• Emission threat:   Sasol’s licence to operate its synthetic fuels operation in South Africa is under threat due to its extremely low energy efficiency and high emissions of carbon dioxide at its Synfuels facility.
  • Mitigating options:  Sasol is looking to have 900MWp of renewable energy capacity installed.  The company is looking to increase gas consumption and it states that access to affordable large-scale green hydrogen could enable Synfuels to become a “near zero carbon” facility.
  • Impact of renewables:  The increased use of renewable electricity (900MWp) should lower Sasol’s scope 2 emissions by around 4% but this is not sufficient to secure the long-term future of the facility.
  • Where will more gas come from?  The increased use of gas has the potential to reduce emissions but a total switchover to gas is unlikely.  The long-term availability of gas also remains out of reach.
  • Green hydrogen – beyond our horizon:  The current cost of green hydrogen is too high for an energy transition at Synfuels.  Substantial investment in renewable power would be required with significant water consumption and land use.  We question if an 85% reduction in the cost of green hydrogen will be sufficient to justify investing in this option.  A cost reduction of 85% will likely only be achieved by 2050.
  • Why oh why?  Sasol’s plans to reduce emissions could be technically feasible but from a holistic energy perspective, the use of gas and hydrogen is more energy efficient in applications other than producing fuels that resemble fossil fuels for internal combustion engines.
  • Can they pull it off?  Sasol abandoned its New Energy development group in 2014 and also downsized technology capabilities in South Africa in recent years.  It is not clear if the company currently has the technical capabilities to execute on some of these mitigation plans.
  • Share price: Sasol’s emissions and the potential impact and cost of mitigation solutions on its value will overhang the investment case for some time.  Sasol’s will reveal its climate roadmap at a capital markets day later this year.  For now, our target price remains at R210/share.