Sasol tightens its belt

Sasol, a chemical and energy company, has taken a significant step by pulling the plug on all its gas to liquids greenfield projects, including the $15 billion project in the U.S. This strategic shift comes as a response to the evolving dynamics in the oil industry, particularly in light of the sustained low oil prices. In a recent interview with CNBC Africa, Joint CEOs Bongani Nqwababa and Stephen Cornell discussed the rationale behind this decision and the impact it will have on Sasol's future trajectory. The company highlighted that while the existing GTL assets were performing well, the economic viability of building new plants in the current price environment was questionable. Sasol's focus will now be on optimizing its current assets in South Africa, Qatar, and Nigeria, as well as leveraging its longstanding Fischer-Tropsch technology expertise. Nqwababa and Cornell emphasized that the shift in strategy was driven by their long-term view that oil prices are likely to remain depressed for an extended period. They revealed that the company had conducted scenario analyses based on various price levels, concluding that GTL projects would struggle to deliver the targeted returns in a lower pricing environment. As a result, Sasol made the decision to forgo new investments in GTL facilities. Despite the strategic pivot, the market response to Sasol's announcement was lukewarm, with the company's share price dipping by 2%. Cornell attributed this reaction to broader factors such as fluctuations in crude oil prices and currency valuations. He noted that it would take time for investors to fully grasp the implications of Sasol's revised strategy. However, he expressed confidence in the company's direction, particularly its focus on expanding in high-growth areas like specialty chemicals. When questioned about the potential impact on Sasol's balance sheet, the executives downplayed the significance of impairments, stating that any impairments would be minimal. The US gas to liquids project, which accounted for $85 million on the balance sheet, would be the primary target for impairment. Overall, Sasol is aiming to navigate the current market challenges while positioning itself for sustainable growth and profitability in the future. As Sasol tightens its belt and realigns its investment priorities, the company is making a calculated bet on focusing on areas with stronger growth prospects. By shelving new GTL projects and concentrating on optimizing existing assets and pursuing opportunities in specialty chemicals, Sasol is charting a course that reflects its adaptability and responsiveness to market conditions.