South Africa: Sasol pins future on gas as a transition feedstock

The debt deleveraging and rebound in the Brent crude oil price have helped Sasol restore its liquidity buffer and improve funds generated from its own operations, according to S&P.

In the 2022 financial year, Sasol reduced gross debt to R105bn ($608m) from R190bn, largely achieved through an accelerated asset disposal programme started in 2020 that has brought in R56bn.

The credit rating agency projects that Sasol funds from its own operations will remain robust even when the price of Brent crude oil stabilises at $55 per barrel.

S&P has raised Sasol’s long-term issuer credit rating and issue rating, as well as affirmed the company’s short-term rating, whilst it has categorised the chemicals producer’s outlook as stable.

“The stable outlook reflects that recent debt reduction and supportive oil prices will offset near-term headwinds … in the coming years,” says S&P in a note at the end of October 2022.

In the same note, however, S&P underscores Sasol’s heightened exposure to greenhouse gas (GHG) and sulphur emissions as a competitive weakness, as well as a credit risk from an environmental, social, and governance point of view.

Sasol and power utility Eskom account for more than half of South Africa’s GHG emissions.

Despite that risk, S&P says: “We note Sasol’s ambitious GHG emission reduction targets and that the technology used in its coal-to-liquids process is well suited to low-carbon feedstocks and delivering low-carbon fuels in the future.”

That is the message Sasol executives Fleetwood Grobler and Priscillah Mabelane came bearing during a climate change round table earlier in November. Grobler is the group CEO and president, whilst Mabelane leads Sasol’s Energy Business.

“Sasol supports the Paris Agreement,” says Grobler, adding that “we are committed to playing our part in the global effort to meet the Paris Agreement goals.”

Feedstock options

On the road to 2030 and 2050, Grobler says Sasol will leverage technologies and use optimal capital investments in the order of R15bn to R25bn to meet the 2030 target of a 30% reduction in GHG emissions.

We note Sasol’s ambitious GHG emission reduction targets and that the technology used in its coal-to-liquids process is well suited to low-carbon feedstocks and delivering low-carbon fuels in the future.

Sasol is exploring options to transform the company’s GHG and sulphur-intensive South African value chain by shifting feedstock away from coal. The chemicals producer has identified gas as pivotal in the move away from coal.

“We announced the transition from coal to gas at the Capital Markets Day [in September 2021],” says Grobler. “At that time, [Sasol said] … the way to get gas at substantive quantities into South Africa was to build a pipeline from Rovuma, which is almost 2,000km, to tie up to the ROMPCO [Republic of Mozambique Pipeline Company] pipeline.”

But that would be a mega project, necessitating billions of dollars in investment without guaranteed demand. Furthermore, such an infrastructure project would require a long-term investment horizon of up to 40 years.

In the end, Sasol has decided against going that route because such an asset “will become stranded if the transition out of gas goes to sustainable feedstock,” Grobler points out.

That investment dilemma does not eliminate Sasol’s need for gas as a replacement feedstock.

Instead of embarking on a mega pipeline project, Grobler says an alternative would be Sasol looking into the use of a floating storage regasification unit (FSRU) in combination with the ROMPCO pipeline for the company’s gas feedstock needs.

To demonstrate the efficacy of such units, Grobler says Europe has used FSRUs to deal with the region’s energy crisis. More importantly, “there are no stranded assets in that”.

Case for LNG

Sasol views liquefied natural gas (LNG) as its plan B, and has been in talks with “two reputable partners if we can’t get enough quantities from our southern cone gas fields in Mozambique,” says Grobler. “From … that perspective, there will be gas available to support our 2030 reduction targets.”

Mabelane notes that Sasol has extended its gas plateau to the end of the financial year 2028.

“If we then go beyond the financial year 2028, we are also working on a suite of exploration and development opportunities. As we explore those opportunities beyond 2028, it is prudent to create flexibility and look at LNG as an opportunity for flexibility,” Mabelane says.

According to Mabelane, Sasol will make a final LNG investment decision in 2024. “We are working with different partners who have a strong interest in an investment in LNG terminal importation infrastructure.”

“As we look at the global outlook for LNG and gas, we believe gas will play a pivotal role for a much longer period into the future,” Mabelane says.

Furthermore, Sasol has commissioned the Production Sharing Agreement (PSA) test well in Mozambique and completed the acquisition of seismic data.

“We are evaluating the results to firm up the volume range for the PSA, and we expect to conclude this by the end of this [2023] financial year. In addition, we are progressing with our near-term expansion and additional exploration in Mozambique,” Mabelane says.