South Africa’s second-largest emitter aims to be among the continent’s biggest buyers of renewable energy, but for now Sasol remains firmly tied to fossil fuels.
The company, which made a name for itself by producing synthetic fuel and chemicals from coal, aims to reach net zero by 2050. That plan has been criticized as vague by activists and unrealistic by some analysts. The recent surprise output cut by the Organization of the Petroleum Exporting Countries may also prompt some energy companies to review their green goals in light of higher oil prices, which largely determine the value of Sasol’s products.
Reducing emissions will be a particularly difficult endeavor for Sasol: its largest plant produces more greenhouse gases than the global operations of oil majors BP or Marathon Petroleum Corp CEO. Fleetwood Grobler said that the company is committed to its green future; the company just needs profitability to get there.
That starts with the dirtiest fossil fuel, which has been the company’s lifeblood since it was founded in 1950 and which has turned its Secunda plant in central South Africa into the most polluting place in the world .
“We are focusing on the quality of the coal that is affecting our operations,” he said in an interview at the company’s headquarters in Johannesburg. Sasol has depleted the richest deposits in its mines and what remains does not perform as well in the processes that turn the ore into fuel, he said. “We are working hard to fix it.”
Despite the recent rally, oil price volatility also worries Grobler, especially if crude prices fall toward $40 a barrel. “I would be very worried at the time,” he said.
COAL FOR GAS
Sasol’s strategy to reduce emissions by 30% by 2030 also involves replacing one fossil fuel with another. Cutting by a quarter the 40 million tons of coal it uses primarily to make fuel each year will mean finding enough natural gas, which is more efficient and generates fewer emissions, Grobler said.
Analysts are skeptical. “We still struggle to see how more gas makes sense in the long term,” JPMorgan Chase & Co said in a November research note. The US lender also found that investors, particularly in Europe, are wary of stocks. “A growing number are finding it difficult to justify owning Sasol as climate concerns rise,” he said.
Grobler said that while the company was late to the green transition, only having a plan in early 2021, investors will be able to see its progress over the next five years.
“What shareholders are looking for is how we continue to be profitable, how we continue to be committed to our greenhouse gas reduction targets and how we continue to be relevant beyond that and continue to be a profitable company,” he said .
ENOUGH GAS
Sasol’s cheapest source of natural gas is the company’s own fields in Mozambique that bring the fuel to its operations via the 537-mile Rompco pipeline. The company is spending $1 billion to find more in the region because it is “concerned” about finding enough to replace coal beyond 2028, Grobler said. “We are doubling our exploration in Mozambique,” he said.
Otherwise, the company may turn to imports of liquefied natural gas, a decision Sasol will have to make from 2025, allowing three years to prepare for supply, he said. Import terminals capable of unloading the fuel in Maputo and a potential South African project in Richards Bay are still in the planning stages.
Sasol’s largest plant, the Secunda complex, about 130km from Johannesburg, which produces more climate-warming gases than Portugal or Norway, will need to more than double the proportion of gas used from 7%, according to Grobler.
Still, campaigners have been fired up by Sasol’s approach.
“The lack of detail, accountability measures and adequate incentives means that Sasol does not have a feasible and measurable plan to achieve its emissions reduction targets,” he said. Tracey Daviesdirector of Just Share, a Cape Town-based activist group that has been trying to get shareholders to scrutinize Sasol’s plans.
As Sasol transforms, it will also pay an increasing fee for the carbon it emits. Grobler notes that South Africa is the only place where the company, which also operates in the US and Europe, pays a carbon tax. CFO Hanre Rossouw has warned that the fees could cut into business and its plans for a green transition.
GREEN HYDROGEN
The use of renewable energy for electricity will be another major element for the company to reach its 2030 target. Sasol has signed agreements with developers, including Air Liquide and TotalEnergies, for almost half the capacity that will need to reach its target of 1.2 gigawatts of renewables.
Adding more renewables to the mix will be difficult. South Africa has been wracked by record blackouts, while its program to buy electricity from private clean energy projects has been held back by a lack of grid connections. State company Eskom Holdings governs the process that determines which stations go online, Grobler said.
Sasol is also exploring a green hydrogen project off South Africa’s west coast, which it hopes will provide an even cleaner fuel to one day replace natural gas. The Boegoebaai project would include a port developed by struggling state-owned port and rail company Transnet.
It’s another plan in Sasol’s complicated green transition plans that will require even more renewable energy.
The Boegoebaai project is finishing a pre-feasibility study and is “a work in progress,” said Grobler, who declined to estimate the cost of the green hydrogen plans. “This is still in the very early stages.”
