Alcoa of Australia has signalled its long-term commitment to Western Australia, signing a new gas supply agreement with Santos at the same time as a review revealed the global aluminium giant is considering big job cuts.
Alcoa of Australia has signalled its long-term commitment to Western Australia by signing a new local gas supply agreement with Santos, at the same time as its head office has launched a major review of global operations.
The US-based aluminium giant has announced a strategic review of its global smelting and refining capacity to identify possible cost cuts or divestments, with job losses a likely outcome.
The review will not cover Alcoa’s smelter in Portland, Victoria but its WA operations, which include three alumina refineries, did not receive a similar exemption.
Alcoa Global Primary Products president Bob Wilt said the review could affect 14 per cent of the company’s global smelting capacity and 16 per cent of its global refining capacity.
In a separate move that confirms Alcoa will continue to require large amounts of energy for its WA operations, it was announced Santos had signed a new long-term contract with Alcoa to provide gas from 2018.
Alcoa, which receives the bulk of its gas from the North West Shelf Venture, currently uses about 25 per cent of WA’s total domgas supply.
The new contract will provide 82 petajoules of gas over five years, equivalent to 18 per cent of Alcoa’s estimated requirements.
There is scope for two five-year extensions for the gas supply, which will come from the John Brookes field offshore of WA in the Carnarvon basin.
While both Santos and Alcoa welcomed today’s announcement and expressed a desire for more domgas deals to follow, the deal has reignited debate about whether large WA gas users can afford to secure long-term contracts with producers.
Business News has previously reported on conflicting claims by gas producers and users about the health of WA’s domgas market.
The Australian Petroleum Production and Exploration Association said the Santos-Alcoa deal showed claims by the DomGas Alliance of a constrained domgas market had been undermined.
The DomGas Alliance, which represents large gas users, including Alcoa, contends its members are struggling to secure long-term gas supplies.
“... the long-term contract signed by Santos and Alcoa ... shows there is no difficulty in obtaining domestic gas supply,” APPEA chief operating officer western region Stedman Ellis said.
Mr Ellis pointed to moves by Fortescue Metals Group, another DomGas Alliance member, to convert its operations from diesel to gas as an example of an investment that would not be contemplated in a constrained market.
He said the health of WA’s domgas market was further highlighted by the Independent Market Operator’s annual gas statement of opportunities released in December, which forecast an abundant domestic and export gas supply over the next decade.
“The evidence clearly shows that there is no difficulty obtaining domestic gas supply as long as customers are prepared to pay prices that reflect the high cost of exploration and development,” he said.
A spokesman for Alcoa, which has not disclosed the value of the deal, told Business News Alcoa remained very concerned about the supply of gas into the domestic market.
Alcoa’s long-term gas supply contracts are due to cease between 2018 and 2020 and the Santos deal, while described as encouraging, will only meet 18 per cent of its estimated needs.
“We rely on long-term competitively-priced gas supplies to refine alumina from bauxite in Western Australia, creating thousands of jobs and helping drive the local economy,” Alcoa of Australia managing director Alan Cransberg said in a statement
“Our key long-term contracts roll off in 2018-2020 and we are working to secure replacement contracts.”
DomGas Alliance executive director Matt Brown told Business News the five-year deal between Santos and Alcoa was well short of 20-year contracts offered to foreign customers.
“The deal, while welcome, simply confirms the DomGas Alliance's repeated warnings that gas users are facing major challenges securing adequate volumes and long term contracts,” he said.
“The Santos-Alcoa deal confirms that as the big oil and gas producers ramp up their sales of our gas to China and Japan, Western Australian industry and jobs are being left in the lurch.”
