By BEN LEFEBVRE and DEVON MAYLIE
Sasol said Monday it
will begin engineering and design work for what would be the
first refinery to convert natural gas into
diesel in the US, paving the way for one of the largest
investments to emerge from the boom in US shale gas
The facility, estimated to cost about $14 billion, would
convert low-cost natural gas into clean-burning diesel it can
sell at much higher prices.
Sasol plans to locate the facility in Westlake, Louisiana, and
if greenlighted, it will become the single largest investment
in the state's history, Louisiana Gov. Bobby Jindal said.
Sasol said it will make a final investment decision on the
plant in 2014, after the engineering and design review is
gas prices earlier this year became the lowest in the world
as the increasing use of hydraulic fracturing helped bring
domestic inventories to record heights. Companies like Cheniere
Energy and ExxonMobil want to export the commodity to profit
from the price disparity with other countries, where natural
gas can cost five times as much.
Gas-to-liquids technology would allow South
Africa-based Sasol, the world's largest producer of motor fuel
from coal, to tap into the differential between cheap natural
gas and relatively-high priced liquid fuel products. Royal
Dutch Shell is also scouting locations for a possible GTL plant
in the US.
GTL plants, however, are expensive, as Sasol's Louisiana
proposal would cost three times as much as a new traditional refinery.
They also have a history of going over budget and past
schedule, a path trod by Shell's $19 billion Pearl plant in
Sasol has already increased the cost of the project by $6 billion from an
estimate it made in September, partly because it will be built
in two phases, the company said. But despite the staggering
cost, Sasol is already considering other GTL projects in North
America, CEO David Constable said in an interview.
"The abundance of natural gas in North America gives GTL a
great future here," Mr. Constable said. "This is just the
The plant's two phases would start operations in 2018 and
2019. Sasol also operates a 34,000 bpd GTL facility in
The large gulf between natural
gas and oil prices will eventually shrink because growing
demand will lift gas prices and gains in production will bring
crude prices lower said Sarah Emerson, principal at energy
consultancy ESAI. But GTL projects should bring decades of
profits for companies that can afford the hefty start-up costs,
Ms. Emerson added.
"It's a margin story, and the early adopters will make the
most money," Ms. Emerson said.
Sasol spends about two-thirds of its capital outlay in its
home country of South Africa, but has said previously it plans
to grow its presence in the US and Canada over the next few
years. On Monday, it said it will prioritize its projects in the US over Canada.
As part of its US growth strategy, Sasol is also going ahead
with the construction of an ethane cracker
that will cost between $5 billion and $7 billion and will have
an annual production of 1.5 million tons of ethylene.
The company said it is putting a plan to build a gas-to-liquids
plant in Canada on hold, having previously said it was thinking
about building a 48,000-bpd plant in Alberta that would cost
about $8 billion.
Dow Jones Newswires