Sasol Targets $10 Billion Investment in 1.1 Million-Barrel Coal-to-Liquid Projects in Indonesia by 2015

---

Researched by Industrial Info Resources (Sugar Land, Texas)--According to Indonesia's Department of Energy and Mineral Resources, Sasol Limited (NYSE:SSL) (Johannesburg), an integrated energy and chemical firm, plans to invest $10 billion by 2015 to develop coal liquefaction plants with a combined capacity of 1.1 million barrels per day (BBL/d) in eastern Kalimantan and Sumatra to produce gasoline and other oil products. The firm is in talks with local companies, including PT Bumi Resources Tbk (JAK:BUMI) (Jakarta, Indonesia), an oil and coal-mining firm, and PT Pertamina (Jakarta), a state-owned oil and gas extraction and refining company, to ensure the supply of coal for the plants.

Sasol is conducting feasibility studies for the proposed venture and is likely to wrap up the assessment by the end of this month. Construction is estimated to take five years, and the plants are scheduled to go on stream by 2015. The proposed coal-to-liquid (CTL) units will have an initial output of 80,000 BBL/d of oil products. Production capacity will later be enhanced to 1.1 million BBL/d.

The CTL plants are likely to operate on low-priced lignite that will ensure profitability as long as prices of crude oil exceed $35 per barrel. CTL operations typically entail a cost of $1 billion per 10,000 BBL/d of oil equivalent. Sasol's proposed operations at a cost of $1 billion per 110,000 BBL/d of oil equivalent indicate a cost-effectiveness factor of 11.

In China, Sasol, in partnership, with the Shenhua Ningxia Coal Industry Group Corporation (Beijing) appointed subsidiaries of Foster Wheeler Limited (NASDAQ:FWLT) (Clinton, New Jersey) to carry out feasibility studies in the Ningxia Hui Autonomous Region of China for a proposed 80,000-BBL/d CTL plant in Ningdong. The appointed consultants are Foster Wheeler Energy Limited (Reading, United Kingdom), Foster Wheeler International Engineering & Consulting Company Limited (Shanghai, China) and its consortium partner Wuhuan Engineering Corporation (Hubei, China). The firms will undertake technical definition, financial evaluation and development of the engineering, procurement and construction strategy for the project. The feasibility studies are scheduled for completion by the end of 2009.

In India, Sasol first approached state-owned Coal India Limited (Kolkata, West Bengal), the country's largest coal-mining firm, in early 2006 and after a hiatus resumed talks in 2008, scouting for opportunities to set up CTL projects in the country. Sasol eventually entered into a joint-venture agreement with the Tata Group (Mumbai) to invest $8 billion to set up a CTL plant based on Sasol's gasification technology and the patented Fischer-Tropsch process to convert open-cast mined coal with high ash content into 80,000 BBL/d of liquid products, which can be further refined to produce base oils (lubricants), diesel, jet fuel, liquefied petroleum gas and naphtha. The proposed project has estimated requirements of 28 million tons per year to 31 million tons per year of coal that can be obtained from coal deposits with extractable reserves of 1 billion tons to 1.4 billion tons through open-cast mining methods.

In August 2008, India's Ministry of Coal disqualified the Tata-Sasol joint-venture, Strategic Energy Technology Systems Limited (SETSL) (Mumbai), from the bidding process for allocation of coal blocks for CTL projects since it failed to fulfill the eligibility criteria of a minimum net worth of $820 million. In September 2008, the Coal Ministry requested SETSL among other firms to make a presentation to the ministry highlighting the details of the proposal, including technology, experience, net worth and a profit-sharing agreement. In a recent notice to the Indian government, SETSL opposed sharing part of the crude oil produced from the CTL plant with the government as profit share. The firm claimed that this would amount to the imposition of a new tax that is not permissible under the Oilfield Regulation Act or the Petroleum and Natural Gas Rules that are not applicable for synthetic production of crude oil and gas from coal and apply only to crude oil and gas produced from naturally occurring hydrocarbons.

Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.