South Africa-based petrochemicals group Sasol Ltd. (SSL) along with its partners –– Uzbekneftegaz and Malaysia’s PETRONAS –– have agreed to install a gas-to-liquids (GTL) project in Uzbekistan. In this regard, the trio has signed an investment deal with the country’s Minister of Foreign Economic Relations, Investment and Trade.
Per the feasibility study conducted by Sasol, the venture has the prospects of building a GTL plant in Uzbekistan with an estimated nominal capacity of 1.4 million tons per annum. The facility will be engaged in production of high quality, environmentally friendly diesel, kerosene and naphtha.
The subsequent phase of the venture involves front-end engineering and designing of the plant that is expected to start by the end of 2011. Following the final investment decision, the GTL project will come online in the second half of this decade.
Sasol and state-owned oil company Uzbekneftegaz hold a 44.5% interest each, while PETRONAS controls the remaining 11% stake.
As cost-effective and environmentally safe fuels, GTL has earned a significant position in the energy mix. This endeavor will help Uzbekistan to minimize its crude oil and transportation fuel imports and at the same time effectively utilize the country’s energy resources.
Sasol –– a pioneer in the area of synthetic petroleum alternatives –– has continuously focused on the commercialization of its GTL technology by constructing plants in gas-rich regions of the world. This will strengthen its industry position over the coming years.
Early this month, Sasol announced plans to set up a GTL plant in the southwestern region of the State of Louisiana. This will be the first facility in the U.S. to generate GTL transportation fuels and other products.
We like Sasol for its diverse portfolio of assets that produce a wide array of chemical and liquid fuels. Additionally, the company’s deleveraged balance sheet and strong cash position keep the group well equipped to weather the global economic storm and fund its growth program in tough credit markets.
However, we believe that the company’s unfavorable operating environment, volatile oil and gas fundamentals and stiff competition from peers such as Chevron Corporation (CVX) and Occidental Petroleum Corporation (OXY), will keep near to medium-term earnings under pressure. Hence, we maintain a long-term Neutral rating on the stock. Sasol currently retains a Zacks #3 Rank (short-term Hold rating).
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