Sasol Synthetic Fuels
strategic business unit

Profile    Sasol Synthetic Fuels (SSF) operates the world’s only coal-based synfuels manufacturing facility at Secunda, South Africa. The company produces synthesis gas from low-grade coal and uses unique Sasol high-temperature Fischer-Tropsch technology to convert this into a large range of petrochemicals. These products include petrol, diesel, liquefied petroleum gas and other synthetic liquid fuels, as well as industrial pipeline gas and chemical feedstocks. SSF produces most of South Africa’s chemical and polymer building blocks, including ethylene, propylene, ammonia, phenolics, alcohols and ketones.

Business review  Surging ahead on the strength of high international crude oil and associated petrochemical prices, improved yields, disciplined cost controls and skilled teamwork, SSF increased its operating profit by 97% from R3 999 million to R7 871 million.

This was achieved in the wake of the spectacular performance of the previous year when SSF’s operating profit rose by almost 126% and income after taxation increased by almost 128%. The synfuels and chemical feedstock producer increased its after-tax profit by 96% to R5 250 million and contributed 73% to Group operating profit.

During the year the derived crude oil price averaged about US$26,4 a barrel, which is a 36,6% increase on the previous year’s average of US$19,3. Taking the rand’s depreciation into account, the rand-based oil price increased by an average of 64%.

Total chemical feedstock production, including raw materials for SCI’s carbon, tar and nitrogenous product divisions, increased by 4,9% from 2,3 million tons (Mt) to 2,4 Mt. The production of methane-rich industrial pipeline gas increased by 21,1% from 11,7 million gigajoules (MGJ) to 14,1 MGJ. This gas is marketed by Sasol Gas and supplied to customers in KwaZulu-Natal and Mpumalanga. The highest total production volume in history was achieved (7,29 Mt).

Some plant stability and reliability problems were, however, experienced. Coupled with the higher maintenance costs that were subsequently incurred, these constraints marred an otherwise excellent track record. Five failures of process equipment occurred in the air-separation units. Modifications are in progress to eliminate these failures and are likely to be completed before end of 2002.

To enhance future performance of its plant and improve business processes, SSF increased its expenditure on renewal maintenance and information management projects. Without this expenditure and the impact of the weaker rand on operating costs, cash operating cost was maintained on par with inflation. SSF is now better placed to contain operating cost increases below inflation in the next financial year. SSF’s participation in the Group-wide NetGain Materials Management programme enabled a saving of about R215 million in procurement costs.

World Class heralds new optimisation drive  In absolute terms, SSF has once again improved its overall performance. Besides significant growth in profit, the continuing ability to innovate smarter production management processes, increase production efficiencies and reliability, contain operating costs, reduce accidents and environmental impacts and motivate employees to implement challenging business development principles and targets, are testimony to this achievement.

Building on the inspirational groundwork of the recently completed Vulamehlo renewal process, SSF embarked on a promising new business development and optimisation initiative: Project World Class.

Whereas Vulamehlo focused primarily on driving costs down and achieving better economies of scale over an initial five-year period, Project World Class is aimed at developing the optimal mix of skills, systems and processes needed to add further value and growth. The project is scheduled to run to the end of the 2007 financial year.

Key to Project Champion is the company’s phased introduction of a new SAP-enabled enterprise management system. Project Champion is a holistic programme aimed at further improving the company’s management of business processes and information.

The targeted benefits of Project World Class and Project Champion are only expected to start contributing significantly to the 2003 financial year profits. Project Champion commenced with a comprehensive international benchmarking exercise. The benchmarking findings have provided SSF with a better understanding of the opportunities that can be exploited to achieve world-best practices in such areas as:

Appreciating the value of human capital  The company continues to appreciate the value of its human capital through focused and effective skills development, mentoring and incentives. SSF’s employees are being motivated to continuously raise performance levels. In recent years, a world-class mindset has been developed and employees are embracing the challenges of change management.

SAS reactors elevate production status  SSF has completed its first full financial year of running the new-generation Sasol Advanced Synthol (SAS) reactors without parallel production support from the older-generation CFB Synthol reactors. The latter units have been taken out of commission.

The stable and highly efficient SAS reactors – used to convert syngas into syncrude, olefins and other petrochemicals – are enabling the company to increase production efficiency, while substantially reducing operating and maintenance costs. The recently commissioned ninth SAS reactor, installed at an investment of R220 million, will provide significant new growth opportunities in the ensuing financial years.

The R345 million project to expand Synthol light oil production capacity has also been completed. This initiative has increased refinery capacity and improved economies of scale.

Natural gas offers new opportunities  SSF and Sasol Technology have commenced the preparatory work to install additional plant and utilities in the front end of the Secunda plant to convert natural gas from Mozambique. The gas will be used as a supplementary feedstock from 2004 onwards. The supplementary supply of natural gas will enable SSF to increase its gas-circuit production by about 5% in the initial phase. In time, natural gas could allow for a 15% increase on the current gas-circuit output.

SSF will be well placed to broaden its product slate, strengthen its production flexibility and lower its overall output of sulphur-based emissions per unit of hydrocarbons converted. Sulphur-free natural gas is cleaner than coal and offers more production flexibility.