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Sasol's estimated project cost for La. ethane cracker shoots up by $1B

Following a review by the project's new management, South African energy company Sasol Ltd. increased the estimated cost of its ethane cracker in Louisiana by roughly $1 billion.

The company raised the cost estimate for the Lake Charles Chemicals Project to $12.6 billion to $12.9 billion, including a $300 million contingency, from the previous forecast of $11.6 billion to $11.8 billion released in February, according to a May 22 SEC filing.

The approximately $1 billion increase comprises about $530 million in adjustments for investment allowances, certain contracts, potential insurance claims and procurement back-charges and about $470 million worth of remaining work needed to finish the project.

Sasol called the increase "extremely disappointing," noting that its management has imposed a number of changes to improve oversight and leadership for the project as well as the frequency of reporting. The changes include reassigning project accountability to Fleetwood Grobler, executive vice president of chemicals at Sasol.

The project, which is under construction near Lake Charles, La., would consist of an ethane cracker with a capacity of 1.5 million tons per year and six downstream chemical units, according to the company website. The project was 96% complete with capital expenditure of $11.4 billion as of March 31, Sasol said in the release.

Sasol said in February that a U.S. linear low-density polyethylene unit at the facility started operations. It expects the project's remaining six production facilities to come online throughout 2019 and early 2020.

Sasol shares plummeted more than 13.5% in midday trading May 22 following the announcement of the revised cost estimate.

Sasol is a Johannesburg-based integrated chemicals and energy company with operations in Arizona, Louisiana, Pennsylvania and Texas.