TLM

South Africa-based petrochemicals group Sasol Ltd. (SSL) announced plans to set up a gas-to-liquids (GTL) plant in the southwestern region of the State of Louisiana. This will be the first facility in the U.S. to generate GTL transportation fuels and other products.

Sasol, which constructed the world’s first commercial-sized GTL plant in Qatar, will conduct an extensive feasibility study regarding the viability of the project in Calcasieu Parish, Louisiana, over the next 18 months. The evaluation and analysis will take into account the option of building two plants –– one with two million tons per annum capacity and the other with four million tons per annum capacity.

As cost-effective and environmentally safe fuels, GTL has earned a significant position in the energy mix. These fuels can a utilized in existing vehicles and fuel delivery infrastructure without any alternation.

Sasol is engaged in the mining and processing of coal. It also produces chemicals, fertilizers and explosives as well as explores and refines crude oil. In addition, it converts coal to petrochemicals products, such as diesel fuels and gasoline.

Sasol –– a pioneer in the area of synthetic petroleum alternatives –– has continuously focused on the commercialization of its GTL technology by constructing plants in gas-rich regions of the world that will strengthen its position in the industry in the coming years.

With gas prices remaining at depressed levels and thereby diverging significantly from high oil prices, Sasol is looking to utilize the spread by using its GTL technology that is expected to be more profitable than the company’s traditional business of producing motor fuels from coal. 

In this regard, the company has recently signed two transactions with Canadian energy explorer Talisman Energy Inc (TLM) to enter the North American shale gas market.

We like Sasol for its diverse portfolio of assets that produce a wide array of chemical and liquid fuels. Additionally, the company’s deleveraged balance sheet and strong cash position keep the group well equipped to weather the global economic storm and fund its growth program in tough credit markets.

However, we believe that the company’s unfavorable operating environment, characterized by a strong domestic currency and weaker refining margins, will keep near to medium-term earnings under pressure. Hence, we maintain a long-term Neutral rating on the stock.

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