourth quarter. And our first quarter low cost price was according to our steering for 2023 at roughly 21%. Coal pricing in China continues to stay robust in a degree above RMB1,000 per ton, and we estimate the trade value curve based mostly on a marginal producer value in China to be roughly $320 per ton to $340 per ton.
Our Might posted costs in North America, Asia Pacific and China decreased by $20, $10 and $15 per metric ton, respectively, and our Q2 European worth was posted EUR10 per metric ton greater than Q1 2023.
We proceed to intently monitor the macroeconomic and power worth atmosphere with inflationary pressures and ensuing tight financial insurance policies presenting headwinds for international financial progress. However these dangers, we count on demand for conventional chemical purposes to extend as we transfer into the housing and development season and from continued progress within the Chinese language financial system after their COVID reopening and Chinese language Lunar New 12 months vacation within the first quarter.
As well as, MTO working charges have continued to enhance and two MTO models representing roughly 1.5 million tons of annual demand are within the strategy of restarting manufacturing. We additionally proceed to see a excessive international power worth atmosphere, which boosts methanol’s value competitiveness towards different fuels supporting demand progress.
Within the quick time period, we count on the current methanol working price will increase primarily from Iran and China to assist rising demand. For the rest of 2023, we don’t anticipate capability additions apart from one plant in China and our Geismar three undertaking with anticipated manufacturing within the fourth quarter.
Concerning the rising marine market, curiosity from the marine trade and orders for dual-fuel vessels in a position to run on methanol proceed to develop. In the course of the first quarter, roughly 35 further vessel orders had been positioned, bringing the entire variety of dual-fuel vessels on order to over 135. We estimate that demand potential will develop from roughly 300,000 tons at the moment to four million tons over the following 4 — subsequent few years.
In February, we accomplished the first-ever net-zero voyage, fuelled by bio-methanol produced from our Geismar plant in partnership with Mitsui OSK Strains or MOL. Our collaboration with MOL demonstrates the flexibility of methanol as an amazing gasoline with a pathway to net-zero emissions.
Turning to operations, our manufacturing ranges had been greater within the first quarter in comparison with the fourth quarter with restricted unplanned outages. The group safely and efficiently accomplished a deliberate turnaround at G1 with the plant restarting manufacturing in February.
We ended the primary quarter in a robust monetary place with roughly $709 million of money, excluding non-controlling curiosity and together with our share within the Atlas three way partnership and with $300 million of undrawn backup liquidity.
We stay dedicated to return extra money to shareholders by way of our ongoing 5% regular course issuer bid that expires in September. And we introduced that our board accredited a rise of our quarterly dividend by 6% to $0.185 per share. This group will increase according to our 5% share repurchase program and maintains our money outlay for dividend funds at roughly $50 million each year.
Building on our G3 undertaking is progressing safely, on time, and on finances, with manufacturing anticipated within the fourth quarter of this yr. General, the G3 undertaking is over 80% full, and the group has began to shift from mechanical development actions to commissioning actions.
The anticipated G3 capital stays unchanged at $1.25 billion to $1.three billion, and we now have spent roughly $995 million earlier than capitalized curiosity to the tip of the primary quarter.
The remaining $330 million to $380 million of money expenditures, together with roughly $75 million in accounts payable, is absolutely funded with money available.
Waiting for the second quarter of 2023, we count on a decrease methanol worth atmosphere and, consequently, we’re anticipating a decrease adjusted EBITDA within the second quarter of 2023 in contrast with the primary quarter. Our general manufacturing steering for the yr of 6.5 million metric tons of fairness manufacturing excluding G3 stays unchanged.
Within the medium time period, the methanol market outlook is optimistic and we may have rising money movement era functionality with G3 manufacturing anticipated within the fourth quarter of this yr. At a $375 per ton realized worth and $four per mmBtu fuel worth, we count on G3 to generate roughly $250 million of adjusted EBITDA per yr.
With our G3 undertaking being absolutely funded with money available and our potential to generate significant money flows throughout a variety of methanol costs, we’re well-positioned throughout this era of financial uncertainty to keep up a robust steadiness sheet, pursue financial worth, progress of value-added progress alternatives, and proceed returning extra money to shareholders.
