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RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #3726/01 2961230
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R 231230Z OCT 07
FM AMEMBASSY PRETORIA
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INFO RUCPDC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
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UNCLAS SECTION 01 OF 04 PRETORIA 003726 
 
SIPDIS 
 
SIPDIS 
 
STATE PLEASE PASS USAID 
STATE PLEASE PASS USGS 
DEPT FOR AF/S, EEB/ESC AND CBA 
DOE FOR SPERL AND PERSON 
 
E.O. 12958: N/A 
TAGS: EPET ENRG EMIN EINV EIND SENV SF
SUBJECT: Sasol Perseveres in Coal-to-Liquid Projects 
 
REF: Pretoria 3113 
 
PRETORIA 00003726  001.2 OF 004 
 
 
¶1. SUMMARY: South Africa's Sasol is committed to expanding its 
coal-to-liquids production both within and outside South Africa. 
Most automobile drivers in South Africa's interior are burning its 
gasoline derived from coal.  Sasol's Chief Engineer confirmed that 
Sasol is the world's largest single point greenhouse gas emitter. 
While highlighting that this marked a critical challenge in 
expanding production given growing concerns about greenhouse gases, 
he noted that Sasol lacked viable economic and geological options to 
mitigate this issue at its current facilities in South Africa. 
Economic Counselor, Minerals/Energy Officer, EST Officer and FSN 
Minerals and Energy Specialist visited the Sasol plants at Secunda, 
east of Johannesburg, South Africa on September 21.  End Summary. 
 
--------------------------------------------- ---------- 
Sasol's History - Oil Substitution and Self Sufficiency 
--------------------------------------------- ---------- 
 
¶2.  In 1950, the SAG made a strategic decision to build a plant to 
produce liquid fuels from the country's abundant coal resources and 
acquired the patented Fischer-Tropsch process from Germany to 
implement this decision.  The first Sasol installation opened in 
1955 with a capacity of up to 10,000 barrels per day of crude oil 
equivalent, plus chemical feedstock.  The SAG prompted Sasol to 
construct a second plant at Secunda in 1976 that would produce 10 
times more fuel than the first - about 75,000 barrels per day, given 
South Africa's reliance on imported oil in the face of oil shocks in 
the 1970's, in combination with the government's desire to gain 
self-sufficiency while confronting growing international opposition 
to apartheid.  The same international contingencies spurred the SAG 
and Sasol to increase the scope and replicate the second plant with 
an adjacent third one. 
 
¶3.  Sasol has long been perceived as a national champion and even at 
times as a significant target.  According to Roper, ANC militants 
failed in attempts to fire katusha rockets at Sasol II at Secunda on 
June 1, 1980.  Sasol's Sasolburg chemical complex also came under 
attack by militants, which caused damage estimated at about $7.2 
million, including destruction of a gas tank. 
 
¶4.  The first two plants (Sasol I and II) were State-owned, but 
Sasol went public in 1979 in order to finance the third one.  Sasol 
I became known as the Sasolburg plant and the two new plants as 
Sasol Secunda.  The Secunda complex is the world's largest 
petrochemical plant built substantially at one time on a single 
site.  It includes two coal-fired electricity plants totaling 600 MW 
capacity to reduce reliance on the national grid.  The original life 
expectancy for Secunda was 60 years, but with upgrades and 
refurbishing the facility's life has been extended to 2050.  The 
plant capacity has increased by some 40 percent since commissioning 
to the current 160,000 barrels per day of crude equivalent.  Sasol 
was privatized in 1979 and currently state-owned enterprises hold 20 
percent of the shares.  The rest are in the public domain, some 40 
percent being held by overseas investors.  In 2003, Sasol secured 
listing on the New York Stock Exchange. 
 
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Mining 
------ 
 
¶5.  Sasol Secunda is serviced by Sasol Mining, which operates four 
underground mines and one open-cast mine that produce some 45 
million tons of coal per year.  Sasol also procures 5 million tons 
from other mines in the area.  Of the total coal available, 4 
million tons are exported and 40 million tons are blended before 
being fed into the conversion process.  South African coals contain 
40 to 45 percent ash and this results in huge adjoining ash dumps 
for which there is currently little demand. 
 
