Nov 8, 2020
Operator
Ladies and gentlemen, thank you for standing by. Welcome to today's OCI N.V.
Third Quarter 2020 Results Conference Call. At this time, all participants are in a listen-only mode.
After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I also must advise you, this conference is being recorded today, November, 6, 2020.
I now hand you over to your first speaker, Hans Zayed. Please go ahead.
Hans Zayed
Yes. Good afternoon, and good morning to our US audience.
Thank you very much for joining the OCI N.V. third quarter 2020 conference call.
With me today are Ahmed El-Hoshy, our Chief Executive Officer; and Hassan Badrawi, our Chief Financial Officer. As you've seen, we published our results this morning.
And on this call, we will review OCI's key operational events and financial highlights for the quarter, followed by a discussion of OCI's outlook. And as usual, at the end of the call, we will host a question-and-answer session.
As a reminder, statements made on today's call contain forward-looking information. These statements are based on certain assumptions and involve certain risks and uncertainties and, therefore, I'd like to refer you to our disclaimers about the forward-looking statements.
Now, let me hand over to Ahmed.
Ahmed El-Hoshy
Thank you, Hans. Let me start by covering our top priority, safety.
We are pleased that our safety performance continued to be best-in-class despite the prevalence and challenges of COVID-19. The pandemic has to-date not had a direct impact on our operations, largely thanks to the vigilance of our employees across our platform.
We're also fortunate that both of our main industries have been more resilient than others, and that our products were all classified as essential during COVID-19, meaning that there was minimal disruption to our supply chains and sales order books. Our recordable 12-month rolling incident rate was 0.23 incidents per 200,000 manhours as of September, a significant improvement from 2019.
This continues to be one of the lowest in our global industry, but, of course, our goal remains to prioritize process safety and to reduce occupational safety incidents ultimately to zero for all our assets across the globe. This is even more important now that COVID-19 continues to dominate our lives with many countries going back into lockdown.
On to results; despite these ongoing challenges during the quarter and significantly lower selling prices of both nitrogen and methanol compared to the previous year, our production, commercial and supply chain teams did an excellent job under such circumstances and established healthy volume growth. Consequently, we delivered resilient results during the quarter.
Our volumes increased 30% during the third quarter and increased 27% in the first nine months of 2020 year-on-year. On a like-for-like basis, so excluding Fertil in Abu Dhabi, our Q3 2020 volumes increased by 9% in comparison to the previous year and 8% on a year-to-date nine-month basis.
On the nitrogen side; we benefited from the contribution from Fertil in Abu Dhabi, which has been consolidated since Q4 2019, but we also increased our volumes elsewhere. This growth was driven by an improvement in operational performance compared to 2019, such as our state-of-the-art Iowa facility pushing its maximum proven capacity to higher levels as a result of stabilization and debottlenecking of production last year.
DEF sales were particularly strong and recovered to record levels during the quarter as well. And we saw our nitrate volumes in Europe increased during the third quarter year-over-year, which followed a record second quarter and overall an increase of 23% year-to-date.
Our industrial end markets were weaker, which was partly because of the 15% year-over-year drop in ammonia volumes, but we have seen these end markets recover since then. In the first half of this year, our nitrogen business was the main driver of this growth, but I'm pleased to say that this quarter, we've also had strong performance in methanol as we recorded an increase of 39% in own-produced methanol sales volumes in Q3 2020 compared to the same period last year.
We achieved record production volumes across all our facilities despite a preemptive shutdown at our Texas facility in August for - in August and early - late August and early September for Hurricane Laura. At OCI Beaumont, that represented just over two weeks, as Natgasoline was approximately one week.
In the Netherlands, we were running both methanol production lines fully for the first time at BioMCN and at rates well above 90% for the quarter. As a result, we expect the methanol business to be a primary driver of volume growth next year.
With that, I'd like to turn it over to Hassan to discuss the financial results.
Hassan Badrawi
Thank you, Ahmed. I will guide through some highlights of our financial results, starting with our P&L.
As Ahmed described, during the third quarter, we achieved resilient results. Our consolidated revenues increased by 19% to $752 million and our adjusted EBITDA was up by 79% reaching $192 million in the third quarter as compared to the third quarter of last year.
Both the nitrogen and methanol segments contributed to this growth in adjusted EBITDA. This reflects the year-on-year growth in sales volumes, as Ahmed mentioned earlier, as well as some benefits from natural gas of just over $20 million, but was partially offset by significantly lower selling prices.
