Friday, January 25, 2013

Chesapeake Signs Creative Supply Agreement with Methanex

Chesapeake Energy announced yesterday that it has entered into a ten year natural gas supply agreement with Methanex Corporation, which is relocating one of its methanol plants from Cabo Negro, Chile to Geismar, LA.  The plant is expected to be operational by the end of 2014 and should source gas from the Haynesville Shale.

It wouldn't be a Chesapeake deal if there weren't some kind of heightened risk/reward factor involved, hence the gas supply agreement will be priced based on the market price of methanol rather than the cost of natural gas.  This allows Chesapeake to see a bigger upside if methanol prices are high, and it gives Methanex a firm handle on its largest operating cost for the next ten years, thus reducing volatility in costs and profits.

As we mentioned back in November 2012 with the Encana/Nucor deal, look for innovative market solutions like this for suppliers to get natural gas to market.

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