Sasol, a South African success story

The power of long-term planning

Sasol two.jpg Sasol One where it all started in 1950

Behind the unveiling, the week before last, of South African petro-chemical giant Sasol’s “Project 2050” lies an amazing success story of a long-term  vision stretching back to the 1920s. It is a story with lessons for present-day South Africa on a number of levels.

“Project 2050” is, according to Sasol’s CEO David Constable, an initiative designed to sustain and expand the company’s integrated value chain in Southern Africa until at least the middle of the century. The targeted date of 2050 coincides with the 100th anniversary of the establishment of Sasol in September 1950.

At the same time as the announcement of “Project 2050”, news came that Sasol has secured investment incentives worth about $1-billion from the state of Louisiana, in the United states, for the development of an ethane cracker and a gas to liquids (GTL) facility.

Sasol has over the years established itself as the global leader in producing liquid fuel from gas, initially by a process that  first gasified coal from which  petrol and other products could be gleaned.

In 1980 the US’ National Technical Information Service of its Department of Commerce reported: “Sasol's success indicates that producing synthetic fuels from coal can be technically and economically feasible. The technology is available and the Sasol process - coal gasification plus Ftscher-Tropsch synthesis - is the only commercially roven process that will produce synthetic fuels quickly, on schedule, and at predictable costs.”

It is interesting that that report came at a time when rumours were rife in the Vaal Triangle, where the Sasol I-plant is situated, of train loads of Californian “red-coal” were arriving there for feasibility testing.

But then, despite popular belief, Sasol’s process was not only developed on the back of technology secured from Nazi-Germany. Although the story started in Germany during the early 1920s, American interests were involved from the very start in the run-up to the establishment of Sasol in 1950.

 The early days

It all started in Europe during the late 19th century with  the first scientific discoveries forming the basis for a process to turn coal into oil in 1875.

Particular interest developed in a potentially commercially viable process in Germany where Nobel chemistry prize winner Friedrich Bergius in 1913 patented an effective means of producing a substance similar to oil by liquefying coal.

Then in 1923 Franz Fischer and Hans Tropsch discovered a process at the Kaiser Wilhelm Institute for Coal Research that rather gasified than liquefying coal.

In South Africa, with its vast reserves of coal but nothing in the line of oil at the time, there was keen interest in the developments in Germany. In 1927 a White Paper was published discussing the available processes for the production of oil from coal.

The initial interest in developing the production of oil rather from shale deposits than from coal led to the establishment of the South African Torbanite Mining and Refining Company (Satmar) in 1932.  The aim was to exploit the torbanite deposits at Ermelo and to refine and market indigenous petrol obtained by blending petrol from oil shale, alcohol from maize and molasses, and benzol from Iscor.

This venture was in the end not economically viable and Satmar then, in n collaboration with Anglo-Transvaal Consolidated (Anglo-Vaal), acquired the South African rights to the Fischer-Tropsch process in 1935.

The outbreak of World War II in 1939 interrupted plans to erect a first oil-from-coal plant around the coal deposits of Ermelo. However the war also  raised awareness of South Africa’s exposure to potential disruptions in imported oil supplies.

In 1947 a regulatory licensing framework was established for anyone interested in moving in that direction. The only applicant was Anglo-Vaal, which acquired a licence in 1949 and elaborated a scheme, initially estimated to cost £13 million, for the opening-up of a new coal mine to ensure a steady supply for a Fischer-Tropsch plant with an annual output capacity of 260,000 tons, including 76 million gallons of motor fuel.

By early 1950, having spent some £400,000 in preliminary work, Anglo-Vaal sought government support in the form of a guarantee of £16 million debentures to be issued by the Industrial Development Corporation (IDC), which had been set up by the government in 1942 to help finance industry.

An Interim Commission appointed by the government to examine the proposed undertaking recommended that the process should be taken over from Anglo Vaal and that a government financed company should proceed with the venture.

After considerable debate, the IDC was allowed to provide the necessary funds or guarantees, with additional support from American banks.

But it was not only on the financial front that American interests were involved. A second unit at Sasol One developed a fluid bed system based on the M.W. Kellogg technology. The integration of the fixed and fluid bed systems and the research and development that went with it, over the years led to the emergence of a unique production technique, ultimately to be known as the Sasol-Synthol process.

A strong long-term vision, the synergy between the private  and public sectors with a retention of fundamental commercial principles, including stock exchange listings, Sasol over the year developed into a truly global conglomerate.

It is involved in mining, energy, chemicals and synfuels, employs 34 000 people working in 38 countries and is South Africa’s single-largest tax-paying entity. It contributed R30.8-billion in direct and indirect taxes in 2013. It also spent R837-million on skills  development, invested R627-million in socioeconomic projects and dispersed R185-million of a larger R800-million commitment for the Ikusasa public-private partnership with municipalities in Sasolburg and Secunda.

Against this background South African Communist Party (SACP) general secretary Blade Nzimande’s accusations that Sasol had moved ahead with its US investment in breach of a gentleman’s agreement reached between Sasol and the National Treasury in 2007, whereby it committed to invest in a third coal-to-liquids refinery in return for the scrapping of plans for the introduction of a windfall tax, seems misplaced. At the release of its strong financial results for the year to June 30, 2013, Sasol’s CEO David Constable said the company remains firmly commitment to the Southern African region and that its US investment plans would not weaken that commitment.

 He also argued that its future investments in the region could well be larger than the $16-billion to $21-billion that the group is gearing up to invest in the US between 2014 and 2020.

by Piet Coetzer

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