S Africa Sasol moves away from megaprojects, raises budget for US Lake Charles complex

LONDON (ICIS)–Sasol is to move away from large-scale capital projects in favour of smaller investments, as the impact of stormy weather in the US leads to the latest increase to the cost of its flagship Louisiana petrochemicals complex, the CFO of the South Africa-based company said on Thursday.

Following the cancellation of its Louisiana gas-to-liquids (GTL) project, which had been expected to cost up to $15bn, the company is to focus on capital projects with a price tag of between $500m and $1bn for the foreseeable future, focusing on specialty chemicals, retail fuels, and oil and gas exploration in western Africa.

“We have taken on board the lessons of capital investment… larger projects are not within our immediate focus” said company CFO Paul Victor.

The company may return to more large-scale investment “once we have a sufficient track record through these small and medium-sized projects,” he added.

Despite the cancellation of the Louisiana GTL after years of putting off a final decision, Sasol remains committed to its flagship Lake Charles petrochemicals complex under development in the state.

The need to ramp up capacity and deliver cashflows from the project is “critical” to its 2018-22 financial targets, according to Vickers.

A spate of hurricanes and storms in the region has raised the estimated cost of the project further from original estimates of $9bn, according to the company. The impact of Hurricane Harvey led to an additional $130m expenditure, raising the projected cost of the project to $11.13bn, after a $2bn upward revision in 2016.

The Lake Charles complex project is 79% complete, with $8.1bn invested so far excluding exceptional items, according to Sasol, with the first units expected online in the second half of 2018. The cracker and derivatives facility is expected to produce low- and linear low-density polyethylene, ethylene oxides and glycols, along with specialty alcohols.

The company will be reluctant in future to invest in further new greenfield chemicals capacity on the scale of the Lake Charles development without a co-investor, to reduce the risk of such large investments according to joint CEO Bongani Nqwababa.

“While we have a solid foundation business in commodity chemicals and the world-scale [Lake Charles project] under construction in the US, the risk profile to execute such projects alone, in the future, is larger than what Sasol wishes to undertake,” he said.

“Such investments in feedstock-advantaged locations may still be considered, but we will not entertain wholly-owned investments in similar mega-projects, such as the LCCP, going forward,” he added.

Earlier on Thursday, Sasol announced plans to sell off its Canada shale assets, deeming the portfolio non-core, with a structured divestment programme to commence involving project partner Progress Energy.

The decision, and the move to discontinue the Louisiana GTL project, follows a review of over half of the company’s global assets. The cancellation of the GTL project was driven by the market volatility and prevailing low oil prices.

(re-leads, adds CFO comment, updates throughout)

Pictured: Lake Charles petrochemical complex
Source: Sasol

Additional reporting by Nurluqman Suratman