Key insights for decision-makers

The information gathered through the study reveals the broad shifts that will be required in the petrochemical value chain:

UPSTREAM: 

• Coal rapidly declines in the early 2030s, gas comes off by the mid-2040s, with an almost complete switch to renewable electricity, green hydrogen and sustainable carbon by 2050.
• Sustainable feedstocks will be required as inputs into petrochemical and chemical production processes.

SECUNDA AND SASOLBURG: 

• Play a potentially important role in a net zero economy for production of:
• • Green fuels for aviation and potentially shipping,
  • Green chemicals; both inorganic (ammonia through the Haber Bosch processes) or organic (using sustainable carbon feedstocks in the Fischer-Tropsch process), providing the required feedstocks can be affordably sourced.

DOWNSTREAM: 

• Land-based transport needs to be close to zero emissions by 2050 to achieve decarbonisation targets.
• • By 2050 a greater than 90% reduction in demand for fossil-based liquid fuels is required, with no more domestic production remaining in South Africa.
  • This will predominantly be achieved by switching the entire private and public passenger vehicle fleet from ICEs to EVs (with the fastest disruption being between 2035 and 2040), and most of the freight fleet from ICEs to Evs and some green hydrogen-fuelled vehicles by the 2040s.
  • The domestic auto-manufacturing sector’s fate will be determined by domestic policy-motivated demand support for the ICE to EV shift.
• Shipping and aviation will see a switch to green fuels generated from green hydrogen.   Whilst shipping can use inorganic ammonia, Sustainable Aviation Fuels also require sustainable carbon as feedstock for production.
• All chemicals production will require green hydrogen as an energy source, with organic chemicals further requiring sustainable carbon as feedstock.

• South Africa is characterised by extreme social inequities. These inequities could be exacerbated in the transition:
  • Petrochemical decarbonisation could impact economic activity (GDP), jobs, fuel and chemicals availability, infrastructure stranding and new build.
  • Impacts could play out at the national, regional and local levels in different ways.
• Unless managed in the context of a just transition, resistance could be seen from those suffering the greatest negative impacts.
• Politically, the concept of ‘just transition’ is used to both resist and support decarbonization:
• • Early efforts to demonstrate the justice opportunities in decarbonization may help to reduce political resistance.
  • Visible pathways to a greener, inclusive and prosperous future will help leaders to promote the transition.
  • Decarbonising the petrochemicals value chain will ultimately contribute to energy security. Political narratives should thus be shaped around emphasising the multiple positive contributions of transition to emissions reduction, energy security and social upliftment.
• Given the lack of state capacity, private and social institutions will need to develop just transition models that mitigate social disruption risks and contribute towards a more equitable society.

• Decarbonisation while ensuring a just transition requires state action to align institutions and markets with collectively held objectives and values.
• South Africa is currently characterised by weak state capacity, with poor coordination and implementation of policy.
• This situation is unlikely to improve in the short to medium term.
• Having said that, islands of strong state capacity do exist at national, provincial and local levels, and these should be leveraged wherever possible.
• Opportunities for leveraging these pockets of capacity include:
• • Development and implementation of mechanisms that crowd in and enable private and social institutions, as opposed to those that rely solely on state execution.
  • Guiding economic and social systems towards a desired future through appropriately targeted incentives and regulation.
    

• How petrochemicals decarbonisation ambition is currently defined for policy-setting is strongly informed by outputs of techno-economic models.
• These models are high-level, and do not engage with political, environmental, social, techno-economic, financial and legal complexities
• The models also do not go into significant detail on the complexity of the liquid fuels and chemicals sectors and the interconnections of these value chains.
• Both these sectors are vitally important in modern societies, and so a deeper understanding of the implications of decarbonisation policies for them, including the potential for changing demand patterns, is a priority.
• This project has explored alternative ways of understanding the challenge of decarbonizing the South African petrochemicals value chain:
• • Using high emitting facilities as an entry point for analysis provides a different view to the typical sectoral approach taken in the models
  • Approaching the problem from multiple dimensions, and seeking out multiple stakeholder perspectives, adds a rich understanding of key constraints, uncertainties, lock-ins, societal priorities, unseen interconnections and systemic dependencies.

