Amid the multitude of supporters seen in their green Springbok jerseys lately, quite a few are still sporting one which prominently features the Sasol logo. These were ubiquitous in the early 2000s, when Sasol proudly sponsored the national team, reflecting the petrochemical giant’s role as a South African economic mainstay whose products are found in almost every home in the country.

Sasol was founded in the 1950s as a state-owned oil company to insulate the apartheid state from energy insecurity by turning coal into oil. South Africa Inc has invested heavily in Sasol through the democratic transition via significant state subsidies and financing, competition protection and state investment in supporting infrastructure development such as the Mozambican gas pipeline. Sasol in turn delivers a third of the country’s liquid fuels and is the primary foundation for its chemical industry.

Lately however, unlike the Springboks, Sasol has fallen from favour. The company is struggling to retain its financial, environmental and social licence to operate. Its recent annual reporting round suggests a company facing significant challenges, warranting a R35-billion impairment of its flagship asset, the Secunda refinery.

Coal supply and local air emissions are key concerns. Sasol was denied a water licence renewal application for Syferfontein, its largest colliery, and has appealed to the minister of forestry, fisheries and the environment to change the methodology by which its sulphur-dioxide emissions are measured. Sasol has also faced protest action from a coalition of activists, frontline communities and civil society groups. 

Yet the company’s most significant existential challenge is only starting to be priced in. Sasol is the second-biggest greenhouse gas (GHG) emitter in Africa, and a commonly quoted assertion is that its Secunda coal-to-liquids plant in Mpumalanga is the biggest single-point source emitter of GHGs in the world.

Together with the Sasolburg plant in the Free State, the two industrial sites produce 11% of South Africa’s GHG emissions. And like many other global oil and gas companies, Sasol has been accused of dragging its heels on reducing its emissions.

According to a civil society coalition comprising the Vaal Environmental Justice Alliance, the Centre for Environmental Rights, Earthlife Africa, Just Share and Greenpeace Africa, among others, Sasol’s decarbonisation plans are not aligned with the requirements spelled out in the Paris Agreement to reduce global GHG emissions by 45% between 2019 and 2030, and go on to reach net zero by 2050.

Critical role

At the same time, however, Sasol’s two large industrial facilities currently play an important, perhaps even critical, role in South Africa’s economy and society, producing a wide range of outputs that the majority of us obliviously rely on in our day-to-day lives – from inland liquid fuels to chemicals used in an array of applications, from detergents, cleaning agents and medical supplies to paints, lacquers, plastics and building materials, from chemicals for leather and metal processing to cosmetics.

Finding a low-emissions replacement for these products requires a significant transformation of the industrial base in the country, which will take time to achieve. The alternative is replacement with more expensive greener imports.

Closure of the facilities, with the consequent implications for their upstream and downstream value chains, will also lead to the loss of a significant number of jobs and livelihoods from Secunda to Johannesburg to Gqeberha.

Sasol is the country’s largest corporate taxpayer and plays a wider role as corporate citizen –  from artisan training and entrepreneur support to research and innovation. In the short to medium term, an outright closure of Sasol’s two large assets might very well not be in South Africa’s best interests.  

So how does South Africa grapple with the trade-off between our collective investment in and systemic reliance on Sasol, and our need to reduce emissions?

The company is taking up a huge amount of what is, and will increasingly become, a limited national resource – GHG emissions space. Sasol’s GHG emissions are embedded in our exports and are material to the cost of finance.

Does South Africa gamble on Secunda and Sasolburg’s transition to produce a fully green product slate by 2050 as Sasol suggests it will? Or should we accept that it will gradually decline over time and put in place long-term plans for managing their closure?

Meridian Economics has taken a deep dive into the multi-dimensional complexities of the Secunda and Sasolburg plants to assist societal decision makers grapple with these questions. The study, titled Transitioning Secunda, Sasolburg and South Africa’s petrochemical value chain demonstrates that Sasol’s decarbonisation options are anything but straightforward.

Meridian finds it is just not yet possible to identify “transition paths” for the assets with any degree of confidence, nor indeed to know whether it’s best for South Africa that they are shut down, and when. The uncertainties and unknowns are just too large.