We might now be glad to reply questions.
Query-and-Reply Session
Operator
[Operator Instructions] Your first query is from the road of Joel Jackson with BMO Capital Markets. Your line is open.
Joel Jackson
Good morning.
Wealthy Sumner
Hello, Joel.
Joel Jackson
One pattern that we have been watching in methanol has been that the — your posted worth
for North America versus U.S. Gulf spot to the premiums of the North American posted worth versus U.S. Gulf spot have been fairly excessive, touching, you already know — reaching a few of the peaks that you’ve got had within the final seven years. Are you able to speak about that? And sometimes, that is not been a nasty time to have Methanex inventory when the premiums truly been greater than regular?
Wealthy Sumner
Yeah. So, perhaps I am going to simply begin with slightly historical past that, over time, there’s been a brand new capability added within the US. The US is a closely contracted market. And we consider loads of the brand new US
producers, they’ve undercontracted their general manufacturing positions. And so, within the fourth — within the first quarter, we noticed U.S. Gulf manufacturing fairly comparatively low.
After which, as we transfer by way of the quarter, all of it got here again working at comparatively excessive ranges. Numerous these producers are counting on exports at a really small spot market within the US, which
is — I feel the spot market in all probability trades general lower than 5% of general methanol enterprise within the US.
So, at these occasions when there’s loads of quantity, we see misery pricing. And positively, the pricing we noticed within the spot market went to, I feel at one level it went all the way in which down $250 per ton. It is now nearer to, I feel, again nearer to $300 per ton.
So I feel there’s closing dates, Joel, the place that will get fairly, fairly low based mostly on a small degree of cargos buying and selling that does not have a house, particularly when everybody’s operating at excessive charges on the identical time.
So I actually do not see that as indicative general methanol worth globally. However there was new provide in the marketplace with Iran and China in addition to US Gulf producers. And that is why we have lowered our contract pricing for a few months in a row.
Joel Jackson
Okay, earlier than I ask my second query, I simply need to get a clarification. Did you say that Q2 earnings can be decrease than Q1 of 2023 or decrease than Q2 of 2022?
Wealthy Sumner
Decrease than Q1 of 2023, simply based mostly on our lower methanol costs that we have had over the previous few months.
Joel Jackson
After which my query can be then, so within the fee part of G3, that is nice and nonetheless focusing on first manufacturing for This fall. Is there a path if issues go proper, you might have first manufacturing in Q3? Like what must occur to that first manufacturing in Q3? Or is that not doable?
Wealthy Sumner
Sure. Possibly simply I am going to converse to G3. So throughout the quarter, we accomplished our 60% development completion evaluate. That is the form of final actual deep dive on each value and schedule. And that confirmed each our value estimates of $1.25 million to $1.three million in addition to our anticipated start-up timing within the fourth quarter. We’re actually concentrated in the beginning on security for this undertaking. After which, after all, high quality as nicely. And so we’re not we really feel actually good concerning the progress that we’re making there and the time strains we now have is to ship high-quality initiatives safely on time, on finances.
Joel Jackson
Okay. Thanks.
Operator
Your subsequent query is from Ben Isaacson with Scotiabank. Your line is open.
Ben Isaacson
Thanks very a lot, and good morning, everybody. Two questions for me, one long run and one quick time period. On the long run, Wealthy, while you assume out form of 5, 7, 10 years into the long run, are you able to speak about the opportunity of a brand new undertaking for Methanex. Is that one thing you are interested by? And if that’s the case, what would the form of timeline be and what places would you be interested by?
Wealthy Sumner
Sure. Thanks, Ben. Once we look out, we’re seeing — once we look out, we see favorable demand-supply outlook actually within the medium and long term. That is — we’re watching present financial headwinds for the tempo of demand progress, clearly.
However once we take even modest progress charges with out contemplating loads of the potential demand for marine fuels, we do not see loads of capability additions. Now G3 positions us rather well within the medium time period. However to ship a undertaking even at the moment with the work that must be carried out, even while you’re beginning at the moment, it will be — would not be till the tip of the last decade earlier than you form of add a undertaking.