We estimate this negative impact on our EBITDA from lower selling prices to have been circa $100 million between Q3 2019 and Q3 2020. Methanol prices were significantly down year-over-year and ammonia prices also remained at very low levels during the quarter.
I would also like to point out that prices were lower, not just compared to the third quarter last year, some were also lower as compared to the second quarter of the current year. For instance, contract methanol prices reached their lows in Q3 due to the lagging effect of contract versus spot movement, that has been recovering very well since then, which should bode well for Q4 pricing.
Overall, we believe that pricing represents upside in the future. Turning to the balance sheet and cash flow; free cash flow and growth CapEx during the quarter was around breakeven.
This reflects our operational performance for the quarter, offset by typical seasonal net operating working capital outflows as we build up inventories ahead of Q4 applications, notably at Fertiglobe. Total cash capital expenditures were around $47 million in the third quarter of 2020, most of which can be attributable to maintenance CapEx.
During the first - during the nine-month, CapEx amounted to $211 million. Our net debt - consolidated net debt stood at $3.9 billion as of September 30, 2020, a $77 million increase from June 30, 2020.
This reflects both a $54 million FX impact on euro-denominated bonds and the buildup of inventories, which I just mentioned. On a quarterly basis, we typically see such fluctuations, which we should - which should smooth out over the full year with the completion of the Q4 application season.
For the year-to-date as it stands, we reduced net debt by $145 million, and we expect to see cash flow benefit from the reversal of this inventory buildup that we witnessed in Q3. We continue to optimize our capital structure with a 2.5 times oversubscribed dual tranche bond offering, EUR400 million, $400 million as part of the refinancing of $1.155 billion outstanding bonds.
The delta for which was financed through the existing RCF, which allows us to create some more pre-payable debt going forward. We have also successfully completed and closed the $385 million refinancing at Fertiglobe and both transactions were completed in October.
There are several benefits of these refinancings. First, we lowered our weighted average cost of gross debt by a further 60 bps to below 4.5%, which in the - which is a 25% improvement from just over 6% at the end of 2017 the time - when we started our capital structure optimization program.
This will result in additional cash interest savings of more than $32 million per year annualized from next year onwards. The bond offering also extended maturities of the refinanced debt by about two years with the next scheduled bond maturity for OCI N.V.
not until 2024, further de-risking our business and capital structure. It also gives us more flexibility to reduce gross debt and then capture incremental interest savings from free cash flow generation going forward, while maintaining a conservative approach to liquidity access which remains in the neighborhood of $1 billion between cash on hand and undrawn committed facilities.
We will, of course, continue to evaluate opportunities to achieve similar optimization initiatives and further simplify our capital structure. And with that, I would like to hand over back to Ahmed for our outlook and some concluding remarks.
Ahmed El-Hoshy
Thanks, Hassan. I'll conclude with an outlook of our business, which despite all the challenges around us, is looking much more positive than only a few months ago.
I also believe that OCI's asset base, commercial capabilities and financial standing are well positioned to manage any near-term volatility, if that were to happen. If I start with the outlook for nitrogen markets, our global order book is currently robust based on recent tender awards for - to Fertiglobe to supply a combined total of almost 700,000 tons of urea to India and to the fast-growing Ethiopian market.
We continue to see healthy demand from several major importers across the globe, including India and Brazil, in particular, but also other countries. Chinese exports - Chinese urea exports were 10% lower in the first nine months of the year, but the pace is rising modestly in the fourth quarter on higher Indian import demand.
Anthracite coal prices in China have started to rapidly recover, which combined with increased demand domestically for stocking ahead of their spring season, has raised prices for - from the marginal producer, providing support for the global urea market for the balance of the year. Going forward, Chinese export availability is expected through - to be relatively limited in H1 2021 on the back of the increasing marginal costs and expected recovery in domestic industrial urea consumption.
The outlook for corn prices has strengthened recently with a 30% - approximately 30% increase in corn futures for December 2020 to $4.14 a bushel from around $3.20 in April, as global corn demand has increased driven by purchases from China as well as the recovery in demand outlook. The global corn stocks to use ratio has declined by 5% in the 2019-2020 fertilizer year with similar declines anticipated next year, which is also positive for nitrogen markets.
Importantly as well, U.S. farm income is up more than $20 billion from last year, which also supports on-farm operation spending and generates additional income available to pay for crop inputs, such as fertilizer.
The U.S. fall ammonia season has started, and the weather is conducive for a good fall ammonia run in our core markets, particularly when compared to the unfavorable weather in the - conditions we experienced back in 2018 and 2019 in the fall.
