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Financial Times: Sasol bullish on gas despite rising costs and time hurdles

By Dino Mahtani in London
Published: October 5 2007 03:00 | Last updated: October 5 2007 03:00

Sasol expects to see its first gas-to-liquid project producing normally by next year after solving a technical problem that had caused a serious delay.

The South African chemicals and liquid fuels company is a pioneer in converting coal to liquid fuels, developing the technology in the country’s isolation during the apartheid regime.

But its newest gas project in the gas-rich gulf state of Qatar, which has plans to turn itself into the gas-to-liquids capital of the world, has been bogged down in delays since last year.

Demand for products created by GTL has been increasing as oil and natural gas markets tighten and environmental regulations on cleaner fuels have come into play.

But a number of gas-to-liquid projects around the world have faced higher costs, been delayed or even scrapped.

Pat Davies, chief executive of Sasol, told the Financial Times that the Qatari project, called Oryx, a joint venture with state-owned Qatar Petroleum and Sasol, should fully meet its 34,000 barrel per day capacity by July next year.

“Once Oryx is up and running then it will prove to the world that the technology works and the deal flow will start increasing,” Mr Davies said.

Industry analysts have been sceptical about whether the GTL technology will ultimately succeed.

This year, ExxonMobil scrapped plans to build an enormous GTL plant in Qatar, but did not give a reason.

Shell, which is going ahead with its Qatar plans to build a 140,000 barrels per day GTL plant has seen cost estimates spiral from $5bn up to $18bn. Oryx, which was to have entered production last year, was initially held back because of problems with ancillary equipment.

The plant then started experiencing a build-up of fine material in the production phase, related to a problem with its catalyst.

But Sasol said the problems had been solved and the remedial work to eliminate the impact of the fine material should cost $50m – less than five per cent of the total cost of the project.

Mr Davies said the $1bn Oryx plant has avoided cost price inflation because engineering contracts had been sealed before industry-wide cost pressures took off recently.

But he also said that a planned expansion of Oryx to 100,000 b/d would be on hold until the project proved it was running smoothly, and it would be subject to tighter gas allocations in Qatar.

“There will be gas; the question will be when that gas will be available,” Mr Davies said.

Global GTL production is a small fraction of world oil and gas production, and is likely to remain a small proportion even as major projects come on stream.

Sasol has plans for a GTL plant in Nigeria and is working on feasibility studies for a 60,000 b/d plant in Australia.

But Mr Davies said the company saw a huge opportunity to use coal-to-liquids technology it possesses to strike deals with coalrich countries, particularly China.

Sasol said its coal-to-liquids production in South Africa had helped meet 23 per cent of South Africa’s fuel requirement since the 1950s.

Copyright The Financial Times Limited 2007

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