Methanex Responds To Maui Reserves Redetermination Report

Maui adjudicator Netherland Sewell and Associates International's draft report on remaining Maui reserves has drawn a response from two of the affected parties --Methanex Corporation and Contact Energy.

Netherland Sewell released its draft copy to the parties involved in the Maui gas contracts in mid-December, prompting Vancouver-headquarter Methanex Corporation to post a statement on its website, while Wellington-based Contact Energy issued a public release.

Methanex said the Netherland Sewell draft redetermination of economically recoverable reserves was "significantly lower" than estimates prepared by its own consultants. Contact Energy, however, said figures in the draft report were "broadly consistent" with those of its advisors.

Methanex president Pierre Choquette said that if the findings in the draft report were confirmed in the final determination, Methanex would lose substantially all of its remaining contractual natural gas entitlements from the Maui field. This would result in a "near-term" reduction in the current production capability of the New Zealand plants, unless additional gas could be contracted from other sources.

He said the loss of a major portion of New Zealand production capacity, in a global market that was already well balanced, would likely lead to a tighter supply-demand balance for methanol and an extension of the period of strong prices in the short-term.

"If the findings of the draft report are confirmed, we will work with our long-term contractual customers in Asia-Pacific to minimize the impact of reduced production from our New Zealand plants.

"We believe that the impact in 2003 of a shortfall in production in New Zealand is manageable. We have a number of alternative global supply sources, including our plants in Chile and Kitimat (Canada), as well as the option of restarting one of our idled facilities in North America.

"We are also continuing to pursue additional gas from other sources in New Zealand," he said.

The Methanex consultants estimated that substantially more gas was available in the Maui field than the draft report indicated and the Methanex submission to the independent expert would include the basis for this higher estimate.

Mr. Choquette said Methanex was already taking steps to protect its Asia-Pacific markets. The Atlas facility in Trinidad, in which Methanex held a 63.1% interest, was scheduled for start-up in early 2004, adding 1 million tons to available global production capacity. In addition, Methanex had recently decided to proceed with an 840,000-tonne expansion in Chile that would be completed in early 2005.

Methanex was also looking to the longer term, with last year's memorandum of understanding signing with the North West Shelf participants regarding Methanex possibly building an $A1 billion methanol plant in the Burrup Peninsula. Methanex board approval for the West Australia project is expected next April. "That could be a major supply source for our Asian customer base," Mr. Choquette said.

Methanex Asia-Pacific vice-president Bruce Aitken said in October that Methanex NZ had the capacity to operate as a swing producer, with total gas usage anything from 20PJ to 90PJ per annum, and it would make economic sense to do so for perhaps four or five years.

Contact Energy chief executive Steve Barrett said from Wellington that the final report from Netherland Sewell would provide an estimate of expected remaining Maui economic recoverable gas reserves. This in turn would lead to an adjustment to Contact's entitlement under its supply contract with the Crown.

"Based on present information, it appears that the volume of gas for which Contact would lose a contractual purchase entitlement will be broadly offset by reductions in our on-sale obligations under downstream supply contracts.

"However, it should be stressed that it is too early to predict with certainty the impact of the redetermination process on Contact. The outcome will depend on the independent expert's final determination, the volume of gas allocated to Contact, and the profile that will apply to future delivery of gas," said Barrett.

He noted that the Maui redetermination process was not expected to significantly affect the availability of gas to residential and smaller commercial customers, as their total demand was relatively small compared to total current use.

Before Netherland Sewell reaches any final conclusions, there is the requirement for any preliminary views to be delivered to the parties involved, for their consideration. The parties can then make submissions to Netherland Sewell, after which it will deliver its final and binding report, which Mr. Barrett said was now expected early in the New Year.