We're already seeing strong volume movement this week at N-7 out of our Weaver facility. However, U.S.
nitrogen prices overall are trading at severely discounted prices relative to global benchmark, contrary to where fundamentals should have them trade. Despite being a deficit market, U.S.
imports - US urea imports continue to be priced below the point of origin in the Arab Gulf by a meaningful discount. Since July, UAN prices in the U.S.
Gulf have made it more favorable actually for Russian and even Trinidadian exports of UAN to go to Europe and still pay the duties rather than going to the US Gulf. As we get closer to the season, we expect that fundamentals will start to address these disconnects to supply the spring season.
The ratio of ammonia and UAN prices relative to corn pricing on a nitrogen ton basis today are at a decade low and attractive affordability levels support increased ammonia demand in the ongoing fall season and UAN and ammonia demand in the spring season, obviously, coupled with what I said earlier around farm incomes improving versus the prior year. On the industrial side, demand was impacted by COVID-19.
And while there still remains uncertainty, we have seen signs of recovery, primarily driven by China. Ammonia prices lagged urea, but have started to benefit as a result of the recovery in industrial markets, curtailment of high cost capacity in Trinidad and higher feedstock prices as we are seeing globally right now.
Melamine demand in our core European markets is also improving with the markedly tighter supply-demand balance as we go into the end of this year compared to earlier in the year. Moving to methanol markets; the outlook for our methanol end markets has also strengthened.
There can be some volatility going forward depending on how this pandemic develops, but US Gulf spot methanol prices have roughly doubled since reaching a bottom below $150 per ton on a spot basis in June to approximately $300 this month, slightly above that actually. Demand for methanol to olefin plants in China has consist - has been consistently high on the back of healthy MTO economics.
Global demand - downstream demand has also continued to recuperate suddenly as fuel consumption was returning and a pickup in construction and other industrial activity is increasing - is driving increased demand for derivatives, such as formaldehyde. Our step up in production, as I mentioned earlier in Q3, coincided with this recovery in global economic activity as well as methanol demand.
Following this record methanol production for OCI in Q3 2019 - 2020, normalization of production and improved on-stream efficiency is expected to drive volume growth in the methanol segments going forward. Turning to natural gas; we are well positioned to benefit from the increase - recent increase in feedstock prices both in terms of the competitiveness of our cost base, given our US and European assets' energy efficiency, as well as Fertiglobe's significant cost advantage as a result of its fixed price gas supply agreement and in terms of support for other - for our products selling prices, particularly ammonia.
In summary, we believe the improving market fundamentals highlighted with our continued volume growth in 2021 will deliver improving free cash flow as well as positioning us well in a volatile economic environment. Before I - before we go into Q&A, I'd like to finish with some exciting new projects that we have announced today that fit well within our strategy to focus on and develop sustainable products and production.
We continuously strive to be a leading environmental steward, especially as among our core products, ammonia and methanol are some of the best positioned energy carriers in a future hydrogen economy. We are, therefore, excited that we are working with RWE in the Netherlands on a green hydrogen project to produce renewable methanol as announced this morning and we are in advanced talks to develop other projects at our nitrogen facilities in the Netherlands as well in the green hydrogen space.
This morning, we also announced that we are supplying ExxonMobil through its subsidiary Esso with biomethanol, which is blended in all of ExxonMobil's fuels sold in the United Kingdom. Through our cooperation with ExxonMobil, we aim to promote the use of biomethanol as a complementary biofuel alongside ethanol to reduce the carbon intensity of road transportation fuels.
We also see many opportunities in new applications, where this versatile product can be used as an environmentally friendly building block for products such as cosmetics, building materials, as well as paints and resins. Going forward, we will continue to identify, evaluate and develop more initiatives that reduce our environmental impact and grow our green portfolio.
Our focus, of course, on deleveraging is still very much in place. So, we will look at one or a combination of things, including asset-light opportunities, subsidies, government programs, tax incentives, as well as structuring and using optics of green feedstocks to still meet our low CapEx high free cash flow conversion targets.
So, of course, our evaluation of the ESG initiatives takes both sustainability into account as well as economics. Finally, while I believe our environmental performance is already amongst the best-in-class due to our state-of-the-art asset base being one of the youngest fleets in our industries, we aim to improve by setting long-term ESG targets.
We aim to challenge ourselves to further improve by using 2019 as our baseline, so that we can achieve a meaningful reduction over our existing environmental footprint. We intend to announce these targets next year with key decisions and timings based on the scale and focus of government environmental policies in the U.S., in Europe, as well as the EU carbon tax - carbon border tax mechanism and other government support for green initiatives.
