JOHANNESBURG (miningweekly.com) – Energy and chemicals group Sasol reported on Monday that it had taken its foot off the accelerator at Project Mafutha, a proposed 80 000-bl/d coal-to-liquids (CTL) project in South Africa's Limpopo province.
The company, which is led by CEO Pat Davies, said that the project would not "progress into the feasibility phase within the originally envisaged timeline", pending clarity on "the large-scale coal gasification tests and the provision of a commercially viable carbon capture and storage (CCS) solution".
Davies stressed, though, that he still felt that the project would be good for both Sasol and the country, provided the group could find a storage solution for the CO2 and provided it was aligned to South Africa's fiscal priorities and climate commitments.
"Given Copenhagen, we have no choice: we have got to find a storage solution for Mafutha," Davies said.
But the project's eventual progress would also hinge materially on the South African government's "prioritisation of the country's mega energy projects". Sasol said that "more certainty" in this regard was expected towards the end of the 2010 calendar year.
"We need to see where Mafutha figures in the priority list that government has," Davies noted, while acknowledging that government had many competing demands for its resources, without mentioning competing energy projects by name.
National oil company PetroSA is proposing the development of a 400 000-bl/d greenfield crude-oil refinery, dubbed Mthombo, which could be developed at a cost of $11-billion at the Coega Industrial Development Zone in the Eastern Cape.
Hitherto, Sasol had insisted that Mafutha and Mthombo were mutually exclusive and had argued that, while Mafutha's economics would be negatively affected by the Coega project it "would not be a show stopper".
However, other liquid fuel companies have insisted that the South African government should consider alternatives to the development of a greenfield refinery, which they say would simply add to the current glut of refining capacity globally. But PetroSA has argued that the project is crucial to ensuring ongoing security of supply and should be developed in partnership with others.
Sasol reported that, during the year to June 30, 2010, it had advanced the early-stage Mafutha studies. Coal blasting and extraction of the 170 000-t sample was completed and the coal transported to Secunda, where gasification trials were scheduled and planned for completion during the latter half of the 2010 calendar year.
The group was also currently assessing the impact of potential policy and legislative changes in South Africa on its business, including initiatives to deal with climate change and the security of energy supply. "This includes climate change policy on the back of pledges tabled at Copenhagen, a potential tax on carbon emissions investigated by the National Treasury and a review of the Integrated Resource Plan as part of energy supply policy," Sasol said.
Policy developments in other countries, particularly China, could also affect the group's plans to internationalise its CTL technology.
But despite some aggressive recent carbon-emission reduction initiatives in China, the JSE-listed group said that it was still expecting a decision on its 'Project Application Report' for a Chinese CTL project, which was submitted to the Chinese government in December 2009, in the second half of the 2011 financial year.
The 90 000-bl/d facility would be the JSE-listed group's first CTL investment outside South Africa, where the technology is used to produce about 40% of the country's fuel.
A panel comprising some 200 Chinese experts have reviewed Sasol's technology. "The good news is that they've given it the green light and have submitted to the central authorities and, frankly, we are waiting for the central authorities to make a decision," Davies said.
"There is not much more we can do at this point in time . . . we are in their hands. And, of course, being in Chinese hands, we can't tell them what to do - they're a tad bigger than we are. But we would hope to get a positive outcome, probably during the first half of next year."
With its partner, the Shenhua Group, Sasol has focused its attention on a potential project in the Ningxia Hui Autonomous Region, which could emerge as the group's first CTL plant outside South Africa. But it would also be built amidst growing pressure on companies and countries to reduce climate-altering carbon dioxide (CO2) and would, thus, have to integrate CCS from the outset.
Davies indicated that Sasol was convinced that it had a CCS solution for China and added that, should the project proceed, it would be the largest "single-project foreign investment" ever made in country.
"Here's a country at the bottom end of Africa and it is moving the needle on the global investment stage . . . and [could be] the one of the biggest investors into the Chinese economy," he enthused.
A feasibility study for a possible gas-to-liquids (GTL) project in Uzbekistan was expected to be completed by the end of 2010 calendar year.
"We will then go into a period of commercial negotiations, before we can get closer to an investment decision. But we are very much on track there," Davies reported.
Meanwhile, the company reported a 17% rise in earnings attributable to shareholders for the financial year, from R13,6-billion to R15,9-billion, while headline earnings a share rose by 5% to R26,57 a share.
Operating profit of R23,9-billion declined by 3%, but was positively impacted on by improved production volumes and higher average crude oil and chemical prices.
But the 16% stronger average rand/US dollar exchange rate - at R7,59/US$1 in 2010 compared with R9,04/US$1 in 2009 - outweighed the benefits of the higher dollar oil price, while the net gain of R5,1-billion in 2009, which was associated with hedging activities, was not repeated. But neither was the R3,9-billion and R3,2-billion one-off charges relating to competition administrative penalties and the Sasol Inzalo share-based payments respectively. The 2010 financial year included a much lower Sasol Inzalo share-based payment expense of R824-million.
Sasol said that it would continue with its growth projects, but described the outlook for 2011 as uncertain, with the global economy appearing to be "fragile".
"Our focus remains on optimising our businesses, leveraging our technology and investing strategically to enhance shareholder returns on a sustainable basis," Davies said.