So we’re going to be — what we’re proper now could be simply advancing a portfolio of choices that we now have. This would not be any significant capital within the subsequent few years, nevertheless it’s actually simply creating choices for the corporate about deciding which of the following greatest progress alternatives are on the market and which is the one we might need to concentrate on.
That does not imply we’re going to commit. Clearly, we might take our time to evaluate the place the market is at and the place we need to be from a progress perspective. However the time strains are, in the event you begin at the moment, even in the event you’re an possibility choose, that may take a couple of years and then you definitely get into feed actions after which FID and into development and start-up, you are already on the finish of the last decade earlier than you’d have a brand new undertaking.
Ben Isaacson
And simply as a follow-up to that, excuse me, how do you steadiness a few of the idle crops, corresponding to Waitara Valley or Titan and even in Chile? It would not run by way of the summer time. Wouldn’t it be
one thing that you’d take into account probably relocating a type of crops, or is that this one thing that might be greenfield, or is it simply manner too early proper now?
Wealthy Sumner
I feel that the few choices we now have, we’re trying each at brownfield in addition to — so we now have brownfield alternatives inside our portfolio, clearly, Geismar, Medication Hat. We’ve land in Egypt. We additionally take a look at greenfield websites and in different areas as nicely. By way of relocation, it is an possibility, however in all probability not the main target. I feel once we take a look at shifting crops, the financial benefits aren’t essentially there. Nevertheless it’s not one thing we’re completely closed off to. I imply, proper now our major focus is getting sufficient fuel to deliver these crops
on-line. And our focus can be to strive have alternatives to make the most of that capability the place it is in place. However, yeah, we’re each brownfield in addition to greenfield choices.
Ben Isaacson
Nice. After which — thanks. After which simply my fast short-term query. You talked about the associated fee curve. You talked about provide and demand and slightly bit about freight. So are you able to simply speak about inventories? The place are inventories by way of the channel? Is it — are they elevated when it comes to what you may have visibility in the direction of?
Wealthy Sumner
I feel it is in all probability a little bit of a story of — it relies upon which market you are trying in. We have been had very, very low inventories within the Asian markets and China. And I feel even while you look at the moment, we’re in all probability not again to the place common inventories can be, that there’s product — we might count on that may be partially solved with some extra product approaching from Iran, however nonetheless under common there.
After which, while you look within the Atlantic markets with current working charges, actually, that is why you noticed a few of the pricing you probably did within the US was as a result of we needed to get this quantity that must be exported in that market. Europe might be in that balanced stock ranges, after which the US was getting excessive and having to export.
So, it is dependent upon general the place you’re on the planet. However I’d say, proper now, we’re in a form of general balanced market at the moment.
Ben Isaacson
Nice. Thanks a lot. Respect it.
Operator
Your subsequent query comes from the road of Hassan Ahmed with Alembic International. Your line is open.
Hassan Ahmed
Good morning, Wealthy. Simply needed to revisit near-term provide/demand fundamentals. Clearly, within the commentary, a bunch of places and takes round provide. I imply this you guys talked about Natgas being redirected in Q1 in Iran and China. And, clearly, now working charges type of selecting up over there.
Clearly, a brand new facility anticipated to return on-line in China this yr, G3 as nicely. However some type of optimistic commentary on the demand facet with China reopening and the like.
So, I assume, the query is that with all of those places and takes each on the provision and the demand of facet impact, do you continue to count on 2023 to be a yr the place demand progress outstrip provide progress? Additionally protecting in thoughts how sequentially, clearly in Q1, you already know, demand
progress was comparatively flat.
Wealthy Sumner
Yeah, it is a — that is query, Ahmed. And so we’re clearly
that basically intently proper now. We noticed demand type of once we take a look at what occurred coming into Q1, demand got here down fairly meaningfully in This fall. After which that was our base heading into Q1.
What we might say is that’s began — beginning to look higher on the tail finish of Q1, however general we noticed flat demand This fall to Q1. What we see within the completely different segments is that, you already know, we take a look at the normal demand phase and it is a seasonally gradual interval within the first quarter.
