FIFI PETERS: While motorists aren’t happy about paying record fuel prices at the pumps, Sasol shareholders don’t really mind because those higher costs helped boost the company’s profits in 2022 and helped ensure Sasol shareholders are paid their first dividend since the pandemic began . This happened today when the company published the results.
We have the CEO, Fleetwood Grobler, on Market Update to find out more about the numbers. Sir, I am one of those motorists who are not happy that it is more expensive for me to travel. I know it’s not your fault. You didn’t cause the spike in oil prices, but you are benefiting from it. I would like to understand where you see oil prices going now, where they are going and how long they will stay high.
FLEETWOOD GROBLER: yes. Thank you. From the motorist hat, I think I’m on the same campus as you. However, from Sasol’s perspective, I think we’re not looking at predicting the price of oil or saying this is what we think it should be or where it’s good for us; I think our mantra is more about saying we have to be sustainable in a world of low oil prices and so we’ve gone through ……. to the right size to put itself in a lean cost environment to be profitable when the markets are volatile and when the price of oil can also be very low. I think that’s more our mantra.
Where we see it happening is very volatile. We see rising inflationary pressures. We see that there is a lot of talk about recession. So all this could mean is that the world can move more slowly, and it will [mean] lower demand. In such a scenario, the price of oil could fall quickly; it’s almost like a pandemic.
But on the other hand, we don’t know where the conflict is going in Europe. We do not know where other macros will operate, how OPEC will behave. So it’s very difficult. I wouldn’t predict any of those volatile components, but I think our focus is to make sure that if [it does] fall so we can be viable, profitable and sustainable.
FIFI PETERS: Good. I’m sure you don’t want a repeat of what happened during the pandemic when oil prices essentially collapsed and you couldn’t afford to pay dividends to your shareholders at the time.
But in other words, [if] if you look at the supply and demand picture and the geopolitics that you just mentioned, I guess I’m trying to figure out if we as consumers should get used to the current environment being the new normal or if we could quickly get relief.
FLEETWOOD GROBLER: Well, if you look at the official forecast from experts like HIS [Markit] or some banks, etc., they look at commodity prices. So the long-term outlook for all prices now is $80 a barrel, $90 a barrel, and it depends on who you talk to. It’s not necessarily what we think will happen, but it’s what we see others say.
When you compare it to what we’re going through right now, it’s a bit of a reprieve. So the outlook can be softened, but I really don’t think we’re going to go down to very low oil prices in the next 12 months, maybe below $60 a barrel. I think we’re in for the eighties and beyond. So that’s more or less if I have to make a guess or take a stab, that’s what I’m going to see in my crystal ball. But, of course, it is very, very changeable and [it’s uncertain] will it happen or not.
FIFI PETERS: Of course. We have seen this volatility since March, when the international price of crude oil or Brent crossed $130 per barrel and has now reached these levels. But I see, Fleetwood, that your retailers have also been struggling with very high fuel prices this time around. In your statement, you claim that sales to retailers were lower. Is this a gas station?
FLEETWOOD GROBLER: Well, our retail outlets are basically our front doors, Sasol petrol stations. We actually introduced the loyalty card about four months ago and it was a huge success. So we recovered some of those volumes. We can see that our market share has increased slightly, about 1.5%. We now have about a 10% share of the retail fuel market in South Africa. I think that’s great to see because I think what teams are looking for now — how to sell more through that retail channel — is paying dividends, and the loyalty rewards card helps us improve that outlet.
FIFI PETERS: Good. Gas – the industry does not satisfy you. You were expected to increase gas prices quite significantly, by 96%. This caused quite a stir. I know you are currently talking to the energy regulator about how to move forward. What can you tell us about how things are going?
FLEETWOOD GROBLER: Well, I think the context is that we operate on a pricing methodology that is not defined by Sasol; it is actually determined by the regulator. We have been trying to get confirmation of price compliance in terms of this pricing methodology since earlier this year. We interacted with Nersa and I think in the absence of them to say that this is what we think is good in this pricing methodology, we should have signaled something because the prices should have been adjusted from July or August of this year.
