Bahrain set to raise gas prices for aluminium producer

Aluminium Bahrain says it expects its costs to increase by $85m in 2012 as a result of price rise
Bahrain set to raise gas prices for aluminium producer
Aluminium Bahrain, the smelting company known as Alba, said it expected costs to rise by $85m as a result of planned gas price rises.
By Reuters
Wed 21 Sep 2011 07:20 PM

The National Oil and Gas Authority of Bahrain (NOGA) is to raise the price of gas supplied to Aluminium Bahrain (Alba) by $0.75 per million British thermal units (mmbtu) to $2.25/mmbtu from January 1, 2012, Alba said on Wednesday.

Many energy intensive industries in the Middle East have thrived on huge gas price subsidies that industry observers say should be phased out to encourage investment in regional gas exploration and discourage waste.

"If the notified price increase takes effect, Alba expects that it would result in an increase of approximately $85 million in Alba's cost of sales for the year 2012 based on its expected production level," Alba said in a statement.

Alba currently pays just $1.50/mmbtu for gas it uses to produce more than 870,000 metric tonnes a year of high grade aluminium, a fraction of the cost paid by competitors in other parts of the world.

Analysts say that the big subsidies prevalent in the Middle East are unsustainable because they are often lower than the cost of production of non-associated gas reserves.

Gas demand in the small Gulf oil producing country has grown rapidly in the last few years, pressing the island nation to find new sources to feed its refining and aluminium smelting businesses.

NOGA has started a comprehensive study of long-term natural gas supply and demand in the kingdom and is considering establishing a new gas pricing structure after 2012, Alba said.

As one of the most energy intensive industries, the cost of gas to make enough electricity to smelt aluminium is a major variable cost for the production of the key metal.

Alba feeds the gas into its own 1,500-megawatt gas fired power plant and sells some to the national grid during the summer when air conditioning demand surges across the Middle East.

Bahraini energy minister Abd al-Hussein Mirza said in July the country may have to look as far as Russia to meet growing demand for gas as supply talks stall with its neighbours, including Qatar, one of the world's biggest gas exporters.

With buyers in Asia paying around $15/mmbtu for gas shipped around the world on tankers, Qatar has little incentive to sell gas to its neighbours at a fraction of international prices.

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