Sasol Sets Afloat Expanded Gas Unit - Analyst Blog

By Zacks Equity Research,

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Sasol Petroleum International - the upstream arm of Sasol Limited ( SSL ) - recently, launched its upgraded central gas processing facility in Temane, Mozambique. This development was backed by the growing market demand in Mozambique and South Africa.

The unit, which was linked to the South African market through an 537.5 miles cross-border pipeline, had natural gas production capacity of 120 megajoules per annum (MGJ/a). This capacity has now been expanded to 183 MGJ/a.

The expanded extra capacity of 63 MGJ/a will be distributed among the Mozambican market (27 MGJ/a), South African market (27 MGJ/a) and Mozambican government (9 MGJ/a).

Apart from Sasol, Companhia Moçambicana de Hidrocarbonetos S.A., which represents the Mozambican government and the International Finance Corporation are also partners in this project.

The companies have invested $220 million for the expansion that was accomplished within budget and was in line with the safety measures. Additionally, $64 million of goods and materials were bought from Mozambican suppliers that consequently benefited the local economy significantly.

With the discovery of natural gas in the northern part of Mozambique along with its ample reserves of coal, many investors have been attracted to the region. The numerous development ventures in the country are expected not only to boost the domestic economic scenario but also be of advantage to the entire region.

South Africa-based Sasol is an integrated energy and chemicals company. It is the leading provider of liquid fuels and a major international producer of chemicals. The group divides its operations in these segments: South African Energy Cluster, International Energy Cluster and Chemical Cluster.

We maintain a long-term Neutral recommendation on the stock. Sasol currently retains a Zacks #3 Rank (short-term Hold rating).

We believe that Sasol offers diversified energy and chemical activities along the energy chain. The company's highly developed technical expertise in producing synthetic fuels in commercial quantities from low-grade coal and natural gas gives it a competitive edge over other industry players. A robust balance sheet and strong cash position are the other positives in the story.

However, we believe that the company's difficult operating environment, characterized by a fluctuating domestic currency and weak refining margins, will keep near-to-medium-term earnings under pressure. Sasol also faces stiff competition from peers such as Chevron Corporation ( CVX ) and Occidental Petroleum Corporation ( OXY ).

CHEVRON CORP (CVX): Free Stock Analysis Report
OCCIDENTAL PET (OXY): Free Stock Analysis Report
SASOL LTD -ADR (SSL): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: CVX , OXY , SSL

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