Sasol Cautious About Crude Price

Johannesburg, Jul 02, 2009 (Business Day/All Africa Global Media via COMTEX) -- SSL | Quote | Chart | News | PowerRating -- PETROCHEMICALS group Sasol has held back jubilation at signs of a recovery in the price of international crude oil, with chief financial officer Christine Ramon saying the company was cautious about the short-term outlook for oil prices.

The oil price has shown signs of recovery after it dipped to below 33 a barrel earlier this year. Yesterday evening it was trading at just more than 68 a barrel.

Higher international crude oil prices will ease the pressure on Sasol's earnings. The lower oil price is one of the reasons for the expected fall in Sasol's earnings.

The group last month said it expected earnings to fall by as much as 50%. It said lower crude oil and chemical prices outweighed the positive effects of higher production volumes and the crude oil hedge. Sasol's production volumes were up mainly because of higher volumes at the Oryx gas-to- liquid plant in Qatar and additional volumes from the Arya Sasol Polymers plant in Iran.

In an update to shareholders, Ramon said positive market sentiment was driving oil prices up. "The strength in crude oil prices and other commodities is based on expectations of economic recovery. However, we remain cautious on the shorter-term outlook for oil prices but we believe we could see prices rising to the marginal cost of production in the medium term."

Ramon said the "cash conservation" approach that Sasol announced earlier this year had enhanced its cash position.

In the face of the global economic crisis, Sasol has reduced its capital expenditure programme 35% to about R15bn a year over the next three years. "Most of the (capital expenditure) reductions apply to numerous smaller projects ranging up to R1bn.

"Importantly, these capital reductions will not affect our pipeline of growth projects, where our pre- investment studies continue unabatedly, ensuring that our shareholder value proposition remains intact," Ramon said.

But the global economic downturn has also presented Sasol with an opportunity to reduce the costs of its capital projects. "We have realised benefits from opportunities that the current environment presents in our procurement strategy and the re-negotiation of contracts. We have seen significant working capital improvements across our businesses, which has positively impacted the group cash position," Ramon said.

Meanwhile, Sasol wanted to introduce carbon capture and storage technology into future coal-to- liquid plants, said Ramon.

Sasol is one of SA's biggest polluters and the move will reduce SA's carbon emissions. SA has per capita emissions that are higher than those of China and India because of its dependence on coal.

Ramon said Sasol wanted to reduce its greenhouse gas emissions, introduce renewable energy and raw material feedstock. "We are also investigating the potential of using viable CO A' capture and storage technologies. The idea is to integrate carbon capture and storage technology solutions into future (coal-to-liquid) plants.

"We are exploring opportunities for storing COA' by compressing the gas to a liquid form and injecting it into deep geological formations, such as saline aquifers, unmineable coal seams or into depleted oil and gas fields," she said.

The Sasol share price yesterday closed up 6% at R286,17.

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