With that, we will open the line for questions.
Operator
Thank you, ladies and gentlemen. We will now begin the question-and-answer session.
[Operator Instructions] Your first question comes from the line of Christian Faitz from Kepler Cheuvreux. Please go ahead.
Your line is now open.
Christian Faitz
Yes, thank you very much. Good afternoon, everybody.
Couple of questions from my side, please. I'll ask them one by one, if that's okay.
First, from your remarks, I take it there will be no major outages during Q4 or in early Q1. Would that be the right assumption for my modeling?
Thank you.
Ahmed El-Hoshy
Sure. Thanks, Christian.
As you know from a policy perspective, we don't announce outages, so that people don't trade around it on the commercial side. So, we will be announcing at the close of Q4 what outages planned or unplanned may have taken place.
Christian Faitz
Okay, fair enough. Thank you.
Then second question, how do you see free cash flow evolving in 2021 assuming there are no major CapEx projects?
Ahmed El-Hoshy
Yes. So, on the free cash flow question, obviously, the big determinant is going to be pricing in terms of the level of the free cash flow that we generate.
As we announced this quarter and over the last couple of months, we've looked at ways to improve our free cash flow profile. I mean, one of them is obviously achieving the higher pricing, where we're seeing the industrial demand recover from a very low level in late Q2 and into Q3.
And the outlook looks a lot better for products, such as methanol, ammonia, melamine, which is supportive and brings the nitrogen and methanol markets into a tighter supply and demand balance versus what we've experienced over the last six months. So, we're looking forward to that.
We've seen new capacity also be delayed for a number of reasons that one of the main ones obviously being COVID-19 and more impaired economics, which is also supportive of our outlook, which I talked about in the prepared remarks. With regards to other items outside of pricing, volume is another big one.
So, Q3, you saw almost 39% growth in methanol volumes, that continues to be a focus of ours. I think I've mentioned on prior calls, our focus on oversight and doing things that are in our control with regards to regional oversight on our operations in each of our three regions, Europe, United States and the Middle East, as well as basically an overall focus on preventative maintenance to improve utilization rates and on-stream times overall at our assets, and that will have a significant effect in terms of our ability to generate additional EBITDA by generating that volume and cover obviously more of our fixed costs.
Hassan also mentioned the financing savings that we get the full year benefit of next year versus these savings, which actually only closed, I think, in early Q4, exactly, October. So, we haven't seen the effect of those yet on our free cash flow or EBITDA to free cash flow waterfall.
So, that's a $32 million annualized benefit. And overall, it's hard to pin it down and we haven't given guidance for next year on CapEx.
But over the next few years, we anticipate seeing CapEx get some more stable, a lower maintenance CapEx level as we review our entire portfolio on now a more centralized rather than decentralized basis with more of a central team overseeing our product portfolio, which should bode well obviously for utilization rates, process safety, occupational safety, but also just how much capital we need to deploy and deploying the right capital in the right places that makes the most economic sense for our assets.
Christian Faitz
Okay, great. Thank you.
And I guess I'll leave the methanol disposal question to somebody else. Thank you.
That's it from my side.
Operator
Thank you. Your next question comes from the line of Tom Wrigglesworth from Citi.
Please go ahead. Your line is now open.
Tom Wrigglesworth
All right. Thanks very much for the chance to ask questions.
So, just on the hydrogen projects. I hear you on the - obviously, the constraints that are around the balance sheet today, but could you just share with us over the medium-term where it's most attractive for you to play?
Obviously, we've heard of now your peers as well as competitors talk about being into the ammonia game, but methanol - in my ignorance, green methanol is a relatively new one? Can you maybe highlight where the attractive end markets are for that?
So, a little bit more color on where you see the potential for green hydrogen. I'll - and then I'll come on to my second question.
Thank you.
Ahmed El-Hoshy
Sure. I mean, green hydrogen, we see a lot of potential on - and I think we've had some discussions over - around it for the last year, but it's both kind of public and private sector related.
So, let's start with kind of the public sector. In the US - sorry, in Europe, there is basically the ETS program for carbon, so that's incentivized those with the European asset bases like ourselves to look at opportunities over the last several years, leading up to this year, around ways to reduce our carbon footprint because it actually pays you to improve efficiencies and look at feedstocks like green hydrogen.
So, definitely, green ammonia is a big focus, and I'll start with that and get into green methanol. But green ammonia is a big focus, and I won't rehash a lot of what our peers have said and what we've said around the advantages of ammonia from a storage transport perspective and also the fact that it burns very cleanly because it doesn't have any carbon in it.
