Methanex Corp (MEOH) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corp. first-quarter 2006 earnings conference call. At this time all participants are in listen mode only. Later we will conduct a question-and-answer session. As a reminder, this call is being recorded on Thursday, April 27, 2006. I would now like to turn the conference call over to Ms. Wendy Bach, Director Investor Relations. Please go ahead.

Good morning, ladies and gentlemen. I'd like to remind our listeners that our comments and answers to your questions 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 are making the forecasts or projections which are included in the forward-looking information. Please refer to the bottom of our latest news release and to our 2005 annual report for more information. I would now like to turn the call over to Methanex's President and CEO, Mr. Bruce Aitken, for his comments.

Thank you, Wendy, and good morning, everyone. Welcome to the Methanex first-quarter investor conference call. I'm in Vancouver and have a number of colleagues with me in the room and they will be available to help out with the questions a little later.

I'm delighted to report that we have completed another outstanding quarter. Our adjusted EBITDA in Q1 was $167 million which was a significant increase over EBITDA of $128 million in the fourth quarter of 2005. Our net income was $115 million or $1.02 per share. We recorded the reversal of a retroactive tax charge in Trinidad as an unusual item of $26 million which resulted in a net income before unusual items and after-tax of $89 million or $0.79 per share.

These are our best results in over ten years and this quarter is an illustration of the cash generating potential of our Company with a portfolio of large-scale low-cost assets. The main reason for the improvement in our results for the quarter is the increase in our average realized net loss selling price to $283 per ton compared with $256 per ton in the fourth quarter. I'll comment more on the pricing environment in a few moments.

During the quarter the reliability rates of our large low-cost plants in Chile and Trinidad were very good. However, we were disappointed that we experienced some modest production losses as a result of natural gas supplier reliability issues in both geographies. In Chile one natural gas supplier had a number of technical problems and another had a planned maintenance outage. These two events caused us to lose about 32,000 tons of production during the quarter. And in Trinidad there were delays in the completion and commissioning of a new natural gas pipeline and some maintenance on offshore platforms that resulted in natural gas supplier reductions to all gas consumers.

We lost a small amount of production during the quarter and expect that we will continue to lose small amounts of production in the coming months as gas infrastructure in Trinidad is enhanced. While these production losses are disappointing, there is nothing to suggest that there will be long-term issues. I should perhaps emphasize at this point that we have not experienced any government ordered curtailments of Argentinean natural gas since August last year. But I will comment in a few more moments on the outlook for gas for our Chilean plants.

We continue to operate in a very positive environment. Demand is healthy for all derivatives with the exception of MTBE in the U.S. Most of the decline in demand that we forecast related to U.S. MTBE has already occurred. Since the latter part of 2005 over half of the methanol demand has been displaced. The remaining methanol demand for MTBE will either satisfy nonfuel demand for the product or will be exported from the U.S. And it's clear that changes occurring in the U.S. gasoline pool are having significant implications on gasoline markets in Europe, Asia and Latin America.

The phaseout of MTBE in the United States has resulted in tight supply in that market of other clean burning, low volatility gasoline components and this is opening up new markets for MTBE outside of the U.S. The phaseout is also contributing to escalating gasoline prices in the U.S. There has been an announcement in recent days that the EPA is reviewing the removal of oxygenates from gasoline. And President Bush announced on Tuesday of this week that he's encouraging the EPA to waive environmental regulations in order to resolve supply issues.

It is unclear how the next month or so will unfold, but we think that there is a very low probability that anything will change that has a significant impact on methanol supply/demand balances. The decline in MTBE in the United States has been widely anticipated and has done little to change supply/demand balances. However, as various MTBE plants have stopped operation over the last few months, we have observed more liquidity in the U.S. spot methanol market. This has led to a growing gap between spot and contract prices. To address this gap we announced to our customers yesterday a decline in prices for May of $0.04 per gallon to a new price of $1.03 per gallon or about $340 per metric ton.