So we had almost no choice [but] to give an indication of what we believe to be the price that may be on the cards. Since then, we have indicated that we are not going to introduce this price. We would prefer to get that landing with Nersa in terms of what that reasonable price should be as part of the pricing methodology, and we’re trying to get Nersa to engage with us.
As we speak, we’re making progress with them in those discussions, but I’m not going to predict what the outcome will be. Suffice it to say that energy security is affected by a number of factors, [and] the investment we are making in exploration and development spending in Mozambique to get more gas and get energy security in South Africa.
In fact, today we announced that we have extended our gas plateau in 2026 for another two years, but we have now invested more than $300 million to achieve this. All these things add up and we also need to be fair to our shareholders in terms of the investments we make to deliver gas to South Africa as well as our operations.
So I think there are a lot of things at play here, but today we want to get a solid result in our discussions with Nersa so that we get a harmonic signal to the market so that our clients know that there is a way forward. We know the way forward and that we can enter within that framework, not in the absence of any direction.
FIFI PETERS: However, holding on to the gas, the Europeans and the UK are going around the world just trying to get more energy to deal with their crisis and eventually reduce their dependence on Russia, given this geopolitics. Do they come to you?
FLEETWOOD GROBLER: No, we are not in the LNG business [liquefied natural gas]. We have no gas fields that are sold into the LNG markets. So, no, they don’t approach us in that regard. We monetize our gas fields with a pipeline to South Africa along with our work, where most of that gas goes. We are entirely dependent on Mozambican gas for our operations in Sasolburg and approximately 7% of our Secunda gas requirements are also supplied from this source.
But no, we are not asked to do it for others, because we do not have the premises and investments – and this is not our market.
FIFI PETERS: But what about green hydrogen? What we have also seen is officials from other parts of the world, Europe, wanting to sign agreements to protect their energy needs in the future. I know this is the space you work in and I’m wondering if you have these kinds of discussions.
FLEETWOOD GROBLER: Yes, exactly, Fifi. This is a different area of focus. We have had discussions with the EU, many member states, starting with Germany [to] The Netherlands, Denmark and others are really interested in seeing the possibility of supplying green hydrogen to the EU from South Africa. We observe similar interest from our Japanese partners in the East. That is why we are collaborating with them on the possibility of producing and exporting green hydrogen from southern Africa. A number of events are being held. One of them is the Boegoebaai project [where] we are currently in the pre-feasibility stage, which focuses on the possibility of exporting about 100,000 tons of hydrogen in ammonia as a carrier for its transport to the destination or to the market.
FIFI PETERS: Finally, Fleetwood, we haven’t touched on the US. What can you tell us about what lies ahead for the part of the world where you also have a business?
FLEETWOOD GROBLER: I think what we see in the Chemicals America segment is that we increased our adjusted Ebitda growth [earnings before interest, taxes, depreciation, and amortisation] by more than 70% over the past year. So we surpassed our US$500 million EBITDA mark. This is an integral part of our trajectory to ramp up production at this facility and increase value output. So we indicated when we were finalizing the US investment that it would take three to seven years for the various divisions to reach their potential. As I look at the past year, we’ve more or less tracked those commitments with different contributions from specialty divisions to core chemical divisions to more differentiated commodities, and I look forward to further increasing the value of that contribution over the next two years.
FIFI PETERS: There’s the Inflation Reduction Act that they just signed. I wonder if that means anything to your universe?
FLEETWOOD GROBLER: We are studying it now. Our chemistry team in the Americas is looking at what this might mean and what the possibilities are. I do think that our sustainable jet fuel offering from an FT perspective that we’ve launched now as a startup, Sasol ecoFT, is also interested in seeing what the opportunities are to provide sustainable jet fuel with a mix of green hydrogen, blue hydrogen, or a smaller carbon footprint that they recognize and also support in terms of incentives. So, yes, I think there might be an opportunity for us, but we’re still evaluating what that might be.
FIFI PETERS: Let us know when you’re done and we can talk further. But we’ll leave it there for now, sir. Thank you very much for your time. Fleetwood Grobler is CEO of Sasol.