A string of green news from Sasol suggests that the fossil-fuel company is working hard to change its emissions profile or at least its image. But critics and investors seem unconvinced that these steps signal any meaningful move to reduce greenhouse gas (GHG) emissions for the company and its pollutive SA operations.
Sasol is the second-largest emitter of GHG in SA, after Eskom, and its Secunda facility holds the inauspicious title as the single-biggest emitter of GHG globally.
Its environmentally unfriendly business has put it under the spotlight as pollutive companies come under extraordinary pressure to “green” their operations — not just from activists but from investors too. In 2020, Sasol was one of 15 companies blacklisted for investment by Norway’s $1.3-trillion sovereign wealth fund.
But now, as announced this month, Sasol is embarking on a few sizeable initiatives that will aid it in reducing its carbon emissions to achieve a target of a 10% reduction by 2030.
One way Sasol hopes to do this is by procuring 900MW of renewable energy in partnership with Air Liquide to replace Eskom electricity supplied to its Secunda operations.
The energy and chemicals company has further announced two green hydrogen initiatives. Hydrogen is a highly efficient carrier of energy. When produced using renewable energy, it is deemed green hydrogen and is considered the key to decarbonising energy-intensive industrial processes at a rate that renewable energy technologies are unable to.
Sasol announced plans to explore the feasibility of sustainable aviation fuel production at its Secunda Synfuels plant with a view to bid in concept for the production of fuel under the auspices of the German federal government’s H2Global auction platform.
Ticking upwards
The company also announced a partnership with Toyota SA Motors to jointly pursue the development of a “mobility corridor” that demonstrates the use of green hydrogen in heavy-duty, long-haul trucks.
The recent announcements didn’t appear to do much to excite investors, with the Sasol share only ticking upwards in line with the price of Brent crude.
As Abdul Davids, head of research at Kagiso Asset Management, notes, the 900MW of renewable energy is expected to reduce Sasol’s carbon footprint by more than 2-million tonnes, but it’s a drop in the ocean considering that the group emits more than 62-million tonnes of greenhouse gasses and carbon annually and plans to cut the emissions by at least 10% in 2030.
Chronux Research’s Gerhard Engelbrecht agrees.
“The increased use of renewable electricity should lower Sasol’s scope 2 emissions [relating to Eskom electricity it uses] by about 4%, but this is not sufficient to secure the long-term future of the facility,” he says in a research note.
Tracey Davies, executive director of Just Share, a shareholder activist group, says it is positive that Sasol is increasing the ambition in terms of the amounts. “But ... what this means is that they will be using renewable energy to power a process that makes fossil fuels from fossil fuels. It’s great that it will reduce the scope 2 emissions, but it’s still not tackling the core problem with Secunda, which is that incredibly emissions-intensive coal-to-liquids process.”
On the green hydrogen front, she says there is also much uncertainty.
“All of this is extremely uncertain. Even the Europeans, who are at the forefront of this, are just piloting these things to investigate the feasibility,” Davies says.
Key constraint
“I do think that Sasol are very much glossing over the uncertainties, the complexities and the time frames involved in these projects. Not to say that it’s not good that they’re investigating them. But ... they need to be more honest about how feasible they are at the moment.”
Analysts see the cost of green hydrogen as a key constraint in the foreseeable future.
“The current large-scale production of green hydrogen ranges between $2.70 and $6/kg, depending on region and cost of renewable energy,” says Engelbrecht.
Sasol indicates that the cost needs to fall to $1/kg or less for the proposed solution to become economical. This implies that a reduction of up to 85% in production costs is required to make the process economical.
Research by JPMorgan analysts questions if even an 85% reduction in the cost of green hydrogen will be sufficient to justify investing in this option and note that such a cost reduction is likely only to be achieved by 2050.
Sasol’s emissions and the potential impact and cost of mitigation solutions on its value will overhang the investment case for some time. Sasol is due to reveal its climate road map at a capital markets day later this year.
Apart from the renewables procurement and green hydrogen initiatives, Sasol says it will also seek to reduce emissions by up to 2-million tonnes a year through energy efficiency. It also hopes to increase its use of gas feedstock in its processes.
Quantifiable path
Engelbrecht says while the increased use of gas has the potential to reduce emissions, a total switchover to gas is unlikely, due to the capital that will be required to reconfigure Synfuels to what would essentially be a temporary solution to the carbon emissions problem. The long-term availability of gas also remains out of reach, especially now that Total’s gas project in northern Mozambique has halted over an Islamic insurgency in the area.
The bottom line, Engelbrecht says, is that Sasol’s emission and the potential impact of mitigation solutions on the value will cast a shadow on the investment case for many years or at least until the company identifies a clear and quantifiable path to reduce emissions.
And therein seems to lie the rub — Sasol has not made any announcements on targets for 2050 yet.
Sasol’s emission-reduction target at best suggests that the group is aiming at about 57-million tonnes of carbon dioxide emissions by 2030, says Davids. “In contrast, many of the oil majors are targeting a net zero target by 2050.”
Davies says Sasol is clearly under pressure to show that it takes climate risk seriously, but it continues to defer the release of a decarbonisation strategy. “When they announced it at last year’s AGM they said it would be released in the first quarter of 2021 ... in a [recent] interview the CEO said the end of 2021.”
The longer the delay, the deeper reductions will be required, she says, noting that the period leading up to 2030 is crucial if the Paris Agreement’s emission goals are to be reached.
Sasol has said the Paris Agreement is clear in its recognition that the need for developing countries, and by implication corporates in these countries, are on a different or delayed emissions reduction trajectory to others in developed countries.
“In no way is this counter to the intent of the Paris Agreement or the urgency of the need to transition but rather simply acknowledges legitimate challenges faced in different geographies and locations to be overcome as part of the reduction journey,” Sasol has previously said.
Davies believes that it is Sasol’s stretched balance sheet that underpins this messaging. “Because they actually just can’t,” she says. “They can’t guarantee any emission reductions before 2030 without reducing the production from Secunda.”
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