Sasol would pull the plug on a proposed coal-to-liquids (CTL) facility in Indonesia, estimated by analysts to cost around $10 billion (R69bn), as it planned to focus on making fuel from gas rather than coal, it said yesterday.
However, the petrochemicals group said its coal investment proposals in China and India, which were already well advanced, would not be affected.
Shares in Sasol, dual listed in Johannesburg and New York, climbed 1.4 percent on the JSE yesterday to close at R356.
Shoaib Vayej, a portfolio manager at Sanlam Investment Management, said investors were generally “more positive with the move to gas versus coal. They are smaller projects with lower risk and less environmental impact.”
Sasol has said repeatedly in recent months it intended optimising a window of opportunity for new gas-to-liquids (GTL) investment that has resulted from greater shale gas development due to lower extraction costs. This has cut the price of natural gas relative to oil.
Sasol chief financial officer Christine Ramon said in her last update to shareholders that the company believed there had been a “structural shift in the dynamics between oil and gas prices, with gas prices likely to remain at depressed levels”.
Vayej said the dislocation between oil and gas prices had left the ratio at “record highs” in favour of GTL. “It’s not… disappointing or surprising,” he said of the canned Indonesian CTL project. “The momentum is swinging back to GTL.”
Sasol signed a memorandum of understanding with Indonesia in December 2009 for a screening study into the viability of an 80 000 barrel-a-day facility using Indonesia’s abundant lignite coal reserves as feedstock.
Bloomberg quoted Indonesia Investment Coordinating Board chairperson Gita Wirjawan saying yesterday that Sasol’s local partner was unable to supply the required 1 billion tons of coal for the project.
But Sasol spokeswoman Jacqui O’Sullivan said Sasol’s decision had been “strategic” and was not influenced by coal supplies or technology.
“Sasol has taken the decision to accelerate its focus on business development of new GTL opportunities and to limit its focus on the development of CTL opportunities beyond current opportunities in China and India, which are already at advanced stages of development,” she said.
According to Vayej, Sasol’s proposed 80 000 barrel-a-day Chinese CTL facility, on which it is awaiting feedback from Chinese authorities, appeared to be “a little more competitive from a cost point of view” compared with other CTL investments.
The Chinese had repeatedly demonstrated ability to build large capital projects at half the cost of global competitors, he said, adding that investors were comfortable because “it is potentially a beachhead into a lucrative market”.
O’Sullivan said Sasol hoped to pursue GTL projects in Indonesia. She pointed out the Indonesian project was at the “very early ‘idea’ stage – not even close to the pre-feasibility”.
On the local front, Sasol’s proposed CTL facility in Limpopo, dubbed Mafutha, was still in pre-feasibility stage, but the outcome would depend on a commercially viable solution for carbon capture and storage, as well as government priorities, she said. - Business Report