Yet another large energy company has shifted its focus from capital spending to savings because of the increasingly low price of oil. Sasol Ltd. of South Africa is reassessing its plan to invest in building a large gas-to-liquid (GTL) facility worth up to $14 billion in Louisiana.
Already, Sasol has a broad program to save $347.3 million by 2016, and it said in a statement on Jan. 28 that it wants to save more, targeting the GTL complex that would turn natural gas into liquid fuels. It would be situated in Westlake, La., on the shores of Lake Charles.
In 2013, the GTL facility was estimated to cost between $11 billion and $14 billion to build. It was to have been sited next to an $8 billion unit known as an ethane cracker, which would convert ethane into ethylene needed to manufacture chemicals used for auto antifreeze and plastic water bottles. Related: U.S. Shale Boom May Come To Abrupt End
Construction of the ethane cracker was approved in October 2014 and a final decision on the GTL plant was expected by 2017.
Sasol's decision to delay a final decision on investing in the GTL facility doesn't mean the project is dead, however. "Albeit at a much slower pace, we will continue to progress the U.S. GTL facility," Sasol CEO David Constable said in the statement. "North America and our home base in southern Africa remain strategic investment destinations for Sasol."
In fact, Sasol intends to go ahead with the construction of the smaller, less-expensive ethane cracker. In doing so, the company said, it could develop a better idea on whether to proceed with the larger, costlier GTL project. "This will allow us to evaluate the possibility of phasing in the [GTL] project in the most pragmatic and effective manner," the company's statement said.
This isn't the first time an energy company has reassessed or outright abandoned an investment strategy in response to the steep drop in the price of oil since June 2014. For example, on Jan. 14, Royal Dutch Shell and Qatar Petroleum dropped plans to build a $6 billion petrochemical plant in Qatar because of the uncertainty caused by the low price of oil. Related: The Cure For Low Oil Prices Is Low Oil Prices
And GTL projects in Louisiana haven't been immune to such cancellations. In 2013, even before the drop in oil prices, Shell decided not to proceed with plans to build a $20 million GTL plant capable of producing 140,000 barrels of liquid fuels per day. The project didn't survive an assessment by Deutsche Bank, however, which reported at that time that the initiative was both too risky and expensive.
Sasol's response to the low price of oil was to announce last year that it planned to save nearly $350 million by 2016 and to find ways to save even more cash over the next 30 months, a strategy approved by Abdul Davids, the director of research at Kagiso Asset Management Ltd. in Cape Town, South Africa.
"The decision to delay the final investment decision should be commended," Davids told Bloomberg Business in an e-mail. The GTL plant would not be viable at current oil prices, he said, but "the ethane cracker would still be viable, albeit with much lower returns."
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com More