Methanol prices were on an upward trend during the first quarter and at the beginning of the second quarter. The European contract price has been settled at EUR285 per metric ton compared to EUR268 per metric ton in the first quarter -- I'm sorry, that's in the fourth-quarter. That's an increase of about $20 U.S. per metric ton. As this year progresses we expect some further volatility pricing but, barring a major unexpected event such as a recession, we continue to think that a strong pricing environment will prevail. To a large extent this environment is driven by healthy demand and limited supply.

The next world (indiscernible) plant to begin production is the fourth Iranian plant. It is not expected that product from this plant will have any impact on the market until at least early 2007. And while there are some other smaller projects and debottlenecks, further rationalization of high cost capacity has been announced in both North America and Europe. During 2006 and 2007 close to 3 million tons of high cost capacity is expected to close down. In addition to rationalization of capacity there are a number of planned outages in Q2 that we expect will keep the market balanced to [time].

Before moving on to our other topics I'll make a few comments about China. Despite significant growth in domestic production in China imports remain steady. Imports have been essentially flat since 1999 meaning that growth in domestic supply has been entirely absorbed by new demand. In today's pricing environment every methanol plant in China has an economic incentive to maximize production. However, we continue to believe that domestic production will decrease from a lower pricing environment, opening an opportunity for increased imports. Even today large consumers in the coastal provinces continue to favor imports for reasons of reliability and quality.

I'll change topics now and address some of the challenges that we face. Firstly, natural gas to our Chilean plants. And to remind (indiscernible) during the Southern Hemisphere winter months we lost about 50,000 tons of production in 2004 and 100,000 tons of production in 2005 as a result of curtailments of Argentinean natural gas to our Chilean plants. Nothing much has changed with respect to the natural gas supply and demand situation in Argentina since our last conference call. There are some new sources of natural gas supply this year, but also there is a little more gas transportation capacity from northern Argentina. All in all we expect losses in 2006 to be similar to 2005.

Our Chilean supplier, ENAP, continues a quite aggressive gas exploration program in southern Chile close to our plants. Last week the President of Chile announced that ENAP has discovered gas in a new exploration well at Lago Mercedes which is located in Tierra del Fuego not far from our plants. ENAP remains very optimistic of the success of this drilling program and is expected to provide reserve estimates in the next few months. We have also noted that there is increasing interest in private investment in gas exploration in southern Chile which is a helpful trend.

The second challenge is to make a final decision on a project in Egypt. We continue to make progress in developing this project and have now substantially completed front-end engineering and design and are making excellent progress on financing. We have a very good gas contract Egypt is an excellent location to supply our European customers, and we have a good site adjacent to a deep water port.

As I've mentioned before, the big challenge for anyone investing in capital intensive process industries today is high capital cost. We've seen significant cost escalation on major equipment items and there is no doubt that if we proceed this will be the most expensive project we have ever built. However, the combination of elements that determine the economic viability of this project still results in what we think will be an excellent investment for Methanex. Just to remind listeners, we intend making our final decision on this project before the end of this year.

And thirdly, a few comments about our New Zealand plant. We continue to be quite successful in acquiring modest parcels of natural gas. We now have sufficient gas at reasonable prices to continue production at our Waitara Valley plant until July of this year, approximately 230,000 tons of methanol production in 2006. We believe that there are further opportunities to extend the life of the plant and to earn incremental margins. However, a decision on extending the life of the plant is dependent on securing further reasonably priced gas and our forward view on methanol supply and demand balances.

I'll change topics now and make a few comments about our liquidity. Our cash flows from operating activities during the quarter were $115 million compared to $83 million in the fourth quarter. During the quarter we returned $77 million to shareholders followed by dividends and share repurchases. We also had some quite large cash outflows related to the closure of our Kitimat facility. And those of you that study our results in detail will notice that we have increased inventories and therefore have higher working capital.

We have intentionally built inventories during the quarter in order to be well positioned for any production losses that might occur in Chile during Q2 and Q3. Our inventories are now in much better shape than they were during most of 2005. Maintaining reliable supply to our customers is a key element of our value proposition and the higher level of inventories both enhances the security of supply and tends to reduce supply chain costs.

