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12 16, 2012 by The Advocate
A plant to convert natural gas to chemicals, diesel and other fuels is good news for the economy of the Lake Charles area and the entire state. It’s also another sign of the enormous potential for energy in “fracking,” the drilling technique that has unlocked new sources of oil and gas, particularly the latter in Louisiana.
Gov. Bobby Jindal pledged more than $135 million in state and local incentives to South African energy company Sasol Ltd. to build the addition to the region’s already substantial petrochemical complex. The project is estimated to cost between $16 billion and $21 billion, the company said.
The Jindal administration has promised money that it does not have in hand, as the state’s economic incentive fund doesn’t have that kind of uncommitted cash. But we think it is very likely that a future governor and Legislature will back the project.
Large-scale industrial projects such as this one remain a mainstay of the state’s economy for the foreseeable future. The petrochemical complex between Baton Rouge and New Orleans also is seeing expansions generated by cheap and abundant natural gas supplies.
It is a trend that bolsters one of the foundations of Louisiana’s economy. Nor is Sasol alone: Sempra Energy seeks to expand at the Cameron Parish liquefied natural gas facility, potentially another major construction project in the region.
The governor’s office said Sasol will create 1,250 new permanent jobs, and an LSU study said the project will generate an economic impact of $46 billion over 20 years. The chemical plant is slated to begin operation in 2017, and the diesel plant is scheduled to go on line in two stages beginning in 2018 and 2019, according to the company.
The largest slice of money pledged by the state is $115 million to reimburse for the costs of buying the land and paying for infrastructure needed for the energy complex, which will be located on a 650-acre site near Sasol’s existing chemical facilities. Economic Development Secretary Stephen Moret said the funding will be divided into two payments, $57.5 million a year, starting in the 2016-17 budget year, when the Jindal administration is out of office.
“The state funds will not be provided until after construction begins,” Moret wrote in an email to The Associated Press, saying Sasol must build the entire project to receive the full incentive package.
We predict that the state will be good for the money.
These sorts of mega-projects don’t come along every day, and although Louisiana’s lawmakers have a real duty to exercise due diligence about the company’s progress in meeting its commitments, there is little to no likelihood that the state will back out on the Jindal commitment in future years.
The Jindal administration also agreed to spend $20 million on a new industrial training center and equipment at SOWELA Technical Community College in Lake Charles, to help ready new employees for Sasol. That is the kind of support, as with the state’s FastStart staffing operations, that goes beyond the traditional “smokestack-chasing” strategies of the past. Those dollars help to raise the skill levels of the work force.
Not that there isn’t a generous suite of incentives here, for not only state taxes but a 10-year exemption from local property taxes. Louisiana is one of the few states that gives away local school taxes for these kinds of projects.
Still, as Moret said, this is a huge addition to the economy of the state. While we don’t want the state to get into the habit of promising money that it might not have, this is a slam-dunk for the eventual funding of Sasol.
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