Sasol Turns Up the Gas in $9 Billion in Spending Through 2013

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--At the presentation of energy and petrochemicals company Sasol Limited's (NYSE:SSL) (Johannesburg, South Africa) end-of-year results, the company's new CEO, David Constable, said that by 2035, shale gas would contribute 45% of all North American gas supply, up from 14% in 2009.

Coal remains Sasol's main product feed, but the $2 billion invested to acquire 50% of Talisman Energy Incorporated's (NYSE:TLM) (Calgary, Alberta) Farrel Creek shale gas assets in the Montney Basin of British Columbia and half of Talisman's Cypress A gas assets will facilitate a fivefold increase in production from Sasol's upstream business unit by 2020. Constable said that gas could add more than 30% to current group production in the next 10 years.

For related information, see June 24, 2011, article - Sasol-Talisman Partnership Awards Gas-to-Liquids Feasibility Study to Foster Wheeler.

By withdrawing from coal-to-liquids (CTL) projects, the company now is estimated to have an extra $5 billion to invest in the gas supply chain. "The wider the gap between natural gas and oil prices, the more attractive our already strong gas-to-liquids value proposition becomes," said Constable.

Sasol's ability to convert conventional and unconventional gas into fuels and chemicals is opening up new material opportunities with an emphasis on increasing shale gas activity across the globe. The company has received enquiries to be a partner in exploiting the rowing arbitrage opportunity emerging between the price of gas and fuel.

Sasol will make capital investments amounting to about $9 billion in the 2012 and 2013 financial years. The company believes that it has the financial strength to pursue gas-based growth projects and further gas acquisitions, even if there is a global double-dip recession. Sasol Chief Financial Officer Christine Ramon said that in 2002-09, the company made major cuts in its capital budget and implemented a cash-preservation policy in reaction to the recession.

Sasol has decided to abandon the 94,000-barrel-per-day (BBL/d) CTL project in China with the Shenhua Ningxia Coal Industry Group, as the partners have been waiting since 2009 for the Chinese government's decision on the project. Sasol has invested $120 million in preparations for the project. The group would still consider future projects in China. See February 7, 2011, article - Sasol Puts Chinese Coal-to-Liquids Project on Hold.

The South African Mafutha 80,000-BBL/d CTL project is on hold, as to date there is no carbon capture and storage (CCS) solution and the government would need to give financial support to the project. For additional information, see September 16, 2010, article - Sasol Seeks Carbon Capture Solution for Coal-to-Liquids Projects.

A prefeasibility study for a CTL project in India is almost complete. CTL projects in the U.S., Canada and Uzbekistan are at different stages of development and are progressing well, says Constable.

Sasol is planning to increase captive power generation to 60% of its South African needs by 2013 to reduce dependence on supplies from the national utility Eskom. The board has approved a 140-megawatt power plant in Sasolburg. Synfuel production volumes are expected to increase to between 7.2 million and 7.3 million tons in the 2012 financial year.

Group headline earnings per share rose 27% in the year, and cash generated by operations was up 41% to $5.5 billion.

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