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Processing 
 
PRETORIA 00003726  002.2 OF 004 
 
 
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¶6.  Basic feed to the plant consists of coal, water and air from 
which steam, power, oxygen, carbon and hydrogen are produced. 
Steam, oxygen and coal are fed into gasifiers to produce a synthesis 
gas stream from which value-added products are extracted.  These are 
used to produce a range of products including over two hundred 
chemicals, sulfur, fertilizers, explosives, waxes, low sulfur 
diesel, petrol and kerosene of jet engine quality. Sasol producers 
80 percent of the world's octene, most of which is sold to Dow 
Chemical.  Currently, Sasol's mix is 70:30 fuel to chemical, but the 
company aims to make this 50:50 in the future. 
 
---------------- 
Sasol Businesses 
---------------- 
 
¶7.  Sasol Synfuels operates the gasifiers and Fischer-Tropsch 
converters which convert synthesis coal gas into fuels, pipeline 
gas, and chemical feedstock.  Sasol Synfuels sells its synthetic 
fuels to Sasol Oil for marketing and retailing.  Sasol Oil operates 
the Natref refinery in Sasolburg in which it has a two-thirds share 
with Total Oil holding the remainder.  It blends and markets 
synfuels from Secunda and refined crude products from Natref, as 
appropriate, and has established some 400 retail outlets for its 
petroleum products.  Sasol Gas owns a 50 percent share of the 
Mozambique-South African gas pipeline.  The company distributes both 
natural gas from Mozambique and methane-rich synthetic gas produced 
at Secunda. 
 
------------------ 
Sasol Looks Abroad 
------------------ 
 
¶8.  Sasol Synfuels International (SSI) and its joint-venture partner 
Sasol-Chevron undertake international gas-to-liquids (GTL) ventures. 
 Sasol's Slurry Phase Distillate technology converts stranded 
natural gas into liquid fuels.  The first operating venture was 
established in Qatar, where SSI-Chevron has a 49 percent ownership. 
Another venture is planned for Nigeria, where the joint venture has 
50 percent.  Sasol sells its business, not its technology, and 
therefore wants as much control as possible.  There have been 
teething problems in the start-up of the Qatar Oryx plant which is 
of a much larger scale than anything Sasol has built in South 
Africa.  (Sasol has not built a GTL plant in SA and its CTL plant 
produces 160,000 bbl/day vs Qatar's 30,000 bbl/day.) SSI hopes to 
have the Qatar plant up to capacity within a year.  Sasol Petroleum 
International (SPI) is involved in oil and gas exploration, mainly 
in Africa, but also internationally, as opportunities present 
themselves.  Sasol's many chemical businesses' main offices and 
production, research and exploration facilities are located in 
Africa and the Middle East, the United States, Europe, the Far East, 
and Australia. 
 
¶9.  SSI is far along in its consideration of coal-to-liquid (CTL) 
plants in India, China, Australia and the U.S., where there is the 
necessary combination of energy demand, a shortage of oil and gas 
and an abundance of coal.  India has lots of low-quality coal, but 
it is hard to extract given the way it is deposited in numerous, 
narrow seams.  South African coal is not in narrow seams and is 
generally of much better quality, hence India's increasing imports 
of coal from South Africa.  Australia has coal in the east, is 
shutting down oil refineries, and is producing and/or importing 
off-shore natural gas.  There are concerns about the protection of 
Sasol's intellectual property in China, where IP is hard to protect 
and there is no word picture for the word "rights".  Russia and the 
EU were excluded.  Russia has lots of coal, but also has lots of gas 
and terrible weather which increases construction and operating 
costs.  The EU has coal, but it is deep and expensive to mine and 
the EU has access to gas from Russia and North Africa. 
 
¶10.  Regarding the U.S., Sasol is considering investing in a CTL 
 
PRETORIA 00003726  003.2 OF 004 
 
 
facility in Texas, Montana, Wyoming, Illinois, or North Dakota. 
Such a project would represent Africa's largest investment in the 
U.S.  The relative attractiveness of the various U.S. sites is 
determined by the quality of the coal, the means of extraction (open 
pit or underground mines), the availability of coal (2.5 billion 
tons minimum with 1.5 billion tons of extractable coal), the 
availability of water (for use in the CTL conversion process), the 
distance to market for the electric power, the placement/use the 
carbon emissions (such as a nearby oil or gas field), and local 
incentives (such as tax holidays and training subsidies).  The 
placement of carbon emissions is a major obstacle.  Montana and 
North Dakota have less costly open-pit coal mines that are far from 
markets, Illinois has costly underground mines that are close to 
markets, and Texas has proximity to oil and gas fields.  No 
decisions have been made regarding the prioritization of these 
sites. 
 
