LyondellBasell Industries has agreed to pay $2 billion for a 50% stake in an ethylene cracker and two polyethylene plants that Sasol recently constructed in Lake Charles, Louisiana.
The transaction may finally conclude the troubled saga of Sasol’s Lake Charles project, which suffered complications and cost overruns that led to a shakeup at the company’s headquarters in South Africa.
In addition to the cracker and polyethylene plants soon to be half-owned by LyondellBasell, the new complex includes ethylene oxide/ethylene glycol, ethoxylation, and Ziegler and Guerbet alcohol plants.
When the project was greenlit in 2017, Sasol expected it to cost $8.9 billion. The firm ended up spending $12.5 billion. The scandal prompted Sasol’s co-CEOs—Bongani Nqwababa and Stephen Cornell—to step down last October. In March, Sasol said it was looking to divest $6 billion worth of assets worldwide, partly by taking on a partner in the complex.
When the transaction closes by the end of this year, Lyondell will have a 50% stake in an ethylene cracker and in low-density and linear low-density polyethylene plants with a combined capacity of 900,000 metric tons per year. Sasol will retain the alcohols, ethylene oxide/ethylene glycol, and ethoxylation plants, R&D facilities, and assets that were already in Lake Charles.
Lyondell will operate the new joint venture and market its output. The company said in a presentation that it has the “potential to acquire” Sasol’s share in the venture in the future, though in a conference call with analysts Lyondell CEO Bob Patel noted that this is an “understanding” rather than an “option” set contractually.
Buying into an existing plant is very much in character for Lyondell. While many major chemical companies have built large US projects during the era of cheap shale gas, Lyondell has instead opted for modest projects at existing plants “without the risk that hampers returns from capital-intensive projects,” Patel told analysts.
“This transaction builds on the measured strategic approach we have been undertaking,” Patel said. He noted that the deal is similar to Lyondell’s recently closed purchase of a stake in a Chinese ethylene cracker complex built by Liaoning Bora Enterprise.
Lyondell has built new polyethylene and propylene oxide-tert-butyl alcohol plants, both in the US. In 2018, it bought the plastics compounder A. Schulman for $2.3 billion.