So, it's an excellent fuel once you have that infrastructure in place. So, on the green ammonia side, OCI nitrogen is a very good candidate for that, which is our plant in the Southern Netherlands.
We're in discussions now on opportunities around OCI nitrogen specifically and they've been going on for quite some while. And the other area, which is a little bit behind and more recent than OCI nitrogen is the Middle East.
One of the big costs for these types of projects is getting access to reliable, high load factor renewable power. Our assets, for example those in Egypt, those in Abu Dhabi, even for those in Texas, have the benefit of being in good areas for both wind and solar generation.
And particularly in a country like Egypt, where there has been significant capacity build up for power over the last half a decade, it's been a political move by the Egyptian government, we're seeing a lot of opportunities close to our plants in Egypt to have access to cheap reliable power which could ultimately be converted with our existing ammonia capacity into green ammonia and transport it to areas where there may not be as much abundant renewable feedstocks like Western Europe or other locations, or even East Asia. The other advantage of that area is, obviously, we have significant experience there in terms of building the assets.
We know the landscape and construction costs, if there would be an electrolysis plant, for example, built, whether it's on our balance sheet or on someone else's balance sheet would be cheaper to build in a country like Egypt than in some more industrialized countries or places where construction cost is more expensive. With regards to green methanol, similar to green ammonia, those markets need to continue to develop and we anticipate them developing over the course of the decade in terms of the government and other big focuses about where is the carbon charged.
So, right now, it's being charged to those closer to the hydrocarbon, like ourselves and everybody in our industry. But ultimately, we think as you go further downstream and you have carbon passed on to the final end user, end users will ultimately potentially pay a slightly - very slightly higher price because of the small amount of ammonia or methanol in that product to have a green product ultimately.
Those types of pulls from a demand perspective as well as subsidies should afford us the ability to continue to make our asset portfolio more green. With regards to green methanol, one big advantage that OCI has is that we are the number one producer of biomethanol globally.
This is a market that we've been growing over the last five years. We purchased BioMCN, which will - which helped us establish that footprint in Europe in the middle of 2015 and used what we learned about that market to actually be a large biomethanol producer in Texas, where we produce biomethanol using waste gas as a feedstock and then we sell that into markets that can pay a premium for that product.
And you saw the announcement today with ExxonMobil, that's one of a few initiatives we've had which is in the biofuel space where you get an additional premium selling a renewable product like biomethanol, a second generation renewable product because it's made from waste, it's not made from, for example, on-purpose corn unlike ethanol, which gets additional credits in the biofuel space. So, we anticipate those markets continue to develop.
We think it's still in the infancy right now, but with countries focusing on it. They have renewable energy directives, they have renewable fuels directives and they are still looking at the different possible products that can be used there, both biomethanol, green methanol, as well as green ammonia are all very suitable candidates and stand toward the top of the list for marine fuels, transportation fuels, generally, and just in general industrial chemical feedstocks that have a renewable base.
Tom Wrigglesworth
Thank you very much. And changing track on to UAN.
You cite in your release that there has been an intense price-based competition in the US Gulf. Can you just clarify for me how much - is that a function of - you are saying that's a function of discounted imports coming into the market, is that correct?
And do you think that's something that the participants of that market in phosphates will bring to the attention of the authorities? Or is this something that you're alluding to in your comments that demand will pick up and should normalize out these - this kind of temporary competition?
Thank you.
Ahmed El-Hoshy
Sure. I think it's a combination of those factors.
So, on the demand side, UAN, you still need a few million tons to be imported before the spring season. We're seeing corn acres and the outlook for corn acres improving for the next season, next spring versus initial estimates a few months ago for UAN.
And I think as you heard me in the prepared remarks say, UAN is at the absolute cheapest level it's been relative to corn in modern history. So, it's a very attractive product to be used.
So, we think from a demand perspective, the demand will be there, but there has been a bit of this basically trepidation from go - from buying early. And so, what we anticipate is over the coming few months to help get the UAN and paper freight economics and get them into the Midwest, and we anticipate that prices should improve on that demand pull from that and we'll watch how the fall ammonia season progresses as we are well into the midst of that right now.
In terms of the reasons behind where the pricing is at, we want to - basically what we're pointing out is there's just a disconnect. Economics don't make sense right now, that the price in the US Gulf is less attractive for Trinidadian producers that are close by as well as Russian producers that are further away than actually going and selling into country like France, which is a major UAN producer - consumer that actually would require an anti-dumping duty of anywhere from low EUR20s to EUR40 a ton being paid for any product sold there.
