Johannesburg - Sasol chairman Mandla Gantsho last Friday moved to allay shareholder fears about the escalating costs of the company’s Lake Charles Chemicals Project (LCCP) in the US.
Gantsho told shareholders that because the project occupied a strategic position, it would improve Sasol’s competitiveness. The project includes an ethane cracker that will produce 1.5 million tons of ethylene annually.
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The complex also includes six chemical manufacturing plants. About 90 percent of the cracker’s ethylene output will be converted into a diverse slate of commodity and high-margin speciality chemicals for markets in which Sasol has a strong position.
“(The project) occupies a very competitive position in the global ethylene cost curve,” Gantsho said. “It will transform the whole Lake Charles complex where we already have some assets that are operating by the way. That site will be transformed into a multi-asset site that will allow fixed and infrastructure costs to be spread over a number of other products and product lines.”
Sasol said the project would roughly triple the company’s chemical production capacity in the US. Estimated at $11 billion (R155bn), the project is under construction near Lake Charles, Louisiana in the US, adjacent to Sasol’s existing chemical operations.
In August Sasol announced that the costs of the project had escalated by $2.1bn from original estimate at the time of final investment decision in October 2014.
Responding to a question by shareholder, Theo Botha about the cost overruns, Gantsho said: “Despite the cost estimate increases, we as the board still consider the LCCP to be a very important and strategic investment. We believe that the LCCP will return value to our shareholders.”
The project would create opportunities for investment in additional downstream chemicals facilities, said Gantsho.
The ethylene produced in the facility would be used in six downstream plants on-site to produce high-value derivatives such as ethylene oxide, mono-ethylene glycol, ethoxylates, low density and linear low density polyethylene.
Investment
“So when you look at the cost of the project, you have to look at what else is coming up in terms of additional investment,” he said.
Gantsho said the cost overruns were not symptomatic of Sasol’s project execution history. The company had previously executed big projects below cost and ahead of schedule, he said, citing the synfuels progressive expansion project, known as the Secunda Growth Programme and the Mine Replacement Programme, which entailed the replacement of ageing mines.
BUSINESS REPORT