Sasol Announces fresh Delays at Lake Charles

13.02.2019 -

The share price of South African energy and petrochemicals giant Sasol has been taking a beating since it announced more delays and another cost increase for its long-planned ethane cracker complex in Lake Charles, Louisiana, USA. On Feb. 8, the paper recorded its biggest one-day drop in nearly three years.

Sasol, which has postponed the project several times, citing rising costs, continues to insist that the hub remains economically feasible. Investors evidently are losing patience, however, as the expected cost has been rising in increments since the group pulled the plans out of the mothballs in 2016 and its board gave the green light.

At the time, Sasol said that costs would likely rise from the initially estimated $8.9 billion to $11 billion, before – four months ago – putting the estimated total forward to $11.3 billion. On Feb.8 it forecast a price tag of up to $11.8 billion, while also adding two months to the start-up date.

The South African group’s biggest-ever project is aimed at shifting its portfolio balance from energy to chemicals. With the start-up of Lake Charles, chemicals are projected to contribute more than 70% to its overall revenue.

With the 1.5 million t/y gas-fed cracker at the starting point, Sasol plans to leverage the abundant shale gas-derived feedstock on the US Gulf to produce 900,000 t/y of polyethylene in two plants turning out 450,000 t/y of LDPE and LLDPE respectively.

Additional output at the complex is planned to extend to 300,000 t/y of ethylene oxide and ethylene glycol, along with about 300,000 t/y of specialty alcohols. Any ethylene surplus is to be sold on the open market.

In its Q4 earnings statement, Sasol attributed the project delays and cost overruns to a number of factors, including excessive rainfall over the quarter, high absenteeism around public holidays as well as additional construction work at the site and "late scope additions” for the cracker as a result of incomplete engineering work.

As the end of December 2018, the group said engineering and procurement activities were substantially complete and construction progress was at 84%. Overall project completion was 94% and capital expenditure amounted to $10.9 billion.

The LLDPE plant was due to come on stream last month, with “beneficial operation” expected in February, about two months behind schedule. Utilities to support the early process units were fully operational by the end November 2018, Sasol said.

Lake Charles was expected to generate EBITDA of $110-160 million in the financial year ending in June 2019, but as a result of the delays Sasol now expects to report a loss of $165-195 million for the period.