So we’ll be coming into the housing and development season, which ought to assist demand. In China, actually the post-Chinese language Lunar New 12 months and the opening up affect. We predict some positivity there. We have not seen, it has been slightly slower than what we might have anticipated for conventional demand.
After which on the MTO facet, we noticed steadily rising charges by way of Q1 after which we now have two crops within the strategy of beginning up, which is 1.5 million tons of demand. So general, we nonetheless have to see extra demand progress from the place we’re at the moment up, I feel, to steadiness off a few of the provide that is coming into the market.
And once we look general, I feel once we take a look at Q1 annualized, Q1 annualized is actually not again to the place, you already know, 2022 full yr was. So we have to see continued demand
progress to see general progress within the trade, which might imply a balanced market with new provide.
And actually G3 is beginning up within the fourth quarter, so is not going to affect, actually, the market till we get into the primary quarter of 2024, actually. So, not loads of new capability being added. We’re actually intently watching demand and seeing, you already know, are we
going to be in general progress for the yr. We do count on that at the moment, however we’re watching very intently.
Hassan Ahmed
Understood. Very useful. And as a follow-up, you already know, form of one thing you
alluded to in the direction of the tip of your reply, simply the G3 ramp up. I imply, you clearly talked about first manufacturing in This fall. However, you already know, clearly, you guys, notably in Geismar, have had comparatively current type of start-up experiences. So, how ought to we count on to see that ramp up by way of the course of This fall? And when do you assume we shall be at type of full manufacturing close to G3?
Wealthy Sumner
Yeah. I in all probability would not get too particular right here with this. I imply, we now have our
schedule and there is loads of places and takes to that. However perhaps simply offer you a way of the place we’re at on the precise initiatives and the way that startup part occurs. At the moment, the place we’re at, we had been in mechanical — we’re — mechanical development has been the main target. We have been
engaged on loads of the piping and piping set up, the welding, all that that takes to construct the plant.
We have now shifted into electrical set up, fireproofing, portray. And we’re — we’re engaged on system turnover. So, meaning, you already know, handing the methods over to the completely different elements of the plant.
We’re additionally entering into actions like steam blowing and hydro testing within the piping system. So, you already know, all of these issues need to happen and we have all of it scheduled in for a start-up so that when we truly go to start-up the plant, it is a – it is a interval of weeks, not months.
So we’re very — we’re assured within the start-up schedule within the fourth quarter. And I would not
get too exact at its precise timing there.
Hassan Ahmed
Obtained it. Thanks a lot, Wealthy. Very useful.
Operator
Your subsequent query comes from Steve Hansen with Raymond James. Your line is open.
Steven Hansen
Sure. Good morning, guys. Only a fast follow-up, Wealthy, to a few of your remarks earlier
on Joel’s query, I consider. Are you able to remind us as to how the G3 contract buildings work when it comes to the gross sales? The place are you focusing on geography sensible? How a lot of the quantity is already contracted? Simply so we are able to get a way for a way the volumes are going to movement right here as soon as we go stay.
Wealthy Sumner
Positive. So perhaps the way in which we expect it, we grew our gross sales place final yr, and we
in all probability grew our gross sales place to a degree. I feel you will see that we’re form of trending in 11.5 million ton gross sales vary.
Once we assume the following yr, we do not want loads of gross sales progress to place in G3. So we have already actually pre-marketed a minimum of half of that plant at the moment. What we did final yr is we grew, and I feel we grew fairly balanced with a extra of a closely weighting to the Atlantic markets.
And as we expect to this yr, we’ll — you will in all probability see a modest improve in our gross sales place, however we weren’t seeking to — we do not should be out there to — in a heavy manner for recontracting or extra contracting for G3. What you will seemingly see is a decrease degree of buying in our system as soon as G3 begins up. So it’s going to be a steadiness between decrease buying and a few elevated gross sales for subsequent yr.
Steven Hansen
Okay. That is useful. Thanks.
Wealthy Sumner
Does that assist? Okay.
Steven Hansen
Yeah. I do know. That is actually good perspective. I assume, making an attempt to consider it within the context to a point of the place the value factors shall be hit. There’s fairly a delta between Asian contracted costs in North America. I do know you talked about underwriting the economics of the plant as an export facility to Asia, however I didn’t know quantity was going to movement
essentially.