• Industrial sectors’ production respond to societies’ wants and needs.
• A reduction in demand for fossil-based transport, through a combination of measures that fall under the “Avoid-Shift-Improve” banner, is required to achieve Paris-aligned decarbonisation.
• • Adoption of demand-side measures can be challenging, requires state involvement and has long lead times (including for both infrastructure development and behavioural change).
  • They can, however, deliver significant just transition benefits in terms of access to transport services.
  • By implication, when implemented, the synfuels and crude refining sectors will see declining markets for their current product slate.
• The way in which chemicals are used in society will also have to change to meet decarbonization targets, with changing demands contributing to the shift in upstream production.

• Secunda and Sasolburg are owned and financed by Sasol.
• For these facilities to realise their potential role in a net zero economy, they will need to remain solvent and not be stranded during their complicated and costly transition to a green product slate.
• Sasol is currently under pressure by investors to demonstrate a credible just transition pathway, and this will likely remain an issue throughout the transition.
• Sasol will need to convince investors that its decarbonisation milestones are credible, achievable and adequate.

• The techno-economic models explore different options for transition of Secunda, and to some extent Sasolburg – ranging from a complete shutdown to a smooth transition to fully emissions-free production.
• There is, however, no single “right” pathway for Secunda and Sasolburg’s transition. There are too many unknowns. Instead, the decarbonisation journey requires ongoing evaluation and implementation of incremental and step-change opportunities, as the future plays out.
• At the same time, Secunda and Sasolburg are systemically important during the transition, providing a hedge against liquid fuel imports and playing a critical role in the chemicals market. Secunda and Sasolburg’s decarbonisation pathway has significance for a just transition of the country.

• Government and its social partners will also need to evaluate Secunda and Sasolburg’s progress in the context of a dwindling carbon space on an ongoing basis. Appropriate indicators and milestones will be needed for this task.
• The opportunity cost of allocating Secunda, Sasolburg and their value chains scarce carbon space – including post net-zero land sink access – is a societal one.

• Options that create flexibility and agility will be valuable, given the uncertainties.

• South Africa’s automotive manufacturing sector, which has enjoyed extensive state support over many years, makes a significant contribution to local, regional and national economies.
• While export sales are a significant contributor to the sector’s revenue and viability, the local market is also critical.
• The global shift to Electric Vehicles represents a threat to this sector, as does South Africa’s lag in supporting increased EV uptake.

• Failure to pivot production and stimulate the local market will lead to the sector being stranded, as manufacturers move to other regions.
• It is thus critical that both the sector and consumers are given the urgent policy and other support needed to transition, to ensure its survival of the sector.

GAS

• Gas is being considered as a transition fuel and feedstock for Secunda, but there is limited clarity on where future economically viable supplies will come from.
• This represents a significant uncertainty for Secunda’s ability to decarbonise. The facility may need to reduce output if it cannot gain access to gas or access alternative feedstock (green hydrogen and sustainable carbon) and utilities.
• Given that there is ultimately limited role for gas in a net zero economy, decision-making relating to gas (sources, quantity, price) should avoid lock in and stranded assets, maintaining flexibility as far as possible.

SUSTAINABLE CARBON

• For the Fischer-Tropsch assets to play a role in a net zero economy, access to both green hydrogen and sustainable carbon feedstocks are required.
• Sustainable carbon availability is highly uncertain in Southern Africa. Sustainable carbon from organic sources (primarily waste biomass) has significant scale and sustainability issues, and the technologies required for carbon capture at industrial sources or remove carbon from the atmosphere for utilisation are in very early stages of development.
  Sustainable carbon supply, certification and technology development are key risks to watch.