In the last 12 months we have repurchased about 9.6 million shares at an average cost of a little as than US$18 per share. We continue to buy back shares every day and we'll review with our Board plans for the future when the current bid expires in mid May of this year. I would reiterate that we continue to be committed to a policy of returning excess cash to shareholders, but I would also emphasize that we are committed to a balanced approach. We believe that there are and will be in the future growth opportunities in our industry and we intend maintaining flexibility to take advantage of opportunities that may arise.

Before stopping for questions I will make a few comments regarding our expectations for the second quarter. I have already mentioned that our plants in Trinidad and Chile have been operating at high reliability rates year-to-date and that we've suffered some loss of natural gas in both locations. More of the same in Q2 is the most likely scenario.

I've also mentioned gas curtailments in Argentina that started in the May/June period in the last two years. So again, we may experience some loss of production in Chile as a result of these curtailments. Our current view is that production losses from these curtailments will be about the same as last year. However, I must remind you that there are many factors beyond our control, including the weather, that could cause such losses to be different.

Methanol pricing is strong but, as I've mentioned above, we do expect some volatility. We expect that our price realization for Q2 will be a little lower than Q1. But this combination of plant reliability and strong prices points to other quarter of excellent earnings and strong cash flows. So at this point I will stop and take some questions.

(OPERATOR INSTRUCTIONS). Sam Kanes, Scotia Capital.

Good morning, Bruce. Great quarter. I looked at a map of that Tierra del Fuego area to understand where this opportunity is, and I guess the sense of it is it's supposedly a 15 minutes air flight between Punta Arenas and Lago Mercedes and I'm not sure it that's a proper jut. So maybe it's 100 kilometers or 200 kilometers or so, but it will have to go over water to reach your facility. Is there a critical mass of minimum kind of required already or has it gone even that far in terms of cost and pipelining? And can you get out of your Argentina contracts in some way that will be obviously economic to you going forward without penalty?

Lago Mercedes is about 150 to 160 kilometers as the crow flies, but from Punta Arenas there where our plant is at. So it's a relatively short distance. There are already crossings of the water, that's the Straits of Magellan, that exist between Tierra del Fuego and the mainland, so there's already pipeline capacity there. And (indiscernible) are planning to extend that pipeline capacity and that's part of their existing planning.

And getting gas from Lago Mercedes into this system is not a terribly complicated thing to do. We've had them explain to us how they would do that. There is gas treatment capacity already on Tierra del Fuego. So I would just describe it as not terribly complicated; not a big distance and there's not too many things that need to happen, but some investing clearly.

In terms of how do we manage our Argentinean contracts, I think that's something that we need to manage carefully over the next year or so. Clearly we have commitments to take or pay and they have commitments to deliver to us. I think to the extent that our gas suppliers in Argentina are consistently not delivering to us, then I think there is certainly a basis for a very reasonable discussion. And I'd be disappointed if we couldn't reach an amicable agreement on how we could access gas from Chile when we're unable to access contractual rights in Argentina.

One other point in Argentina. One of our gas suppliers is a subsidiary of ENAP, a Chilean company. And ENAP has told us that one of their first priorities is to ensure that they set aside all their contractual commitments, that being both their commitments they have in Chile and the commitments they have in Argentina. So to that extent we have a very easy route to access further gas in Chile and a little less from Argentina.

So I hope that's helpful and I think it's something we've got to deal with, Sam, but I don't perceive any real difficulties. We've kept a very good relationship, a very open relationship with our gas suppliers and I think we can reach an amicable and reasonable settlement with them.

Is there already preliminary pricing talk for that new gas? And I guess a final follow-up from me would be what's that percentage of ENAP gas that services you from Argentina as a total of Argentina deliveries to you?

I would be a little bit rough on that, but today we get 60% of our total gas from Argentina and I would think that the ENAP quantity is probably about 15% of that 60%. It's a little bit of a guess, so it's not at the majority but it's not insignificant either. I don't really want to talk about pricing terms. I just -- it's a very delicate topic at this particular juncture.

