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Aluminium Bahrain lacks power

for $1.7bn aluminum expansion

<font face="arial, geneva, helvetica" size="2">Aluminium Bahrain, the largest aluminum smelter in the Middle East, said it needs more supplies of gas or other forms of energy to proceed with a planned $1.7bn expansion to meet rising demand for the metal.<br>“For expansion we need to find alternative sources” of electricity, chief executive officer Ahmed al-Noaimi said here. “Energy is an issue.”<br>Aluminium Bahrain, or Alba, started production in 1971 using gas from Bahrain’s Awali oil field to power its smelter.<br>Domestic gas supplies aren’t sufficient to meet the needs of a planned expansion that would increase annual production to 1.2mn metric tons, from 872,288 tons last year.<br>Aluminum prices rose to a record $3,310 a ton last May in London as Chinese demand expanded.<br>That has spurred producers such as Alcan and Norsk Hydro to boost production in Middle Eastern countries where abundant supplies of natural gas are available to power smelters.<br>Electricity typically accounts for about a third of the cost of producing aluminum, used to make beverage cans, aircraft and window-frames.<br>“Aluminum demand is set for continued growth and there are some questions as to where supply will come from,” said Robin Bhar, a London-based metals analyst with UBS.<br>“The United Arab Emirates, Qatar and Saudi Arabia are all looking to increase production, so if Bahrain can’t get more power its loss would be a gain for other Arab countries.”<br>Norsk Hydro, the world’s fourth-biggest aluminum producer, is building a $4.5bn smelter in Qatar with the state’s energy company. First production is due in 2009.<br>Qatar controls the world’s largest single natural gas field and by 2012 plans to operate 14 trains producing 77mn tons of liquefied natural gas a year.<br>Montreal-based Alcan is building a $1.7bn smelter in Oman with Oman Oil and the Abu Dhabi Water and Electricity Authority, with production due to begin in 2008.<br>Abu Dhabi’s Mubadala Development Co and Dubai Aluminium Co are planning to spend $5bn building the world’s largest aluminum smelter in the UAE, capable of producing 1.4mn tons a year.<br>State-controlled Alba in 2005 opened a fifth potline costing $1.7bn and is already exceeding its smelter’s 830,000-ton-a-year design capacity. A potline is a series of electrolytic cells that extract aluminum from alumina.<br>It’s working on upgrades to “squeeze” another 60,000 tons from the smelter within three years, according to al-Noaimi, and plans a sixth $1.7bn potline in a “five year horizon”.<br>“Maybe we need to discuss joint ventures to generate power,” al-Noaimi said, declining to be more specific on where Alba could secure additional electricity supplies.<br>Natural-gas prices are more than three times higher than during the 1990s and gas consumption will outpace global energy demand for the next 25 years, according to the Paris-based International Energy Agency.<br>Alba exports about a third of its production outside the Middle East to buyers in Europe, Asia and the US Global demand for aluminum will grow at about 4% a year for the next decade, the company forecast.<br>This year will be a “peak year” as aluminum prices range between $2,500 and $2,700 a ton, al-Noaimi said. Prices will fall to between $1,900 and $2,200 a ton in the next four years on new supply, he said, “depending on how much the funds play in the market.”<br>Unless it proceeds with a sixth potline, Alba won’t need to borrow for upgrades planned for its Bahrain plant, al-Noaimi said. The company is “preparing” for an initial share sale which he said will probably happen “in the region of five years” from now.<br>Alba is 77%-owned by Bahrain’s government, 20% by Saudi Basic Industries Corp and the remainder by Germany-based Breton Investments.</font>

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