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Billiton’s $4b aluminium plan

AGGRESSIVE London-based mining house Billiton is carrying out preliminary studies to build a $4 billion aluminium smelter and power station in WA to harness the State’s low-cost alumina resources.

It would use material from the Worsley alumina refinery, in which it has a majority of the equity, to end a 20-year period in which local power costs have been a barrier to production of the metal.

Surprisingly, the power would come from a coal-fired station, nearly four million tonnes of coal a year to be provided by Griffin Coal Mining, which has major reserves at the State’s only coalfield at Collie.

Given the many discoveries of natural gas off the WA coast in recent years, and the resultant competition among oil companies, it was that fuel which was thought more likely to be used for major new industries.

The State Department of Resources Development, which has worked closely with possible sponsors of a smelter, says that one is now likely to be attractive because energy prices in WA have fallen sharply in recent years, and are now highly competitive globally, new technology has reduced the amount of electricity needed to produce aluminium and Asia offers spectacular increases in demand in the next few years.

The four alumina smelters near Perth, which produce about a fifth of the world’s output of this material, are among the most efficient in the world and a smelter would enjoy significant benefits in terms of transport costs.

Deregulation of energy markets and many discoveries of natural gas have greatly reduced prices so that they are now among the lowest in the world, so the aggressive position of a coalminer is surprising.

The smelter proposal was last examined soon after the North West Shelf venture was launched, when it became apparent it would produce more gas than could be used.

At the time, South Korean and American companies were interested and were likely to have received attractive incentives from a belea-guered WA Government.

The plan fell apart, mainly because of the assassination of many of South Korea’s Cabinet in Burma who supported the smelter. Soon after the American company Reynolds Alum-inum withdrew.

The smelter would have absorbed much of the gas surplus, which had to be bought by Western Power and has been a burden for most of the time since.

The DRD analysts suggest the vast block of energy required for a 500,000-tonne smelter (about the smallest size considered) should enable WA suppliers to reduce prices for the 900 megawatt power station that would have to be built.

This would increase WA’s baseload requirement by nearly two thirds, almost double the State’s coal output and represents a glittering prize to a supplier like Griffin Coal, placing it in a different category as an Australian producer. It already provides coal for Western Power’s stations on the field.

Sources in the aluminium industry are surprised the company believes it can reduce coal prices to a level which would provide the low electricity costs essential for a smelter.

Western Power has been reducing coal purchases in recent years and nearly half its capacity is now gas-fired.

Aluminium has been described as “congealed electricity” requiring an average of 15,700 kilowatt hours to make a tonne of the metal.

However, the latest plants have reduced this figure by at least 10 per cent, reducing the 20-year-old penalty seen in WA.

The world smelters chase a tantalising figure, power at US2¢ a kilowatt hour, (which does not sound so daunting converted to Australian cents in the current markets, but that can hardly be counted on four or five years from now).

It is becoming increasingly difficult to achieve, especially in the cheapest form of baseload power, hydro. Half the world’s aluminium is produced with electricity from this source, less than nine per cent from natural gas.

Between 2004 and 2008 world demand for aluminium is expected to increase by 760,000 tonnes a year, a third of that in Asia.

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