Oil price a sharp blow
Sasol* updated the market on its Lake Charles ethane cracker plant in Louisiana. The issue remains that it planned the plant when the oil price per barrel was well over $100 and it is now half of that. Now the project is expected to cost at least $11bn instead of the initial planned amount of below $9bn. I have two issues: why didn’t Sasol management also run lower oil price scenarios when making the decision to go ahead? This seems to be a common theme when large projects are planned – nobody ever truly considers the downside risks. Secondly, every project seems to overrun; even when building a modest home, the architect warns that cost overruns could add 10% to 20% to the project. The same happens with every large project and, again, management should incorporate these expected overruns into its models. This project remains a risk for Sasol that may haunt it for years to come.