----------------------------------- 
Threat of a Tax on Windfall Profits 
----------------------------------- 
 
¶11.  Sasol has come under fire from the SAG on a number of issues. 
These include Sasol's tardiness in implementing black economic 
empowerment, affirmative action and equity labor legislation, and 
its failure to construct additional synfuel capacity.  The SAG also 
challenged Sasol (and other synthetic fuel produces) on significant 
(windfall) profits Sasol has made from high petroleum prices.  A SAG 
commission ruled against imposing a special tax that could harm 
future investment, but the threats spurred Sasol to implement 
significant black economic empowerment programs and announce 
capacity expansions. 
 
------------------------------------ 
Sasol's Plans to Expand Domestically 
------------------------------------ 
 
¶12.  Synfuel plant capacity is expected to increase by 20 percent 
(to 192,000 barrels per day) over the next 10 years.  Some 95 
percent of the expansion is expected to be fueled by natural gas 
piped in from Mozambique through Sasol's existing pipeline.  In 
addition, a feasibility study is currently underway for a new 80,000 
barrels per day CTL plant, in partnership with the SAG, possibly 
located on the Waterberg coal-fields in the north-west of the 
country. 
 
----------------------------------- 
Single Largest Point Emitter of GHG 
----------------------------------- 
 
¶13.  Sasol Secunda Chief Engineer Ed Koper admitted that Secunda is 
the world's largest single point emitter of greenhouse gas in the 
world.  He also said Sasol was not the "worst" emitter, noting that 
state power company Eskom emits three times more greenhouse gas, but 
these emissions are spread over many locations.  Sasol Secunda does 
not have to comply with SOx or NOx emission standards/regulations, 
because none exist under South African law.  Koper estimated that 
operating costs would increase by 16-20 percent if companies had to 
comply with these types of standards.  (Comment: The South African 
government has imposed a ban on new power plants in the Highveld 
region unless the new plant would not increase greenhouse gas 
emissions.  In other words, Eskom must close a plant to build a new 
plant.  End Comment.) 
 
¶14.  The Sasol Secunda plant does not have CO2 mitigation facilities 
and Koper admitted that it produces far more CO2 than it could 
possibly sequester in the coal mines surrounding the plant, even if 
that were a geologically feasible plan.  He said, "There aren't 
enough holes to put all our CO2 into the coal beds."  Koper also 
admitted that the plant's carbon and power efficiency is less than 
that of a crude oil refinery, a fact he attributed to 1970's factory 
designs that did not optimize energy use. 
 
 
PRETORIA 00003726  004.2 OF 004 
 
 
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HIV - AIDS 
---------- 
 
¶15.  Sasol has implemented a comprehensive HIV/AIDS Response Program 
(SHARP) aiming to reduce HIV infection rates and extend the quality 
of life of infected employees.  The program emphasizes voluntary 
counseling and testing.  Koper said that 80 percent of employees 
volunteered for testing.  Only 14-15 percent of volunteering 
employees tested positive, which is significantly less than 
actuarial estimates of 15-20 percent.  Comment: This relatively low 
infection rate may reflect the fact that Sasol Secunda has an older 
work force, and/or the fact that the 20 percent of employees that 
did not test probably have a higher infection rate than those that 
did. 
 
----------------- 
Comments on Visit 
----------------- 
 
¶16.  Chief Engineer Koper, a Dutch national, showed pride in his 
long association with Sasol, contributing to the building and 
expanding of the facilities.  Koper commented that some Dutch 
compatriots were critical of his work in South Africa under 
apartheid, but he pointed at the provision of training and expertise 
to many South Africans.  In addition, he noted that his management 
responsibility as a young engineer working on Sasol from the ground 
up gave him much more advanced and deep experience than former 
school mates.  Sasol's status as a national technological champion 
is documented with the depiction of its original coal gasification 
facilities on South Africa's 50-Rand note, along with Eskom's 
nuclear power plant at Koeberg in the Western Cape Province. 
Unionists still call for Sasol to be "re-nationalized".  Sasol has 
benefited from high oil prices, but it has also made significant 
improvements in its coal- and gas-to-liquids technologies and will 
continue to expand domestically and internationally.  It will also 
have to grapple with the challenge of carbon emissions, particularly 
as it considers significant investment in the U.S. 
BOST