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Sasol raises cost of Lake Charles project, Canada PDH/PP facility FID made, US grows as world’s leading ethane exporter
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Sasol’s Lake Charles Chemical Complex start-up delayed as costs increase
Sasol has pushed back the estimated start-up date for its new cracker in Lake Charles, Louisiana to July, a five-month delay from its most recent estimate, as projected costs of the petrochemicals complex continue to rise.
Sasol has raised its overall capital cost estimate for the Lake Charles Chemical Project (LCCP) from $11.13 billion to a range of $11.6 to $11.8 billion, the company noted in a trading statement on February 8, for the six-month period ending Dec. 31, 2018.
Inclement weather in the closing months of 2018 have added to costs and resulted in delays to construction, exacerbated by high absenteeism among workers and unforeseen additions to the work scope.
According to the company, the revised cost stems from “several factors within and beyond our control” that have altered the completion schedule and associated cost for remaining units.
Specific factors Sasol noted include:
Late cracker scope additions from “incomplete engineering work”
Defective carbon steel forgings that prompted an increased scope to ensure process safety for the cracker and ethylene oxide/ethylene glycol (EO/EG) unit
Excessive rainfall in the fourth quarter of 2018
High absenteeism around public holidays and construction rework contributing to productivity losses
Extra overhead costs from schedule delays of the remaining units
“While our underlying productivity factor remained on track, the inclement weather, scope additions and absenteeism had a significant impact on actual productivity,” Sasol said in the trading statement.
Sasol broke ground in 2014 on the Lake Charles Chemical Complex, which comprises an ethane cracker that will produce 1.5 million tons of ethylene annually as well as six on-site downstream chemical manufacturing plants.
Engineering and procurement is largely completed at the site, and construction is 84% finished as of the end of December 2018, the company said. Overall project completion stands at 94% and capital expenditure thus far has come to $10.9 billion.
Pembina, PIC make FID to build Canada PDH/PP facility
Pembina Pipeline Corporation, along with Petrochemical Industries Company K.S.C. of Kuwait made the final investment decision to build a 550,000 tonne/year integrated propane dehydrogenation (PDH) plant and polypropylene (PP) upgrading facility (PDH/PP Facility) in Alberta, Canada though their equally-owned joint venture entity, Canada Kuwait Petrochemical Corporation (CKPC).
The Canadian dollar (C$)4.5bn facility is expected to start up in mid-2023. The facility is expected to generate annual run-rate adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of C$275m-350m, net to Pembina.
The PDH/PP Facility has a nameplate capacity of 550,000 metric tonnes of PP per year, including impact and random copolymers.
The PDH/PP Facility will be strategically located in Alberta's Industrial Heartland, adjacent to Pembina's Redwater fractionation complex (RFS) and will consume approximately 23,000 barrels per day of local propane from RFS and other regional fractionation facilities.
As a result, the facility will have long term access to an abundant supply of propane feedstocks.
Pembina's net investment of C$2.5bn represents a 50% interest in CKPC and a 100% directly owned interest in the supporting facilities under an agreement between Pembina and CKPC.
CKPC has a detailed Class II level capital cost estimate of C$4.5 billion (gross), including interest during construction. Included in this estimate is $4 billion (gross) for the PDH and PP plants and $0.5 billion for certain supporting facilities.
Pembina's net investment of $2.5 billion represents a 50% interest in CKPC, which will own the PDH and PP plants, and a 100% directly-owned interest in the supporting facilities under an agreement between Pembina and CKPC whereby Pembina will own the facilities and provide services under a long-term, take-or-pay arrangement.
Pembina has secured in excess of 40% of its expected Adjusted EBITDA from this project through a portfolio of long-term, primarily take-or-pay, fee-for-service and other similar commercial arrangements with third parties, having a weighted average tenor of approximately 14 years, with most counterparties being investment grade. The arrangements entered to date support development of this project firmly within Pembina's publicly stated guardrails.
CKPC is pursuing asset-level debt financing for 50% of the jointly-owned facilities, with the remaining 50% to be financed through equity contributions from both partners. Pembina intends to finance the supporting facilities consistent with its long-term financing strategy of equal amounts of debt and equity. Pembina continues to anticipate equity contributions will be funded with cash flow after dividends.
In addition, CKPC has been awarded $300 million of royalty credits from the Alberta government, of which CKPC has, to date, entered into agreements with Alberta hydrocarbon producers to monetize more than 80 percent over the first several years of operation of the PDH/PP Facility.
"The PDH/PP Facility is ideally aligned with PIC's continued pursuit of sustainable and globally-diversified growth," said Mohammed Abdullatif Al-Farhoud, PIC's Chief Executive Officer. "Our investment in CKPC provides PIC an opportunity to build on our existing asset base in Alberta by developing large-scale petrochemical infrastructure with a highly strategic partner in a market with long-term feedstock security and a supportive local government," Al-Farhoud added.
US grows in its role as world’s leading ethane exporter
U.S. exports of ethane have increased from nearly nothing in 2013 to an average of 260,000 barrels per day (b/d) through the first 10 months of 2018, accounting for about one-sixth of U.S. hydrocarbon gas liquids exports, according to the U.S. Energy Information Administration (EIA).
The U.S. became the world’s top exporter of ethane in 2015, surpassing Norway, the only other country to ship ethane internationally. In 2014 and 2015, all U.S. ethane shipments went to Canada, but in 2018 the United States sent ethane to 10 countries.
U.S. ethane production grew 74%, from an average of 1.0 million b/d in 2012 to 1.7 million b/d in the 10-month period from January to October 2018. During the same period, ethane consumed in the United States increased from 0.9 million to 1.5 million b/d, primarily because of new sources of demand and new infrastructure that allows ethane to reach consumers.
The U.S. petrochemical industry, responding to greater feedstock availability and consequent lower prices of ethane on the domestic market, added capacity at existing plants and built new petrochemical steam crackers, resulting in an estimated $200 billion dollars of new investment across the country, according to the American Chemistry Council (ACC).
Since early 2014, when the United States first exported ethane by pipeline to Canada, further infrastructure additions have enabled exports of ethane to grow and expand their geographic reach. Two more pipelines to Canada, as well as two marine terminals capable of shipping super-cooled ethane overseas, entered service in early 2018.
Altogether, current U.S. export capacity totals nearly 450,000 b/d, and the United States now supplies ethane to Brazil, Canada, India, Mexico, Norway, Sweden, and the United Kingdom.
Recent completion of the Utopia pipeline—from Ohio to Ontario—has facilitated more ethane exports to Canada, and ethane exports are expected to grow, along with the capacity of the Canadian petrochemical industry to process the ethane into ethylene at the Sarnia, Ontario hub.
Additional export facilities in the United States are also either under construction or being planned. Exports of ethane from Marcus Hook are likely to increase once the Mariner East 2 pipeline, which will deliver ethane to the terminal, is complete.
Energy Transfer Partners, parent company of Sunoco Logistics, is planning to build its second ethane export terminal along the Gulf Coast in Nederland, Texas. The Orbit Ethane Export Terminal, planned for completion in late 2020, will have the capacity to export 175,000 b/d of ethane overseas, with 150,000 b/d of that capacity already committed to Satellite Petrochemicals of China for its two newly built petrochemical crackers.
Most recently, American Ethane, a Russia-funded enterprise, has broken ground on a 480,000 b/d ethane export terminal on the Neches River in Beaumont, Texas. The joint venture with Texas-based Martin Midstream Partners aims to supply ethane to a number of petrochemical crackers in China that are currently seeking government approval to begin construction.