Oil Price Puts a Hold on Sasol’s Westlake GTL Project

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With crude oil prices hovering around $50 – $60 per barrel, Sasol announced on Jan. 28 2015 that they are delaying a final investment decision on their proposed 96,000 bpd GTL Project in Calcasieu Parish, Louisiana. This GTL project is three times larger than Qatar’s Oryx GTL project in which Sasol is a joint venture partner (49%) with Qatar Petroleum. The Oryx Project was completed in 2007 and is currently operating at its design capacity of 33,000 bpd. Sasol Westlake’s Project, estimated at $14 billion, would be the most expensive industrial project in Louisiana history. While Sasol has delayed the GTL project they are still proceeding with an ethylene and derivatives project valued at $8.1 billion based on ethane feedstock at the same Westlake complex.

The GTL project was originally announced in late 2011 when crude oil prices were around $100 per barrel and natural gas prices around $3.00 – $4.00/MMBTU. While crude oil prices have fallen to the $50 – $60 per barrel level, natural gas prices have stayed around the same. Let’s look at what the decrease in crude oil prices would mean to expected product revenues. Assuming the same product slate as the Oryx project, the Westlake Project would produce 70,000 bpd of diesel, 23,200 bpd of naphtha, and 2,800 bpd of LPGs. All of these refined products are closely related to crude oil price. The below table shows an estimate of the average product plant gate prices for a range of crude oil prices from $60 to $100 per barrel and their impact on potential product revenues.

oil price, GTL, oil and gas, United States, Velocys, Juniper GTL, Sasol, crude oil, US, Westlake GTL

The decrease in product revenues between crude oil prices of $100 and $60 per barrel is significantly greater than any potential offsetting savings if natural gas prices were to also decrease. With natural gas consumption at approximately 10 MMBTU per barrel, a decrease of $1/MMBTU (not very likely) in natural gas price would result in a feedstock savings of only $336 million.

Based on this rather simplified analysis, it is understandable why Sasol has delayed their investment decision for the Westlake GTL project.

It is interesting to note that the drop in crude oil prices does not seem to have affected the implementation of the Velocys and Juniper small scale GTL projects reported in my earlier blog post. The Jupiter GTL 1,100 barrels per day $135 million project in Westlake, Louisiana is scheduled for completion later this year. Velocys’s joint venture with Waste Management, NRG Energy and Ventech at Waste Management’s East Oak land fill site in Oklahoma is scheduled for completion in the first half of 2016.

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Marshall Frank

Marshall E. Frank retired from Chem Systems, where he was President and Managing Director, responsible for international consulting activities in North and South America and Asia Pacific. During his more than thirty years with the company, he had technical and administrative responsibility for a large number of multidisciplinary projects, both single-client and multi-client sponsored. Mr. Frank’s areas of expertise include natural gas utilization and conversion, the petrochemical industry, the refining and petrochemical interface, and alternative fuels. He also directed Chem Systems’ Financial Practice, which provided assistance to lenders in assessing the various risks associated with the financing of major international energy, petrochemical, and polymer projects. Prior to joining Chem Systems, Mr. Frank was involved in process evaluation, process engineering, and the startup of many of Halcon/SD’s proprietary processes at Scientific Design Company. Mr. Frank received a B.S. in Chemical Engineering from Cornell University.

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