An aluminium smelter planned for Ruwais is 'dead' after being denied access to cheap energy generated by natural gas.
Ruwais smelter 'dead' for lack of gas
A large aluminium smelter planned for Ruwais is "dead", after being denied access to cheap energy supplies generated by natural gas, the chief executive of Rio Tinto, a partner in the project, said yesterday. The smelter is the latest casualty of a gas shortage in the country, which has left heavy industries and power utilities scrambling for alternative sources of electricity, including nuclear reactors and coal plants. Rio Tinto, one of the world's largest metal and mining companies, and Abu Dhabi Basic Industries Corporation (Adbic), had planned for the smelter to begin production of 700,000 tonnes of aluminium per year by 2010. Aluminium production is very energy-intensive, and large smelters need access to a dedicated, uninterrupted supply of electricity that is the equivalent to the needs of a small city. In November, Adbic said it had finalised a US$2 billion (Dh7.3bn) financing plan for the smelter, which it estimated would cost a total of $5bn each for two capacity expansions of 700,000 tonnes a year. But Gulf nations are getting more out of their limited gas reserves by directing them toward the chemical, fertiliser and liquefied natural gas (LNG) industries rather than burning them for power generation, Dick Evans, the Rio Tinto chief executive, told Bloomberg yesterday. "Abu Dhabi is for all practical purposes dead at this point, and we don't see it coming back," he said, referring to the smelter project. "That's because of this policy shift, and how the Emiratis are seeing the use of their gas." Adbic officials declined to comment on Mr Evans's remarks.
A shortage of ready natural gas in the UAE has been a central question of the Government's energy policy for years. Although the country sits on proved reserves of 215 trillion cubic feet - 3.4 per cent of the world total - much of that gas is located in "sour" deposits in challenging geological conditions. As a response, the nation began importing two billion cubic feet of natural gas per day from Qatar, which is rich in gas, through the Dolphin pipeline last July. Earlier this month, the Abu Dhabi National Oil Company (Adnoc) signed a deal with ConocoPhillips, a US oil major, to develop inland sour gas fields in Shah that will unlock up to one billion cubic feet of gas per day. The company is also looking to exploit another similarly sized field in Bab, closer to the coast. Adnoc produces about four billion cubic feet of gas per day and is targeting levels of 6.5 billion cubic feet. Despite these long-term steps, the immediate forecast for domestic gas supplies was quite bleak, said Robert Bryniak, the chief executive of Golden Sands Management Consulting, which provides analysis of local energy forecasts.
"It's ironic, here we are in the energy centre of the world, and we don't have gas," he said. "I think there might be some delays in the short run, until governments sort out supplies." Mr Bryniak said low domestic gas prices provided little incentive for producers to steer supplies to the domestic market. The local price paid by electric utilities of about one dollar per million British Thermal Units (BTUs) was well below prices overseas for the gas in liquefied form. The solution, he added, was to "get cost-reflective tariffs in place and look seriously at doing something with Iran. Iran has huge supplies." The country could also look at ways to shave its massive demand for electricity by introducing more efficient cooling systems, he said, adding power savings from such technologies could range "into the thousands of megawatts". Mr Bryniak noted that the Adbic smelter was not the first casualty of the gas crunch.
A $545 million power and water plant planned for Umm al Qaiwain was put on hold earlier this year for lack of gas feedstock. The delay in plant meant that Tameer, a Dubai developer, could not proceed with Al Salam city, an $8.6bn project. A 700,000 tonne-per-year smelter being built in Taweelah by Emirates Aluminium, which has secured gas supplies and is on track for completion in 2010, will be powered by a 2,000 megawatt gas-fired plant. The Ruwais smelter's fate has been in limbo for several months, as Adbic officials quietly scaled down the confident picture they projected last autumn at the announcement of their financing plan.