All I would say is that the politicians in Chile have said this, and it comes right from the President of the country, has said that they don't intend to take advantage of our situation. And I think what they're meaning by that is that they're not going to ramp up the price of natural gas simply because we've been shorted by Argentina. I don't really want to say any more than that today.

Thank you, Bruce.

Fai Lee, RBC Capital Markets.

I just noticed that the cash taxes this quarter have gone up quite significantly and just was wondering if that's something temporary or if it's a permanent change in your tax structure?

I'll ask Ian Cameron, our CFO, to make some comments on that topic.

As described in the MD&A, the taxes in Chilean -- we accrue taxes at a statutory rate of 35%. There are two categories of the tax. the first category of tax is paid when income is earned. The second category of tax is payable when earnings are distributed from Chile. We started paying the second category of tax in the first quarter of 2006. Going forward we would expect to continue to pay that second category of tax, and that would mean that the proportion of our tax expense would be made up with a higher proportion of current taxes. So going forward we would expect that current taxes would represent between 80 and 100% of the total tax provision.

Thanks. And my other question is with respect to Egypt. Bruce, you mentioned that you've seen capital costs go up. And I'm just wondering if you have some rough ballpark say in dollars per ton what capital costs are running these days?

It's a bit early to say that. I think when we look at other projects as well as our own we're seen capital costs in excess of $500 per ton. And I remind you, we put all of our capacity in place in Chile and Trinidad based on $300 per ton. And when we've gone through and looked at individual equipment items for our project in Egypt, we do see cost escalations for individual equipment (indiscernible) have gone up by 50 or 60%, extraordinary increases that are driven more than anything by just a shortage of supply in machine shops.

So there's some extraordinary number and I'm not going to get it right, but I think it was over $400 billion that's being spent on oil and gas related projects in the Middle East in the next five years. I think now in 2010. Those numbers -- I read them recently, I haven't gotten them exactly recorded in my mind, but it was something like that. But you can imagine in that sum of money the number of compressors and pumps and vessels and even the structural steel and cement is the result of the plan to develop out their oil and gas properties in the Middle East is a magnitude that the world has never seen before. And that's having an effect on anyone who wants to build a plant that has those sort of equipment items.

Okay, great. Thanks.

Peter [Butler], [Glenhill] Investments.

When I listen to you talk about the supply/demand factors influencing pricing and the things that you have in your press release, it all says supply/demand is tight, prices look like they're very strong, maybe should get stronger. But then you give us the bottom line that the prices in the second quarter are going to be down from the first. What's the disconnect? I mean, things are either tight or they're not. If they're tight prices should be going up.

I think that's right, Peter. I think that the market is very nicely done. We have gone through a period in the last four months where MTBE has been steadily declining in the U.S. We have a number of our competitors who supply the U.S. MTBE industry, mostly via the spot market. So we've certainly noticed more liquidity in that spot market and then it's had a negative influence on pricing. Now it seems to be small volumes and we think it's a bit temporary as well. And as I think I mentioned in my comments, the gaps between contract pricing and spot pricing have gotten increasingly larger over the last two or three months. So if you look at those graphics that's obvious.

So we need to work out to make sure that our customers are competitive and that we're competitive in the market. So our reaction on pricing in May is hoping to reflect the fact that there is a widening gap, but our observation is that the market is still quite tight, that the world still needs some very high cost capacity to run in order to stay in balance. For example, there's still (indiscernible) 2 million tons of capacity in North America and today natural case prices -- I haven't seen them today, but they're somewhere between $7.50 and $8.00 per MMBTU. And in order to make a ton of methanol with that sort of natural gas you're spending nearly $300 a ton.

So the -- and that capacity has to continue operating for the world to stay in balance. I think I've said frequently in the last three years that we expect some volatility in pricing, but it won't occur at the top end of the price range, nor at the bottom end of the price range.

But one of the most important things for your stock right now is to build the case that next year's earnings will be up from this year's level, whatever they are. And it looks like on the supply side that we're actually going to get a contraction maybe and on the demand-side, if GDP grows, demand should be up something. So your comment about this weakness or whatever being temporary sure looks like --.

