Sasol Ltd. is projecting that a Lake Charles facility that will convert ethane into plastics and other products will cost as much as $11 billion—a significant increase over the $8.9 billion originally projected.
Bloomberg reports that Sasol claims high rainfall, increased labor costs and higher-than-expected contract prices have pushed back construction and driven up the projected cost.
The project’s increased price tag comes as the South African-based fuel producer is set for the biggest decline in more than seven years.
Sasol says it expects its fiscal full-year profit to drop by as much as 30%, following a collapse in energy prices that forced it to write down assets by about $760 million.
Headline profit will fall by 10% to 30% in the year through June from $3.28 a share a year earlier, the company says. Analysts had expected a 26% decline to 36.58 rand, according to the average of 13 estimates compiled by Bloomberg.
“The volatile macroeconomic environment, in particular lower crude-oil prices, has had a significant impact on earnings,” Sasol said. The company also reduced its expected returns from a chemicals complex it is building in the U.S. and said construction delays and higher costs will raise spending there by about a quarter.
Sasol delayed a decision on whether to build a gas-to-liquids plant in the U.S., which would have cost as much as $14 billion, but raised the projected cost of the Lake Charles chemicals project to by as much as $2.1 billion.
Sasol has invested $4.5 billion in the Lake Charles complex in Louisiana, with more than 40% of the project completed.
The company expects the ethane cracker to reach “beneficial operation” in the second half of 2018. “The change in the return profiles of the project have caught us a little flat-footed,” Mohamed Kharva, a research analyst at Nedbank Group Ltd., told Bloomberg.“So it’s slightly negative and I think the share price has responded in that fashion.”
