South African energy and chemicals producer Sasol is gearing up for a $20-billion, multiproject investment into North America over the coming years, which could result in the development of a $14-billion Secunda-type complex in the southern US state of Louisiana.
CEO David Constable indicates that the group is “driving North American opportunities” in a bid to take full advantage of the natural-gas opportunities along the US Gulf Coast through the production of both liquid fuels and chemicals.
In total, the investment, which would be focused at its Lake Charles complex, in Louisiana, could eventually result in the production of about 6.5-million tons of fuels and chemicals yearly. That would be of a similar scale to Sasol’s giant Secunda complex, in Mpumalanga, which is currently the world’s largest producer of fuels and chemicals from coal and gas, with an output of around 7.5-million tons a year.
The plan involves deploying Sasol technology, including the group’s proprietary gas-to-liquids (GTL) offering, to exploit the “arbitrage opportunity” that has emerged between rising oil prices and falling US gas prices – a phenomenon that has accompanied the country’s shale-gas boom.
The oil price is currently trading about $110/bbl, while the Henry hub natural gas price has fallen to below $3/MMBtu and Sasol is of the view that the price is unlikely to recover beyond $5/MMBtu over the medium term.
“We will seek to take final decisions on key projects in the current financial year,” Constable says, making specific reference to plans for an integrated GTL and chemicals facility, as well as a world-scale ethane cracker, at Lake Charles, where Sasol has already purchased large tracts of land and is in the process of acquiring more.
The plan is receiving strong support from Louisiana Governor Bobby Jindal, who has personally visited Sasol’s existing operations on three occasions.
Newly appointed global chemicals and North American operations senior group executive Andre de Ruyter tells Engineering News Online that the group has a portfolio of four major projects, which it is currently pursuing.
A key project is a 1.3-million- to 1.5-million-ton-a-year ethane cracker and downstream derivatives venture.
The project, which could begin producing by the end of 2016, will involve an investment of between $3.5-billion and $4-billion on a site near to Sasol’s existing facilities in Louisiana.
“We are looking at producing a suite of different derivatives,” De Ruyter, who took responsibility for the North American project pipeline on July 1, explains.
The group’s technologies, he argues, allow it to compete in a jurisdiction dominated by super majors. “These enable us to play in a different market than some of our major competitors.”
The JSE-listed group is also pursuing two 48 000 bl/d GTL plants for Lake Charles, which together could involve an investment of up to $10-billion. It is hoping to begin production in around 2018.
The reactor itself is the same size as the one that has been deployed at the Oryx joint venture (JV), in Qatar, but “we have improved our catalyst and reactors internals”.
The flagship Qatari GTL plant, which experienced initial teething problems, is now consistently producing above design capacity of 32 400 bl/d and recorded an operating profit of R1.9-billion in 2012, up from R1.2-billion in the prior year.
“We are also looking at potential chemicals value-additions out of our GTL proposition . . . technology now allows for the extraction of that along the lines of a Secunda model,” De Ruyter explains.
A major distinction with Secunda, though, is the fact that the Lake Charles complex will not be backward integrated, with Sasol planning to buy-in gas from the numerous producers in the region.
“You could ask yourself the question, what would our coal procurement strategy be for Secunda if there were 50 coal suppliers all right there with conveyor belts leading up to your factory. That’s essentially the situation that we have with gas supply in the US: there is an abundance of gas and there are reliable suppliers.”
But De Ruyter emphasizes that Sasol also has its own gas resources in Canada, which will give it a “cover ratio” to provide for up to 70% of the total gas consumption in Louisiana.
“You don’t want to be 100% backward integrated, though, because that erodes the value proposition of playing this arbitrage game,” he adds, noting that the economics of the projects are based on gas prices closer to $5/MMBtu or $6/MMBtu. “But we believe that the disconnect between gas and oil will be there for some time.”
The feasibility studies should be completed during the current calendar year, and decisions will probably be made on front-end engineering design (FEED) in either November or December.
The FEED process, as well as the environmental approvals, will be pursued over an 18- to 24-month period, whereafter Sasol plans to move to full execution.
The group is also moving ahead with plans for a GTL facility in Alberta, Canada, based on shale gas assets it shares with Talisman Energy.
Work is proceeding notwithstanding a partial impairment of R964-million related to its Canadian shale-gas assets and Talisman’s decision that it will not exercise its right to participate in the FEED phase of the project.
The feasibility study to determine the technical and commercial viability of a GTL plant was completed by the end of June and Sasol will make a decision on whether or not to proceed to FEED in the second half of the 2012 calendar year.
Outside of North America, the Uzbekistan government has begun with the development of the support infrastructure around the proposed site for a GTL joint venture. The FEED activities, which started last year, are expected to be completed during the second half of the 2013 calendar year.
Constable also stresses that the decision by the South African government to lift the moratorium on shale-gas exploration will offer the group an opportunity to “evaluate the potential of producing large quantities of shale gas in an environmentally-friendly fashion in South Africa”.
“[But] the majority of our volume growth in the next eight years is expected to come from North America,” Constable avers.
He acknowledges, too, that many of its competitors are also positioning themselves for the opportunities presented by the surge in gas production, but argues that Sasol has established an “early mover advantage” on key projects in the Lake Charles area.
“For many countries, including the US, in-country conversion of atural resources into higher-value products not only improves energy security, but also improves the country's economy.”
Should the Louisiana projects proceed as planned, Sasol estimates that it could create between 7 000 and 9 000 jobs.