"Argentina has basically cut the supply of natural gas to Chile, so the assets were stranded. Methanex has mitigated its gas-price risk by contracting a long-term supply agreement with Chesapeake Energy for the first plant," he says. "The payback in the current environment is pretty quick—at the $500-per-ton range for methanol—and even at $450 per ton, it's reasonable.
"Relocation saves them time and money. When you build new, there are large deposits you have to drop on some of this equipment, which also has long lead times," McDougall says. "The only negative to moving these plants is if Argentina starts supplying more natural gas to Chile. Then Methanex would like to be able to have those assets there producing methanol without the costs of the relocation to the United States and subsequent construction here. Also, some will argue that this equipment is old and not as efficient as the current technologies Methanex would likely use if they were building new."
One of the biggest advantages to relocating a plant is that dormant equipment does not have to be salvaged, which is a major expense. "Also, it takes 12 to 18 months to have some of these more exotic vessels fabricated [for the manufacturing process], so Methanex is saving time there," an onsite engineer told ENR.
Some of the equipment, however, is being upgraded and modified before it will begin producing methanol in the U.S. "For instance, Chile is very cool, so the processes don't need the same cooling equipment, and the systems are required to run in Louisiana, where it's very hot. There were major atmospheric condition changes and some of the equipment is 20 years old. It had to be upgraded," he said.
Relocation, compared with building new, offers significant capital savings and a reduced time frame. "By using an existing plant, we also expect to have a more efficient commissioning and start-up," Parra says. "The largest technical challenge was taking a stick-build plant and turning it into a modularized concept, transporting it over the ocean and refurbishing some of the equipment to ensure asset integrity."
Speed is ultimately the key when it comes to building or relocating a manufacturing plant that buys and sells commodities like natural gas and methanol because the markets are volatile. For now, the margins are good and Methanex hopes to have Geismar 1 and 2 producing before the situation changes or more competition arises. Other companies are already in various stages of building methanol plants in the U.S. and that could put downward pressure on prices.
But could there be a scenario where the domestic market is oversupplied? "I would say that it's not likely," McDougall says.