Alcoa Invests to Secure Long-Term Energy Supply, Pushes Australia to Turn to Gas

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Researched by Industrial Info Resources (Perth, Australia)--Speaking at an American Chamber of Commerce in Australia meeting, Alcoa of Australia Limited (Melbourne, Australia) chairman and managing director Alan Cransberg expressed concerns that Australia needs to be making more out of its enormous gas reserves, instead of simply exporting it all overseas in the form of liquefied natural gas (LNG).

Cransberg said he believed alumina refining in Australia can remain competitive only if the industry has access to plentiful supplies of affordable energy. He also claimed that local manufacturers are being forced to call on state and federal governments to ensure a percentage of gas supplies are reserved for the domestic market, because energy companies are investing billions of dollars developing natural gas supplies that can be shipped north to Asia, where they attract a better price.

"If we want to be a country with a diversified economy, then we have to have energy," Cransberg said. "I continually worry about whether we are just a quarry for the rest of the world, or are we clever enough to combine some of the huge natural advantages we have."

"President Barack Obama, with all the U.S. shale gas, wants to create 3 million jobs for America, but we find all this gas and we want to pump it offshore."

Alcoa of Australia operates three alumina refineries and a number of bauxite mines in Western Australia, as well as mines and aluminium smelters in other parts of the country. A supply of energy is critical to Alcoa, with the company's WA refineries believed to consume about 24% of the state's domestic gas supply.

In an effort to secure a reliable source of energy, Alcoa has invested nearly $207 million (AUD$200 million) in smaller oil & gas companies. Those companies include Empire Oil & Gas (Perth, Australia) which is expected to start producing gas from its Gingin West and Red Gully gas fields early in 2013; Buru Energy (Perth, Australia), which has, along with its partner Mitsubishi Corporation (OTC:MSBHY) (Tokyo, Japan), recently signed an agreement with the state government to develop the unconventional gas reserves in the Canning Basin; and Transerv Energy (Perth, Australia), which is exploring shale gas in the Perth Basin.

In addition to trying to secure cheaper energy, Alcoa has embarked on a campaign of efficiency and productivity increases. The company's Point Henry smelter in Geelong, Victoria, required a US$41 million (AUD$40 million) government rescue package in June this year, and Cransberg has refused to comment if more taxpayer assistance would be required to keep the plant open after 2014.

Cransberg points to the falling price of aluminium from an average of $3,473 (AUD$3,325) a ton in 2008 to roughly $1,880 (AUD$1,800) a ton in 2012, as well as increases in the cost of gas, as major factors in the plant's current financial strife.

Cransberg said the aim isn't for the refineries to be fully self-sufficient, but for them to secure gas supplies and offset rising energy costs.

In February, Alcoa shelved plans to expand its Wagerup refinery in Western Australia for up to five years. Cransberg said the project is still one the company wants to push ahead with, but it is dependent on securing long-term energy supplies, capital costs and market conditions.

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