Pandemic pushes EBITDA expectations for Lake Charles to a loss
Fire-damaged LDPE unit expected online in Q3 after repairs
Petrotahlil - Sasol has reversed its fiscal 2020 earnings expectations from its vastly expanded Louisiana complex as the global coronavirus pandemic weakened demand and prices in 2020, the company said in a business update Thursday.
Sasol had said its Lake Charles Chemical Project was expected to contribute $50 million-$100 million to the company's EBITDA for the financial year 2020. That guidance has been reversed to a $50 million-$100 million drain on the company's balance sheet for the period "as a result of the decline in oil prices and the COVID-19 global demand reduction," the company said.
That decline in demand prompted Sasol's South Africa operations to initiate a phased shutdown of a refinery, ammonia, nitric acid and chlor-vinyl plants and cut rates by 25% at a synfuels operation. The company has not seen significant impact on industrial chemical demand, and said chemicals production would be prioritized.
The company also said Thursday that an expanded plan to sell assets as part of an initiative to raise $6 billion by the end of 2021 has "yielded good interest" despite economic shocks from widespread shutdowns around the world to stem the spread of the pandemic.
In March, Sasol said the company was exploring the sale of stakes in several new plants at the Louisiana complex as part of its overall fundraising plan. Units for which the company could seek partners include a new 1.5 million mt/year steam cracker that started operations in 2019 and a legacy 464,000 mt/year cracker at the Lake Charles site.
Also included is a 470,000 mt/year linear low density polyethylene plant that started up in February 2019 and a 420,000 mt/year low density PE unit that was damaged by fire during commissioning in January and remains shut for repairs.
LDPE unit to come online in Q3 after repairs
Beneficial operation for the LDPE unit, which Sasol defines as 72 hours of continuous on-spec production, remains on track for the third quarter of the calendar year. Startups of the last new units in the Lake Charles project – a 173,000 mt/year Ziegler alcohols and a 30,000 mt/year Guerbet alcohols facility – are expected to come online in late June, the company said Thursday. Those units had been expected to start up in the July-September period.
"The acceleration of this timeline will ensure that Sasol captures the additional contribution margin above ethylene, given the current low ethylene prices achieved in the market," the company said.
Sasol 's $12.6 billion-$12.8 billion Lake Charles project has experienced lengthy delays and cost increases. In February 2019, the company announced the cracker and derivative units would start up months later than planned because of incomplete engineering work, inclement weather and worker absenteeism, after the cracker and new LLDPE plant had been slated to start up by December 2018.
In 2016, Sasol revised the project cost to $11.1 billion from $9 billion and later to $11.6 billion to $11.8 billion before the final increase exceeding $12 billion.
The company said it was assessing the impact of diminished economic outlooks on value of its assets ahead of wrapping up the fiscal year.
In addition to reduced cost risks of some higher-than-expected inventories, Sasol has increased efforts to cut expenses including suspension of short-term bonuses to employees, a freeze on hiring and "drastic" curtailment of spending on supplier meetings to renegotiate prices and reduced services, the company said.
Sasol also will cut director fees by 20% to 40%; senior executive pay by 20%; and middle to junior management pay by 10% to 15% for up to eight months. CEO Fleetwood Grobler will donate 33% of his salary for three months to a South African fund to combat the pandemic and then 20% from August to December.
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