Sasol's switch to specialties

Author: Will Beacham

2019/02/28

South Africa’s Sasol will in future invest in specialty chemicals and look for joint venture partners in refinery feedstocks and base chemicals, according to the company’s joint president and CEO.

With the first units of the company’s wholly-owned Lake Charles delayed cracker and derivatives project starting up in February, Bongani Nqwababa said that Sasol’s future investment strategy – first unveiled in 2017 – would shift away from oil refining, coal-to-liquids and gas-to-liquids and towards high-margin specialty chemicals where it already has a strong position.

In an interview with ICIS he said: “We won’t go big on base chemicals or invest in new refining capacity as the world is getting close to peak production and then there will be a decline. We are likely to do joint ventures in base chemicals – partners who can focus on base chemicals with us focusing on the specialties. We will consider that once we have fully commissioned Lake Charles.”

He added that, if in the years to come the group planned another cracker, it would likely partner with someone who has a big footprint in base chemicals with Sasol’s interest more in the specialty chemicals side.

“In specialty chemicals we have healthy returns and a competitive advantage whereas in base chemicals it is a ‘me too’ strategy using other people’s technologies. We are not going to be the size of Dow or BASF any time soon so our focus is on specialties.”

Nqwababa said that Sasol cannot compete with the major global oil refining companies which can own 20-25 big refineries compared to Sasol’s single unit.

He added: “We will no longer do greenfield coal-to-liquids or gas-to-liquids. Because of the upfront capital costs and our assumptions on the price trajectory of oil plus changes in the use of diesel we don’t think there will be a business case for these investments.”

Once Lake Charles is fully commissioned, chemicals sales will account for 70% of group revenues compared to just over 50% now.

“We target abundant low-cost feedstock, build world-scale petrochemical facilties and produce high-value end products. We are in South Africa largely because of coal, and in the Gulf largely because of ethane,” Nqwababa said.

Sasol’s switch away from coal gasification is driven by climate change, and the company is working on various scenarios to help it transition into a low-carbon company.

“Because of the whole climate change issue, which we do not deny, we intend to go to a low-carbon future. We have a coal strategy up to 2050 but what if the world is not prepared to buy our product? We need to plan for the sustainability of the company,” said Nqwababa.

With gas fields being discovered off the coast of Mozambique, and Total and partners exploring off-shore gas fields near South Africa, there could be more long-term opportunities for Sasol to use ethane for chemicals production.

Nqwababa said Sasol could consider planning an ethane cracker in South Africa if feedstock availability and economics added up, but this is a long-term prospect that would require either building a 1,000km pipeline from Mozambique to South Africa or using gas from the Total field off Port Elizabeth which is not expected to produce gas for another eight to 10 years.

ASIA TO DRIVE FUTURE GROWTH

With Sasol forecasting over 50% of future chemicals demand growth coming from Asia, finding growth opportunities in India and China are of particular interest. This could be acquisitions, or brownfield sites next to a refinery where feedstocks would be available for specialties. Sasol is building a small ethylene oxide (EO) plant in China to be commissioned in the next two to three months.

Africa also presents some exciting growth opportunities, with Sasol forecasting 5-7%/year GDP growth over the coming years. “In Africa we are targeting large geographies like Nigeria where business growth has been pretty healthy in recent years.”

South Africa’s economy, however, is struggling this year, with only 1.3% GDP growth forecast. Nqwababa confirmed that Sasol no longer does business in Iran.

On 21 February ICIS reported that Sasol and Versalis had been issued with seizure notices by Italian authorities regarding petrochemicals facilities in Augusta and Priolo.

Sasol said that there was a visit by a local official. The raid, known locally as a “pre-seizure” allows authorities to arrive unannounced and conduct an investigation.

“They were given full access to the facility and Sasol cooperated fully. It’s not clear what specifically they were looking for but the plant continues to operate,” a spokesperson said.