Sasol Ltd. (SOL), the largest producer of motor fuel from coal, will profit from its investment of as much as $21 billion in two new Louisiana plants by producing plastics and chemicals, Chief Executive Officer David Constable said.
An ethane cracker scheduled for operation in 2017 will expand the Johannesburg-based oil and gas company’s production of ingredients for low-density and linear low-density polyethylene, as well as chemicals such as monoethylene glycol, used in antifreeze and polyester, Constable said today in an interview after an investor presentation at the New York Stock Exchange. Another plant will convert natural gas into diesel and chemicals beginning in 2018.
Sasol is trying to lower construction costs after estimates rose in December more than 50 percent to as much as $7 billion for the cracker and $14 billion for the gas-to-liquids plant, Constable said. Plans call for producing 1.55 million tons a year of ethylene in 2017 and two 48,000 barrel-a-day fuel units in service by 2019.
“The capex numbers we gave were feasibility-study numbers,” Constable said. “They’ve got to be taken with a grain of salt. They’re very, very conservative and they haven’t been scrubbed or optimized.”
Sasol expects a final investment decision on the ethane cracker in next year’s second half and a decision on the GTL plant 18 months to 24 months later, he said. The GTL unit will also produce paraffin, a chemical feedstock.
More than 400 trillion cubic feet of U.S. gas can be commercially produced at less than $6 per million British thermal units, Sasol said today in its presentation to investors. The fuel sold today for about $4, with future contracts below $6 per million Btu through 2023, according to data compiled by Bloomberg.
Sasol can produce gas at $4.50 per million Btu through a joint venture with Talisman Energy Inc. (TLM) in Alberta’s Montney Shale, Constable said.
“If you integrate the business models of the GTL and the Montney upstream, you can still beat our hurdle rate at up to $9 per million Btu,” he said.
The company estimates that the GTL plant still offers at least a 10.4 percent investment return if gas rises to as much as $9 per million Btu.
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