South Africas cabinet has unveiled a plan to begin a phased cut in price protection for synthetic fuel Jan. 1.
This is expected to cost Johannesburgs Sasol Ltd.South Africas largest synfuels manufacturer with 46% of the marketabout 3.4 billion rand ($930 million) to mid-2000.
Synfuel currently receives tariff protection when the world market price of oil falls to less than $21.40/bbl. For first half 1996, synfuel producers will receive a government handout only when the world market price of oil falls to less than $19/bbl. In second half 1996, the trigger point will be $18/bbl.
After 1996, the protection floor price will be edged down to $16/bbl by July 1999, while the whole subject of synfuel price protection will be up for review in June 2000.
Background
Sasol is South Africas only manufacturer of synfuel from coal, and currently sells synfuel wholesale to all South Africas retail liquid fuel distributors.
By law Sasol maintains one gasoline pump at every retail site, at which it can sell gasoline its Sasol Oil division refines from crude oil.
Sasol Oils gasoline is produced from imported crude oil. Sasol is currently negotiating for rights to be able to sell the divisions gasoline through Sasol owned retail sites, although it owns none now.
Caltex Oil SA, Engen Ltd., Johannesburg, and Shell & BP South African Petroleum Refineries PL are among Sasols main competitors in the downstream sector (OGJ, June 5, p. 26).
Sasol is seeking a small market share in the retail sector, in comparison with other players. It intends to keep its synfuel business going but now reckons that is in a survival mode.
Sasol Chief Executive Officer Paul Kruger said removal of synfuel protection was far more severe than the treatment given other industries as South Africa readjusts to normal international trade after years of boycotts.
Kruger said Sasol had anticipated removal of the synfuel protection and started a major restructuring of its synfuel business to cut costs.
Other Sasol problems
Among Sasols other problems is a dispute with Total SA over ownership of joint venture National Petroleum Refiners of South Africa PL (Natref), in which Sasol holds 63.64%.
During 1994 Sasol transferred ownership of its Natref stake from Sasol Mining to its Sasol Oil unit. Total claims this has activated a right of preemption for Natref shares, allowing it to take a larger share. Sasol expects arbitration proceedingsto decide whether Total has preemption rights over Natrefwill take place in first half 1996. Natref operates an 86,000 b/d refinery at Sasolburg.
Good news for Sasol has come with an agreement between Sasol Mining and Amoco South Africa Petroleum Corp. to cooperate in studies of coalbed methane prospects in South Africa. Sasol and Amoco intend to assess coalbed methane potential in Sasols existing coal mining operations, which produce a total 41 million tons/year of coal. Copyright 1995 Oil & Gas Journal. All Rights Reserved.