Sasol walks out on a $13-$15 billion Gas-To-Liquid project

Sasol has walked away from what could have been considered ‘the biggest investment done abroad by a South African company’ with its decision to discontinue all its Gas-To-Liquid (GTL) greenfield projects.

Previously, the African petrol chemicals group had delayed its final investment decision on the project, for which the company attributes the cause to low oil and gas prices. However, Sasol’s decision to pull the plug on all its greenfield’s project including a U.S deal worth $13 – $15 billion comes as  a big blow.

Another of  Sasol’s investment withdrawal include its Canadian shale gas assets which  hit 9.9 billion rand, an equivalent of $715 billion dollars in its 2016 earning.

When South Africa was still subject to sanctions under apartheid, Sasol pioneered the conversion of coal to fuel. According to the company, there was no need to boost its crude oil refining capacity, which currently stands at 270,000 barrels per day in South Africa.

The decision to walk away from the investment emphasizes challenges  faced by the industry in a volatile market filled with generally depressed prices.

“While our current GTL assets are generating good returns and cash flows, the value proposition for Sasol to build new GTL projects is uneconomic against a volatile external environment and structural shift to a low oil price environment,” the company said.

Citing prices and accounting requirements related to the pending sale as the main reasons, CEO and president,  Bongani Nqwababa stated that “There will likely be further write-downs” although the company is forging ahead with its Louisiana ethane cracker project.

With 21 more percent left to go, the ethane cracker project is estimated to cost $11.13 billion to complete and will be the biggest foreign investment by a South African group. The plant will take ethane -a component of natural gas- and turn it into ethylene, used in the manufacture of plastic products.

Having completed reviews on more that half of its global assets, Sasol  has confirmed that the majority of the company’s assets will be retained, as it aims to boost its payout ratio to 40 percent of earnings per share by 2022 from 36 percent currently, and then progressively lift it to 45 percent on the dividend front.