Cheap power fuels aluminium production in Middle East (Source: Mineweb)

Cheap gas-generated electricity has caused a boom in aluminium production in the Middle East. Analysts expect the region to produce 10% of the world’s aluminium supply by 2020.
Author: Summer Said
Posted: Thursday , 17 Jan 2008

DUBAI (Reuters) -

Middle East aluminium producers are shrugging off record global energy prices as they exploit a competitive advantage of cheap gas-generated electricity and a construction boom to increase world market share.

Analysts say that the oil and gas rich region is expected to produce 10 percent of world aluminium by 2020, up from 7 percent now.

"Global output is expected to reach 60 million tonnes by 2020. When the new planned projects come on stream, the Middle East could even double its production," an industry expert said.

"Some projects could get delayed, but the competitive power costs in the region will attract new players."

State-owned Dubai Aluminium Co. (Dubal) and Bahrain Aluminium (Alba) are among those expanding to take advantage of cheaper power bills, which account for around one-third of an aluminium smelter's total costs.

A plethora of mega-projects in places like the Middle East -- some with planned capacities above one million tonnes per year -- may herald an end to aluminium smelting in much of Western Europe and parts of North America as smaller plants there struggle with high costs.

NO SHORT-TERM WORRY

Power-hungry aluminium smelters are closing rapidly because of high electricity prices and environmental pressures, but analysts said Middle Eastern producers are unlikely to feel the impact of prices or gas shortage over the next two decades.

"The region offers abundant energy sources and is able to produce competitive power," said Edgardo Gelsomino, aluminium research manager at London-based Metal Bulletin.

"Whether the power will be readily available to keep existing aluminium projects' schedules on track, will much depend on the pace and completion of existing and planned regional gas developments and the willingness to guarantee long term competitive gas supplies," he said.

Aluminium producers said that even with power costs slowly rising in the region, tax breaks add financial incentives for the industry.

"If you look at the United Arab Emirates, for instance, a slight price increase would not hurt that much for a smelter like Dubal, which enjoys a 50-year tax holiday," a Saudi-based aluminium producer said.

Dubal aims to be among the world's top five aluminium producers within five years. Its expansion plans include starting construction of the world's largest aluminium smelter complex this year, which would eventually have output capacity of 1.4 million tonnes a year.

"The cost of gas has been rising...and this has created serious competition in the region and the global market," Khalid Buhumaid, a Dubal general manager, said.

"But in general the price of electricity to aluminium smelters in the region has remained far lower than the price of electricity in developed countries...this will remain the case in the short term," he told Reuters.

GULF GAS GRID?

Despite holding some of the world's largest gas reserves, the Gulf Arab region, which is expected to see most of the Middle East's aluminium output growth, is struggling to meet spiralling gas demand, the Emirates Industrial Bank said.

"There should be close cooperation in the area of supplying natural gas through a comprehensive regional grid."

But analysts said the region has proven natural gas reserves to meet potential demand from the aluminium industry and most producers have secure supplies.

"There is an explicit aim among governments in the region to diversify against oil and gas...this may lead to long term power commitments between aluminium investors and energy suppliers in the region," Metal Bulletin's Gelsomino added.
(Editing by Peter Blackburn)