Sasol Confirms Higher Cost for Lake Charles Chemical Project

Researched by Industrial Info Resources (Sugar Land, Texas)--Sasol Limited (NYSE:SSL) (Johannesburg, South Africa) says the cost of its Lake Charles Chemical Project will be $2.1 billion more than what it anticipated in October 2014. The cost estimate now stands at $11 billion and includes expenditures for site infrastructure and utility improvements, according to Sasol.

The project consists of a 1.5 million-ton-per-year ethane cracker and six downstream units, including low-density polyethylene and linear low-density polyethylene units and an ethylene oxide/ethylene glycol plant. The three downstream units will consume about two-thirds of the ethylene produced by the cracker. The other three smaller downstream units will produce specialty alcohols, ethoxylates and other products.

Sasol originally warned of a potential price increase in June, when Sasol CEO David Constable said, "Eleven billion dollars is an extremely comfortable number for us, and we are pushing it in a downward direction." For additional information, see June 9, 2016 article - A Tale of Shell and Sasol: The Ups and Downs of the U.S. Ethylene Wave. However, circumstances dictated that the company couldn't rein in costs enough to put much of a damper on the anticipated price increase for the project.

Reasons cited for the cost increase include:

• "a significant increase in site and civil costs" due to more ground works being necessary because of poor subsurface conditions and 50% more weather delays than expected in the original final investment decision
• an increase in contractor wage rates and contractor engineering hours
• an increase in labor costs, in part due to a "change to a higher-skilled and thus higher cost crew mix to enable planned labor productivity improvements for the remainder of the project"

Sasol says that as of June 30, the company had spent $4.8 billion on the project, and overall completion was around 50%. The project remains on schedule to have the major units completed in 2018. The first unit planned to come online is the linear low-density polyethylene unit, which is expected to begin beneficial operation in the second half of 2018, followed by the ethane cracker, ethylene oxide and ethylene glycol units and the low-density polyethylene units, resulting in the overall plant producing 80% of the total output by early 2019. The remaining units will achieve operation in the second half of 2019.

Sasol had originally planned for all units to come online in 2018, but was forced to push back the completion date for some of the smaller units in April, as the company faced a 59% drop in after-tax profits for the first half of its 2016 fiscal year due to low oil prices. For more information see April 15, 2016, article - Sasol Maintains Timing for New Louisiana Ethane Cracker, Pushes Back Some Derivatives Units.

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