That's a significant disconnect for the UAN markets overall. And we anticipate that those prices have to come back up and that differential in economics prevail ultimately, where people will think from an economic perspective around how they move the product.
So, that coupled with the fact that we've seen gas prices in Europe really increased markedly, tripled since middle of this year despite UAN remaining flat since the middle of this year in the US, there is a disconnect, and also the euro strengthening. I mean, there is significant - I think, push from a supply side perspective as well as the demand pull perspective to suggest that UAN should start trading at more reasonable levels relative to where fundamentals and prevailing economics should dictate.
Tom Wrigglesworth
Okay, great. Thank you very much.
Very helpful.
Operator
Thank you. Your next question comes from the line of Lisa De Neve from Morgan Stanley.
Please go ahead. Your line is now open.
Lisa De Neve
Good afternoon, all. So, yes, first congratulations on your operational performance this quarter.
I have three questions. One short one on - the first one on tax.
I mean, may I just start with that one first and you can answer and I can ask you second question. So, very topical with the elections.
If there were to be a change in the U.S. tax policy, how would this affect your tax rate going forward?
Hassan Badrawi
Well, as per our previous guidance, we've - as you know, we've - our guidance is to continue to have a very low cash effective tax in the future in line with historical years. I think for the US context, it's a good question, because we are - between our operations in Texas and Beaumont and IFCo, we have north of $1 billion of NOLs that can be indefinitely carried forward.
So, we - really nothing in the medium-term that would impact us in terms of U.S. tax policy.
So, we continue to see that. Also worth highlighting that in Egypt a few days ago, I think almost a week ago, the Egyptian Parliament passed a new law to reintroduce free zone status for certain sectors, fertilizers as mentioned.
So, it's wait and see, see how that will manifest [indiscernible] which exact companies will be included, but there is a good possibility there that our Egyptian operations again get sort of a perpetual cover from tax - from income taxes going forward, but that's something to be - was yet to confirm. So, overall, I think we continue to have a good handle on keeping low taxes in the future.
Lisa De Neve
Great. And then another sustainability question for you related to the European Green Deal.
So, European Commission has some very ambitious - let's say, ambitious agricultural targets to reduce fertilizer consumption by 20% by 2030, but has yet to set out any sort of targets on how this is to be achieved. Now, how do you see a 20% reduction in fertilizer consumption possible in Europe?
And how are you planning to respond to this European request?
Ahmed El-Hoshy
Yes. I mean, it's a good question.
This - it's something obviously we've been focused on. We have a couple of case studies in one or two member states to focus on, but ultimately the nitrogen is going to get in the ground.
So, the use of products like urea inhibitors as well as maybe potentially more nitrates demand could help achieve that. I will say that obviously, and you saw that we ratified a policy at the Board following recent events in the last few months, to take a strict policy to not produce ammonium nitrate, obviously, whether it's insurance and just overall having that tail risk is something that we didn't want to be involved in.
We haven't done anything with ammonium nitrate as a product, it does have some advantages from emission perspective, but we think that, as a product, it has significant disadvantages on that tail risk about being to - about ensuring that downstream users appropriately take all the safety mechanisms. So, I think there is a little bit of a push that could be helpful for products like UAN, like CAN as good beneficiaries of potentially reducing emissions over time, local missions of ammonia, as well as having a safer fertilizer base to provide the same nutrients that basically the farmers are going to need to achieve food security globally.
Lisa De Neve
Okay. And obviously, we all know this is very nice rebound in methanol prices and sort of recoveries in sort of the demand side as well the last couple of months, I can say now.
But I was thinking about things a little bit more structurally. I mean, where do you see sort of the largest revenue opportunities of revenue, growth opportunities for methanol over the next three to five years both on the grey side, grey methanol and green methanol?
Thank you.
Ahmed El-Hoshy
Yes. I mean, methanol took a hit like ammonia took a hit and melamine took a hit and industrial urea took a hit all this year.
And so, we've been seeing starting East and now moving Westward the - on a short-term basis, the Chinese industrial machine has kind of turned back on in Q - early Q3, European hitting more of a straight [ph] also in Q3, as well as the US. So, what we've seen is that methanol on the grey side, it continues to find a home and seeing good demand growth on a kind of quarterly basis, not overall year, but on a quarterly basis kind of quarter-over-quarter.
I think we are almost 10% higher in Q3 versus Q2. Next year, we anticipate mid-single-digit methanol demand growth driven by more run rate MTO consumption of methanol as a clean industrial precursor for plastics and other downstream uses of olefins and the formaldehyde acetic acid market continue to grow as well.
