Transitioning SA's Petrochemical Value Chain

Corporate Sasol, including the Secunda and Sasolburg facilities, is systemically important, and there are macro-economic implications of decarbonisation along the petrochemicals value chain which appear to be underexplored in the literature and policy processes to date.

Macro-economic implications include national economic conditions such as GDP, monetary economics, sector growth and decline, and international markets and pricing.

• Contribution to GDP: Sasol is one of the government’s top ten tax payers, and therefore ‘critically important’ to the fiscus (National Government Engagement).
• Role in structural economic change: The pace and depth of a Paris-aligned decarbonisation for the South African economy implies a degree of structural change. Most economic models used in decarbonisation policy analyses do not deal well with structural change (Labour Engagement). Therefore, the role of corporate Sasol and Secunda and Sasolburg in ensuring a managed economic transition is not well understood, including the value chains that will be lost, and what might replace these (Government Engagement).
• Further to structural change, the Labour Engagement suggested that a just transition should involve re-thinking ownership over the economy, again having macro-economic implications that have not been well explored.
• Contribution to R&D: The petrochemicals value chain, and particularly Sasol’s processes, foster significant industrial research and development. Sasolburg hosts a Research and Technology Facility, and the company collaborates closely with South African universities to foster applied innovation.
• Balance of payments: Exchange rates and the balance of payments impact macro-economic policy controls of a country, being linked to interest rates and inflation, and the ability to insulate against international shocks. Over the period of transition, it will be important that South Africa maintains a degree of balance of payments equilibrium. This will be tested if the country needs to pay more for imports (liquid fuels, renewable energy components, EVs, chemicals), but is not generating sufficient foreign exchange through exports (of Internal Combustion Engine (ICE) vehicles, or iron and steel with significant embodied carbon). The petrochemicals value chain holds the opportunity to ameliorate balance of payment difficulties through developing hydrogen derivatives and Sustainable Aviation Fuels (SAF) for export, and through providing liquid fuels manufactured from domestic coal for a declining ICE fleet. However, timing is important, and overall balance of payments implications of the transition will have to be carefully monitored. At the National Government Engagement the question of whether Secunda could assist in ameliorating the balance of payments impact of the closing of the conventional refineries was raised. On the implications of changing the chemicals product slate, Sasol is currently undertaking a study on what importing chemicals would mean for balance of payments (Business Engagement). The National Business Initiative Net Zero study proposed international concessional finance as a candidate for managing foreign exchange risk.
• Trade and markets: International markets are undergoing rapid change, with one of the key drivers being the net zero transition. These drivers and markets will continue to change as the transition proceeds. For example, in the early stages of transition there will not be a strong domestic demand for green hydrogen and derivatives (Asset Management Engagement). However, green hydrogen for shipping re-fueling hubs and Sustainable Aviation Fuel (SAF) are more than likely to be big plays in the future. In the late 2030s and 2040s local demand for green hydrogen and derivatives will pick up. A Carbon Border Adjustment Mechanism (CBAM) is currently being developed by the EU. This presents significant risks for the South African chemicals sector, with a potential reduction of 8.7% in exports to the EU (National Government Engagement).