Sasol's Lake Charles Chemical Complex is the largest project any South African resources company has yet embarked on. But with half of the R154.5-billion estimated cost already spent and only 15% of construction completed, investors still have only estimates and assumptions for guidance. Sasol's ethane cracker project, in Louisiana in the US, has become R30-billion more expensive since 2014 estimates, thanks to a number of variables out of Sasol's control, such as bad weather.Joint CEOs Bongani Nqwababa and Stephen Cornell engaged with shareholders this week to address concerns over project management, costs and rates of return once construction is completed in early 2019.They said a sale or halt of construction had never been considered, stressing a broader market and product diversification as the rationale for proceeding with a project that will - at current estimates - be worth more than half the group's market capitalisation of around R244-billion.Hanré Rossouw, head of resources at Investec Asset Management, said Sasol might as well continue since half the capex had been laid out. "Because you are halfway done, you have to keep digging that proverbial hole."story_article_left1Cornell said the completion date had been pushed out to 2019 for cash flow reasons and to support the company's oil price response plan. The Lake Charles project should be 80% operational by the second half of 2018, he said.A rather jaded view of the "hole" being dug follows several Sasol facility projects that have been plagued by cost overruns, overengineering and poor project control. Despite Cornell's insistence that "the risk issues and the cost of the engineering is behind us", analysts are still not convinced that costs will stop ballooning.In Sasol's favour, North American ethane feedstock is among the world's cheapest, and the more specialised and customised derivative products that the company intends manufacturing for its clients - above the usual merchant ethylene sales - will expand margins and broaden its sales base.However, analysts also point out that there is little to no clarity on Sasol's sales pricing as a guide for returns, since, for example, compounds from its alcohol suite may be sold to a detergent maker at one price and to a cosmetics manufacturer at a radically higher price.Also in the positive column is the likelihood that the oil price is nearer its bottom than any kind of peak."It won't be the first time Sasol might be bailed out of a marginal project by higher oil prices," said an analyst who declined to be named.Rising oil prices would benefit users of natural gas, such as the Lake Charles project.If oil prices were to rise to $60 a barrel in the next few years, Sasol's project would begin to deliver above guidance for returns marginally above the 8% average cost of capital for the Lake Charles project. Sasol's original target rate of returns from Louisiana had been 10.4% per year.Nqwababa said that while this placed Lake Charles among Sasol's lower-returning global assets, this was mostly because the South African business, for example, had already had years of depreciation factored in. He said the quantum of cash generated by Lake Charles could be enormous.Analysts are not quibbling with Sasol's conservative market scenario, and the company is benefiting from investing at the bottom of the cycle.While it is funding most of the build from its balance sheet - and both CEOs were at pains to stress that cash flow was more positive than expected so there are no worries - the R56-billion debt it has taken on is 50% pegged to the Libor benchmark rate and the rest fixed at just 2.7%.block_quotes_start The current price stall is being taken as a sign that, one way or another, Sasol will absorb any cost issues and will make money from Lake Charles block_quotes_endThe concerns are simply that Sasol is overspending on a project that could perhaps have been less complex and signed off on sooner and which has been plagued by execution issues that its competitors in the North American region have escaped.After the release of the fact sheets and meetings with institutional investors, Sasol's share price barely shifted - although a preliminary announcement in June indicating cost increases triggered a 15% loss of value.The current price stall is being taken as a sign that, one way or another, Sasol will absorb any cost issues and will make money from Lake Charles - its rationale behind product development seems sound.It is just a question of how much, and nobody is comfortable taking guesses at the future of commodity prices and exchange rates."At this price you're paying seven times annual earnings before tax, which is expensive for a chemicals company."But the outlook for chemicals is better than for crude oil. And if oil prices rise, this business will be fine. There is demand for the derivatives products. But there's still a lot of risk," the analyst said.Rossouw said the investment community was low on confidence with a 2019 completion target. "They will be carefully tracked over the next three years to the ramp-up."He said that while weather and ground conditions were issues he sympathised with, other factors behind delays, such as contract and labour costs, could have been better foreseen.peacockb@sundaytimes.co.za; mtonganal@sundaytimes.co.za..