On 20 December 2009 the first aluminium ever made in Qatar was produced by Qatalum, a joint venture of state-run energy giant Qatar Petroleum (QP) and the world’s third-largest integrated aluminium producer, Hydro of Norway. It was an historic day for the gas-rich Gulf state and an important milestone in Qatar’s drive to diversify its economy away from a reliance on hydrocarbons revenues.

Located at Mesaieed, some 40 kilometres south of Doha, the $5.7bn Qatalum smelter has a capacity of 585,000 tonnes a year (t/y) of
aluminium. The facility is scheduled to reach full production next year. Its output for 2010 is estimated at 340,000 tonnes.

At present, oil and gas revenues dominate the Qatari economy, generating some 62 per cent of gross domestic product (GDP). During the past two decades the country has invested billions of dollars to build up its gas export industry, becoming, in 2006, the world’s largest exporter of liquefied natural gas (LNG) – overtaking Indonesia, which had dominated the market for more than 30 years.

Gas revenues

In 2008, Qatar’s gas revenues exceeded those of oil for the first time, contributing QR120bn ($33bn) to the economy. In 2010, income from LNG exports will be even larger, as new capacity has been brought on stream at the Qatargas and RasGas projects at Ras Laffan. The state’s LNG output is forecast to hit 77 million tonnes this year.

Through its long-term gas export commitments to countries across the globe, Qatar has guaranteed itself a steady revenue stream for decades to come. But at the same time, Doha has also been striving to expand its industrial base beyond oil and gas production, generating new exports with high added-value, made possible by the availability of low-cost energy supplies.

Qatar has been striving to expand its industrial base beyond oil and gas production, generating high-value exports

This process of diversification began in the early 1970s, with the launch of fertiliser, petrochemicals and steel production in the country. The new industries were established by forming joint ventures with technology-rich international companies.

QP has played a central role in this diversification drive. Although the state-owned company’s prime responsibility is to manage the exploration and production of oil and gas in the state, it is also responsible for the channelling of revenues from hydrocarbons into new industries. QP holds a 70 per cent stake in the national holding company, Industries Qatar, which was set up in 2003 to manage the state’s interests in diversified industrial ventures, a function that QP had previously fulfilled. QP’s contribution to the diversification programme has also extended beyond furthering industrial development to include education, research and development.

Leading development

The company was the project manager for the Education City project, promoted by Qatar Foundation for Education, Science & Community Development, a non-profit organisation founded in 1995 by the country’s emir, Sheikh Hamad bin Khalifa al-Thani, to lead the state’s transformation into a modern, knowledge-based economy. QP is also a key partner in the new Qatar Science & Technology Park, a research and development hub opened by Qatar Foundation at Education City.

“As the national company responsible for developing the country’s energy resources, we are uniquely positioned to lead Qatar’s energy-based industrial development,” says Abdullah bin Hamad al-Attiyah, Qatar’s deputy prime minister, minister for energy and industry and chairman of QP. “QP has already contributed to developing several other industrial projects in Qatar, based on its access to the country’s vast gas reserves. The Qatalum plant is only the latest step in the company’s efforts towards industrial diversification.”

Doha’s commitment to diversification was reaffirmed in its National Vision 2030, which was published in 2008 and pledges “a diversified economy that gradually reduces its dependence on hydrocarbon industries, enhances the role of the private sector and maintains its competitiveness through expansion of industries and services with competitive advantages derived from hydrocarbon industries”. The startup of Qatalum is an important part of this programme.

Aluminium is a versatile, sustainable material and its uses are growing in the automotive and aerospace industries

Abdullah bin Hamad al-Attiyah, QP chairman

Qatalum will not only generate additional revenues, it will also create jobs for Qatar’s growing population and, in time, enable imports of aluminium products to be replaced by locally produced goods. Following the December 2004 signing of the heads of agreement between QP and Hydro to develop the smelter, a study was carried out to see what impact the project would have on the country’s economy. The social impact study estimated that Qatalum would contribute $1.5bn to the economy, equivalent to 5.5 per cent of GDP. The study also said this figure could be doubled if downstream industries were created, based on the smelter’s output. Furthermore, it calculated that the development of Qatalum would result in $200m being spent locally on construction materials and services and more than 1,000 permanent jobs would be created in the local community of Mesaieed.

For QP, Hydro was a natural choice of partner for the aluminium joint venture. The Norwegian firm has had a presence in Qatar for more than 40 years and was the first non-British foreign company to invest in the country, taking a 25 per cent stake in the development of Qatar Fertilizer Company (Qafco) in 1969. Qafco was the first industrial company to be set up under Doha’s diversification programme. Hydro was also involved in setting up Qatar Vinyl Company (QVC), an integrated plastics producer based at Mesaieed, which began production in 2001.

Hydro’s shares in Qafco have since passed to Norway’s Yara International, following the spin-off of Hydro’s agricultural business. Its 29.7 per cent shareholding in QVC was sold in 2008, completing the sale of its polymers business and setting the seal on Hydro’s transition from an oil and gas giant to a focused aluminium company.

The Qatalum project not only furthers Qatar’s diversification, it also helps Hydro meet its strategic aims of repositioning its aluminium production base in countries with access to competitively priced natural resources, and increasing its metals sales to emerging economies. The company has been phasing out production at ageing, inefficient and high-cost plants in Europe.

Under the terms of the joint venture agreement, QP agreed to supply the gas and a site for Qatalum, while Hydro provided its technology and project management skills to the scheme, in addition to taking on responsibility for selling the output, as Hydro did some 35 years ago for the Qafco project – only this time it is a 50:50 partnership.

QP’s low-cost supplies of gas feedstock give Qatalum a significant competitive advantage over other smelters around the world, and Qatar’s location makes the smelter well-placed to supply emerging markets across Asia, the Middle East and Africa. QP and Hydro’s partnership is a mutually beneficial relationship that is expected to endure for many years. The estimated lifetime of the smelter is 40 years.

Catalyst for growth

Al-Attiyah describes Qatalum as “a catalyst for further growth” of the Qatari economy. The project was launched with the idea of a second and third phase expansion to 1.2 million t/y already in mind, and the opportunities for creating downstream industries are immense.

As Al-Attiyah says: “Aluminium is a versatile, sustainable material and its uses are growing substantially in the automotive and aerospace industries. Qatalum’s products can be used in an unlimited variety of fields.”

It is through developing a downstream aluminium processing sector that Doha will maximise the revenue-generating potential of Qatalum. The value of primary aluminium, for example, can be doubled when it is converted into flat-rolled products, such as cans.

Having set up Qatalum, the next challenge will be finding the local or foreign investors to establish the metals sector around the new smelter.