Gas industry: rising to the global environmental challenge - Life cycle analysis of GTL

1. Gas industry: rising to the global environmental challenge - Life cycle analysis of GTL Fred Goede Sasol Limited 7th Doha Natural Gas Conference 11 March 2009

2. An integrated oil and gas company with substantial chemical interests • Sasol has primary and secondary listing on the JSE and the NYSE • Market capitalisation of US$ 31 billion (October 2008) • Current production capacity • Coal [mostly for conversion into fuels] - 45 million tons per annum • Liquid fuels [from coal & gas in SA] ~8 mtpa (160 000 bpd ) • Liquid fuels [from crude oil] ~ 4.6 mtpa (95 000 bpd) • Gas to liquids projects outside South Africa • Oryx GTL in Qatar 49% stake with Qatar Petroleum; Escravos GTL in Nigeria under construction – both nameplate 1.3 mtpa (34 000 bpd) • Currently undertaking feasibility coal to liquids studies in China, India and US US$ 546m

3. Contents • Climate science and solutions • Life cycle analysis (LCA) • motivation, methodologies and results • Future climate mitigation strategies • Communication and awareness • Conclusion

4. environmental realities (climate change, pollution, water, waste...) environmental expectations (governments, society, shareholders…) sourcing of gas conversion process (e.g. GTL) products (e.g. clean fuels) Protecting the environment

5. Reducing carbon emissions is particularly challenging; incremental reduction will help a bit Models differ widely in their estimates of contributions to the virtual triangle from structural shifts (towards services), energy efficiency, and carbon-free energy

6. Natural gas switch plays an important part, although no silver bullet exists

7. Scenarios for GHG emissions will climb over a ‘hump’ • developing countries will increase emissions at least until 2020 (best case), before reducing to reach current levels by 2050 • developed countries already reducing, aiming almost carbon neutral by 2050 • world can reach IPCC target of 550ppm if world emissions are 25% below 1990 levels in 2050

8. Sasol GTL fuel technology offers viable alternatives to crude-derived fuel • large resource base with natural gas • diversifies energy resource base and thus improves energy security • uses existing fuel distribution systems • products interchangeable to the end user • offers environmental benefits • proven technology that is already applied on a large scale the world is not short of energy – but short of innovative solutions

9. Our LCA history • Conducting LCAs since mid 1990s as entry ticket to government negotiations and to build in-house understanding • Commissioned independent LCA study in 2002 transportation fuel technologies aimed at monetising remote natural gas • LCA compared Sasol GTL technology with a modern refinery (Business-as-usual) • Dr Michael Wang (Argonne National Laboratory) acted as critical external reviewer • Further progress was made since, to address the development areas identified in the first studies

10. In addition, LCA helped us understand recent changes in proposed fuel legislation During January 2007 the following was announced: • California Low Carbon Fuel Standard (LCFS) for transportation fuels - 2020 target to reduce carbon intensity of passenger-vehicle fuels by at least 10% • Draft EU Fuel Quality Directive targets on GHG emission reduction - mandatory reporting of “lifecycle GHG emissions” for fuels from 2009 and fuel suppliers to reduce GHG by 1% p.a. between 2011 and 2020 ”Licence to sell” “ No data – no market”

11. LCA methodologies • The EIA process is more suitable approach for evaluating GTL production facility environmental effects, not LCA • But for the impacts of a whole industry, LCA is a better tool • A subset approach is called ‘well-to-wheels– focussing on transport fuels only, allocating burdens on one product and normalizing results per unit of distance travelled, a simple method • LCA Systems Boundary Expansion approach is more suitable for global issues like GHG emissions, but is more complex • Other GTL products like GTL naphtha, GTL kerosene, GTL normal-paraffin and GTL lubricant base oils are important to be included in the LCA

12. Two different types of LCA’s

13. Position on methodology • GTL makes co-products that are less carbon intensive than comparable routes (e.g. GTL naphtha vs. Refinery naphtha) and in the case of GTL naphtha there is a downstream benefit. These benefits CANNOT be captured using an allocation approach. Full substitution/ displacement as used in system boundary expansion for LCA, is required • WHY? • Substitution/ displacement is a more comprehensive analyses. Given the critical issues of GHG emissions and future requirements, a comprehensive view is necessary • The future energy requirements will depend on a diversity of alternative fuels and fair methodologies are imperative to ensure they all receive equitable treatment going forward

14. Business as Usual (Refinery) and GTL cases used • Refining crude oil is the current (an in the foreseeable future) the main process to deliver road transportation fuels. Large scale (200,000 bbl/d) modern complex/ semi-complex refinery was used to supply three regions - typical crude and product slate for US, EU and Japan • GTL case was scaled up and based on nominal 34,000 bbl/d name plate ORYX GTL design data, the plant that is in operation today • 2010 focus • 10ppm (EU), 15ppm (US), 50ppm (Japan) for ULSD • No technology advancements were taken into account

15. GTL shows better particulate and acidifying emissions particulate emissions acidifying emissions (SOx and NOx) • Upstream • Production • Transportation to user • Use • Upstream • Production • Use Conventional Diesel Ultra low sulphur diesel Diesel blend (20% GTL, 80% ultra low sulphur diesel) Conventional Gasoline

16. Greenhouse gas results per lifecycle phase All refinery products Transportation fuels only Basis: 200,000 bbl/d Refinery

17. Additional GTL benefits not claimed at this stage • GTL is an emerging industry and technology that requires correct accounting for all GTL co-products • Looking into the future, further refinements could reduce carbon burden below refinery: • Further expand product slate, e.g. normal-paraffin and base oil • Develop dedicated engines with vehicle manufacturers • Further improve GTL process efficiency through energy integration • GTL offers CO2 emissions mainly from a single source (production plant), compared to tailpipe emissions. As a result, carbon capture and storage can be done more cheaply than combustion sources, but CCS needs a regulatory framework and financing incentives (UNEP, 2005)

18. Updated GTL LCA results – lubricant base oil case study • The allocation WTW method yields 454 g CO2e/mile for GTL • However, using the LCA system boundary expansion method- • 291 g CO2e/mile (26% better than conventional diesel) • 35% better than GTL diesel allocation method, mainly due to benefits of GTL lubricant base oil • Higher quality GTL lubricant base oils when compared to refinery product, has downstream carbon savings and extended oil drainage intervals

19. Life cycle GHG emissions comparing Allocation method with SBE method Case study – Including Base Oil case

20. Key message from LCA • The Sasol GTL process offers significant benefits in air quality due to its lower emissions of hydrocarbons, nitrogen oxides and sulphur oxides when compared to refinery • These benefits are achieved with no greenhouse gas penalty and shows even better improvements if all GTL products are properly accounted for

21. We know the carbon solution is complex • GTL offers an competitive part of the energy solution, but national and international efforts are essential to deal with the complex social, economic and technical challenges presented by carbon • A much broader and multifaceted approach is required and other criteria pollutants also have to be considered, which includes engagement with appropriate stakeholders to gain mutual understanding of the situation “there is no single GHG solution, but with commitment, timing and correct investment decisions, business has the opportunity to make a difference ”

22. Thank you fred.goede@sasol.com Sasol Limited, P.O. Box 5486, Johannesburg, South Africa. Tel +27-11-344-0145