The Heads of Agreement between Qatar Petroleum and Hydro was signed in Doha on Sunday by Hydro's president and CEO, Eivind Reiten, and HE Abdullah Bin Hamad Al-Attiyah, who is second deputy prime minister, minister of Energy and Industry, chairman of the board of directors and managing director of Qatar Petroleum.
The planned project involves the construction of an aluminium metal plant, anode plant and casthouse, in addition to a dedicated power plant. Production will be based on Hydro's reduction cell technology. The plant will be built in the Mesaieed Industrial Area, south of Doha.
The project is planned to reach full capacity during 2009.
Strategic investment
Qatar Petroleum is a major producer of natural gas and has contributed to developing several industrial projects in Qatar based on its vast gas reserves. Primary aluminium production will represent a new step in industrial diversification in Qatar. For Hydro, one of the world's three largest integrated aluminium companies, the project will be a major strategic investment, improving relative cost position in primary production and further strengthening its positions in global metal markets.
"Qatar is a strategic location for this project and has proven natural gas reserves of more than 900 trillion cubic feet, the world's second largest reserves, representing secure and competitive supplies for power production. The policy of the government of Qatar is to utilize the country's natural resources for economic and industrial development. Participation in a project for primary aluminium production fits this policy," stated HE Abdullah Bin Hamad Al-Attiyah.
"Qatar offers a well developed industrial infrastructure and business climate. Excellent market flexibility between Europe and Asia, and also a potential to serve the US market, ensuring highly competitive cost to market, makes Qatar a good strategic location for the production of primary aluminium," he said.
Eivind Reiten stated that Hydro's technology, competence and market positions will help leverage the value of the project.
"A major primary aluminium production unit in Qatar will be a very important step to strengthen our position as a top tier global aluminium company. This project will also strengthen the good long-standing relationship between Hydro and Qatar. We are looking forward to developing and implementing the project, once the final negotiations and detailed engineering have been successfully completed," said Reiten upon signing the agreement.
Hydro has operated successfully in Qatar for 35 years in close cooperation with Qatar Petroleum (the former Qatar General Petroleum Corporation).
Solid market prospects
In the companies' press release after the signing, it is pointed out that the markets for aluminium products and solutions are continuing a healthy growth as the metal offers unique benefits in terms of light weight, strength, conductivity and good energy absorption. In addition, it is easy to form and process, impermeable and odourless and is easily recycled. This has led to an annual global growth in the global consumption primary aluminium of 3-4 percent in recent decades. Forecasts indicate that this development will continue, with the highest growth expected in China and other emerging economies.
Over the years, Hydro has developed a leading position in the aluminium market in Europe. The company also has a strong position in the US and is about to establish a basis for further growth in Asia. The unique Hydro Metal Supplier Concept has been instrumental in this profitable growth and allows the company to go to market with more than 3.3 million tonnes of metal products annually, well beyond the current equity primary aluminium production totalling around 1.5 million tonnes. The additional 1.8 million tonnes are mainly based on remelted scrap and ingots, as well as metal products supplied by strategic partners.
The project
The project will consist of power generation, primary aluminium production and anode production, as well as a casthouse producing value added aluminium metal products.
To serve the aluminium production with required stable supplies of power, approximately 1,000 MW for the first phase, a new dedicated power plant will be constructed.
The plant site is sufficient for more than a doubling of the primary aluminium production capacity, up to 1.2 million tonnes per year.
The power plant, as well as the primary aluminium plant, will be owned 51 percent by Qatar Petroleum and 49 percent by Hydro.
The casthouse will have the capacity to produce value-added products from all of the pot room metal. As Hydro is a global leader in the production, sales and marketing of aluminium metal products, Hydro will be responsible for marketing all casthouse products through its global system. The casthouse will be owned 51 percent by Hydro and 49 percent by Qatar Petroleum.
Investment
The preliminary investment estimate for the total project is approximately USD 3 billion. Hydro's share of the investment is estimated to be around USD 1.5 billion. The smelter is projected to have an investment per tonne capacity in the region of USD 4,000, comparing favorably to other greenfield projects.
The low investment cost per tonne, combined with a long-term, competitive gas contract, will ensure a robust project, exceeding Hydro's profitability targets.
Project execution
Construction is expected to be similar to Hydro's recently completed project in Sunndal, Norway. Hydro has successfully completed several major investment projects in its oil and gas activities, in aluminium and in polymers in recent years, including major projects in Qatar.
At the same time, Hydro is preparing to phase out approximately 70,000 tonnes annual production capacity from the old Soderberg potlines at its primary aluminium plants in Ardal and Hoyanger, Norway, at the latest by the end of 2006, in order to meet future emission standards. Hydro is also reviewing the viability of its primary aluminium plants in Germany, where the anticipated increased costs for electricity and the strong Euro constitute major challenges.
Facts about the partners
Qatar Petroleum (previously known as Qatar General Petroleum Corporation) was established in 1974 as a national corporation completely owned by the State of Qatar. Qatar Petroleum is responsible for all oil and gas industry processes in Qatar and abroad, including the exploration and drilling for oil, natural gas and other hydrocarbon substances, production, refining, transport and storage of these substances and any of their derivatives and by-products, as well as trading in, distribution, sale and export of these substances.
Hydro is a Fortune 500 energy and aluminium supplier operating in more than 40 countries. The company is a leading offshore producer of oil and gas, the world's third-largest aluminium supplier and a leader in the development of renewable energy sources. Hydro's 36,000 employees create value by strengthening the viability of the customers and communities we serve.