Certainly what we see is more of the same. If you think about the last two or three years, we've seen a lot of rationalization of high cost capacity and there is more of that to occur and people have announced their intentions to shut down plants so we are not speculating on that rationalization. I think you're correct; if we take a reasonable assumption around global growth and demand growth, then it will require an unexpected shock to cause pricing to change dramatically.

If you had the option to buy out the rest of your partnership in Trinidad would that be a better alternative than putting money into the Middle East?

One, we don't have that opportunity and, two, I actually quite like having our gas supplier as a partner in a country where we're very dependent on the local gas supply. I hope that is helpful.

Thanks for your help.

Jacob Bout, CIBC World Markets.

I got onto the call a little bit late so hopefully you haven't answered this already. But just talking about Chinese supply, that's basically where the majority of it is coming from the next couple of years. What do you think the impact of DME is going to be? If you could just talk around that a little bit? Do you think that's going to be sufficient to (indiscernible) all the supply coming out of China? Just talk about it as being uses of fuel.

It's more than just DME. And for other listeners, DME is dimethyl-ether, it's a product that can be substituted for LPG. So wherever you can use LPG you can also use DME. You can also blend DME with diesel as an extender for diesel fuel. It has some broad applications as an energy product and you can make DME from methanol. Also drug -- and a lot of new capacity in China is a desire to get into olefins and to ethylene, propylene and of then course polyolefins.

And this is being driven mostly in the inland provinces and I think if you -- the projects that have been built there probably don't make sense in other parts of the world which have access to crude oil or natural gas. But here you are in inland provinces in China, very remote from those natural resources, are very difficult to transport crude oil thousands of kilometers from the coastline to the inland provinces, but what they have sitting underneath them is a mountain of coal. So they're very focused on turning that coal into useful products.

While we've traveled a lot in China and met a lot of people who are planning methanol projects and building them and none of them talk about wanting to supply the formaldehyde market -- supply the acetic acid market. They're all talking about either blending with gasoline or building an olefins plant or building DME capacity. It's all about turning coal into energy. It's not about turning coal into chemical methanol derivatives.

So I think that's what a lot of the people when they've looked at China and analyzed it have been put off a little by what are the motivations of people, why are they building this capacity. Now that said, there is a new plant that's coming up, we've included it in our discussions on coastal China in a place called Hainan Island which is off Southern China. That's a plant of 600,000 tons based on natural gas and that will supply the coastal provinces. It won't compete with imports. But it's a relatively small plant and that's a plant that we think has reasonable cost structure and will survive through most cycles.

That plant is a real exception in China. Most of the ones that we've seen, if they're on the coast they're using expensive coal and they're high cost. If they're inland they often have very cheap coal, but most of the time it seems that their motivation is to produce energy, not methanol for chemicals.

Great. And then just on Chile, I'm not sure if you mentioned this, but the issues that you had with the natural gas suppliers as far as I guess the work they're doing in the quarter, is that basically over and done with?

No, it isn't. There have been some infrastructure issues there and you'd have to say it's mostly around deferred maintenance which is a bit disappointing. We have lost some small amounts of gas as a result of just -- I mentioned early in the call -- supplier reliability issues in both Trinidad and in Chile. And the issues are remarkably similar. Some of our suppliers have not built in the reliability and redundancy that we've perhaps expected them to have. And certainly they've demonstrated in the past that they for various reasons no longer have.

And I would say in both locations there is a will to fix this and they're spending money to resolve it. But unfortunately we're the ones who end up being a little short -- on relatively small quantities of natural gas.

Okay. So what type of production volumes are going to be affected in next quarter?

What I mentioned earlier in the call, Jacob, was that we lost 32,000 tons and Chile in Q1. Now some of it was plant maintenance. I think about 8000 tons was plant maintenance. We can't remember exactly, but from memory I think it was 8000 tons of plant maintenance and the rest of that was a result of I would say an unreliable infrastructure.

In Trinidad you can see from our public documents that we didn't lose too much at all in Trinidad. But we do have an ability to produce at our plants at greater than capacity. So had we had that opportunity we certainly could have produced a bit more in Trinidad as well. So they're small quantities and they're a nuisance, but fortunately that's the world we live in.