Those are good GDP-linked growth drivers in that space. But the other overall one which kind of crossover between green and grey is just methanol as a fuel.
It's a clean burning fuel, it's easy to transport, easy to store like a refined product and it can be on for road transport like what we're doing with biomethanol with ExxonMobil as announced today and other consumers in Western Europe, as well as with green methanol and grey methanol as kind of steps towards getting into that states. And, for example, South - there is a pilot project in India that's been ongoing, a little bit delayed with COVID-19, but potentially having methanol blended with gasoline as a good way to diversify even just economically putting the clean attributes of methanol aside, economically diversify and have a cheaper fuel into the Indian markets.
And a bit more medium to long term as well over the next - maybe on the latter part of your date range there is the marine fuel. At the very least, methanol vessels that carry methanol should be over time converted fully into methanol supply.
And overall, when we think and people step back in the IMO [ph] is taking a look at its carbon targets overall, not just sulfur, which has been the focus through 2020, looking at carbon targets, both methanol and ammonia are very much up there as top contenders with significant attributes on energy density that make them advantaged versus something like a - like hydrogen based, which I think would just be very difficult. And then, with regards to LNG, that also needs to be refrigerated.
It's a very big process to refrigerate it, expensive and it has to be also minus 200 degrees to get LNG liquefied. And methanol, obviously, is quite easy, it's just not much in terms of adjustment relative to a diesel carrier or a fuel oil carrier.
So, a lot of potential kind of green shoots on that side. And even if you're a drop in the ocean just how big of a consumer these vessels are for energy, that could be quite significant on a methanol market that's just touching 100,000 tons a year.
Lisa De Neve
Okay, great. Thanks for that.
Ahmed El-Hoshy
Yes.
Lisa De Neve
Thanks for that.
Operator
Thank you. Your next question comes from the line of Henk Veerman from Kempen.
Please go ahead. Your line is now open.
Henk Veerman
Hi. Good afternoon, gentlemen.
I have three questions, if I may. The first one is about the dividend to non-controlling interests, which was $26 million in Q3.
How much do you expect to pay to non-controlling interests in Q4? And how large is the current dividend accrual to non-controlling interests?
That's my first question.
Hassan Badrawi
Yes. With regard to the dividend, obviously, with the consolidation of the Fertil, there is an impact of incremental leakage that's offset by the access to Fertil's cash flow and, of course, the synergies number.
And we've been talking about how we have been on track with the synergy realization of Fertiglobe that is estimated at north of $50 million, which we're very happy about. And so, there is a little bit of a balance there.
I think we disclosed in the past that our - that we estimate around $140 million of run rate minorities leakage, reflecting basically our structure. It tends to be lumpy at times.
So, I would say, we expect probably to see additional leakage in the next six months, I can't really give you a quarterly estimate. We're also looking at sort of the reason also for the - sometimes the delay in dividends within the JVs and we are also looking at some prepayment of debt in Algeria, which after the recent bond we were evaluating our - sort of our capital structure and our existing debt and we realized that this is the most expensive debt in the system, close to 6%.
So, we are evaluating some prepayment opportunities there balanced against the fact that there is a 30% delta or discrepancy between the stock's official DZD rate in Algeria and the black market's rate with ever dwindling country reserves typically and as you typically have seen in many of these emerging markets, inevitably there tends to be some form of a devaluation and that could actually have a meaningful deleveraging impact on our consolidated balance sheet. So, we're balancing our prepayment of debt to reduce our interest costs on a run rate basis against some - against the potential impact of a devaluation in the future.
But I hope that answers your question.
Henk Veerman
Right. Yes.
Second question would be on the net debt in Natgasoline. I think it's currently about $800 million to $850 million, we yet have to see the Q3 report.
But what is the target net debt in that JV? So, at which point in the future will you start upstreaming cash again in - from Natgasoline to the - to opco?
Hassan Badrawi
I mean, similar to Ahmed's views slight earlier, I mean, really commodity prices have a significant impact on our leverage - on the leverage metrics. And Natgasoline - I mean, the important factor in Natgasoline for us will be to the - also the extraction of dividends.
And I think that is something we have to monitor going forward until typical - the financing in place. We have some reserve requirements that have to be satisfied, after which we're able to extract dividends from that company.
So, we - of course, with the improvement of methanol prices that we've covered quite extensively in this announcement and with the sort of positive trajectory there, we hope that we can - later next year can start looking at potential extraction of dividends from Natgasoline.
