However, CEO Pat Davies revealed that the company would have to spend an additional $50-million, or five per cent of the project’s overall value, to improve the reliability of the "fixes" introduced at the facility – the plant was initially envisaged as a 34 000-bbl/d facility, with an associated capital cost of $950-million.
The facility began producing final product in January, but on May 22, the JSE and NYSE-listed group shocked the market when it admitted to experiencing technical difficulties as a result of higher-than-expected levels of fine material being produced in the Fischer-Tropsch process. This led to an immediate sell-off, which saw Sasol’s share price fall 5,47%, or R15,09 a share, on the day.
The group revealed that it was interrogating the cause and extent of the problem and that “back-up solutions” were being sought, but that these were likely to take until the middle of 2008 to finalise.
Sasol stressed throughout that the underperformance was not insurmountable, nor would it impact on its aspiration to apply the GTL technology elsewhere. But some speculated that the technology flaws where, in fact, deeper than acknowledged, with similarities even being made between Oryx and Mossgas.
STILL GTL's 'SHOP WINDOW'Davies said on Monday that the levels of fine material (which had been choking the plant’s filters and, thus, preventing a ramp-up to full production) had been substantially reduced and that it was now targeting, for the first time, to begin operating both trains simultaneously in October.
But he refused to be drawn on when the plant would reach its nameplate output levels.
“We have now brought [the fines] down to just about the design range. So we are getting there and we have basically solved this problem. We will be installing a little bit of kit to ensure we improve the reliability on this,” Davies asserted.
He argued further that, while it was “not nice” to have to spend the additional $50-million required to improve reliability, “it is pretty insignificant in the grand scheme of things”.
“Sasol offers cutting-edge technology. But to get there, we have to take some risks. In return, our shareholders get a company that has a superior technology and returns. But, of course, that cutting edge sometimes becomes the bleeding edge and it hurts us a little bit,” Davis elaborated, noting that the group had over 100 PhDs in its employ, who “love challenges like this”.
“We are entirely confident that the technology works. We are entirely confident that Oryx is going to become the shop window for the gas-to-liquids industry that we said it would become,” Davies added.
NIGERIA PROJECT UNDER WAYThis confidence was arguably reflected in the fact that that group was proceeding with its second GTL project in Nigeria, which was expected to start up in 2010.
Davies said that the construction of the Escravos GTL project was under way, but cautioned that the Nigerian construction market was challenging and difficult to predict.
The group again emphasised the importance of both its GTL and coal-to-liquids (CTL) technologies in providing a platform for its growth in Southern African and globally.
It was continuing to pursue opportunities for the technology in China, India, Australia, the US, and in Southern Africa. In South Africa it was in the early stages of planning for a new 80 000 bbl/d CTL plant, which would be located either in the Free State, or in the Waterberg.
Davies also stressed that, while others were also pursuing GTL, it remained the technological leader in the field, and was almost on its own in the advances it had made in the area of CTL.
Royal Dutch Shell was also pursuing a GTL project in Qatar, known as Pearl, which could produce 70 000 bbl/d. But there had also been reports of challenges with that project.
Davies argued that Sasol’s GTL and CTL technology platforms were still setting it apart, and could emerge as crucial to closing the inevitable supply gap that would emerge as oil resources dwindle and as demand from developing countries surged. He forecast that demand from India and China alone could add 17-million barrels-a-day to the world's demand profile, on top of the current 80-million.
“We want to use our technology to build hubs around the world . . . based on natural gas and coal, to grow our upstream business, our chemicals business and, of course, to grow our liquid fuels business,” Davies said, pointing out that South Africa had as much coal in “barrels of oil equivalent as Saudi Arabia has in oil”.
The idea is to take the very large reserves of available coal and gas, and convert these into transportation fuel, which comprises 40% of the world’s current energy demand.
Global growth consultancy Frost & Sullivan said on Monday that Sasol’s core technologies were becoming increasingly important as energy security concerns rise.
“Sasol has built its growth on technically complex technologies. Ensuring the robustness of these technologies will be crucial to the continued strengthening of its market value,” research analyst Jeannot Boussougouth noted.
Sasol's share close up R3,10 at R288 a share.