Chesapeake to supply Methanex gas in Louisiana

Chesapeake Energy has signed a 10-year agreement to supply all of the natural gas required for Methanex's 1 million tpy methanol plant in Geismar, Louisiana, the companies said late Thursday.

Commencement of natural gas deliveries will coincide with the startup of the plant, which is expected by the end of 2014.

"We are thrilled to have entered into this agreement with Chesapeake, the second largest natural gas producer in the US," said John Floren, president and CEO of Methanex. "This contract will enhance our ability to reliably supply quality product to our US customers for at least the next 10 years."

The upcoming Geismar plant is a relocation project from Chile.

"The agreement is structured so that the natural gas price is linked to the methanol price, and both Methanex and Chesapeake will share in the risks and rewards resulting from the changing price of methanol over the decade of this contract," added Floren.

"This gas pricing formula, in addition to the capital cost advantage of relocating a methanol plant as compared to a new-build facility, enables the project to be profitable across a broad range of methanol prices."

Floren noted that a 10-year contract in place for 1 million tpy of methanol production reduces the company's exposure to short-term natural gas price fluctuations, thereby lowering the natural gas price risk for the site if the company decides to relocate a second plant to Louisiana. 

Methanex expects to make a decision during the first half of 2013 on whether to proceed with a second relocation project.

"We are excited to support the ongoing revitalization of the US manufacturing sector through our long-term gas supply arrangement with Methanex, the world's leading methanol producer," said James C. Johnson, Chesapeake's senior vice president of marketing. 

"The unique structure of this transaction provides return certainty and price diversification for Chesapeake while providing margin protection and price stability for Methanex. Furthermore, Methanex's investment and plant relocation to Louisiana demonstrates the compounding economic and employment benefits to be derived from the shale gas revolution.

"We believe this is truly a 'win-win' arrangement for both companies."

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