INSIGHT: Sasol makes progress on its huge bet on shale

29 November 2013 16:37 Source:ICIS News

By Nigel Davis

Sasol at SecundaLONDON (ICIS)--South Africa’s Sasol appears to be making good progress on its significant investment plans in the US, and in proving that its gas to liquids (GTL) technology works effectively.

An investment decision on the Westlake, Louisiana ethane cracker is expected in the middle of next year, the company said this week. The go-ahead for the first planned GTL plant at the same location is likely to be given 18 to 24 months later.

Sasol’s ORYX GTL joint venture in Qatar produced 1.5m bbls of product in the three months to the end of September, Sasol acting CFO Paul Victor said this week in an update to the Johannesburg stock exchange. That is an average 101% of design capacity. The plant is expected to operate at 90% on average in the current Sasol 2014 financial year.

Sasol wants to invest more than $21bn in Louisiana in the US on chemicals and GTL plants, taking advantage of the increased availability of natural gas and ethane from shale. This is a huge bet on shale and the US market for the world’s largest synthetic fuels producer. The investments represent around 73% of Sasol’s current market capitalisation.

Sasol is fracking in Canada but production is constrained because of low natural gas prices.

It is making fastest progress on the 1.5m tonne/year, $5bn-7bn ethane cracker and downstream projects. Downstream from the cracker, Sasol will make LLDPE, low density polyethylene (LDPE), ethylene oxide (EO), mono-ethylene glycol (MEG) and Ziegler and Guerbet detergent alcohols.

Contracts for basic engineering packages and services and for various technologies on the cracker and the planned downstream production units have been agreed. Front-end engineering (FEED) is underway for both the cracker and the GTL plant in the US. Fluor is the main FEED contractor for the cracker. Worley Parsons will manage the project alongside Sasol’s own people.

Separately, a 100,000 tonne/year ethylene tetramerisation unit at its production site in Lake Charles, Louisiana is being commissioned. The project in on budget and schedule, Sasol said.

This is the world’s first commercial unit using proprietary Sasol technology to convert ethylene to 1-octene and 1-hexene, both important co-monomers for linear low density polyethylene (LLDPE).

Sasol currently can produce more than 350,000 tonne/year of the co-monomer alpha olefins. The plant will be part of the company’s olefins & solvents (O&S) reporting group rather than part of its Solvents division.

The US investments have the potential to underpin profitability in olefins & surfactants and in polymers for the group.

Sasol’s US operations currently are the company's cost leaders in chemicals benefitting from low US ethane prices.

This is certainly true in Olefins & Surfactants (O&S) where the European businesses are under pressure from reduced volumes and lower margins.

Sasol said its co-monomers portfolio had been transferred to O&S from Solvents on 1 July this year. That helped lift production and sales volumes O&S in the first quarter of the current financial year (the July to September quarter).

Generally, however, stronger ethane-led margins in the US helped lift gross margin for the division and compensated for the impact of weaker volumes in Europe.

Sasol is losing money in its Solvents business in Germany, where a restructuring is underway, but earlier restructuring had helped lift margins in the first quarter.

Margins in the South Africa Polymers business are also being squeezed. “We anticipate the operating loss for the full 2014 financial year to be around ran (R) 800m ($79m) in the current financial year, from a loss of R1,785m in fiscal 2013, Sasol said.

Sasol’s Polymer business sales prices were higher during the quarter, but only as a a result of US dollar based prices and the weaker rand to dollar exchange rate.

Average sales production and sales volumes were up 2% and 1% respectively, he added.

Sasol’s 48,000 tone/year ethylene purification project, which raises ethylene production for the polyethylene plants downstream from the firm’s coal-to synthetic fuels production facilities in South Africa, was producing on 18 October.

Victor said that Sasol’s R1,300m C3 stabilisation project at the giant Secunda coal processing complex will “achieve beneficial operation during in the middle of the 2014 calendar year”.

The project is designed optimise the use of propylene rich feedstock at Secunda and avoid the flaring of 10,000 tonnes/year of propylene by linking the complex’s Synthol Fischer Tropsch reactors, propylene extraction units and downstream chemical plants more effectively.

($1 = R10.19)

By Nigel Davis