There is an acrid scent even earlier than the world’s largest coal-to-liquid refinery emerges out of the South African highveld.
The Secunda mines-to-refining advanced is the world’s largest carbon emitter by quantity. The plant, owned by South Africa’s greatest chemical firm Sasol, emits extra carbon dioxide than Portugal.
The 40-year-old refinery within the coronary heart of South Africa’s Mpumalanga coal nation has an virtually dystopian really feel. Flames shoot skywards from gasoline flares, steam billows from chimney stacks and a maze of metal pipe twists round a procession of boilers, gasifiers and cooling towers. A single flue, 300m excessive, one of many tallest buildings in Africa, disperses pollution over a whole bunch of kilometres.
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After many years of turning considerable South African coal into artificial gas beneath a course of first developed by Nazi Germany, Secunda is now on the centre of a dispute in regards to the tempo at which Sasol ought to ditch its soiled habits.
It is a dispute that pits the ESG investing revolution sweeping international boardrooms towards the dirty actuality of South Africa’s emissions-intensive but beleaguered financial system.
At stake is the long-term way forward for Sasol itself, one of many nation’s most technologically refined firms and its greatest taxpayer.
Sasol, which is listed in New York in addition to Johannesburg with a market worth of about $7.6bn, produces one-third of South Africa’s gas, exports speciality chemical substances worldwide, and employs greater than 30,000 individuals. Secunda drives about 40 per cent of its earnings.
Now two South African institutional traders, Old Mutual and Ninety One, which collectively personal about 5 per cent of Sasol, have brazenly revolted over its emissions-reduction timetable — breaking with a practice of quiet shareholder engagement within the nation.
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Environmental protesters stormed Sasol’s annual basic assembly final month, forcing it to abandon proceedings.
Shareholders have questioned Sasol’s potential to satisfy its purpose of slicing emissions by 30 per cent by 2030 and, past that, of reaching web zero by 2050. The acid check can be whether or not Secunda can decarbonise, or if it is going to in the end must shut down.
“We don’t want to see Sasol being left with stranded assets,” stated Nazmeera Moola, chief sustainability officer at Ninety One.
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The firm, she stated, had for too lengthy delayed transition in South Africa, and had as a substitute invested massively in worldwide enlargement, together with an costly foray right into a chemical substances plant in Lake Charles, Louisiana, which ended up devouring almost $13bn.
“As a result the South African operations were starved of focus and capital,” Moola stated. Sasol’s enterprise worth is about 3 times its forecast earnings earlier than curiosity, taxes, depreciation and amortisation (ebitda) for the subsequent 12 months, in contrast with greater than 5 occasions for ExxonMobil and Chevron.
In an interview with the Financial Times, Fleetwood Grobler, Sasol’s chief government, rebuffed any suggestion the corporate had been sluggish to anticipate the tempo of transition or that it was backtracking from 2030 targets.
“Nothing has changed,” he stated, including that 98 per cent of shareholders had backed emissions-reduction plans once they had been introduced in 2021. “This year, all of a sudden, there’s this doubt about the target. For us, the plans to execute the targets are still the same.”
Grobler, talking from his top-floor workplace at Sasol’s smooth glass-and-steel Johannesburg headquarters, stated emissions cuts to 2030 wouldn’t be regular however can be “backloaded”, getting progressively steeper.
Tracey Davies, director of Just Share, a South African advocacy group for accountable investing, stated Sasol’s goal implied an improbably sharp acceleration of emissions cuts. Direct greenhouse gasoline emissions had fallen from 72mn tonnes in 2005 to 64mn tonnes this 12 months, an annual discount of 0.6 per cent, she stated. The 2030 goal of 46mn tonnes implied reductions of almost 4 per cent a 12 months.
Sasol, Davies stated, could be relying on forbearance from each shareholders and regulators given its dominant place in South Africa’s financial system. On paper, Sasol is going through hefty South African carbon taxes in the direction of the tip of this decade, however the tax has to date include beneficiant allowances.
South Africa’s authorities worker pension fund is Sasol’s greatest shareholder, with a stake of greater than 13 per cent, adopted by greater than 8 per cent held by a state improvement physique. Sasol says it accounts for roughly 5 per cent of South Africa’s gross home product.
That made the corporate onerous to self-discipline, Davies stated. “If Sasol doesn’t meet these targets . . . it is unlikely to meet a huge amount of resistance.”
Sasol says it will probably tweak precisely the way it will get to its 2030 emissions goal, relying on variables together with the worth of gasoline, another feedstock to coal and entry to renewable power, which has been hampered by authorities paperwork.
Grobler stated assumptions had modified given the influence of the battle in Ukraine on LNG costs. Sasol would as a substitute use gasoline reserves from neighbouring Mozambique, a few of which it already piped to a second Sasol refinery in Sasolburg, south of Johannesburg.
In extremis, Grobler stated, Sasol might “throttle the input” at Secunda. If it lowered the quantity of coal going into the method, it could reduce the quantity of CO₂ popping out.
Moola at Ninety One stated a fallback plan of slicing manufacturing was not reassuring to traders. “It is not in our interest for Sasol to shrink the size of the company in order to meet their climate target,” she stated.
Grobler stated shareholders had been getting unnecessarily jittery — Sasol’s share worth has fallen greater than 22 per cent in 2023 — and that the corporate had for not less than 20 years been “alive to the pressures piling up in the financial markets with respect to ESG”.
But traders additionally wanted to know that going inexperienced carried a price. “There is no transition that doesn’t impact on profit,” he stated, including that Sasol would spend R16bn-R25bn on emissions discount earlier than 2030.
Grobler stated that the Fischer-Tropsch know-how on the core of its enterprise was its finest assure of a post-oil future. Sasol commercialised the know-how within the Seventies when it was a state-owned firm seeking to circumvent sanctions on the apartheid regime’s entry to grease.
Grobler stated the method required a carbon feedstock, however that this might come from gasoline, biomass and even carbon captured from the air. Required hydrogen might sooner or later be produced utilizing electrolysis, he stated. “Few companies have got the [same] ability to pivot.”
Criticism that Sasol had not spelt out how it could get to web zero by 2050 was unreasonable, Grobler added, given uncertainties over the tempo and value of latest applied sciences, together with inexperienced hydrogen. “What does your crystal ball say?” he requested the corporate’s detractors.
More instantly, Sasol should meet authorities air-quality requirements at Secunda by lowering sulphur dioxide and so-called NOx gasoline emissions. Sasol says it is going to meet NOx requirements by 2025 however can not hit required ranges of S02 emissions with out shutting down a few of its boilers.
Residents residing close to the plant, many in a black township constructed downwind of the plant throughout apartheid, complain of well being points associated to air high quality. “People are becoming blind because of the sulphur dioxide,” stated Fana Sibanyoni, an environmental activist in Secunda, who stated residents additionally suffered from pores and skin rashes, respiration difficulties and elevated ranges of most cancers.
“This is not an allegation, it’s the truth,” Sibanyoni stated. “[Sasol] is the majority cause of all this sickness and all this poverty and death.”
Grobler stated he couldn’t touch upon any alleged hyperlink between the plant and elevated well being dangers. “Everything we do today, and up to 2025, except the S02, will be compliant with the regulatory environment,” he stated.