And then just on your realized methanol price that you received in the quarter, it was a little bit higher I think than what I was looking for and we are essentially using more or less a linear [aggression] of the realized price versus the nondiscounted contract price, what you've done in the past. Has your exposure to the upside in contract prices increased?

No, not really. I don't have an exact answer for your question, Jacob, but I think it's just timing of deliveries. As we've mentioned before, we have about 20% of our [cost] customers are on some sort of nonmarket related pricing deal. And if you get a shipment that is either in the first day of the quarter or the last day of the quarter it can make quite a difference to the average realization. So I think it's just timing, there's nothing else there (indiscernible) that should have affected that number.

Okay, thank you.

Bob Hastings, Canaccord Adams.

Congratulations on a good quarter. Just go back to Egypt for a minute. And I know you can't tell us the cost structure and stuff. But one of the things that you have talked about before is that you might look at using New Zealand or the Kitimat plant -- and you were doing a study on that issue. Have you finished that and maybe come to any conclusion?

Yes, we have done [qualitive] work on that and it is interesting. I think there's no doubt you save capital and you save schedule. So anyone who understands that or undiscounted cash flows would know that's going to improve the net present value. So I think superficially you say that's really interesting, why wouldn't we do that. I think then you start to hit some of the practical difficulties.

We have partners on that site, we have project financing. Both of those things create a level of complexity to a decision that if it was a Methanex 100% owned project maybe we would more interested in it. That said, I certainly haven't dismissed that and we are looking at other opportunities to relocate those New Zealand plants in particular to a number of different geographies and potentially looking at some downstream opportunities as well. Because we think with those big plants, they're relatively new, we have a unique advantage there that no one else in the world can put capacity in place for that sort of capital.

We know those plants are in pretty good shape so that would make some sense if you can. And maybe that takes me into my next question. You had talked about you still wanted to give cash back to investors and we all applaud you on that one. But also you have to balance it which makes sense with your own internal needs. And that sort of struck me that you were maybe looking at something more then just Egypt. Are there other things you're looking at these days?

No, I didn't want to suggest too much there. I think we have a unique position in this methanol industry and we are dedicated to this industry. We're not interested in diversification, but we fully expect that there are some opportunities that will occur out there at different stages of the cycle and we want to keep ourselves in a strong financial position so we're able to take advantage of opportunities, as I say, at different times in the cycle.

I certainly have no interest in going and buying methanol assets and paying today's prices because you're paying for the high priced commodity, and at the end of the day we recognize we're in a cyclical commodity. So I think we need to be very patient and we'll wait for the opportunities to come. But I know as an analyst to be able to execute those we need to maintain some flexibility.

I think that makes a lot of sense. But just to finish on that point then, one of the things you said about Egypt is it's probably going to be your high-cost plant and that makes sense in the current environment. Is there a danger then that you go ahead with this, you build this and the bulge in the CapEx pricing dissipates somewhere down the road and you end up with -- I wouldn't and say the high-cost plant, but certainly a higher than average cost plant?

I think the good news for Egypt is the capital costs are very high, but the operating costs are very low. So it would affect the lowest delivered cash cost plant. So I think having got yourself through the capital, then I think any investor will be delighted to own that plant. So I'm not too worried about that longer-term. But I think the situation you paint is exactly what a lot of companies are facing today, a desire to grow within their industry, but a recognition that they don't want to make acquisitions because you're building in the high-cost of commodities and you're a little weary of building at what might be the top of the cycle.

Now I guess my observation, Bob, when I look around the world economy and the big picture is like -- I don't see energy prices collapsing any time soon and I think it's high natural gas prices and high oil prices that are driving this bulge of capital spending. And I don't see that dissipating any time soon as well. So I think to the extent that we made the commitment today, I think if you didn't do it today you'd have to wait probably five years at least to perhaps see a decline in the sort of prices that we're seeing.

And you can't let your customers wait too long.

That's right, exactly. I think leadership for us has real value and maintaining our leadership position is something we want to do.

Can you give us -- last question on this -- a little color and you said being one of the low-cost plants or the low-cost plant, would that be relative to Chile, for example?

