Sasol cans Chinese CTL venture


[] — SASOL has brought the curtain down on a proposed $5bn coal-to-liquids joint venture project in China, citing delays in having the 94,000 barrel-per-day endeavour approved by the Chinese authorities.

The group also said its proposed 80,000 barrels per day Mafutha CTL project was effectively “on hold’ after deciding to “decelerate’ the project in 2010. There was no carbon capture and storage solutions for the project in the short term. In addition the need for CTL was now much lower on the South African government’s list of priorities in terms of preferred sources of power.

David Constable, Sasol CEO since July, said China had been reviewing how much of its coal it wanted to dedicate for certain purposes. This has led to a series of delays so Sasol decided to divert the capital reserved for other projects.

“Given the long delay in permitting we moved the capital, but we remain committed to growth in other projects in China,’ said Constable.

Sasol first inked a memorandum of understanding with the Chinese on a CTL project as far back as 2006. By February, however, it stated it was considering its options with regard to the project which was launched in joint venture with Shenhua Ningxia Coal Industry Group. This was after failing to get timeous approval for the project after a review of the project was submitted to China’s National Development and Reform Commission in December 2009.

The CTL project had cost $120m in feasibility studies, but the amount had been expensed to Sasol’s income statement in the years in which the cost was incurred.

Analysts were positive on the news. “This is a huge positive for growth as Sasol has an extra $5bn for the North American projects,’ one said in a morning note. Constable said the group had earmarked shale reserves in North America as feedstock for its gas-to-liquids (GTL) projects which could see fuel output increased 30% in 10 years.

“We are targeting shale gas as a new major project,’ said Constable who also demonstrated in a slide forecasts that shale gas would comprise 45% of all North American gas supply by 2035 from 14% in 2009.

Constable was commenting during the presentation of Sasol’s full year results ended June in which the group posted a 27% increase in headline share earnings to R33.85. Cash generated increased 41% to R38.6bn which helped Sasol approve a record equalling dividend of R13/share notwithstanding the prospect of a global recession.

Christine Ramon, Sasol CFO, said the group’s capital management would provide “a buffer’ in the event of a recession.