Sasol warns U.S cracker could cost $11 bln, expects lower returns

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JOHANNESBURG (Reuters) – South Africa’s Sasol on Monday raised its forecast for the cost of its U.S. ethane cracker by 26 percent to as much as $11 billion due to construction delays and also flagged lower expected returns from it.

The Lake Charles Chemicals Project in the state of Louisiana which includes a cracker will produce 1.5 million tonnes of ethylene a year for use in plastics and chemicals.

Shares in Sasol, which had previously forecast its cost at $8.9 billion, where down by more than 5 percent as of 0730 GMT.

The petrochemicals maker said in a statement that higher-than-expected rainfall had contributed to delays in the project.

It also said costs had been boosted by higher labour costs, building materials and bid contract prices.

The world’s biggest maker of motor fuel from coal said it now expected lower returns due to “changes in long-term price assumptions and the higher capital estimates”.

Returns will be down by as much as the company’s lower long-term price assumptions, Sasol said.

Lower oil prices have forced the company, which makes 40 percent of its revenue from the fuel, to lower its dividend, delay major projects and cut jobs.

The cracker will be funded by existing loans and cash flow without breaching Sasol’s gearing targets. Sasol has already spent $4.5 billion on the project which is about 40 percent complete.

Sasol also warned that full-year headline earnings per share, a popular measure of profit, would fall by 10 to 30 percent due to low oil prices and an impairment charge on operations in Canada.

“The volatile macroeconomic environment, in particular lower crude oil prices, has had a significant impact on earnings,” Sasol said.


(Reporting by Zandi Shabalala; editing by Jason Neely)

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