Sasol CEOs removed over cost overruns in Louisiana

http://www.petrotahlil.com/en/tiny/news-43611

Petrotahlil :The ballooning cost of Sasol Ltd.'s $12.9 billion Lake Charles Chemicals Project prompted the board of directors to negotiate a separation agreement for its co-CEOs this week and for several other top executives to leave.

The joint CEOs of the South Africa-based petrochemical business, Bongani Nqwababa and Stephen Cornell, are leaving the company Thursday.

Fleetwood Grobler, the executive vice president of chemicals, will become the new CEO of the business on Friday and will be responsible for the final stages of construction at the Lake Charles complex, which includes an ethane cracker that will produce 1.5 million tons of ethylene each year.

Stephan Schoeman, an executive vice president who was responsible for the Lake Charles project, retired earlier this year. Three senior vice presidents who were working on the construction of the Lake Charles project no longer work for the company either.

The manager of Sasol's Lake Charles site, Mike Thomas, senior vice president of North American operations, did not have a role in the project construction and still works for the business.

Nqwababa and Cornell are not the first Sasol chief executive officers to lose their jobs due to the Lake Charles project. They replaced David Constable, who served as chief executive officer between 2011 and 2016. Constable was at the helm of the business when it made the decision to move forward with the ethane cracker and the cost increases began to be disclosed to investors. Constable's contract was not renewed for 2016.

Sasol's board of directors decided the delays and cost overruns at the Lake Charles plant were due to "a lack of competence" and transparency by its construction management team but it was likely not the result of fraud.

"Some of the driving factors behind the cost and schedule increases are common in projects of the size and nature of the (Lake Charles Chemicals Project), but some are shortcomings that may have been avoided," according to a statement from the board of directors.

Sasol had initially pitched two projects in Louisiana several years ago, a gas-to-liquids plant and the ethane cracker and derivatives complex. Plans for the gas-to-liquids plant were scrapped, but the company moved forward with the ethane cracker, which was projected to cost $8.9 billion in 2014 and open by 2018.

By 2016, cost estimates increased to $11 billion and at the time was described by then-CEO Constable as a "worst-case scenario." In February, Sasol projected the Lake Charles complex would cost between $11.6 billion and $11.8 billion. In May, the company again increased the cost estimate to between $12.6 billion to $12.9 billion.

The reason for the increased overall cost of the project included several factors, such as delays from Hurricane Harvey in 2017 but also defective parts and remaining work to be done at the complex.

Sasol discovered there were defective components inside the ethane cracker and the ethylene oxide/ethylene glycol units that cost the business $210 million to repair and replace. Likewise, the company was forced to replace the internal components of heat exchangers due to corrosion and replace defective carbon steel forgings.

Sasol hired more than 800 workers at the manufacturing complex in Lake Charles and supported 6,500 construction jobs over the past few years. About $4 billion was spent with Louisiana businesses. More than 60% of the Lake Charles complex's output is online and it's expected to reach 90% by the end of this year. The overall project is 99% complete.

The impact of the Sasol project cost overrun may not trickle down much to the Louisiana chemical industry at large.

Other ethane crackers were built around the same time and were on target with projected costs, though the Sasol project appears to have been the largest.

For example, Korean petrochemical manufacturer Lotte Chemical developed a $1.9 billion ethane cracker in Lake Charles as well as a $1.1 billion monoethylene glycol manufacturing plant which opened this year.

George Swift, CEO of the Southwest Louisiana Economic Development Alliance, was bullish on the future of petrochemical plants in the region despite the issues at Sasol.

"Each project is stand alone, and this has no bearing on future projects," Swift said.

But it likely means Sasol won't reconsider the natural gas to liquids plant anytime soon.

"The cost overrun and the size of it makes us wonder whether that gas-to-liquid plant will ever happen. That's a significant loss to Louisiana," said Loren Scott, longtime economist in Baton Rouge. "I'm worried about the second project. It was a multibillion dollar project."

The next large ethane cracker plant under construction on the U.S. Gulf Coast is the ExxonMobil-SABIC joint venture near Corpus Christi, expected to cost $10 billion. In July, Chevron Phillips Chemical Co. and Qatar Petroleum announced plans to build another ethylene cracker somewhere along the U.S. Gulf Coast, but a location has not been determined.

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