Though the proposal for the smelter and its associated facilities has been in the pipeline for some time, the joint venture between Qatar Petroleum and Norwegian firm Norsk Hydro Aluminium has been picking up pace recently. As the scheduled date for work to begin the project approaches, the partners are in the process of completing an environmental impact study and submitting final planning permission requests to the Qatari government.
Under the plan, Qatalum, the company set up to build and operate the plant, will have the first stage of its 585,000 tonne capacity smelter at Mesaieed up and running in the last months of 2009, with the facility working to full production the following year. Plans are already on the drawing board to boost output to 1.2m tonnes a year, which would make the Qatari smelter the world's biggest.
According to Truls Gautesen, Qatalum's general manager, the $3bn plant will come on line just at the right time, with initial production set to start as global demand for aluminium will jump.
"By 2020, the global demand for aluminium will be at its highest level, with industry requirements, especially those in the automobile sector, touching new heights," Gautesen said in an interview with the local press at the end of September.
The decision by Norsk Hydro to invest in Qatar was motivated by the easy access to the abundant supply of cheap natural gas. With the emirate having proven reserves of 11 trillion cubic metres and given that a full one third of the cost of producing aluminium comes from energy requirements, it seems as if the marriage between Norsk Hydro and Qatar Petroleum is made in economic heaven. The very cost of energy is what is pushing European and US aluminium producers to look elsewhere to set up shop, with many considering moving right to the source, the Middle East.
Also in Qatar's favour is its central location, astride routes to the established markets in Europe and the US and the rapidly expanding Asian economies. International demand for aluminium is expected to double in the next 15 years, with much of the increase coming from China and other Asian countries, with the region's booming automotive industry being one of the driving forces.
Other factors swaying producers to move to the Gulf is access to a skilled and relatively inexpensive work force, mainly expatriate, and growing regional demand. With most of the Gulf states seeking to diversify their economies, domestic usage of aluminium is rising. Existing facilities turn out approximately 1.5m tonnes of primary aluminium annually, representing some 6% of global production. Of that 1.5m tonnes, just under 40% is used by industry in the region. While new projects such as Qatalum will increase output to up to 10% of worldwide consumption, the growing industrialisation in the Gulf is also expected to soak up a fair proportion of production.
The Qatalum project is not the first time that Qatar has looked to enter the aluminium sector. In 2003, a consortium consisting of Qatar's United Development Company, Ferrostaal AG of Germany, Dubai Smelter Developments FZE and the JGC Corporation of Japan announced plans to build an aluminium smelter at Ras Laffan, 80km to the east of the capital.
With a projected price tag of between $2.1bn and $2.6bn, the proposed plant would have had an annual output of up to 620,000 tonnes annually, with further plans to expand to a capacity of 1m tonnes a year. However, the project appears to have been put on the backburner, after the Qatari firm and Dubai Smelter, a subsidiary of Dubai Aluminium, issued a statement in December 2003 saying that their joint venture agreement had been terminated.
While Qatalum's smelter will be the first operating in Qatar it may not be the last. At the end of September, India's state-owned aluminium producer NALCO announced that it was looking into further expanding its overseas operations, including setting up a facility in the Gulf region.
According to CR Pradhan, NALCO's chairman and managing director, Qatar, along with Abu Dhabi and Oman, had been short listed as the three options for the proposed joint venture.
As has been the case with Qatalum and other international producers, NALCO's chairman cited the low cost of assured energy as being the main factor driving the proposed move into the Gulf.
However, there could be a bump in the road for the Qatalum project, with a spokesman for Norsk Hydro saying on September 27 that it was carrying out a final review of the costing of the development before committing to the investment.
While saying that a final decision on Qatalum would be taken in the next few months, the spokesman also said that the preliminary work on the project was proceeding according to plan.
With neither Qatar Petroleum or Norsk Hydro suggesting that the smelter will be shelved, industry experts are expecting the development to go ahead, further expanding the base of Qatar's economic diversification.