Sasol espouses multi-asset virtues of $11bn US project amid cracker rivalry


Sasol espouses multi-asset virtues of $11bn US project amid cracker rivalry

The skyline associated with Sasol’s $11-billion ethane cracker project in Lake Charles, Louisiana, is starting to change fundamentally as the plant’s large steel structures are installed on a portion of the vast 890 ha site, where the South African energy and chemicals group is creating a new multi product chemicals complex.

Even some Gulf Coast locals, who are more than accustomed to large-scale petrochemical and energy projects, are taking a keen interest. After seeing Sasol’s spherical olefin storage tanks on the front page of the September 14 edition of Louisiana daily newspaper American Press, one reader returned the photos together with an image of the sphere-shaped spaceships that featured in ‘Star Wars: Episode II – Attack of the Clones’, questioning whether the company might be connected with the ‘Trade Federation’.

Senior VP of North American operations Mike Thomas, who grew up in close proximity to the Johnson Space Center, in Houston, where his father worked, is so tickled by the analogy that he keeps a clipping of the article in his office. He stresses, though, that the skyline will change even more dramatically over the coming months as more large modules are moved onto site from an improved dock area along an upgraded public-access heavy-haul road, which even incorporates traffic lights that swivel temporarily to make way for tall loads.

While the Lake Charles Chemical Project (LCCP) is 50% complete,

Thomas explains that only 15% of the project is actually constructed, owing to the fact that many of the components have been manufactured at factories in China, South Korea and India and are being shipped to the US for site installation. “So this site is going to change radically over the next two years.”

Likewise, the project’s completion will make a material difference to the look and feel of Sasol as a company, as well as to the scale of its North American operations. The 1.5-million-ton-a-year ethane cracker will treble the group’s US chemical production capacity, substantially raising output of ethylene, polyethylene, alcohols and ethoxylates. It will also consolidate the JSE-listed group’s so-called “dual regional” Southern African/North America growth strategy.

The expansion beyond Southern Africa has not been pain-free, however. As is well documented, the megaproject has encountered a number of difficulties, culminating in Sasol revising the capital budget from $8.9-billion to $11-billion – a figure initially described as a “worst-case scenario” when a project review was initiated in March 2016.

Confirmed in late August, the $2.1-billion upward revision has been attributed to a significant increase in site and civil costs (the result of poorer-than-anticipated subsurface conditions and 50% more weather-day delays when compared with the average norm), as well as a rise in contractor wage rates and labour costs.

The project schedule has also been affected, with the LCCP’s various production units to be introduced in a “staggered” manner between the second half of 2018 and the second half of 2019. Besides the cracker, the project comprises six derivatives units that will produce both base and performance chemicals.

Sasol argues that the multi-asset nature of the project will ultimately differentiate it from six other ethane crackers also under construction on the US Gulf Coast. All these projects are being built to take advantage of the glut of ethane that has arisen as a result of shale-gas production in the US. The LCCP is considered to be part of the “first wave” of such projects, with nine new crackers expected to be in operation by 2022, consuming 670 000 bbl/d of ethane.

The LCCP will consume about 100 000 bbl/d, sourced from suppliers that feed ethane into Mont Belvieu, Texas, a key natural gas liquids hub that currently handles about a million barrels daily. While Sasol expects ethane prices to rise, it remains confident of feedstock availability, having contracted for 70% of its supply and buying the balance opportunistically on the spot market.

Much attention, however, is being paid to market development for the both the commodities, as well as the more specialised products that will be produced in Louisiana.

Executive VP for the chemicals business Fleetwood Grobler says the LCCP’s various polyethylene products will be marketed through Sasol’s established sales networks in Africa, Asia, Europe and South American. In other words, the bulk of what will be produced at Lake Charles from 2018 will be exported out of the US. Once complete, the plant will produce both linear low-density polyethylene, which is used in film applications for food and nonfood packaging, and low-density polyethylene, used in more rigid packaging, such as containers.

In addition, it will also produce speciality chemicals such as alumina and alcohols, used in the production of consumer items such as detergents and personal-care products. Grobler says the market-development strategy for these products requires greater direct customer engagement and that the ramp-up of production will also be aligned with their requirements.

“Our alcohol portfolio is the broadest in the industry,” he asserts, noting, too, that Sasol Performance Chemicals is the only integrated producer of alcohols, alkylates, and surfactants.

The group also has deep experience in operating multi-asset sites in South Africa and is, thus, confident that the model will bolster the competitive positioning of Lake Charles. This, notwithstanding the prevailing pressures associated with introducing a new plant at a similar time to rivals such as Chevron Phillips, ExxonMobil, Dow and others.

Grobler acknowledges that there could be an oversupply of polyethylene between 2018 and 2022. “But we believe that the nature of global demand is such that the market will balance out  . . . and we don’t foresee a prolonged glut.”

The multi-asset model is also suggestive of further incremental expansions at Lake Charles, as has been Sasol’s approach at Secunda, in Mpumalanga. In fact, the cracker project is only taking up a small portion of the additional land acquired, which at one stage was also earmarked for an ambitious gas-to-liquids (GTL) investment.

That project remains a future possibility should the economics for liquid fuels improve in future. However, joint CEOs Bongani Nqwababa and Stephen Cornell have both expressed a desire to expand the contribution of chemicals and have also indicated that there are a number of opportunities for the Louisiana complex besides GTL.

The investments being made into the utilities and other infrastructure on the site are indicative that the LCCP is unlikely to be the group’s last big project at the Lake Charles complex. The immediate priority, though, is to oversee delivery on what has proved to be a challenging project and to do so within the revised cost and schedule parameters. The credibility of Sasol’s dual regional model rests on it.