22 June 2006

Today in Cape Town, South Africa, Sasol signed a co-operation agreement with a consortium led by China's Shenhua Corporation for proceeding with the second stage of feasibility studies to determine the viability of an 80 000 barrels per day (bpd) potential coal-to-liquids (CTL) in the Shaanxi Province, about 650 kilometres west of Beijing.

A similar agreement for another 80 000 bpd CTL project in the Ningxia Hui Autonomous region, about 1 000 kilometres west of Beijing, was signed with Shenhua Ningxia Coal Ltd yesterday.

This signing was followed by a presentation by Sasol on the value proposition of CTL for China to the People's Republic of China's Premier Wen Jiabao. The Premier is on an official visit to South Africa.

“We are highly appreciative of the Chinese Government's keen interest in the projects,” says Sasol CE Pat Davies.

The meeting comes as stellar growth in the Chinese economy has caused China to increase its oil imports exponentially. As a result, the drive towards coal for energy security has been endorsed at the highest levels in China and CTL conversion technology, in particular, has been earmarked as having the potential to reduce dependence on the importation of crude oil and refined products. Davies says that coal utilisation technologies have been flagged in the 11th Five Year Plan of the Peoples Republic of China as an area for policy intervention and support.

“This policy makes eminent sense,” says Davies. “China has all the energy it needs in the form of coal and Sasol can provide the means of turning this coal into valuable transportation fuel to replace imported crude oil.”

Having produced more than 1,5 billion barrels of oil equivalent fuel in South Africa, Sasol is recognised as the world leader in producing fuel from coal, with an unparalleled track record of more than 50 years of proven commercial CTL experience. “Sasol offers China commercially proven and world-class experience in converting abundant coal reserves into valuable synthetic liquid fuels. Our proprietary and proven Fischer-Tropsch technology offers China a compelling and competitive fast-forward to meeting its future energy requirements in an efficient, reliable and sustainable manner,” says Davies.

The proposed Chinese projects comprise two plants, each with a nominal capacity of delivering 80 000 barrels a day of liquid fuels. Combined their capacities are roughly equivalent to that of Sasol's existing Secunda facility in South Africa.

The initial pre-feasibility studies confirmed that all key drivers are in place for establishing a viable CTL business in China using Sasol's unique low-temperature Fischer-Tropsch technology. Each plant is expected to cost more than US$5 billion. Should these CTL projects go ahead, they could be brought into operation as early as 2012.

The second stage feasibility studies will go into more detail in determining capital cost, feedstock cost, water supply and market conditions and will also determine most of the major commercial and funding issues.

“We have now established an office in Beijing, comprising a top level project team, to accelerate our progress on these projects,” says André de Ruyter, president of Sasol's China Ventures, adding that the initiation of feasibility studies would give real impetus to a synthetic fuels industry in China. Sasol intends to be a significant equity investor in these projects, rather than a technology provider only.

The identified locations meet economy of scale production criteria and dovetails with China's over-arching socio-economic, industrialisation and development policies. Besides the drive for energy self-efficiency, these include achieving productivity growth underscored by a balance between economic development, people and the environment. The establishment of the two new plants in the western hinterland is expected to result in thousands of new jobs and spin-off economic development outside of China's existing high-growth regions.

In developing new CTL plants, Sasol's objective is to design carbon capture ready facilities, which can significantly reduce greenhouse gas emissions.

Sasol, based in South Africa, a developing country which has similar energy requirements to China and has developed its own energy solution, recognises and admires the significant and rapid progress China has made in growing its economy by adopting new technologies and in the process improving the quality of life of its people, says Davies. “Sasol seeks to establish a mutually-beneficial relationship that will contribute to China's economic development and energy security. Such relationships signal a new form of cooperation between developing nations,” concludes Davies.

As part of its internationalisation programme, Sasol is also investigating CTL opportunities in the USA and India.

Sasol CE Pat Davies greets the Peoples Republic of China Premier Wen Jiabao

Sasol's Lean Strauss, Pat Davies and Andre de Ruyter with the Shenhua Ningxia Coal delegation

Sasol's Lean Strauss and Pat Davies with the Shenhua Corporation delegation