Sasol’s Race for Green: Fossil Fuel Giant’s Bold Renewable Energy Pivot

Sasol Sandton
  1. Sasol, South Africa’s second-largest emitter, aims to reduce its emissions by 30% by 2030 and achieve net-zero emissions by 2050, despite its historical reliance on fossil fuels, particularly coal.
  2. The company plans to replace a significant portion of coal usage with natural gas, while also exploring renewable electricity and green hydrogen projects to facilitate a more sustainable future.
  3. Sasol faces challenges in its green transition, including skepticism from analysts, criticism from activists, and increasing costs of carbon taxes, but remains committed to evolving its operations and meeting its ambitious renewable energy goals.

South African energy company Sasol, the nation’s second-largest emitter, has set ambitious goals to become one of Africa’s most significant renewable energy purchasers. Despite its intentions to achieve net-zero emissions by 2050, the company remains heavily reliant on fossil fuels, attracting criticism from activists who find its plans vague and analysts who deem them unrealistic. The recent unexpected production cut by OPEC and rising oil prices, which influence Sasol’s product values, may prompt some energy firms to reevaluate their green objectives.

Sasol, known for producing synthetic fuel and chemicals from coal, faces a monumental challenge in reducing emissions. Its largest plant generates more greenhouse gases than the global operations of oil companies BP Plc or Marathon Petroleum Corp. CEO Fleetwood Grobler asserts that the company is dedicated to a greener future, but profitability is a necessary stepping stone.

Coal has been Sasol’s foundation since its establishment in 1950, and its Secunda plant in central South Africa is the world’s single most polluting site. Grobler acknowledges the focus on coal quality affecting the company’s operations and the depletion of high-quality deposits at its mines. Sasol is now working to address these issues.

Grobler is also concerned about oil price volatility, especially if crude prices drop to around $40 a barrel. Sasol aims to reduce emissions by 30% by 2030, which includes replacing a portion of the 40 million tons of coal used annually to produce fuel with natural gas. This alternative is more efficient and produces fewer emissions. However, analysts at JPMorgan Chase & Co. are skeptical about the long-term viability of this approach.

Grobler admits that the company has been slow to embrace the green transition, only formulating a plan in early 2021. However, he asserts that investors will see progress within the next five years. Shareholders want to know how Sasol will remain profitable, committed to greenhouse gas reduction targets, and relevant as a profitable company.

Sasol’s most affordable natural gas source is its fields in Mozambique, transported via the 537-mile Rompco pipeline. Grobler states that the company is investing $1 billion in the region to find more natural gas, as it is concerned about securing enough supplies to replace coal beyond 2028. If required, Sasol can rely on liquefied natural gas imports, a decision that needs to be made by 2025, allowing three years for supply preparation. Import terminals in Maputo and a potential South African project in Richards Bay are still in the planning stages.

The Secunda complex, Sasol’s largest plant, will need to more than double its gas usage from the current 7% to make a significant impact. Activists, however, criticize Sasol’s strategy as inadequate. Tracey Davies, director of Cape Town-based activist group Just Share, argues that the company lacks a feasible, measurable plan to achieve its emission reduction targets.

Sasol also faces increasing carbon taxes in South Africa, the only location where it operates that imposes such levies. CFO Hanre Rossouw warns that these taxes could potentially hinder the company’s business and green transition plans.

Renewable electricity will play a crucial role in Sasol reaching its 2030 target. The company has signed agreements with developers like Air Liquide SA and TotalEnergies SE for nearly half the capacity required to achieve its 1.2-gigawatt renewable goal. However, integrating more renewables into South Africa’s energy mix is challenging due to record power outages, grid connection shortages, and the state-owned utility Eskom’s control over which power stations get connected.

Sasol is also investigating a green hydrogen project on South Africa’s west coast, which could potentially offer an even cleaner fuel alternative to natural gas in the future. The Boegoebaai project involves developing a port in partnership with Transnet, the struggling state-owned port and rail company. This endeavor represents another aspect of Sasol’s complex green transition plans that will demand even more renewable energy resources.

The Boegoebaai project is currently in the pre-feasibility study stage and is considered a work in progress. Grobler refrains from providing a cost estimate for the green hydrogen plans, stating that they are still in the early phases of development.

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