Chesapeake Energy Corp. has agreed to supply all of the natural gas supplies over a 10-year period required for Methanex Corp.'s 1 million metric ton/year methanol plant, set to begin operations in late 2014 in Geismar, LA.

Gas deliveries are to begin when the plant starts up operations. No financial details were disclosed.

"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," said Methanex CEO John Floren, who took the reins on Jan. 1. He had been senior vice president of Global Marketing & Logistics.

Methanex executives had said in October they were close to inking a supply contract for the new facility in Geismar, its first U.S.-based production plant in more than a decade (see Daily GPI, Oct. 31, 2012). Another Louisiana-based methanol facility also is being considered.

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

Methanex is the world's largest methanol supplier. The $550 million Geismar facility originally was to be constructed in Chile, but low U.S. natural gas prices convinced the operator to relocate.

The 10-year contract "reduces our exposure to short-term natural gas price fluctuations, which will lower the natural gas price risk for the site if we decide to relocate a second plant to Louisiana," said Floren. "We expect to make a decision during the first half of 2013 on whether to proceed with a second relocation project."

Chesapeake's James C. Johnson, senior vice president of marketing, called the agreement a "win-win" arrangement.

"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."

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