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Sasol to Build GTL Plant

Zacks Equity Research

South Africa-based energy and chemicals company, Sasol Ltd. (SSL) plans to build a plant in Louisiana to convert natural gas to diesel, chemicals and other liquid fuels. Estimated cost of the project is around $21 billion.

The project will comprise a gas processing plant, a chemical plant and a refinery. It is anticipated that the company's Louisiana plant will produce around 96,000 barrels of fuel per day by implementing its gas to liquid (:GTL) technology.

Expenses for the chemical plant are likely to be in a range of $5–$7 billion along with an additional $11–$14 billion for the GTL plant. The chemical plant will come on line in 2017 while the diesel plant will begin its operations in two phases in 2018 and 2019.

The upcoming facility will be the second largest in the world after Royal Dutch Shell plc’s (RDS.A) plant in Qatar.

Sasol is the leading provider of liquid fuels and a major international producer of chemicals. The group divides its operations in these segments: South African Energy Cluster, International Energy Cluster and Chemical Cluster.

We believe that Sasol’s deleveraged balance sheet and strong cash position keeps the group well equipped to weather the global economic storm and fund its growth program in tough credit markets.

With gas prices remaining at depressed levels and thereby diverging significantly from oil prices, Sasol – through its upstream North American shale gas investments – is looking to utilize the spread by using its GTL technology. This is expected to be more profitable than the company’s traditional business of producing motor fuels from coal. The company’s major GTL ventures are progressing on schedule and are expected to show results by the end of 2012.

However, we believe that the company conducts operations in many countries and is exposed to risks associated with doing business abroad. Such risks include embargoes and/or expropriation of assets, exchange rate risks, terrorism and political/civil sentiment and others.

We maintain a long-term Neutral recommendation on the stock. Sasol currently retains a Zacks #3 Rank (short-term Hold rating).


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