x Abu Dhabi, UAEWednesday 13 December 2017

World's biggest coal fuel maker reins in spending

South Africa's Sasol says it will not invest in new ventures as it pushes to complete over-budget US chemicals plant

South Africa's Sasol will not invest in new projects. Siphiwe Sibeko / Reuters
South Africa's Sasol will not invest in new projects. Siphiwe Sibeko / Reuters

Sasol said it will steer clear of big new investments as the world’s largest maker of fuel from coal reviews existing assets and focuses on completing its US$11.13 billion US chemicals plant.

Sasol will not invest in further new gas-to-liquids or crude-oil refining capacity, according to a statement on its website ahead of an investor day being held Thursday in Johannesburg. The company will not entertain new, wholly owned mega-projects such as the Lake Charles chemical project in Louisiana, either.

“The risk profile to execute such projects alone, in the future, is larger than what Sasol wishes to undertake,” said the co-chief executive Stephen Cornell. The company’s strategy going forward will be “underpinned by increased discipline in capital allocation”.

Sasol said in August it was reviewing its assets around the world, at the same time that it lowered its estimate for returns at Lake Charles. The company announced an almost 25 per cent jump in the project’s cost last year to $11bn, which prompted it to make cuts elsewhere. It has added a further $130 million to the budget because of costs related to Hurricane Harvey, the company said on Thursday.

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The company has completed reviews on more than half of its global assets and decided that most of those will be retained. However, Sasol intends to exit its Canadian shale-gas project and will start a structured sale process.

Between now and 2022, the company will focus on completing Lake Charles and its production-sharing agreement in Mozambique, it said.

“Beyond 2022, we will focus on building an investment portfolio of smaller to medium-sized organic and inorganic opportunities, in the range of $500m to $1bn,” said the chief financial officer Paul Victor. “This will be directed towards our growth focus areas in speciality chemicals, exploration and production and retail fuels.”

While Sasol’s gas-to-liquids operations are generating good returns and cash flows, the company will not invest in further greenfield gas-to-liquids projects, including one it had proposed in the US. The “volatile external environment and structural shift to a low oil price environment” make new projects uneconomic, Mr Cornell said.

The company will not add new crude-refining capacity because of the large investments that would be required to meet changing fuel specifications in South Africa and a lack of any clear competitive advantage for Sasol outside its existing position in Secunda, a facility where it makes crude from coal, he said.

The initiatives will help to increase the producer’s dividend payout to 40 per cent, or 2.5 times cover, by 2022, Mr Cornell said.