Sasol ethane cracker and derivatives complex, US

6th February 2015

  

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Name and Location
Sasol ethane cracker and derivatives complex, Louisiana, US.

Client
Sasol.

Project Description
The project proposes the development of a world-scale 1.5-million-ton-a-year ethane cracker and derivatives complex near Lake Charles, in the southern US state of Louisiana.

About 90% of the cracker’s ethylene output will be converted into a diverse slate of commodity and high-margin speciality chemicals.

The complex will also include six chemical manufacturing plants.

Once commissioned the petrochemicals complex will almost triple Sasol’s chemical production capacity in the US.

Value
The complex is estimated at $8.9-billion.

An additional $800-million will be invested in infrastructure and utility improvements, as well as land acquisitions.

Duration
Sasol expects that the facility will achieve beneficial operation in 2018.

Latest Developments
South African energy and chemicals group Sasol insists that it has “stress tested” the $8.9-billion ethane cracker and derivatives complex it is building in the US against several parameters and that the project’s economics remain “robust, even under extreme scenarios”.

Speaking to investors during a site visit to the Lake Charles facility in Louisiana, acting CFO Paul Victor acknowledged that the project could not achieve the group’s internal rate of return dollar hurdle rate of 10.4%, even at $80/bl.

However, he stressed that the oil price was but one factor underpinning the project’s economics, with ethane feedstock prices, which were currently depressed, also having a major effect.

Sasol remains convinced that the project’s long-term fundamentals – including access to competitive and reliable ethane feedstock, arising primarily from the expansion of America’s shale gas industry – remain intact.

Therefore, the 1.5-million-ton-a-year cracker, together with an aspiration to develop Lake Charles into an integrated, multi-asset site, similar to its Secunda complex, in South Africa’s Mpumalanga province, will receive priority treatment in the upcoming review of the group’s capital expenditure (capex) portfolio.

The review was formally initiated in January in response to the fall in international oil prices and is being premised on oil prices remaining “lower for longer”.

It will target cash savings over a 30-month period that will be additional to the R4-billion in sustainable cost savings that Sasol has committed to by 2016. The JSE-listed company intends securing the fresh savings from “capital portfolio phasing and reductions, capital restructuring, working capital improvements, margin enhancement and further fixed-cost reductions”.

Victor has said that it is premature to provide details on what the response plan could mean for Sasol’s capex portfolio, which is expected to increase from R50-billion in 2015 to R65-billion in its 2016 financial year. However, an update will be provided during the company’s March 9 results presentation.

The cracker’s updated price tag is likely to be a major factor influencing the composition of the revised portfolio, particularly with the group’s commitment to a peak-gearing threshold of 40%. Sasol had previously indicated that it would spend R20-billion on the cracker during its 2015 financial year.

Sasol executive VP for international operations Steve Cornell has reported that there could also be some cost benefits for the project, as a result of the weaker oil price, which has resulted in the delay or cancellation of other, mostly upstream, projects in North America.

Describing the timing as “fortuitous”, Cornell indicates that the company is examining various savings, highlighting that its contracting strategy includes a combination of reimbursable and lump-sum contracts.

Likewise, Sasol is pursuing a flexible approach to its feedstock, having secured 70% of the plant’s ethane supply through three- to five-year supply contracts. It is also aiming to secure the balance opportunistically through short-term contracts or through spot-market purchases.

He is also not overly concerned about supplies tightening up in the near term or about the logistics associated with supplying the world-scale cracker: “We’ve got the ethane supply contracted, we’ve got the pipeline capacity to move it contracted and we've got storage at each end contracted.”

Construction of the plant, which has attracted significant incentives from the State of Louisiana, is already under way, with beneficial operations scheduled to begin in late 2017 and for the facility – which will also comprise six downstream plants to add further value to a portion of the ethylene produced – to ramp up to full production by mid-2018. Besides ethylene, the project has been designed to produce a variety of other so-called performance chemicals, which command a market premium.

However, part of the incentive package available is also contingent on Sasol proceeding with a large-scale gas-to-liquids investment at the same Lake Charles complex – a decision Sasol had decided to delay amid the drop in the oil price.

Cornell has expressed optimism, though, that the oil-price environment might well rebound by the time the project begins operating, with Victor indicating that Sasol does not expect the prices to settle at current levels, despite its view that energy prices could remain weaker, which has been the case prior to the recent sharp pullback.

Key Contracts and Suppliers
Fluor Corporation and Technip JV (EPCM).

On Budget and on Time?
Not stated.

Contact Details for Project Information
Sasol director of public affairs (US) Russell Johnson, tel +1 281 588 3027 or email media@us.sasol.com.
Sasol (South Africa) head of group media relations, Alex Anderson, tel +27 11 441 3295 or
email alex.anderson@sasol.com.
Fluor Corporation media relations, Brian Mershon, tel +1 469 398 7621.
Technip public relations, Christophe Bélorgeot, tel +33 1 47 78 39 92 or email press@technip.com.

Edited by Creamer Media Reporter

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