Wealthy Sumner
Yeah. I feel, final yr, we had been — we did improve a good quantity within the Atlantic
markets and that was on the idea of loads of with the Russian sanctions and loads of Russian materials flowing to completely different — needing to movement to completely different markets. So, I feel we had been profitable there. We’ll be the place we’ll be advertising and marketing. We do not have an enormous want for gross sales progress for subsequent yr. So, I feel we’re in a extremely good place to be selective on what markets we’ll be promoting into.
Steven Hansen
Okay. Useful. After which, only one fast follow-up on the capital allocation. The
dividend going up in line roughly with the buyback. Is that a great way to consider future allocations going ahead? You are going to have loads of money movement, after all, within the subsequent yr and past. I presume the buyback will proceed. However ought to we count on a dividend to actually improve with the identical tempo of the share buyback goes out?
Wealthy Sumner
Yeah. I feel what we wish on the dividend is we now have — we wish it to be sustainable. And I feel a part of that shall be once we see enhancements within the dividend. We — sorry, enhancements on the enterprise. I feel we are going to take a look at the dividend. We’ve had a choice for versatile distributions with share repurchases. However with G3 coming on-line, it is an opportunity to take a look at the dividend as nicely. So, I do not need to say that that is simply — that is the one manner to consider it going ahead.
Steven Hansen
Very useful. Thanks.
Operator
Your subsequent query is from the road of Laurence Alexander with Jefferies. Your line is open.
Laurence Alexander
Good morning. I assume, to start with, as China reopens, the place do you see the mixture of MTO, DME and industrial boiler demand going within the subsequent couple of years? How a lot flex ought to we be interested by for the provision demand steadiness?
Wealthy Sumner
Positive. I imply, once we, look perhaps we’re ranging from at the moment, Laurence. Whenever you take a look at perhaps Q1 once we take a look at MTO at the moment, yeah, I feel MTO working charges within the first quarter, round 65% or so is the quantity we now have. That represents round 14 million tons to 14.5 million tons.
There’s about 21 million tons of capability. So a 10% improve in that working price is about 2 million tons of demand and sometimes we have seen 80% to 90% working charges. And so I feel if olefins is in a more healthy place and is working at what we have seen a historic price, there’s
in all probability three three million tons of structural demand there.
Once we take into consideration China reopening on different derivatives, clearly conventional derivatives will — these will run with GDP and financial progress. And there is a appreciable quantity of conventional spinoff demand in China. After which on the opposite power purposes, equally with extra motion across the nation and the financial system rising, you are going to have greater demand for transportation fuels, heating and cooking.
In order that will even affect demand. I feel that the numbers for conventional demand in China is the equal of about 20 million tons per yr. After which the power demand in China is about 15 million tons to 20 million tons. So, you already know, clearly we expect China reopening has a significant affect.
We have not seen it actually translate but at the moment, however you possibly can form of apply these — these progress charges to these volumes, too, if it is — hopefully, that is useful.
Laurence Alexander
Very useful. After which are you able to give us a way. I do know we had a bit extra time to digest the US and European stimulus packages, the place you see of the varied proposed inexperienced methanol
platforms exhibiting — approaching the associated fee curve after subsidies. After which, I assume associated to that, we’re listening to much more about ammonia as a competitor for methanol in delivery — to switch the bunker gasoline. Are you able to give a way for the place you see the arbitrage there taking part in out?
Wealthy Sumner
Positive. Possibly to start out with the primary query on laws. I feel that in all probability probably the most important laws which are — we’re proper now could be the Inflation Discount Act, is the one which — I do know loads of corporations are alternatives below the — below the Inflation Discount Act.
So actually, we’re trying on the economics of carbon seize in Geismar below the Inflation Discount Act, on each due to that authorities incentive, in addition to the infrastructure that is being constructed for carbon seize.
So, preliminarily, these — the capital prices are giant. And positively, the federal government incentives assist, however there’s premiums nonetheless required out there to make that — to make that undertaking go ahead. Because it pertains to inexperienced fuels, there’s numerous subsidies which are on the market which are driving some demand.
