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Bloomberg

Sasol, Tata in $10 Billion Coal-to-Motor Fuel Venture (Update2)
June 02, 2010, 8:54 AM EDT

By Anoop Agrawal and Rakteem Katakey

June 2 (Bloomberg) -- Sasol Ltd., the largest producer of motor fuel made from coal, plans to spend $10 billion in India in partnership with the Tata Group on a block awarded last year, following similar investments in Indonesia and China.

The South African company plans to produce 80,000 barrels a day of motor fuel by 2018 from a coal block in the eastern state of Orissa, Mark Schnell, president of the company?s Indian unit, said in an interview in Mumbai today. Sasol and India?s Tata Group own equal stakes in the venture, he said.

?It?s going to be a mega project of the magnitude of $10 billion by the joint venture,? Schnell said. ?At this stage, the focus is on understanding the resource and making sure of the economics of building a plant here.?

Rising incomes in India are driving vehicle sales, boosting fuel demand in the world?s second fastest-growing major economy. The South Asian nation?s energy use may more than double by 2030 to the equivalent of 833 million metric tons of oil from 2007, according to the Paris-based International Energy Agency.

?That is a tremendous amount of money and a project like that will become viable at very high crude prices,? said Victor Shum, a Singapore-based senior principal at U.S. energy consultants Purvin & Gertz Inc. ?If the alternative of producing fuels from crude oil is cheaper, then a refinery would make more sense.?

Sasol gained 50 cents, or 0.2 percent, to 276.75 rand as of 2:36 p.m. in Johannesburg, where the FTSE/JSE Africa All Share Index fell 0.6 percent.

Energy Security

Sasol and the Tata Group were awarded the coal-to-liquids project in Orissa, the Indian company said in March last year.

?We feel that this is a right step toward securing energy security for the country,? the Tata Group said in a statement then.

India?s Jindal Steel & Power Ltd. said in March last year it was allotted a coal-to-liquids block in Orissa. The project would produce 80,000 barrels of fuel a day from coal and is estimated to cost 420 billion rupees ($8.9 billion), including mining and a power plant.

India?s production of gasoline climbed 32 percent to the equivalent of about 422,800 barrels a day and diesel output rose 12 percent to about 1.4 million barrels a day in the year ended March, according to Bloomberg calculations from data on the Petroleum Planning and Analysis website.

Sasol, based in Johannesburg, is considering increasing the capacity of a similar plant in China with Shenhua Group Corp. by 13 percent to 90,000 barrels a day, Chief Executive Officer Pat Davies said March 8. The cost of the plant with Shenhua is less than $10 billion, he said.

The South African company signed a memorandum of understanding with Indonesia for the possible development of an 80,000 barrel-a-day coal-to-fuel plant in the Asian country, Sasol said in December. In January 2009, Bukin Daulay, head of coal and mineral research at Indonesia?s energy ministry, said Sasol could spend $10 billion on the plant.

Sasol, which produces more than 40 percent of South Africa?s motor fuel, uses technology first employed by Nazi scientists and refined by apartheid-era engineers. The company plans to build new coal-to-fuel plants in the U.S., China and India.

--Editors: John Chacko, Alex Devine.

To contact the reporters on this story: Anoop Agrawal in Mumbai at [email protected]; Rakteem Katakey in New Delhi at [email protected].

To contact the editors responsible for this story: Amit Prakash at [email protected]; Hari Govind at [email protected].