Coal can slake China's oil thirst, says Sasol
Allan Seccombe
Posted: Mon, 06 Mar 2006
miningmx.com
[miningmx.com] -- SASOL, the world’s leading maker of liquid fuel from coal and gas reckons China's thirst for oil could be quenched through its coal resources. It expects the oil price to range from $55 to $58 a barrel up to June.
Sasol makes up to 160,000 barrels of synthetic fuel a day, providing for 28% of South Africa's requirements. It is building two gas-to-liquid (GTL) plants, one in Qatar and one in Nigeria.
In China, it is holding talks to advance feasibility studies in China for a coal-to-liquid plant and it is evaluating similar projects in the United States and India. The world's largest coal deposits are found in these three countries.
The increased interest shown around the world in the coal-to-liquid technology could result in massive off take of coal. Sasol uses 45 million tonnes of coal a year and 200 million cubic feet of gas per day to make 160,000 barrels a day of fuel.
Sasol could build two plants in China that would each use up to 19 million tonnes of coal a year to make 80,000 barrels per day of fuel, made up of two thirds diesel and 34% naptha and liquid petroleum gas. Their combined output of 160,000 barrels per day would equal that of Sasol's South African production.
The projects would cost up to a total $14bn and Sasol would hope to hold up to a 50% equity position in each.
If 10% of China’s coal reserves were converted to oil it would equal the world’s proven crude oil reserves, said Pat Davies, Sasol's CEO.
“China has all the oil it needs in the form of coal,” he said.
China has all the oil it needs in the form of coal
Sasol has already produced 1.5 billion barrels of oil in the past decade. “That places us in a wonderfully sweet spot to supply energy,” Davies said.
Sasol has benefited immensely from the high oil prices, with its interim operating profit up 71%.
US light crude for April delivery was trading at $63.48 per barrel by late afternoon South African time, while Brent crude for the same month was trading at $63.71.
The price of US crude has jumped about seven percent since mid-February because of worries about growing tensions in key suppliers like Iran and Nigeria.
“We still think oil prices will come off… We believe that in this half we are in now prices will be $55 to $58 a barrel,” he said.
“We don’t see any major shift that will push the price down. It’s a very complicated story of supply and demand. Iran is playing a factor as are the upsets in Nigeria,” Davies told Miningmx. “These factors tend to come and go. As some of these geo-political events stabilise a bit the oil price will nudge down.”
Sasol will unveil a second black empowerment deal on its coalmines in coming months, Davies said.
This is separate from the announcement in May 2004 when Sasol and Eyesizwe, the largest empowered coal miner, signed a memorandum of understanding, covering areas of possible cooperation.
“We are close to announcing a deal with Eyesizwe and there will be another empowerment announcement before year end,” Davies said, declining to give any more details apart from saying details of the Eyesizwe deal could be released in the next couple of weeks.
Sasol mines 51 million tonnes of coal a year, making it the country’s second largest producer. It exports 3.6 million tonnes of steam coal a year.
Sasol expects export steam coal prices to rise from the $50 level seen currently.
“The prices are $49 to $50 a tonne and we expect them to go up somewhat,” said Jannie van der Westhuizen, the Sasol group general manager.
“There was a very cold winter in Europe and the impression we get is that the coal users there have left it a bit late to add to their stock levels. We think they’ll have to build their stocks,” he said.
“The Russians are the wild card. If prices go lower than $50 they tend to withdraw. I don’t think it will go much higher than $50, but there is a slight upward trend now and we think it could extend into the next couple of months,” he said.
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The impact on coal prices from increased conversion of oil to fuel is likely to be minimal, van der Westhuizen said, explaining mines would be built specifically for conversion plants, which would use a different quality coal to export-quality coal.
The world has 190 years of coal supply based on current usage rates compared to 60 years of gas and 40 years of oil supply, according to the World Coal Institute.
Sasol has some concerns that its coal-to-liquids technology could be copied in China.
“We are concerned about it, however, the largest challenge is to make the technology work and deliver value. Sasol has that ability to do that with parties in China,” van der Westhuizen said. |