• Southern Africa has the potential to be a global green hydrogen and derivatives production hub. This represents a huge re-industrialisation opportunity.
• The main opportunities in hydrogen include in production of green iron and steel, green chemical derivatives, and sustainable aviation fuel (SAF), as well as for use directly in the power sector. Shipping (green ammonia) may also present an opportunity given SA’s geographical position, but uncertainties remain as to whether the global fleet will be able to re-engineer to accept green fuels.
• An integrated approach is needed, that overcomes numerous serial dependencies (including ports and the transmission grid) and realise numerous synergies with other value chain activities, including power market opportunities.
• Subsidised investment and export demand are critical to realise a Southern African green hydrogen offering, especially in the early years.
• Secunda and Sasolburg currently represent the world’s largest grey hydrogen user, with established hydrogen-use technologies: Fischer-Tropsch for organic chemicals and liquid fuels, and Haber-Bosch processes for inorganic chemicals (ammonia). These facilities are therefore valuable existing assets in the realisation of the local green hydrogen industry.
• However, key risks to navigate include: the emergence of a favourable global green hydrogen certification regime, and the realisation of a favourable local investment environment. The latter in particular represents a formidable challenge.
• In relation to the green hydrogen vision, the objectives of a just transition must remain at the fore. How can a green hydrogen-based economy be a more inclusive one?

The transition to a low carbon future both across the economy and globally is not a simple one. There is no single vision of how international negotiations will evolve; what the implications will be for individual countries and their emitters; and how technologies, markets and societies might evolve. These factors and many others introduce unprecedented high levels of uncertainty for decision makers, policy makers and other stakeholders navigating this space, particularly so in developing country contexts such as South Africa.

Successful decision making in this changing world will require whole new sets of skills and tools, to support and enable ongoing, contingent decision making with imperfect information in the context of rapid change. Objectives will also shift, from decisions that set one particular course, to the building of resilience and agility in the face of rapid change. Milestones, evaluation points and long-term visions to navigate by will become more important and useful.

Guidance can be found in the emerging fields of complexity thinking, multi-criteria decision analysis and scenario planning – in other words those that have shaped the development of this project. Individuals and organisations responsible for navigating the complexity would be well placed to begin to develop and apply these skills and tools as soon as possible, to help ensure that these facilities, their value chains, and the economy and society more broadly are resilient and remain relevant, as the world rises to the decarbonisation challenge.

A techno-economic modelling view provides one perspective on the decarbonization challenge, highlighting a selection of uncertainties, risks and opportunities. Accessing different knowledge areas through the PESTEL tool, together with different stakeholder inputs, provides a richer, broader view of the decarbonization challenge.

Bringing the political, environmental, social and legal aspects to prominence, makes the significant uncertainties, risks and opportunities inherent in these fields more visible to decision-makers. The challenge then becomes how to systematically and comprehensively account for these in decision making processes.

The ubiquity of uncertainty and the rapid pace of global change demands a particular way of engaging with the decarbonisation challenge, requiring a shift in what is valued in decision-making, such as responsiveness, experimentation and innovation, failure and learning, and the creation of options and resilience.

Building resilience to future uncertainties related to just transition and decarbonisation is critical to ensuring a smooth transition to a low-carbon economy and to minimize negative impacts on economic growth and social well-being.

The findings foreground complexity, uncertainty, and interconnection:

• The petrochemicals value chain is revealed to be a complex system, operating in a complex and rapidly evolving developing country context, and is non-linear with the potential to ‘tip’ into new realities very quickly.
• Uncertainty exists across the decarbonisation challenge, with policy, social cohesion, environmental resilience, capital availability, and  governance at the local and national level, all determining the future of Sasol’s two facilities and their value chains.
• A mesh of multi-dimensional interdependencies and contingent choices is revealed.   Different parts of the value chain may transition faster or slower, influenced by techno-economic, political, social, or environmental drivers. There are few clear cross-road decisions coming down the track, with incomplete information and the complex interactions making it difficult to know the consequences of choices in advance.