Dave: Good day, listeners. And, again, thanks for your continuing interest in our methanol puts and takes series. This month is going to be a two-parter. I'll first talk about the current market and at least the Atlantic basin or specifically the Atlantic basin, and what's once again driving up spot prices. Then Cassidy is going to bring us up to date on further European Commission legislative works that may have significant impact on blue methanol into the maritime sectors.
Let's begin and let me first offer a tour of the world and touch on operational issues that are ongoing. And repeating what I often say, all price strength currently and certainly this year is totally to the side of supply side issues and supply side issue driven and not particularly stronger demand at all. So, what are we seeing operationally? Malaysia's Sarawak unit is hoping to finally commission in December which would be some 6 to 9 months later than once thought. We now understand the CalTEM unit in Southeast Asia will take their traditional annual turnaround in the January February timeframe of next year.
The Methanex New Zealand complex remains down giving back gas to the country that is in dire need of that supply. South America seen the shutdown of Atlas and the accompanying restart of Titan in September with a net loss of capacity of about 800,000 tons on an annual basis, but we understand this transition has gone smoothly. One of the Venezuelan units is down for planned maintenance but expected to restart as October ends. The US sees the Nat gasoline unit still down following a natural gas pipeline rupture and maybe hopes to return in November, although there's nothing definitive that we're aware. A mix of other Gulf Coast units continues to see ups and downs but hoping here to line out come November.
Europe still sees its largest producer down, now going on for some 7 months, and it remains unclear when this unit may restart. And then finally, a smaller German unit is hoping to restart after being down about 6 weeks. Now that's a lengthy list and it is impacting supply globally, but probably much more in the Atlantic basin. So, there are obviously quite a few ongoing supply issues, I just said. Spot prices in the Atlantic basin have moved up and I think this is clearly opening the door for November posted price increases for the US come November.
So let me close my talk here. Speculation with speculations about November posted price increases, something that I'm sure is of great importance particularly to buyers. So, some of the background data, US spot prices have averaged about a dollar 7¢ or a dollar 7 per US gallon in September. As of last Friday, October prices were averaging almost a dollar 12, an obvious 5¢ uptick. Now if I just want to look at end of October pricing to last Friday's close, prices are up some 7¢ a gallon and we could expect this latest date data point to have more influence on November thinking.
Now, this week November barges have been offered as high as a dollar 18 per gallon but so far attracting no takers. But this is certainly an indication of what at least one is thinking for November. Now we're obviously going to await November negotiations between actual buyers and sellers. But if we say the minimum increase in spot is in the 5 to 7¢ per gallon range, just using the common multiplier of 2, this means November postings could easily jump 10 to 14¢ a gallon. Should we see the last week of October, of October, the week we're in, billings yet higher, I think it would be a safe bet to expect even higher posted prices.
Whatever happens on November, at a minimum, November is going to carry December. But if supply issues are ongoing, December could move even higher, which then carry into the early months of 2025 and clearly move our 2025 annual projections higher than last reported in September.
Let's transition to the world of low carbon methanol and hear from Cassidy and some very important legislation coming out of the European Commission, and you blue methanol producers, please listen up. Cassidy, bring us up to date.
Cassidy: I wanted to highlight a few of the legislative and regulatory items to watch in the low carbon methanol space. The first is that the European Commission has launched a 4-week consultation period on a draft of EU's hydrogen and gas decarbonization legislation. This consultation period, which is a public online form, ends Friday, October 25th, 2024. The drafted legislation outlines the EC's methodology for evaluating emission savings on low carbon hydrogen and fuels. This legislation went into effect in August, but the European Commission has 12 months to define low carbon hydrogen and fuels, which is where they're seeking feedback.
And then the EU member states have until August 5, 2026 to incorporate these rules into national law. So, you're probably asking why is this important? I'll explain four reasons why this particularly important to low carbon methanol producers, as Dave mentioned, particularly those who make methanol from carbon capture or recycled industrial CO 2, often referred to as blue methanol. This solicitation of feedback is likely being watched by others such as the IMO as legislation and regulations continue to evolve. So, the first reason why this proposed draft is important is because it has strict guidelines for low carbon fuels, stating that they must achieve at least 70% emission savings compared to the fossil fuel comparator of 94 grams per CO2 equivalent per megajoule on a well to wake basis.
This would put the threshold at 28.2 grams per CO2 equivalent per megajoule, which is an even lower CI threshold than that of biomethanol, which must be below 32.9. Since low carbon fossil fuels would also need to account for end-of-life cycle emissions of 69.1, the well to tank or well to gate would need to be at least negative 40.9 grams per CO2 equivalent per megajoule. The second reason is the certification hurdle. The European Commission will require a certification scheme for the chain of custody to trace sustainability and to integrate it within the EC's union database or UDB. ISCC developed the carbon footprint certification or CFC, which focuses on total product carbon footprint as opposed to feedstock origin, which is the basis of the other ISCC certifications like EU and plus.
