In a global economy where change is the only constant, the decision by Sasol to scrap a much bally-hooed energy project in Louisiana is a case study in how fluid the marketplace can be. Sasol, a South African company, planned to build a facility near Lake Charles to convert natural gas to liquid petroleum products like diesel. But when the price of oil went south, so did Sasol's ambitious plan to spend up to $15 billion in what had been described as the largest plant announcement in state history.
The company has officially pulled the plug on the plan, although it had been on hold for a while.
This was not one that got away, in the sense that there was nothing that the state or other levels of government could do about this decision. It was simple economics.
"Sasol's decision not to build a GTL facility in Louisiana is a reflection of market conditions. We have surmised, since the company indefinitely delayed the project nearly three years ago, that today's low-cost energy environment is not conducive to an expensive investment in gas-to-liquids technology," said Don Pierson, the state's top industry-hunter.
The wide spread between the price of today's very cheap natural gas and higher-priced oil was the market inspiration for such big GTL projects.
Sasol announced plans for its complex in 2012. At the time, the price of oil averaged $94 per barrel and natural gas was around $2 per thousand cubic feet. But Sasol has been delaying a final investment decision on the GTL plans since January 2015 because of much lower oil prices.
It was not the only one: Royal Dutch Shell canceled a proposed Ascension Parish plant in 2013 after its projected cost of $12.5 billion quickly ballooned to more than $20 billion.
The Sasol investment in Westlake near Lake Charles was to total about $25 billion. Now, the company is seeking to finish its $11 billion investment in an ethane cracker about 80 percent complete. It will "crack" natural gas into smaller molecules to make ethylene. Ethylene is used to make products such as detergents, lotions, cleaners, packaging, paints and adhesives.
Sasol is still a huge investor in Louisiana, and we welcome the company's commitment to its existing plant. Most places in the United States would celebrate an $11 billion industrial facility, after all, as a huge economic win.
The state's investment in these projects is controversial these days. Sasol, for example, was to receive about $200 million in state dollars for various incentives.
What the announcement means is that incentives aren't as important as politicos seeking credit for these plants would have people believe. Market conditions and prices are in the driver's seat....Read more