Rio Tinto Stalls $3 Billion Abu Dhabi Aluminum Smelter as Gas Feed Moves to Other Industries

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Researched by Industrial Info Resources (Sugar Land, Texas)--As more projects for gas-fired power plants are announced in the Middle East, the gas resource, which once seemed abundant and readily available, has now become a key factor in the viability of industrial projects and development plans. At a time when three new power projects have been announced, Rio Tinto (NYSE:RTP) (London) has canceled or, at best, postponed a $3 billion aluminum smelter planned for Abu Dhabi, as an official policy shift has given priority for natural gas feeds to other industrial applications such as chemicals, fertilizers and liquefied natural gas. Aluminum is known as "congealed electricity" on account of the large amount of power needed in the production process.

Oman's Authority for Electricity Regulation is set to invite bids for the construction of a 1,000-megawatt (MW) gas-fired power generation and water desalination plant in Duqm. The plant will be a part of a $20 billion project to develop Duqm's infrastructure with a range of projects covering an oil refinery, a seaport and a ship-repair yard. Bidding will begin for a build, own, operate and transfer contract after consultants are appointed.

In Jordan, Korea Electric Power Corporation (NYSE:KEP) (Seoul, South Korea) has been awarded selected bidder status by Jordan's government to build a 373-MW gas-fired power plant in Al Quatrana, about 100 kilometers south of the capital of Amman. Procedures and permitting are scheduled for completion by May 2009 when Korea Electric will sign a formal contract. The company will manage the commercial operation of the plant through 2035.

Two final bids, reduced from the 13 submitted in January, have been submitted for the $2 billion power and desalination plant to be built in the Al Dur-Ras Abu region of Bahrain by SUEZ Energy International (Brussels, Belgium), a subsidiary of SUEZ-Trachtebel S.A. (Brussels) and Gulf Investment Corporation (Kuwait); and Acwa Power (Saudi Arabia) and KEPCOal (South Korea). The bids are being submitted to Bahrain's Electricity & Water Authority for financial, technical and legal evaluation. The contract will be awarded by the end of September and completion of the first phase of the project is scheduled for 2010, with a capacity of 600 MW and 48 million gallons of water per day. Power capacity is set to be raised to 1,200 MW by mid-2011. The Suez/Gulf Investment Corporation bid was $37.06 per megawatt-hour (MWh) and the Acwa/KEPCOal bid was $39.06 per MWh.

The cancellation of the 700,000-ton-per-year Abu Dhabi smelter does not mean that Rio Tinto is backing off of new projects in the Middle East or elsewhere when the power-supply-production equation can be balanced. It is significant that the company's new $2 billion Saudi Arabian smelter will be fired with heavy oil in preference to the increasingly valuable natural gas. With a 24% increase in aluminum prices in 2008, demand is forecast to double by 2020, which will require 80 new smelters each with an average production capacity of 400,000 tons per year, according to an Alcoa (NYSE:AA) (Pittsburgh, Pennsylvania) report.

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