Sasol's Quest for Gas and Hydrogen in South Africa

Sasol, South Africa’s second-largest emitter, aspires to be one of Africa’s largest buyers of renewable energy, but it remains heavily reliant on fossil fuels. Although the company is well-known for producing synthetic fuel and chemicals from coal, it is committed to achieving net-zero emissions by 2050. However, some critics have called the plan vague, and others believe it is unrealistic. The recent surprise production cut by OPEC may also prompt energy companies to reconsider their green goals in light of higher oil prices, which largely determine the value of Sasol’s products.

Because its largest plant emits more greenhouse gases than BP or Marathon Petroleum’s global operations, Sasol will face an uphill battle to reduce emissions. Fleetwood Grobler, CEO of Sasol, says the company is committed to a green future, but it must first be profitable. That starts with the dirtiest fossil fuel, which has been the company’s lifeblood since its inception in 1950 and has made its Secunda plant the most polluting in the world.

“We’re focusing on coal quality, which has an impact on our operations,” Grobler explained in an interview at the company’s Johannesburg headquarters. The richest deposits have been depleted by Sasol’s mines, and what is left is less effective in coal-to-fuel conversion processes. “We’re working hard to change that.”

Despite the recent rise, Grobler is concerned about the volatility of oil prices, particularly if crude prices fall below $40 per barrel. “I would be really worried at that point,” he said.

Coal-fired gas

The switch from one fossil fuel to another is part of Sasol’s plan to reduce emissions by 30% by 2030. Reducing the 40 million tons of coal used to produce fuel each year by a quarter will necessitate the availability of sufficient natural gas, which is more efficient and emits less greenhouse gas. Analysts, on the other hand, are skeptical of Grobler, believing that more gas is not in the long run.

In a November research note, JPMorgan Chase & Co. stated, “We continue to struggle to see how more gas makes long-term sense.” According to the US lender, investors, particularly those in Europe, are wary of Sasol’s stock. “As public concern about climate change grows, an increasing number of people are finding it difficult to justify owning Sasol,” the company stated.

While the company did not develop a plan until early 2021, Grobler stated that it is committed to the green transition and will be transparent about its progress over the next five years. “What shareholders want to know is how we can remain profitable, how we can remain committed to our greenhouse gas reduction targets, and how we can remain relevant beyond that while remaining profitable,” he said.

Not Enough Gasoline

The company’s own fields in Mozambique provide the cheapest natural gas source for Sasol, which transports the fuel to its operations via the Rompco pipeline, which is 537 miles long. Grobler claims that the company is spending $1 billion in the region to find more natural gas because it is “concerned” about not having enough to replace coal after 2028. “We’re expanding our exploration in Mozambique,” he added.

Otherwise, the company can rely on imported liquefied natural gas, which Sasol must decide by 2025, giving the company three years to prepare for supply, according to Grobler. Import terminals in Maputo are still being planned, as is a possible South African project in Richards Bay.

According to Grobler, Sasol’s largest plant, the Secunda complex near Johannesburg, will need to increase the proportion of gas used from 7% to more than double.

Regardless, activists have slammed Sasol’s strategy.