Methanex still optimistic on Chilean gas prospects

* Increased Chile output would ease dividend pressure

* Egypt plant may help methanol industry avoid pirates

By Allan Dowd

VANCOUVER, British Columbia, May 5 (Reuters) - Methanex Corp. (MX.TO) is not worried about a study saying the Lago Mercedes natural gas field off southern Chile is not commercially viable, its chief executive said on Tuesday.

Methanex has been looking for natural gas supplies in Chile to replace Argentine gas to which the company has access. That has forced its low-cost Chilean methanol plants to work at about 30 percent of capacity.

A study published last week warned the Lago Mercedes field being developed by the Chilean state oil company ENAP is not viable at current gas prices because it requires a $100 million infrastructure investment to deliver the gas to land.

Chief Executive Bruce Aitken said offshore areas where Methanex is working with ENAP are closer to a pipeline that is already in place to carry gas from Argentina to Methanex's facilities.

"Infrastructure is not an issue for the projects where we are spending most of our efforts," Aitken told Reuters after the company's annual meeting in Vancouver.

Methanex, the world largest producer of methanol, has also talked with other companies exploring the area on how they can pool efforts to develop the needed pipeline systems and reduce costs, he said.

Increasing production at the Chilean plants would make it easier for Methanex to maintain its quarterly dividend, which is currently at 15.5 cents per share.

The company says its top priority during the current economic slowdown is to maintain a strong balance sheet for strategic investments, and that could require the dividend to be cut.

"When we set the dividend we had in mind Chile operating at a much higher rate. Today is it operating at about 30 percent, and if we were able to operate as 60 to 70 percent clearly the cash flow out of that would help us sustain a higher dividend," Aitken said.

Methanex said construction remains on schedule for its new methanol plant in Egypt, which is schedule to begin operation in early 2010.

The plant will supply customers in Europe so the pirate activity off Somalia will not be a problem, and could also end up aiding other methanol producers that do have to send tankers through the area, Aitken said.

"We would give them ethanol in Egypt and they would give us methanol back in the Arabian Gulf. Here is a way of avoiding the pirates altogether," he said.

(Reporting by Allan Dowd; Editing by Frank McGurty)