Australia's Kinetiko Energy in Talks with Sasol on Gas Supply Deal

(Reuters) — Australian gas explorer Kinetiko Energy, which has found shallow sandstone gas in South Africa, has started talks with petrochemical company Sasol on a possible supply agreement, Kinetiko’s chief executive said on Monday.

The natural gas deposit in Block 272, Mpumalanga province, close to Sasol’s Secunda petrochemical complex, could be a boon for Sasol, South Africa’s largest gas user and distributor, which needs to find alternative sources.

Sasol currently receives almost all of its gas via the Rompco pipeline from Mozambique to South Africa, but the Pande and Temane onshore fields in Mozambique that supply it are expected to run out within a few years.

Kinetiko CEO Nick de Blocq told Reuters the company was in "very early and undetailed discussions" with Sasol, which he said was geographically "the natural off-taker for any gas produced in our northern block".

A Sasol spokesperson said the company's CEO Fleetwood Grobler had confirmed the very early stage talks, adding it was "too early to consider details".

On Wednesday Sasol cut its final dividend by almost a third after a 35 billion rand ($1.87 billion) non-cash impairment related to difficulties that threaten the post-2030 viability of Secunda, which produces fuel from coal and natural gas.

Besides Block 272 in the north, Kinetiko has also found sandstone gas in Block 270 and Block 271 further south, where it aims to develop South Africa’s largest LNG onshore project.

Initially, it would produce gas equivalent to 50 megawatts of power, potentially increasing in stages to 500 and eventually 1,500 MW equivalent.

The plan envisages drilling an initial 30-well field, with each set of 10 wells producing around 5,000 tonnes of LNG a year, but De Blocq said he could not give a timeframe as the company is awaiting regulatory approval.

To help finance the LNG project, a joint venture with South Africa’s Industrial Development Corporation, De Blocq said Kinetiko, listed on Australia's ASX, was considering a secondary listing in London or Johannesburg.

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