The UK gasoline mixing market, we expect, is round 150,000 tons to 200,000 tons of inexperienced methanol going into that market. Numerous the — loads of the demand, although, is being pushed on simply buyer’s willingness to pay. We’re seeing elevated curiosity in paying a premium for low-carbon methanol. So — and we’re in discussions with loads of delivery corporations in that regard.
In order that’s a bit concerning the laws. On the competitiveness facet, once we take into consideration the delivery market, the delivery market by itself represents on an power equal foundation, in all probability 400 million tons to 500 million tons of annual methanol demand. So the delivery market is big. And once we take into consideration methanol, ammonia, hydrogen to future delivery fuels, there’s loads of room for everybody.
And as delivery corporations decide to vessels, which is already at four million tons of demand potential and rising as a result of we already are listening to different commitments. So I count on that quantity goes to proceed to develop. As soon as that call is made, it turns into not a competing towards ammonia or hydrogen, it is actually about economics to the diesel different.
And so I feel there’s going to be demand potential there, and it’ll come all the way down to methanol’s value competitiveness towards diesel and as nicely the associated fee to decarbonize each these fuels as nicely. So we’re actually, actually enthusiastic about that chance and our low carbon options group is actively working on this house to see what alternatives lie forward and what options we are able to present to the delivery trade.
Laurence Alexander
And if I could, as you talked about, form of shippers already — or sorry, not shippers, prospects already discussing in some areas, type of the inexperienced premium. Is that exhibiting up when it comes to — do you may have a way for what measurement of premium is being mentioned? And is it additionally exhibiting up when it comes to longer-term offtake agreements? Or is it actually only for transactions?
Wealthy Sumner
I will say it is early. And positively one thing that with the zero carbon voyage that zero-carbon voyage, I discussed within the opening remarks that was based mostly on renewable pure fuel and we’re clearly lively within the renewable pure fuel market, and we’re having discussions with delivery corporations about whether or not that is smart to do long term for his or her wants. And so we’re hoping to have the ability to announce issues going ahead, however nonetheless early discussions.
Laurence Alexander
Okay. Thanks.
Operator
Your subsequent query is from the road of Matthew Blair with TPH. Your line is open.
Matthew Blair
Hey. Good morning. Thanks for taking my query. I hoped you might speak slightly bit extra concerning the operations in New Zealand within the quarter. Op charges look fairly robust, however you held your 2023 steering unchanged, I consider. So sure, any extra particulars on New Zealand can be nice?
Wealthy Sumner
Sure. So we did have a robust quarter in New Zealand. And it was according to our expectations. Once we look truly for the rest of the yr, we mentioned that we now have three turnarounds this yr, and we shall be doing a little upkeep in New Zealand this yr. So we’re holding to our manufacturing forecast for the yr.
Once we take a look at New Zealand, we now have two main suppliers there OMV and Todd and the manufacturing volumes and forecasts we offer are based mostly off of us working with them on the outcomes of their manufacturing and their upstream actions that they are engaged on.
So we proceed to carry to the forecast at the moment, and we’re fairly snug at this degree for the following few years, and we’re working with them on the outcomes of their work that they’re doing within the Taranaki Basin and we’ll proceed to offer steering on the place that leaves us on manufacturing forecast. However that is why we’re holding to the quantity that we now have for the yr.
Matthew Blair
Sounds good. After which might you develop slightly bit extra in your RNG efforts? I assume, what % of your complete feedstock is RNG and — and the way may that change going ahead? Do you ever see your self shifting into the precise RNG manufacturing market? And what is the driver right here? Is that this coming from buyer request? Or is that this Methanex seeking to adjust to GHG targets and ESG targets?
Wealthy Sumner
Sure. So perhaps simply when it comes to the scale of that enterprise at the moment, it is comparatively small. So at the moment, we now have actually one contract that is on a longer-term R&D contract, very, very small quantity, nevertheless it’s start line. After which when it comes to what’s driving it, it actually is predicated on prospects.
