OBG talks to David Constable, Chief Executive Officer, Sasol

Interview: David Constable

Are there any components of the petroleum industry that could benefit from relaxed legislation?

DAVID CONSTABLE: It is clear that the relaxation of the overall regulation in the fuel industry would result in a more market-driven regime with benefits to industry players and consumers. However, the effective deregulation of the petroleum industry would run the risk of possibly upsetting a delicate policy balance, which seeks to trade off the benefits of a market-driven industry with that of greater energy security and increased job creation. South Africa is facing major socio-economic challenges in the form of unemployment, poverty and inequality. The recent debate around the nationalisation of the mining industry, and union action in the fuel, mining and engineering sectors, is to a degree an outcome of these challenges. The uncertainty that is created by debates of this nature does introduce caution among investors and can contribute to delays in investment decisions. However, South Africa’s growing economy still makes the petroleum sector, in particular, an attractive investment opportunity.

What potential does synthetic fuel technology hold for the broader African market?

CONSTABLE: Africa’s refining capacity is not evenly distributed and is currently concentrated in South Africa and along the northern coast of the continent. As a result, many African countries are forced to import their liquid fuel requirements. The recent finds of gas off the East African coast and in other areas present an opportunity for countries to partner with companies like Sasol to use their proprietary gas-to-liquids technology to both monetise their gas assets and reduce their reliance on imported liquid fuels.

Can investments to upgrade refineries to comply with Euro 5 fuel standards be recouped?

CONSTABLE: The investment required to comply with Euro 5 fuel standards at South Africa’s refineries is significant and cannot be recouped through the current basic fuel price structure. The refining industry in South Africa has engaged extensively with government on this matter and is cautiously optimistic that some form of cost recovery mechanism to recoup the investment required will be agreed to in the near term. However, it should be noted that there are a number of hidden costs associated with the drive to cleaner fuels, including yield loss and increased energy consumption, which in turn leads to high carbon emissions.

Are you satisfied with the degree to which alternative energies are being prioritised?

CONSTABLE: It is well known that historically, coal has been by far the dominant energy feedstock in South Africa. However, progress has been made in diversifying the mix. In terms of renewable energy, South Africa has some of the most favourable conditions globally for solar energy. While taking a broader view, hydro also has great potential to supply the region with electricity. The enthusiasm shown by bidders in the first two rounds of the government’s independent power procurement programme highlights that investment incentives and guarantees are supportive of the drive to increase the share of renewables in the energy mix.

Which infrastructure projects can facilitate the transportation of energy resources?

CONSTABLE: The new multi-products pipeline from Durban to the inland, which is currently being completed, is a critical project to ensure sufficient supply of petrol and diesel to the economic heartland of South Africa. In addition, the government’s plans to invest heavily in rail infrastructure along the corridor route will further improve internal logistics. While the state utility, Eskom, has announced a substantial new-build programme for power generation, South Africa’s distribution infrastructure is ageing and will require substantial investment. Finally, in the longer term, investment in key transmission corridors in southern Africa will enable the hydro potential of regional countries to be fully realised.