With lower oil prices, Sasol delays plan for Louisiana plant

AP News
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Posted: Jan 28, 2015 5:26 PM

NEW ORLEANS (AP) — The collapse in world oil prices claimed a casualty in Louisiana's vital energy industry Wednesday when South Africa-based Sasol announced a delay in final investment plans for a $14 billion plant that would convert natural gas into liquid fuels.

The plant near Lake Charles in southwestern Louisiana was expected to create hundreds of permanent jobs. The decision diminishes, for now, some of the much-heralded growth in south Louisiana's energy economy. However, the state's economic development secretary, Stephen Moret, downplayed the immediate significance, noting that construction on the plant was two years away even before the announcement. He added that billions of dollars' worth of other energy projects are proceeding.

"I'm comfortable that this is simply a delay," said House Speaker Chuck Kleckley, R-Lake Charles, who represents the area. "They're looking for predictability and stability out of the oil prices."

Sasol, meanwhile, said construction on an $8 billion "ethane cracker" at its complex near Lake Charles will continue. And the company said it would evaluate the possibility of phasing in the gas-to-liquid plant that would convert natural gas into diesel and other liquid fuels.

Low oil prices have energy companies taking a hard look at all kinds of planned expansions, said Lysle Brinker, equity research director for analytics and information company IHS Energy. A gas-to-liquid project is especially vulnerable, he said, because converting natural gas into other fuels is a complex and costly process. "They're complicated facilities to maintain and expensive to run," he said.

While such facilities would benefit from low-cost, abundant natural gas, their end products would be too expensive to compete with other fuels produced by conventional refineries when oil prices are as low as they are now, he said.

Moret said his department has for weeks been looking into the potential effects of low oil prices on announced projects and prospects for new developments.

"Based on that review, which included conversations with many companies, we expect the vast majority of previously announced manufacturing projects to proceed even at the current oil price level, and we expect to make several more major announcements later this year," Moret said in an email.

Sasol's ethane cracker, which is under construction, will turn a component of natural gas into ethylene, used in the chemical industry. Moret said it is expected to create 500 permanent jobs, with construction jobs peaking at 5,000.

He said construction on the gas-to-liquid plant, which was expected to permanently employ hundreds and lengthen the Sasol construction work, was not expected to begin for two years, "so a delay with that phase will have a very limited job impact in the short term."

Announced energy projects that Moret said are still on course in the region include Cheniere Energy's $18 billion expansion of liquefied natural gas export facilities; more than $6 billion in expansion under way at a Sempra Energy LNG export facility; and a $9 billion LNG export facility planned in a joint venture involving BG Group and Energy Transfer Partners.

Brinkler said liquefied natural gas facilities that are already under construction will likely continue. He noted that producing LNG — cooling natural gas until it is a liquid — is different and less expensive than converting gas into other types of fuels and products. Still, he predicted a slowdown in plans for LNG export facilities while oil prices are low.