Although it confirmed in October that it is moving full-speed ahead with its $8 billion ethane cracker in Westlake, South Africa-based Sasol confirmed what many have feared since the oil price nosedive: The international energy and chemicals company is delaying its $14 billion plant that would convert natural gas into diesel and other liquid fuels.
The plan to shelve at this time the gas-to-liquids export facility near Lake Charles, potentially one of the largest foreign investments in U.S. history, came in a press release Wednesday, part of what the company says is a strategy to conserve cash in response to lower international oil prices:
As a result of the ongoing capital investment reprioritisation exercise, Sasol has decided to delay the final investment decision on its large-scale, gas-to-liquids (GTL) plant in Louisiana. The timing of the decision will take into consideration progress made with the execution of the Company’s world-scale ethane cracker and derivatives complex, prevailing market conditions and other strategic investment opportunities.
For GTL projects to make economic sense, there needs to be a substantial difference between the price of oil, which has plummeted from more than $100 a barrel to about $45 a barrel over the past seven months, and natural gas, which also has fallen recently to $2.87 per thousand cubic feet. Natural gas was at $3.60 per mcf when Sasol announced the project in late 2012 and oil was about $94 a barrel.
Making clear that it has not abandoned the GTL project, Sasol said the company is evaluating the possibility of phasing it in. “Albeit at a much slower pace, we will continue to progress the U.S. GTL facility. This will allow us to evaluate the possibility of phasing in the project in the most pragmatic and effective manner. North America and our home base in Southern Africa remain strategic investment destinations for Sasol,” David Constable, Sasol’s president and CEO, said in the press release.
Louisiana Economic Development Secretary Stephen Moret, who appears to be trying to remain optimistic about the GTL project, says in an emailed response to ABiz that even without it “Louisiana’s manufacturing investment outlook continues to be outstanding.”
Moret anticipates more than $62 billion in manufacturing investment will be completed in Louisiana, a figure that excludes Sasol’s second phase. “Similarly we continue to expect the creation of more than 91,000 new jobs from economic development projects announced since January 2008,” he says.
Moret also points out that the GTL plant wasn’t projected to move forward for another two years anyway, so a delay with that phase will have a limited job impact on the state in the short term.
“For several weeks, we have been evaluating the potential impact of a significant reduction in oil prices on previously announced energy-related manufacturing projects as well as prospects currently in our business development pipeline,” Moret says. “Based on that review, which included conversations with many companies, we expect the vast majority of previously announced manufacturing projects to proceed even at the current oil price level."
He also hinted that several more major announcements should come later. We have been very conservative in reporting project totals [in terms of total capital investment and jobs] because we know things can change from time to time with companies due to market fluctuations.”
Sasol’s announcement is a potential bump in the road for the unprecedented industrial expansion underway in the state, according to Moret, but it does not diminish the overall outlook — certainly not yet. “There are literally tens of billions of other energy-related projects that have been announced or are underway in the southwest Louisiana area, including but not limited to Lake Charles, with the biggest numbers associated with LNG export facilities, such as Cheniere [$18 billion, currently under construction] and Sempra [more than $6 billion, which recently broke ground]. BG/Energy Transfer also has a planned, roughly $9 billion LNG export terminal in that area. There are a bunch of big chemical industry expansions in various stages of development there, as well.”