South African energy and petrochemicals company Sasol has been slow to respond to the climate crisis, despite the existential threat it poses to its core business of producing synthetic fuels from coal.

It has so far committed to reducing its South African emissions by 10pc by 2030, from its 2017 baseline of 63.9mn t of CO₂e. The target has been criticised by environmental campaigners for being too little, too late

Sasol may not have the means to move any faster. Low oil prices in the wake of the Covid-19 pandemic, and the company’s disastrous investment in the Lake Charles chemicals project in the US, led Sasol to report a loss of $5.5bn for the year to June 2020.

Sasol chief executive Fleetwood Grobler acknowledges that climate change is a “significant issue”, but argues abandoning Sasol’s core business too quickly could stymie efforts towards a “just transition” that guarantees the reskilling and continued employment of its workforce.

While there is a need to drastically cut emissions, developing countries such as South Africa “do not have, inherently, the means or the infrastructure to move at the same pace as Europe or developed countries”, Grobler says. “It would be totally unfair that they be further penalised for lagging five or ten years [behind developed countries] in GHG mitigation.”

International opinion

Not everyone buys Grobler’s argument. The Paris Agreement recognises that peak GHGs will occur later in developing countries but, from an emissions perspective, South Africa does not fall into a ‘developing country’ category, says Robyn Hugo, director of climate change engagement at shareholder activism NGO Just Share. Indeed, it is the world’s 12^th largest GHG emitter.

Nor can it be argued that continued use of fossil fuels is essential for development. “Our current energy system is not only unreliable and the major source of South Africa’s GHGs and air pollution, it has also not significantly contributed to the alleviation of poverty, unemployment and inequality,” she says.

“We have the commitment, and we will have the technical ability… The timing is the only thing that [we] need to calibrate,” Grobler, Sasol

“All evidence demonstrates that a rapid and extensive scaling up of renewable energy generation is the most cost-optimal energy pathway for the continent, and presents significant economic benefits and opportunities.”

Sasol’s management is now betting the long-term future of the company on two things. Firstly, sourcing huge volumes of cheap gas to replace the coal used in its 160,000bl/d Secunda coal-to-liquids refinery—the largest single-site emitter of GHGs in the world. And, secondly, the development of cost-efficient green hydrogen technology.

It is not close to securing either, but neither is the strategy “pie in the sky”, Grobler says. “It is not an easy road to travel, but we have the commitment and we will have got the technical ability… the timing is the only thing that [we] need to calibrate.”

Jonathan Metcalfe, Africa South market lead for hydrogen and economist in PwC’s Strategy& division, adds: “South Africa has world-leading renewable energy resource potential. Not only does South Africa have good renewables, but it also has well-balanced renewable sources in the form of both good solar and wind resources. These sources generally correlate inversely—setting South Africa up for hybrid green hydrogen projects.”

The low-hanging fruit

Through optimising the efficiency of its operations and switching its Sasolburg facility from coal to gas, Sasol has already reduced its emissions by 16pc since 2004. Outside of a major transformation of the business, it is now “very close to exhausting mitigation options”, says Shamini Harrington, VP of climate change.

The next move will be switching its power supply. South Africa has immense solar and wind potential. Sasol plans to bring online 600MW of renewable power by 2030, half of which should be operational by 2025.

The big challenge will be securing additional gas from Mozambique to supply the Secunda plant by 2030. Sasol is in discussions with the developers of a planned 2,600km pipeline that is intended to bring gas from the Rovuma Basin gas fields in northern Mozambique into South Africa. However, the estimated $7bn cost of the pipeline—and the security of supply risks it poses—means there are doubts the project will materialise.

In the short term, Grobler says the company could offtake LNG via a planned FSRU in Matola, just south of the Mozambican capital of Maputo, which could feed gas into its existing pipeline network. The Beluluane Gas Company, which is developing the LNG import project, plans to take FID on the project this year.

However, price will be an issue. While the gas Sasol imports from its fields in southern Mozambique is cheap, the supply is expected to dry up by 2030. Sasol will not give details how low the gas price needs to be to make the switch economic, but if it imports LNG it will need to pay international market prices, which will be significantly above what it pays currently.

Whether gas “is a necessary or appropriate ‘transition fuel’ in the shift to a low-carbon economy,” is also questionable, says Just Share’s Hugo. While gas releases less CO₂ than coal at the point of combustion, its primary component is methane and that is around 30 times more potent as a GHG. “Even small amounts of leakage associated with the extraction, transport and processing of natural gas can have a significant impact on emissions.”

Beyond 2030

Sasol intends to play a key role in the development of a green hydrogen industry in South Africa. It is already one of the world’s largest grey hydrogen producers, using coal as feedstock in the Fischer-Tropsch process to manufacture chemicals and diesel, says Grobler

Sasol expects the costs of large-scale electrolysers, like the cost of renewable energy, to decline rapidly over the coming decade. However, it may be 20 years until that the process becomes cost-competitive.

No 1 – Sasol’s Secunda coal-to-liquids plant is the world’s greatest emitter

It is therefore “premature to put large sums of money” into making green hydrogen commercially at scale at this point, says Grobler. Instead of investing in in-house research, the company is looking for collaboration opportunities.

Sasol already has a partnership with Air Liquide, the French company that has agreed to buy its oxygen production plant at Segunda, and intends to form similar partnerships with other companies in the field.

“There are numerous collaborative hydrogen studies, primarily being funded out of Europe, to explore the potential for green hydrogen production on the African continent,” says Strategy&’s Metcalfe, adding hydrogen is certainly on the agenda of the national government.

“Although South Africa is well positioned for green hydrogen production, there is a balance that needs to be reached between the portion of hydrogen that will be earmarked for the export market versus domestic consumption in other industries,” he says.

“Due to South Africa's wealth of commodities and industrial sectors, the country potentially has a more compelling opportunity in the utilisation of green hydrogen in the production of clean fuels and carbon-neutral products such as green methanol, green ammonia or carbon-neutral steel.”

Slow response

Pressure is on for Sasol to firm up the details on how it will reduce carbon emissions in its 2050 Roadmap, which it has agreed to publish before June next year.

Climate Action 100+, the world’s largest investor engagement initiative, has called for the company to set a target to achieve net-zero emissions by this date, to report annually on its decarbonisation progress, and for remuneration to be linked to hitting this target.

Sasol is at least starting to listen, even if it does not agree. After rejecting all climate-related resolutions at its AGM for the past three years, 2021 will be the first time it allows shareholders to vote on its decarbonisation policy. The vote will be non-binding, however. Should more than 25pc of shareholders reject Sasol’s climate strategy, all it will do is “re-engage” with them on the matter.

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Author: Leigh Elston