Yes, it would be lower delivered cash cost in both Chile and Trinidad.

Because of transportation?

That's a big part of it. But I think the gas contract is competitive. We're in a zero tax environment for the -- there's a tax holiday so that's a huge economic plus for the project and helps to offset some of the high capital. So I mentioned in my notes that you have to look at the entire package to make a decision on whether this makes economic sense. So one element of that package we know today looks unattractive, but the other elements of it looked very attractive.

Okay, thank you very much.

Jaret Anderson, UBS.

Bruce, you mentioned the fact that you think we've got 3 million tons of capacity coming out in the next -- I think you said '06 and '07. I assume that 2 million of that is basically in North America. Can you comment on where you see other capacity coming out? I assume it's in Eastern Europe.

Yes, (indiscernible) have an 850,000 ton plant in [Edmonton] and they've announced their intention to shut that down at the end of this year, so there's no debate on that. There's another plant in the Netherlands owned by a company called Methanor, it's 450 odd thousand tons and they've announced their intention to shut that down in the middle of this year. So over half the capacity I've mentioned has been announced to shut down.

Eastern Europe is an area that's really under a lot of pressure. Natural gas prices in that part of the world are set based on crude oil pricing, so we're seeing natural gas pricing in Europe and Eastern Europe is higher than in North America at the moment. So those plants are just hanging on economically. We saw one of them -- a plants and I can't remember which country, one of the countries in Eastern Europe, shut down temporarily a few months ago and that has restarted. But I think there's another million odd tons or more than a million tons in Eastern Europe that you have to think have a short life based on the current energy environment.

Do you think with NAFTA prices where they are right now in Europe that there are going to be increasing pressures on some of the plants in Western Europe?

There's not a lot left in Western Europe. [Standard Oil] has a plant and that's natural gas based in Norway and that's a bit disconnected from the energy complex in the main continent. All of the other methanol capacity -- there's some in Germany, there's some refinery-based capacity. They tend to use some of the heavy end of the refinery that is just a way of making that stuff go away. So we've said that that will continue to operate through everything. Other than that there's not a lot left in Western Europe.

Fair enough. And the final question, just for clarity. 100,000 tons guidance in terms of gas supply issues that we saw last year being similar to this year. Does that include or exclude the issues we had in the first quarter regarding this 32,000 tons in Chile?

It probably excludes it. Remember, some of that 32,000 was planned, so I wouldn't include that. Roughly 20,000 tons of that was unplanned, 10,000 tons was planned, a kind of rough guidance. I think some of the unplanned stuff we will carry on getting that because it was -- the root cause has been poor infrastructure which they are spending money to develop, but that's not going to happen overnight.

Fair enough, thanks very much.

Adam [Star], [Gulfside] Asset Management.

My question has already been asked, thanks.

(OPERATOR INSTRUCTIONS). Sam Kanes, Scotia Capital.

Bruce, perhaps digging a little deeper into Methanor, they were in the press obviously saying they're shutting down in the summer, but they've also said they've made a deal with someone with respect to their customer list. I'd imagine you have had a look at that. Would it be you or someone else?

I think it's our friends in Trinidad or our competitors in Trinidad. We understand they've signed a supply contract with them. And you're right, that Methanor has some supply commitments to customers and the way they are going to satisfy those is buying methanol in Trinidad and selling that to their customers.

I see. I was just curious. Thank you.

Okay. Well, with that said I thank you very much, everybody, for your participation in the call. This has been another excellent quarter for us. We're in an environment of strong prices. Even though we've nudged the price back in the month of May I'd just remind everyone that the nondiscounted list price in the U.S. is $343 a ton, so it's just an extraordinary price. We have a price in Europe of $348 per ton carrying the nondiscounted price for the second quarter. And in Asia our price is $310 on a nondiscounted basis. So these are still extraordinary prices. We see reasonable stability, strength, demand growth -- so this is just a great environment for our Company. Thank you all for your continued support and good morning, everyone.

This now concludes the Methanex Corp. first-quarter results 2006 conference call. Thank you.