A multi-billion dollar natural gas-to-liquids (GTL) project underway near Lake Charles, LA, since 2012 by Sasol Ltd. has been scuttled.
Following a strategic review of global projects, the South African-based petrochemical giant last Thursday shelved the Louisiana GTL facility, which would have been the largest of its kind in the United States and the second largest in the world after Royal Dutch Shell plc's Pearl plant in Qatar.
As designed, the GTL plant would have produced up to 96,000 b/d. A final investment decision (FID) over the project, which was expected to cost anywhere from $11-21 billion, was put on hold in early 2015.
“While our current GTL assets are generating good returns and cash flows, the value proposition for Sasol to build new GTL projects is uneconomic against a volatile external environment and structural shift to a low oil price environment,” said Co-CEO Stephen Cornell.
However, Sasol’s $8 billion Lake Charles ethane cracker and derivatives expansion is continuing as planned. An FID was issued in 2014 for the facility one month after a wetlands permit was approved by federal officials. Once commissioned, as expected in 2018, the ethane complex would be Sasol’s largest in North America and would triple its U.S. petrochemical production capacity.
“From now until 2022, Sasol will focus on delivery of the Lake Charles Chemicals Project (LCCP) in the U.S. and the production sharing agreement in Mozambique, while extracting further value from our existing portfolio of diversified assets,” said CFO Paul Victor.
“In this period we are targeting an improvement in return on invested capital of at least 2% on our financial year 2017 base. This will be achieved through continuous improvement that will encompass various initiatives across our value chain...
“Beyond 2022, we will focus on building an investment portfolio of smaller to medium-sized organic and inorganic opportunities, in the range of $500 million to $1 billion. This will be directed toward our growth focus areas in specialty chemicals, exploration and production and retail fuels.”
Sasol also has “made an important call on commodity chemicals,” said Co-CEO Bongani Nqwababa. “While we have a solid foundation business in commodity chemicals and the world-scale LCCP under construction in the U.S., the risk profile to execute such projects alone, in the future, is larger than what Sasol wishes to undertake.
“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.”
As part of the strategic review, Sasol also is selling its gassy properties in Canada’s Montney Shale, which it acquired in 2010 as an exploration and production (E&P) play. The gas production was to be used as an option to fuel North American petrochemical projects.
A review of more than half of the global assets found the Montney land today is not core for the company, said Cornell.
“Thus far, the reviews have confirmed that the majority of the company’s assets will be retained and clear improvement actions have been defined for each. The reviews conducted to date did, however, identify the Canadian shale gas asset as being noncore.”
A structured divestment process involving Progress Energy Canada Ltd., its partner in the Montney, is planned.
"The majority of the company's assets will be retained and clear improvement actions have been defined for each," Cornell said. “In developing our strategy, we considered both the opportunities and risks we face, informed by developments in the external environment. It is clear that megatrends influential to our business will result in greater demand for chemicals and energy products in key markets we serve.”
The key megatrends and assumptions that informed the strategic plans were global population growth/further urbanization trends, increased efficiencies and performance in all aspects of business, supported by digitalization and sustained volatility in both oil prices and exchange rates.
“Against this backdrop, our value-based growth strategy is premised on further enhancing our foundation businesses, leveraging our core strengths in specialty chemicals, E&P and retail fuels, underpinned by increased discipline in capital allocation,” Cornell said.
Sasol’s foundation businesses, cash positive at a US$40/bbl oil price, “provide a robust platform for long-term growth and delivery of ongoing value to shareholders.”