business review

Sasol Gas Limited

Profile    The South African Gas Distribution Corporation Limited (Gascor), now known as Sasol Gas Limited (Sasol Gas), was established in 1964, based on the availability of synthetic gas produced at Sasolburg. Using hydrogen-rich gas from SCI, as well as methane-rich gas from SSF at Secunda, Gascor built a substantial gas market in South Africa. Trading as Sasol Gas, the company has developed an extensive, 1 500 km pipeline network in South Africa. The network delivers gas reliably to more than 600 customers, mainly in industrial sectors in Gauteng, Mpumalanga and KwaZulu-Natal. Sasol Gas’ future marketing and supply opportunities will expand considerably once the production of natural gas arrives from Mozambique in 2004.

Business review  In a gratifying year of growth, consolidation and planning for future expansion, Sasol Gas achieved a 260% increase in operating profit, up from R35 million to R126 million. Sales increased by 23% from R846 million to R1 039 million. Sales growth stemmed mostly from volume growth as a result of the Durban South expansion project and price increases in crude oil derivatives. The latter increases are reflected in the variable prices paid by customers according to market value pricing principles.

Volume increase despite flat Gauteng market  The sale of pipeline gas supplied by SCI at Sasolburg (27,3 million gigajoules (MGJ)) and SSF at Secunda (14,3 MGJ) increased by 4,8% to 41,6 MGJ. Sales to KwaZulu-Natal and Mpumalanga industries increased by 28,5% and 2,2%, respectively. The expansion of the distribution network to Durban South led to numerous new gas supply agreements. The contract signed with Engen Refinery is the largest. Sasol Gas will start supplying Engen in the year ahead.

Sales in the Gauteng area, however, declined by 2,3% because of reduced economic activity. On the upside, new gas supply agreements were concluded with Nissan South Africa in greater Pretoria and Scaw Metals in greater Johannesburg.

The Sasol Gas board approved capital expenditure of R44 million for the construction of a new 46 km pipeline to supply new customers at Babelegi near Pretoria. This project is likely to be completed before July 2002. Sasol Gas is also evaluating the merits of developing new pipelines to the Pietermaritzburg area.

During the year the Sasol Gas distribution network grew by an additional 46 km of new pipelines and 28 new pressure-reducing and customer meter stations were installed.

Market diversification maintained  Pipeline gas is sold to five economic sectors, of which the metals sector is the largest, contributing 48% to the total sales volume. In the metals sector, the steel industry is the largest consumer of gas, with Iscor being the single biggest customer. The chemical, pulp and paper sector accounts for 20% of sales, with Sappi and Mondi being the largest consumers in this sector. In future, expected sales to crude oil refineries will increase the contribution of this sector.

Sales to the mining and non-metallic minerals sector contributed 16% to total sales. Brick and glass manufacturers are the biggest consumers of pipeline gas in this sector.

Egoli Gas, an affiliate company of Cinergy (a USA-based power and gas company), is the major consumer of gas in the food and commercial sector. Egoli Gas has the licence to distribute and sell pipeline gas in the Greater Johannesburg Metropolitan Council area. The manufacturing sector consumes the remaining 8% of total gas sales. This sector is under severe competition from imported products from the Far East, especially China.

International standards achieved  The Sasol pipeline network and installations are constructed and operated according to the American National Standard for Gas Transmission and Distribution Piping Systems. Sasol Gas has successfully maintained its accredited ISO 9002 quality management system and ISO 14001 environmental management system since August 1994 and January 1997, respectively.

A five-star safety management grading, from the National Occupational Safety Association (NOSA), has been consistently achieved over the past seven years, which attests to the company’s excellent safety record and management system. A NOSA grading of 98,1% was achieved during the November 2000 audit.

Black economic empowerment initiatives  Sasol Gas Limited has signed two memoranda of understanding with enterprises representing a diverse spectrum of historically disadvantaged groups. This commitment has been undertaken in line with the Group’s programme to facilitate the creation of black economic empowerment opportunities in the South African economy. These memoranda deal with the sale of part of Sasol Gas’s KwaZulu-Natal market and the further development of a pipeline gas market in Mpumalanga after the introduction of natural gas.

New regulatory environment emerging  The South African Government is in the process of promulgating the country’s first Gas Act. The Act provides for the introduction of a Gas Regulator. Sasol Gas is actively participating in this process to make the Gas Bill more conducive for investors. Sasol has also signed a basis of agreement with the South African Government that will govern the regulatory environment for the first 10 years after the introduction of natural gas.

Natural gas brings a change of focus  Sasol intends to introduce natural gas to the South African market in 2004. Ahead of this development, Sasol deemed it prudent to restructure its pipeline gas activities. This undertaking is in line with international practice for pipeline gas distribution and marketing companies. The company name of Gascor Limited was changed to Sasol Gas Limited with effect from May 2001. This was done to reinforce the established trade name.

A new holding company, Sasol Gas Holdings (Proprietary) Limited, was incorporated as a subsidiary company of Sasol Limited. Sasol Gas Holdings will oversee all the Group’s gas-related activities.

Major potential for expanded consumption  Compared with developed countries, South Africa is a small consumer of pipeline gas. Pipeline gas contributes less than 2% of the country’s primary energy sources. The South African Government is investigating new opportunities to reduce pollution in industrial regions. A greater use of gas in the country’s future energy mix would help to reduce the industry emissions generated from other fossil fuels.

The introduction of far greater volumes of gas into the energy grid will encourage the introduction of new and advanced technologies into industrial processes in line with international trends. This opportunity will help to grow South African industry, while also facilitating further reductions in emissions.

Prospects  Looking ahead, sales volumes are expected to grow vigorously in KwaZulu-Natal. Gas prices are likely to remain at relatively high levels. This forecast is based on the assumption that crude oil prices will remain high and that the rand will depreciate further. Sasol Gas expects both its sales volumes and its operating profit to grow significantly during the 2002 financial year.

The longer-term technological and environmental trends indicate an accelerated swing towards the convenience of using clean-burning natural gas in the ensuing decades. In South African industry, the arrival of natural gas from Mozambique is stimulating unprecedented levels of interest in pipeline gas as a viable energy source. This enthusiasm augurs well for Sasol Gas’s longer-term growth prospects.