Mar 11, 2013
With $21bn capex plan, Sasol is poised to become Louisiana's largest foreign investorBack
Construction|Engineering|Africa|CoAL|Diesel|Flow|PROJECT|Project Management|Projects|Sasol|Africa|North America|South Africa|United States|USD|Chemicals|Crude Oil Production|Energy|Equipment|Flow|Gas-to-liquids|Logistics|Logistics Infrastructure|Oil Market|Products|Lake Charles|US Gulf Coast|Bobby Jindal|Christine Ramon|Infrastructure|Proximity|Louisiana|US Gulf Coast|Diesel
© Reuse this
The group’s market capitalisation current stands at around R263-billion and the three North American projects collectively represent possible capital expenditure (capex) of between R146-billion ($16-billion) and R192-billion ($21-billion), at current rand/dollar exchange rates.
The group is pursuing a $5-billion to $7-billion ethane cracker project in Lake Charles, which is situated near to the US Gulf Coast and within close proximity to existing gas and logistics infrastructure.
A final investment decision on the cracker and downstream ethylene derivatives is expected during the first half of 2014 – the plant could be operational by 2017.
Sasol is also conducting front-end engineering design on two gas-to-liquids (GTL) projects at the same complex, where investment decisions are likely to flow over the coming 18 to 24 months.
The GTL projects would be a first for the US and would involve capex of between $11-billion and $14-billion.
It is currently envisaged that the GTL plants would be delivered in two 48 000 bbl/d phases to produce four-million tons a year of fuel and value-added products, such as waxes and base oils. These plants could be commissioned by around 2020 or 2021.
CEO David Constable says the megaprojects mark a "significant chapter" in the JSE-listed group's efforts to "enhance" its position as an international energy and chemicals company.
He is also sanguine about the perceived threat posed to the GTL projects by the current rise in US crude oil production, stressing that the products produced at the facility would be linked primarily to the international diesel market rather than the oil market.
The funding plan is built on the group’s ability to generate significant levels of cash, primarily out of South Africa, as well as its strong balance sheet, which currently has gearing of 6.6%, which is well below its gearing target of between 20% to 40%.
CFO Christine Ramon reported that, during the interim period to December 31, 2012, R21.4-billion in cash was generated, which was lower than the R22.7-billion generated in the corresponding period during 2011. Cash flow from operations increased 6%, but was offset by working capital charges.
The group also expects to make use of a combination of other capital-raising instruments, including dollar-denominated bonds. On November 7, Sasol issued a $1-billion bond, with a tenure of 10 years and a fixed coupon rate of 4.5%.
The issuance was oversubscribed by 3.47 times and Ramon indicated that further issuances would be timed to “match cash flows” with its “US growth projects”, which could see Sasol approaching the US capital markets later in 2013 or in early 2014.
The South African company, which is the largest producer of fuel and chemical from coal, is assessing ways to mitigate the risks of pursuing the large-scale developments, including the phasing of projects to meet gearings targets and sustain its progressive dividend policy.
Sasol expects the peak capital outflow to be during its 2016/17 financial year and it is already working on ways to mitigate the risk associated with the peak year.
But Constable also stresses that projects are well placed when assessed against the group’s key project parameters of feedstock availability, access to competitive technology and production platforms, the size and attractiveness of markets and the group's capability to execute.
Senior group executive, global chemicals and North American operations André de Ruyter tells Engineering News Online that, besides pursuing the projects in phases, modular engineering techniques will also be adopted. In other words, key plant and equipment will be fabricated and assembled in low-cost territories and shipped to site for erection and commissioning.
The group is also beefing up its internal project management capacity and will also undertake future recruitment in the US once the projects move towards construction and operations – the company already employs around 500 people in Louisiana having acquired operations in Lake Charles some time back.
The support and incentives on offer from the State of Louisiana have also been a factor, with Governor Bobby Jindal having personally visited the Sasol site three times.
By the time the projects are operations, Sasol will be a significantly “different company”, De Ruyter asserts.
“We are going to invest approximately two-thirds of our total market capitalisation, the total value of Sasol, in North America in these three projects. So, the nature of the company will fundamentally change,” he outlines, while stressing that South and Southern Africa will remain a key operational and profit centre.
The importance of South Africa is also emphasised by Constable, who notes that more than 72% of its current capex is being investment in South Africa.
The group will spend R31-billion on capital projects in 2012/13 and a further R35-billion in 2013/14, with more than 60% of that capex destined for South Africa.
“From out vantage point, South Africa is not only our home base, but it is also a great entry point to one of the world’s largest growth areas, [which is Africa],” Constable stresses.
Edited by: Creamer Media Reporter© Reuse this Comment Guidelines (150 word limit)
Updated 11 minutes ago There were delays in the Gautrain train service between Hatfield and Park stations on Thursday morning due to cable theft, operator Bombela Concession Company said. The delays, on the north-south line, were caused by around 300 metres of signalling cable being stolen...
Recent Research Reports
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
Real Economy Insight: Road and Rail 2014 (PDF Report)
This six-page brief covers key developments in the road and rail industries over the past 12 months, including details of South Africa’s road and rail network and prospects for both sectors.
This Week's Magazine
The latest TransUnion Vehicle Pricing Index (VPI) contains a number of small, but significant indications that the tide may at last be turning for the beleaguered used car industry. For the third successive quarter, used car inflation has increased on a year-on-year...
The South African new vehicle market is likely to reach around 630 000 units in 2014, down from the 650 000 units recorded in 2013, says Toyota South Africa Motors (TSAM) president and CEO Dr Johan van Zyl. Van Zyl is also president of the National Association of...
Efforts by the Kenya government to increase energy generation by 5 000 MW over the next three years received a major boost following the award of a $2-billion contract to build a coal power plant in Lamu. Despite allegations of irregular tendering process, the...
Using crafty wordplay on a well-known Internet meme, brilliant South African-born US entrepreneur and businessperson Elon Musk announced that Tesla Motors would not initiate patent lawsuits against anyone who, in good faith, wanted to use its technology. Instead,...
August new vehicle sales declined by 1.4%, to 55 722 units, compared with the same month last year. Assisted by the car rental market, the South African new passenger car market, at 37 953 units, contracted by 1 047 units, or 2.7%, compared with August last year.