Sasol Drops Indonesian CTL Project, Shifts to Gas-Feed Strategy

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Researched by Industrial Info Resources (Sugar Land, Texas)--Market reaction has been generally favorable to the shift in strategy by the world's leading synthetic fuel producer Sasol (NYSE:SSL) (Johannesburg). This shift was indicated by the announced cancellation of the proposed coal-to-liquids (CTL) project in Indonesia. The 80,000-barrel-per-day (Bbl/day) project was estimated by analysts to require a $10 billion investment and would have used coal from Indonesian lignite reserves.

The company will now accelerate its focus on the development of new gas-to-liquids (GTL) opportunities and limit the focus on the development of CTL projects to current opportunities in China and India that are already in the advanced stages of development, said company spokeswoman Jacqui O'Sullivan in Johannesburg this week.

Indications of this shift in emphasis have been evident for some months, with Sasol previously saying that it intended optimizing the new window of opportunity for GTL investment. The rapidly expanding development of shale gas has lowered gas- extraction costs, which has reduced the price of natural gas compared to oil. In an update to shareholders, the company's chief financial officer, Christine Ramon, said that Sasol believed there had been a structural shift in the dynamics between oil and gas prices, with gas prices likely to remain at depressed levels.

In December 2010, Sasol signed a $1.04 billion deal with Talisman Energy (NYSE:TLM) (Calgary, Alberta) for a 50% stake in the Farrell Creek shale gas assets in the Montney Basin in British Columbia. At the time, Sasol CEO Pat Davies said that this would accelerate upstream growth and advance the company's strong GTL value proposition, utilizing its proprietary technology. The resource covers 51,000 acres with an estimated contingent reserve of 9.6 trillion cubic feet of gas.

Sasol and Talisman are also set to collaborate on natural gas opportunities in Western Canada and will conduct a feasibility study on a possible facility to convert natural gas to liquid fuels using Sasol's GTL technology. The Farrell Creek assets have access to a nearby gas pipeline, but the GTL facility would provide a strategic alternative to traditional North American pipeline or LNG marketing.

O'Sullivan stressed that the Indonesian project had been stopped for strategic reasons and not because the coal feed supply was not forthcoming as market and Indonesian sources had suggested. She also said that Sasol's proposed Mafutha CTL plant in South Africa's Limpopo province was in the pre-feasibility stage, and the prospects for the project would depend on a viable solution for carbon capture and storage, and government policy. She added that the Indonesian project had never reached the pre-feasibility stage and therefore no estimate of cost had been made. Sasol is hoping to continue the partnership with the Indonesian government and continue discussions on potential GTL opportunities in the country, she said.

Sasol pioneered and developed the Fischer-Tropsch CTL technology from the 1950s onward to provide fuel security when South Africa faced trade embargoes and isolation during the apartheid period. The company's South African production plants are at Sasolburg and Secunda, where a range of downstream petrochemical products are also produced.

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