So we now have curiosity from the delivery trade in addition to some conventional chemical prospects which are involved in inexperienced methanol. In fact, this comes at a significant premium. And so we’re working with them on — and the way in which to contract, the perfect contract is to have longer-term offtakes and longer-term buyer commitments. So we’re working with each of these segments on their curiosity in inexperienced methanol.
By way of the RNG market, the entire RNG market in North America is concerning the equal of three million tons of methanol demand. And there is competitors for that as nicely as a result of loads of the RNG goes into pure fuel automobiles. So — so it is actually an space that we need to discover and we need to work with our prospects on. We’re not the one offtaker for that R&D, so there is a aggressive perspective to it, that we even have to contemplate. And so, sure, we’re exploring that actually off of buyer curiosity and we’re excited concerning the alternatives and dealing with prospects on that, so.
Matthew Blair
Nice. Thanks.
Operator
Your subsequent query is from the road of Nelson Ng with RBC Capital Markets. Your line is open.
Nelson Ng
Nice. Thanks. First query is only a follow-up to Steve’s query about manufacturing and gross sales combine. So I assume based mostly in your commentary, ought to we assume that after Q3 is up and operating and absolutely producing the gross sales combine inside the areas like Asia, China, U.S. and Europe. Ought to we assume that the gross sales combine shall be comparatively steady? Or will extra merchandise go into China?
Wealthy Sumner
I feel assuming a comparatively steady gross sales combine is what we might information to much like what we have guided previously.
Nelson Ng
Okay, thanks. And the following query, it feels like, based mostly in your commentary, the China reopening ramp-up is happening slower than anticipated. Do you may have any form of early indicators when it comes to how issues are progressing after — I assume after the Lunar New 12 months. And like are you seeing any current ramp-up? Or are issues nonetheless form of gradual moving into China?
Wealthy Sumner
Properly, on the MTO facet, actually, we’re seeing ramp up there. I feel that is based mostly off of some improved economics in addition to elevated methanol availability. Only a reminder that loads of Iranian provide is — does get provided into MTO, and we consider that, that will get provided at a reduction to worldwide costs as nicely. In order that makes it extra engaging and helps the affordability for the MTO trade.
On the opposite power purposes, I feel we’re seeing some indicators of energy within the MTB automobile fuels and cooking and thermal purposes. And that is simply based mostly on basic motion and extra financial exercise within the nation. We have not seen on the normal chemical facet but. The demand pull from these segments. And in order that’s one thing we’re watching intently. And we do see indicators of producing numbers appear to be — point out progress. Export numbers appear to be exhibiting up higher.
Typically this does take its manner — a time to get again to methanol as a result of we’re form of in the start line of the worth chain. And so generally that is a little bit of inventories and issues that need to be labored by way of. However we’re watching it intently to see when the timing once we begin to see demand there. However as of at the moment, we have not seen conventional chemical purposes progress that we might anticipate with a 5% GDP progress for instance.
Nelson Ng
Okay. Thanks for all the colour, Wealthy. I am going to depart it there.
Wealthy Sumner
Yeah. Thanks.
Operator
Your subsequent query is from the road of Jacob Bout with CIBC. Your line is open.
Jacob Bout
Good morning.
Wealthy Sumner
Jacob.
Jacob Bout
I had a query right here simply in your ideas round M&A. I do know traditionally, the main target has been both greenfield or brownfield. However how do you concentrate on M&A within the present market, even with, say, a few of your rivals strategic evaluations or that sort of factor. Is that one thing in your radar? Or how are you pushing that?
Wealthy Sumner
Sure. I would say we at all times hold — need to hold it on our radar. Clearly, once we look out, we actually see the trade rising and however there’s some slowdown at the moment. However once we look additional out, we see demand rising with not loads of capability additions. And clearly, M&A would not obtain the expansion.
However once we take into consideration M&A, it isn’t one thing we need to be closed off to if there’s alternatives on the market that is smart, then we’ll take a look at it. It’s a lot — it’s tougher generally relying on the placement of these property, what sort of synergies do you decide up.
We have got G3 coming on-line, which is — we’re very enthusiastic about. It is an Atlantic-based asset. And so we would have to think twice about what sort of synergies are created by any M&A exercise and making certain the worth is true that we get out of it. So — however actually not closed off to it and stay open to discussions on it.