Henk Veerman
Okay. But the last time you paid out a dividend was the net debt was about $800 million something, so - I mean, if you have, let's say, a good - a couple of good quarters in Natgasoline, should we already expect a dividend, let's say, end of 2021 for example?
Or will you prefer delevering in that JV?
Hassan Badrawi
Based on the existing trajectory, it's possible to see maybe a little bit later than that, but we are just about around there.
Henk Veerman
Okay, yes. My last question would be on the - I mean, in the press release you state explicitly that you are looking to - for further sort of optimization of the capital structure and simplifying the capital structure.
I mean, you're - the maturity of your debt is now a couple of years out. Are there any like obvious changes or obvious actions into, let's say, the next 12 to 18 months to further optimize your capital structure?
Can you maybe illustrate that sentence that you made in the press release then?
Hassan Badrawi
I mean, we just completed - as we really - we just - as I mentioned, we just completed a pretty sizable bond issue. That went super well and helped us reduce our cost of debt at N.V.
combined with the Fertiglobe refi, which was a little bit further simplification because of those [ph], we got rid of some legacy structure that were highly restrictive, more restrictive and now given us better access to cash flow in Fertiglobe on a quarterly basis. And I think going forward, there are some things we can do to further simplify.
The direction of travel is to sort of take that upstairs N.V. level and hopefully, in doing so, not just simplify, but also achieve further interest savings.
We haven't identified specific projects yet, but I mean - I think it's pretty evident what's still out there that we can possibly look at. But the direction of travel is definitely to further consolidation of [indiscernible].
Henk Veerman
Okay. That was very helpful.
Thanks, guys.
Operator
Thank you. Your last question comes from the line of Frank Claassen from Degroof Petercam.
Please go ahead. Your line is now open.
Frank Claassen
Good afternoon Frank Claassen, Degroof Petercam. Got one question left and that is on DEF.
How are you seeing the current price in competitive environment in the US? And when do you see room to ramp up to your maximum capacity of 1 million tons in Iowa?
Ahmed El-Hoshy
Hi, Frank Claassen. It's a good question.
I mean, obviously, we've been pleasantly now happy to see the recovery here in Q3 with some of the record setting volumes we've seen in the market. And what's been a big driver of our ability to do more volumes even out of levers, the N-7 platform, because now we have four plants between our North Dakota, Beulah facility, two facilities that we now manage for Dyno Nobel in the Northwest as well as our existing Weaver facility.
So, we've quickly grown market share in DEF and we're happy to see the volume ramp up there. And just by definition, we've seen market share go up because imports do not make sense for imports to come in because DEF continues to be priced off of NOLA.
So, like I was saying previously on where our UAN import is supposed to come and also some of these lower priced Arab Gulf urea cargoes going into the US on contract, you're getting in a place where kind of economics prevail. So, DEF continues to grow.
This year had a bit of a slowdown with what happened in Q2, but we're seeing that next year we should see the annualized recovery of the truck volumes, more trucks moving over, higher dosing rates in SCR, driving demand growth for DEF next year. And from a supply perspective, imports which paid a big part of that just aren't incentivized to come anymore because you're linking it to NOLA, which is the lowest urea price globally.
So, DEF is priced off of NOLA urea and it gets a premium to NOLA urea and that premium varies based on customers and location. But ultimately linking what is something that is not in the fertilizer space to NOLA urea has the detrimental effect from a supply perspective of crowding out a lot of imports from coming in.
So we think overtime, the market's supply-demand balance looks tighter on DEF going into next year. And our volume; how much we take of that, we ask about our capacity of a 1 million tons, will depend on ultimately what opportunities are there versus the fact that our big production facility as Weaver in the United States has flexibility to produce more products, three of which outside of DEF are in the Midwest, so benefits from the Midwest premium.
So, we have to evaluate in terms of our product mix how much goes into DEF relative to that and just the netbacks when we decide how much to contract for next year.
Frank Claassen
That is very helpful. Thank you.
Ahmed El-Hoshy
Thank you.
Operator
We have no further questions from the phone lines. [Operator Instructions] Please continue.
Ahmed El-Hoshy
So, there are no more questions? Operator?
Operator
We have no further questions. Please continue.
Ahmed El-Hoshy
Okay. So, thank you.
Thanks everybody for joining this call. We appreciate your time.
Stay safe, and we look forward to the next discussion.
Hassan Badrawi
Thanks, everyone.
Ahmed El-Hoshy
Thank you.
Operator
Ladies and gentlemen, that does conclude our conference call for today. Thank you for participating.
You may now disconnect.