Sasol Ltd. (SOL), the largest producer of motor fuel from coal, said it may spend as much as $4.5 billion to build a U.S. plant that would use low-cost natural gas to make ethylene and related chemicals in Louisiana.
A feasibility study on building an ethane-fed ethylene plant, known as a cracker, at a company site in Lake Charles will be completed by June 2013, Johannesburg-based Sasol said today in a statement. The cost of building plants that produce 1 million to 1.4 million metric tons of ethylene a year plus derivatives will be $3.5 billion to $4.5 billion, Sasol said.
Sasol joins Dow Chemical Co. (DOW), Chevron Phillips Chemical Co. and Royal Dutch Shell Plc, among others, who are studying whether to build ethane crackers in the U.S. where the price of gas relative to oil fell to a record low this month. The new crackers, the first to be built in the U.S. since 2001, are poised to be the country’s largest wave of new capacity.
“Strategic growth in chemicals will take full advantage of the natural-gas opportunities along the U.S. Gulf coast,” Chief Executive Officer David Constable said in a separate statement. “The anticipated growth will strengthen Sasol’s overall portfolio.”
Ethane is a component of gas used to make ethylene, the most produced petrochemical and an industry bellwether. New drilling methods are opening up shale formations from Texas to West Virginia, reducing the cost of gas and making the U.S. the lowest-cost ethylene producer outside the Middle East.
Dow, the world’s largest producer of ethylene and polyethylene, plans to spend about $4 billion to construct a cracker near the Gulf Coast by 2017, reopen another in Louisiana and build two propylene plants. Ethylene producers in Europe and Asia, where oil-derived naphtha is the main feedstock, aren’t currently profitable, Dow said yesterday.
Sasol will use “differentiating technologies” to produce products from ethylene competitively at the complex, André de Ruyter, senior group executive of operations, said by phone, declining to elaborate.
It will also enjoy “huge value-add” by building the plant on the same site as a planned gas-to-liquids plant. “It gives us huge synergies to integrate the plants at one site,” De Ruyter said on the conference call. “We already have access to the land and incentives from local government.”
Sasol has started discussions to “potentially divest” its stake in Arya Sasol Polymers Co. in Iran, the company said. Sasol and Pars Petrochemical of Iran, a unit of the state-owned National Petrochemical Co., both own 50 percent stakes in Arya, with a design capacity of 1 metric tons of ethylene.
Further announcements will be made “once sufficient progress has been made on these discussions,” it said. Sasol said in a regulatory filing to the U.S. Securities and Exchange Commission in October that it is reviewing operations in Iran given U.S. and European Union sanctions against the country.
De Ruyter declined on the call to elaborate on the difficulties it may face exiting the business or taking proceeds of a sale out of Iran, saying the information is commercially sensitive. The company is following rigorous processes to ensure it remains compliant with sanctions requirements, he said.
“The indication at this stage is that the sanctions will have no impact on other operations” outside Iran, he said.
Sasol jumped 5 percent to 389.13 rand in Johannesburg, its highest closing price since April 8. The FTSE/JSE Africa All Share Index rose 3.7 percent.
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