The strapping legislation would require these certifications to blend, merge, replace one another, therefore, potentially changing requirements for each certification or even developing a new certification to comply. And thirdly, the aspect of integration into the union database or UDB. A brief intro into UDB, and this comes from the European Commission's website was that it was set up to enable the tracing of liquid and gaseous renewable fuels and recycled carbon fuels, which has its objective to mitigate the risks of irregularities and fraud in the supply chains by increasing the transparency and ensuring the traceability of consignments of liquid and gaseous renewable fuels. The UDB is scheduled was scheduled to go into effect November 21, 2024. However, the European Commission has opened another public feedback form starting October 10th until November 7, 2024 to solicit feedback.
The feedback has already started coming in, and these clients have voiced concerns over transparency, traceability, and the overwhelming bureaucratic effort endured by companies to comply with UDB. This feedback is constructive and valid. How can low carbon fuels be required to receive certification and integrate into the UDB if neither of those systems are successfully running according to their needs? And without them, low carbon fuels might not be able to fully qualify for incentives and quotas that they are being produced to fulfil. This brings me to the 4th aspect to watch closely, the timeline.
All the policies and legislations revolve on hitting certain targets on a specific timeline. The EU directive states, the 70% emission reduction threshold will become more stringent for units that begin operating after January 1, 2001. This doesn't give much time for low carbon, the low carbon fuels market to mature between when the European member states establish guidelines in August of 2026 and when they must be up and running by the end of 2030. The timing issues can become quite large as we've seen with renewable fuels of nonbiological origin or refund bill as that interest industry waited years before receiving clarification. And perhaps this all feels very European centric, but this is where the legislation is moving rather quickly and aggressively.
The intricacies of a system based on penalties as opposed to incentives leads to a rather interesting chicken and egg dynamic. So, all of us say, stay tuned to see how this will play out in the coming weeks, months, or potentially even years.
Dave: Let me go back and touch and highlight something that you said. The EU directive states that emission reduction must be down by 70%, something like that. And we and when we compare that to the current well to weight numbers of 94, grams of CO 2 equivalent, so that means, if my math is right, we're looking for well to tank low carbon methanol units that have to have CIs of, like, a minus 40.9, a minus 41.
Now, you and I both know we've been beating this sector to death as we've been charged with trying to determine low carbon methanol pricing. My memory right now says, I don't know of anybody that's sitting on a minus 41 well to tank. Am I wrong?
Cassidy: To date, I'm not aware of anyone for low carbon fossil fuel being able to reach that threshold either. So, if there's anyone who believes they can obtain that threshold, we are not unknowing. We are ears to know. Please reach out to us. We'd love to have a conversation.
Dave: You've given the listeners a lot of great information. Unfortunately, I will say, coupled with, you know, the timeline and the typicalness of wait and see, you've mentioned the IMO will be watching, obviously, these public feedback forms and how the answers evolved. Can you elaborate a little bit more on IMO thoughts?
Cassidy: IMO legislation we've touched on briefly, but I do want to lay out the timelines here, just so we can hear them in conjunction with what the European Commission is working on. As of October 4, the IMOs Marine Environment Protection Committee or MEPC concluded their 82nd session. As a result of this meeting, the committee produced a draft to use in the coming months to request feedback to resolve grey areas and just have an overall refinement of the guidance.
The draft discusses the midterm measures for GHG reduction, outlining a goal based marine fuel standard that will phase in the mandatory use of less for GHG intensities and a global maritime GHG emissions pricing mechanism. So, 2 very important things to watch there, and all of these are in hopes to achieve close to or net 0 by 2050 for the maritime sector. The plan is for MEPC members to vote on the strap at their upcoming meeting being held in April with hopes of adoption at their next meeting in the fall of October 2025, followed up with implementation by 2027. And this is important because IMO is a governing body for the maritime space, so it applies to the entire shipping sector. This will be one of few, if not the only regulatory guidance not tied to a specific region or country's legislation.
And due to the varying other policies, the IMO's guidance could influence other policies that have yet to be voted on or policies that have an expiration date. Overall, there's optimism surrounding the NACP draft, but as with other legislative efforts, we will have to wait and see, unfortunately. But hopefully, we won't be waiting too much longer.
Dave: Thanks much, Cassidy, for that overview. I thought that was great information.
Obviously, there's a lot of energy ongoing in the low carbon methanol space. Hopefully, we've given our listeners an overview of not only what's going on in on grey fossil market pricing, but as you just have summarized all the legislative activities, currently active in the in the low carbon methanol space. And with that, we'd like to conclude another edition of Methanol Puts-and-Takes podcast, a production of Argus Media, a leading independent provider of commodity pricing and market information.