Jacob Bout
Okay. After which my second query is simply the way you’re approaching fuel hedging proper now. I imply fuel costs transfer down fairly considerably over the previous quarter. So how are you approaching it and the way a lot have you ever locked in?
Wealthy Sumner
So at the moment, we’re 85% hedged for 2023. Our goal is to be within the outer years form of first one to a few years is to be round 70% hedged throughout our North America portfolio. And we’re about — we’re all the way in which there for 2024 and 2025 with G3 working. Once we look past the form of 2025 timeframe, we’re much less hedged. So we’re clearly actively watching what occurs on the form of medium or longer finish of the curve.
The pricing, however the present pricing, the pricing at that longer and hasn’t come all the way down to the place the degrees that we would wish to see. And so we’re nonetheless being affected person to deliver extra hedges in there. However we’re watching it intently. We have heard that, clearly, there’s some — in at the moment’s atmosphere, there’s loads of anticipation of LNG capability additions being added in additional demand in that longer timeframe.
We have heard a few of that is below stress with elevated capital value in addition to regulatory, potential regulatory adjustments. So we’re watching that and to see if that strikes the again finish of the curve down and creates a chance for extra hedging.
Jacob Bout
Okay. Nice. Thanks.
Operator
[Operator Instructions] Your subsequent query is from the road of Josh Spector with UBS. Your line is open.
Joshua Spector
Yeah. Hello. Thanks for taking my query. I truly needed to follow-up on the fuel
facet of issues. So, my understanding, you are fairly closely hedged right here. However with decrease US fuel value and your FIFO reporting, your first quarter numbers, I imply, I assume that is not absolutely reflecting the $2 to $three fuel. So, how a lot of a profit would you count on to see, as you go into subsequent quarter? Or would we see minimal due to the hedges?
Wealthy Sumner
Not — we’re 85% hedged, and, yeah, that spot — the spot shifting is actually serving to our 15% unhedged place. There might need been slightly trailing affect from final yr in our first quarter. However I am not – I would not count on a huge impact into the second quarter. As a result of that transfer – there wasn’t loads of that stock that might have impacted Q1. So I would not be factoring that when it comes to an enormous earnings tailwind for Q2.
Joshua Spector
And simply to be clear. Okay. And simply on the hedging, we’re speaking about U.S. fuel explicitly not your entire portfolio, right?
Wealthy Sumner
That is right, sure. Okay.
Joshua Spector
And simply I needed to ask on the settlement introduced in Egypt on that infrastructure growth pipeline. Does that change something for you? Is there any further capability creep wanted to feed that at a while? Or does that change the combo or pricing of that product? Simply curious on any ideas round that. Thanks.
Wealthy Sumner
No. No. That is formaldehyde build-out proper subsequent door. So this has been a plant that is been within the plans for fairly a while. We’re actually happy that we signed a provide settlement. It is comparatively modest quantity when it comes to methanol provide per yr within the form of 40,000 tonnes of methanol provides, which shall be pipeline provided proper subsequent door, the place that is the perfect the perfect enterprise we are able to do with our prospects is simply pipeline proper subsequent door.
So we’re very glad to be supporting that undertaking. It would not — provided that degree of gross sales that does not transfer the needle actually when it comes to something to consider in our gross sales combine or something like that. However we’re very glad to be type of supporting that undertaking and supporting any prospects downstream demand construct out.
Joshua Spector
Obtained it. Respect the ideas. Thanks.
Operator
There are not any additional questions at the moment. I’ll now flip the decision again over to Mr. Wealthy Sumner.
Wealthy Sumner
Thanks in your questions and curiosity in our firm. Wanting ahead, we’re nicely positioned with our present asset portfolio and a robust steadiness sheet. Our G3 undertaking is absolutely funded, progressing safely on time and on finances, and we count on to be in manufacturing within the fourth quarter of this yr. We hope you’ll be a part of us in July once we replace you on our second quarter outcomes.
Operator
This concludes at the moment’s convention name. It’s possible you’ll now disconnect.