LONDON/DUBAI: Middle Eastern gas supply cannot keep pace with the region’s rapid expansion and fierce competition between industries could force some energy-intensive projects, such as aluminum, to be delayed or even shelved.
In their bid for cheap, captive power, several aluminum majors have plans to site new plants in the Middle East, which is fast becoming an important growth area for the metal used in transport, power and packaging.
But the region’s fast expansion has forced them to vie for lower-than-expected gas and power supplies coupled with rapidly rising demand. Aluminum producers are competing for energy with the steel and petrochemicals sectors, and Asian customers are also willing to pay more for liquefied natural gas (LNG).
“A lot of (aluminum) projects that have been put forward have been over-optimistic — the energy for them is not really there, capital costs are enormous and the price of energy is high,” independent consultant James King said of the region. Exorbitant capital costs, put at $9,000 per ton of aluminum, and insufficient energy might force some aluminum firms to abandon plans and look to other locations, such as Libya and Algeria, which have undeveloped gas reserves, to ensure global supply keeps up with demand.
Delays could cause supply blips. Some analysts have cast doubts on up to three Middle East aluminum projects.
Last month, Rio Tinto said its Abu Dhabi aluminum smelter project was on hold pending a review by the government of its own energy requirements. Some earlier media reports had suggested the project was “dead”.
Qatar is the only Gulf country that is not suffering gas shortages. It is the world’s largest exporter of liquefied natural gas. But even Qatar has put future development of its natural gas resources on hold and says it needs to devote more fuel to domestic need.
Norsk Hydro has a project there, the first phase of which is due to reach full capacity of 585,000 tons per year (tpy) in 2010.
The region’s steel and petrochemicals sectors are also expanding rapidly — the Gulf has half of the world’s new petrochemical projects. The availability of gas for processing in the region is also a big concern for petrochemicals, but analysts said steel producers would be more concerned by rising energy costs than supply when mulling new projects.
Aluminum smelting uses 30 times as much power as the typical 500-600 KWh per ton used by an electric steel plant.
But big Middle Eastern projects for both aluminum and steel have secured power and will proceed, analysts and producers say.