However, the Meridian study also reports that, based on the consensus of South Africa’s leading climate mitigation modelling studies, Sasol’s alignment to the goals set by the Paris Agreement will require at least a halving of Secunda’s coal feedstock by the mid-2030s, and complete phase-out by the late 2040s.

Even if gas can be sourced at a sufficiently low cost to act as an interim feedstock – which Sasol’s recent reporting round deems unlikely – this too will have to be phased out by 2050. Green hydrogen and large-scale sustainable carbon sources will be required from the early 2030s if gas cannot be secured as an interim measure.

That is seven years away. 

The possibility does exist for Sasol’s existing infrastructure to pivot, allowing it to align with these targets. In doing so, it could significantly support the advancement of South Africa’s net-zero economy by procuring large volumes of renewables it needs for its transition at scale, producing green fuels for aviation and potentially shipping, as well as organic and inorganic green chemicals.

Myriad uncertainties

But while there is technical potential to shift production to greener alternatives over time, there are myriad uncertainties, contingencies and unknowns to making this shift. Not least of these is whether a wholly green product slate is ultimately technically and commercially achievable.

The many feedstock dynamics and favourable economics required en route are highly contingent on factors outside of the company’s control. Might an economically viable supply of natural gas yet emerge? The minister of mineral resources and energy is certainly betting on this.

Downstream, there will need to be a rapid increase in the roll-out of electric vehicles to shift demand away from liquid fuels and to support South Africa’s exporting automotive industry. How will the country manage liquid fuel supply in the interim and the development of a local green hydrogen industry?

One important aspect of making a transition possible is the availability of low-cost finance. Sasol will need to “walk the transition tightrope” of tightening fossil markets and expanding green opportunities to source funding for its transition.

Unlike Eskom, Sasol is a private company and as such is less likely to obtain public transition financing, either domestic or international – although domestic subsidies and policy could radically stack the deck. The case for using public finance to support private-sector transition is a complex one, and subject to change.

Public support and finance for decarbonisation initiatives will need to be balanced with addressing other policy goals, including those of the just transition.

Given that the societally optimal future for Sasol cannot yet be known, how do we as a society proceed?

To ensure that the decisions that are taken on Sasol’s future are robust and account for the wide range of considerations, such as those highlighted here, coordinated decision processes are critical. These decision processes need to factor in the multiple uncertainties in such long-term planning and must be supported by sound quantitative information and transparent analysis.

Decision outcomes then need to be supported by clear and robust policy, directly related not only to the assets themselves, but also to the broader value chains in which they operate – such as policy that supports uptake of electric vehicles and establishment of the hydrogen economy.

There’s a chance to innovate here. The transition challenges faced by Secunda and Sasolburg in the context of both national and globalisation decarbonisation drivers and development requirements are echoed for many large emitting assets globally.

As the world engages with the objectives of a just transition, it is unlikely that their fate can be determined in simple, once-off closure or divestment decisions. High-quality governance processes and tools are needed to govern the transition pathways of these assets for utilisation by policymakers, investors and managers of these facilities.

In South Africa, as in many parts of the developing world, the design of such tools and processes will have to allow for a context of patchy state capacity, the resilience of the private sector, the strength of the judiciary and the passion of civil society. These governance processes will also have to facilitate a decarbonisation agenda that is compatible with addressing other more immediate social development issues.

South Africa is in a conversation with the developed world about financing its just energy transition through the Just Energy Transition Partnership. An asset-level view of the problem recommends focusing this conversation on tools and processes that go beyond simply prescribing rigid asset closure dates or infrastructure build dates.

Global net zero will not be achieved without decarbonising these types of assets. Given that the societally optimal transition paths are unknowable upfront due to the uncertainties and complexity involved, we need to move beyond the binary question of whether Sasol’s facilities should close or continue running.

Rather we need to develop the process and decision tools to help us navigate through this uncertain terrain. DM

Brett Cohen is an independent sustainability consultant and an Honorary Professor of Chemical Engineering at the University of Cape Town. He is an associate consultant to Meridian Economics, working on a number of projects that include investigating climate risks and opportunities, greenhouse gas emissions accounting and modelling, scenario and futures planning, and climate strategy development.

Lonwabo Mgoduso is an Energy Consultant at Meridian Economics with a mechanical engineering and sustainable development background.  

Lester Malgas is a freelance writer and consultant working on interdisciplinary environmental research and communications on energy and climate change.