Despite the lower-for-much-longer oil price outlook, integrated chemicals and energy company Sasol is remaining focused on executing growth projects in Southern Africa and North America as part of a dual regional strategy. In presenting 63%-lower earnings attributable to shareholders in the six months to December 31, outgoing Sasol CEO David Constable gave details of Sasol’s expansion in neighbouring Mozambique, where it had obtained Council of Ministers’ approval for a field development plan that would monetise more hydrocarbon resources in support of Southern Africa’s growth objectives. (Also watch attached Creamer Media video). “The Mozambican gas industry is playing an increasingly important role in the regional energy landscape,” Constable said at the company’s latest presentation of financial results, attended by Creamer Media’s Engineering News Online. The production agreement’s $1.4-billion first phase involved an integrated oil, liquefied petroleum gas and gas project next to the company’s existing production agreement area.
Against that background, R2.7-billion was being invested in the Loop Line 2 natural gas pipeline project to increase the capacity of the Mozambique-to-South Africa gas pipeline to 191-billion cubic feet a year from the second half of this year. In South Africa, beneficial operation was expected at the Shondoni coal project in Mpumalanga in the first half of this year and at the R13.6-billion second-phase Sasolburg wax expansion in the first half of 2017. In the United States, $3.7-billion had been invested to date in the ethane cracker and downstream derivatives complex at Lake Charles, where detailed engineering was advanced and underground civil work was nearing completion. To support the company’s response plan to the lower oil price, the decision had been taken to pace the execution of the cracker project, with the proposed schedule extension expected to optimise field efficiency still further and limit the spend rate. A phased commissioning of the cracker was expected in 2018 and full beneficial operation of the smaller derivatives units in 2019. “By optimising cash flows, we’re managing our gearing and credit rating, ensuring continued balance sheet strength, protecting our dividend policy and driving resilient earnings,” said Constable – who will be succeeded by joint CEOs Bongani Nqwababa and Stephen Cornell on July 1. The dual strategy was designed to augment Sasol’s other business activities in Eurasia, Middle East and the rest of Africa. Overall, the company was going all out to ensure that its balance sheet and earnings remained resilient at an oil price of $30/bl.
By Jeremy Shepherd Smith
It seems unlikely that this year, or the first part of it anyway, will mark the big resources comeback.
After three years characterised by a halving of the oil price, slowing demand, shaft closures, stalled projects, write-downs, mergers, price collapses and increased costs, there is no light yet at the end of the mine shaft. In South Africa, add electricity woes, water shortages, lower productivity and lengthy labour strikes to that list.
World GDP growth expectations were again lowered at the Davos WEF meeting last month, from 3.4% to 3%. The US is the only major economy showing real improvements in economic indicators such as productivity and employment, with global engine room China growing at its slowest pace in 24 years.
Africa, the world’s investment darling in the past few years, with growth in many countries and regions into double digits, is experiencing a sudden slowdown, with oil-producing nations particularly hard hit. These include our neighbours Mozambique and Angola.
Also on our doorstep, Zambia’s recently elected government faces severe economic and political headwinds after the sudden 16% fall in copper prices three weeks ago.
Zambia, the only African country in the top 10 of global copper producers (830000 tons in 2013), started several new copper projects that year, boosting production by 20%. These and more established mines in the highly copper-dependent country are in jeopardy, and the government, with paper-thin support in the recent elections, could see a backlash as jobs are shed.
As mining ministers, investors and analysts gather in Cape Town this week for the annual Investing in African Mining Indaba, these and other issues will be top of mind as they pitch for business.
As the indaba’s group marketing director, Maria Palombini, says, the indaba is about deal-making. More than 40 government ministers and 50 mining companies will be among the 7000 delegates jostling shoulders at the world’s largest mining investment conference as they try to grab a slice of the mining pie.
It is clear that the development of oil and gas projects in sub-Saharan Africa is on hold, at least for now.
Mark Essex, director of oil and gas for KPMG in Kenya, says host countries will be disappointed by the postponements of projects as they have worked hard at making their countries attractive investment destinations.
“The exploration boom that took place in sub-Saharan and east Africa over the past four years has brought a sense of expectation in governments and communities. They have set their sights on goals such as energy independence and job creation,” Essex said.
Governments have learnt from others’ mistakes and have worked hard at fiscal, regulatory and institutional reforms. But Essex believes progress may be unravelled if “everyone now sits back regarding putting regulatory and institutional frameworks in place”.
He says in order to continue to entice investors governments need to work even harder at these reforms.
“Governments need to make the investment environment even more attractive for when the project economics improve. All the preconditions for significant investments in infrastructure need to be in place as and when exploration and development expenditure does return.”
Essex warns that countries with more assertive local content policies could find it harder to remain cost-competitive, potentially becoming less attractive investment destinations in an even more cost-conscious environment.
South Africa’s focus at the indaba will be its mining industry in relation to investment, innovation, competitiveness and sustainability.
Hit by low commodity prices, rising mining costs and falling productivity, the environment needs careful handling, says SRK chairperson and corporate consultant Roger Dixon.
“Tough economic conditions are making it harder to fund new mines or even sustain existing operations, so explorers, developers and operators must ensure that the risks are well understood and mitigated,” Dixon said.
There’s growing awareness that innovation is needed to help both new and existing mines remain sustainable.
Karen Dobson, global director for mining, Dow Oil, Gas & Mining, says the water crisis affects all South Africans, including businesses.
“Sustaining water is everyone’s responsibility, especially an industry such as mining where millions of litres of water are used daily which in turn has a significant impact on the surrounding communities,” she says.
Source: The New Age
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