Methanex (MEOH): Target of angry Chileans

Methanex plant in Chile

Methanex plant. Click for original story.

(Updated Jan 16) The people of southern Chile have been on general strike for almost a week over a plan to increase natural gas prices to homes and businesses. It’s becoming almost a new normal for the region. The Chilean interior ministry and military* is evacuating 2,000 tourists from the parts of Tierra del Fuego and nearby islands that have been isolated by the strike.

One bit of rhetoric that keeps popping up is the locals saying that they should get the gas, rather than giving it to a Pinochet-era chemical factory. Locals say hey, we’re living here in the cold, wet islands territory next to the Antarctic sea, serving as Chile’s strategic outpost, catching fish, serving tourists, and generally making ourselves useful. We should be first. And indeed, under the law, the city gets gas first. But the biggest single consumer in the region is a Methanex, a Vancouver-based company with stock that trades in Canada, the U.S. and Chile. It has four methanol production lines near Punta Arenas Chile that theoretically convert methane (the biggest component of natural gas) into a form of alcohol widely used in industry.

Theory doesn’t always convert into practice. As you can see in the company’s third-quarter report, it has the capacity to produce 950,000 metric tons of methanol in Chile. It actually ran only one of its four production lines, producing 194,000 tons, because of a lack of natural gas. It also laid off workers last year.

Now, protestors in Punta Arenas are targeting Methanex. The president of the union at state oil company ENAP is calling on the people of Punta Arenas to light their gas heaters from noon to 3 p.m.:

Avendaño explained that this methanol plant operates with at least 2 million cubic meters of gas, and upon lowering its consumption to 1.6 million, which this measure seeks to do, the plant is halted. That’s because by law ENAP must prioritize supply to the city of Punta Arenas.

Update: Apparently the conflict with the ENAP union isn’t just over the quantities of gas. According to El Mercurio, Methanex is considering suing ENAP for breach of contract for failing to supply enough gas. While they have been tolerating reduced natural gas supplies since Argentina reduced exports to the region in 2004, there are now concerns that Methanex could have to shut its last production train:

Days ago, the CEO of ENAP, Rodrigo Azócar, publicly recognized that the state company, as of May 2011, could have problems providing the minimum quantities technically needed to allow operation of the one plant (of a total of four) that the Canadians keep in operation… Recently, Methanex rejected the possibility that they [ENAP] could increase gas prices along with those of residential customers in [the province of] Magallanes, describing the possibility as “inadmissible”, if they aren’t even adequately covering the original supply contract.

Methanex is spending money to help oil companies explore for gas, and having some success. Raymond James said last year that Methanex may be able to restart a production line “earlier than expected” because of gas development. But if the locals are agitated about their own access to natural gas, at what point do they start physically denying the company access to its raw materials? We may see today. (Or not. It’s a summer Sunday. Why stay at home with the heat turned on when you could go fishing?)

Personally I don’t think that Chile will let Methanex suffer for long, and I don’t think that the locals will tolerate a complete shutdown of the plant. They don’t want to see their 4% unemployment rate rise. But increased tension and periodic shutdowns seem pretty likely.

Chile methanol exports per month in millions of U.S. Dollars

Chile methanol exports per month in millions of U.S. Dollars, 1996-2010. Yours at no extra fee.

* Funny! Turns out that much of the evacuation work was being done by the local Red Cross. Since the Interior Ministry sent out a press release claiming credit, the locals got pissed off and are now blocking the evacuation process. This report in El Mercurio says the tourists are calling themselves hostages. (This soap opera brought to you by South America’s only serious country™.)

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