The Qatalum smelter was procured and built during the regional construction boom when materials and contractors were in short supply
The construction of Qatalum’s aluminium smelter took just 30 months to complete, from ground being broken in November 2007 to the production of the first metal in December 2009. But it was a challenging project that took more than 77 million man hours to execute and entailed the assembly of some 400,000 parts. In the process, the project management team also had to contend with the overheating of the region’s contracting market and the subsequent economic crisis.
Detailed planning for the scheme began in 2004, following the signing of a heads of agreement between state-run energy giant Qatar Petroleum (QP) and Norway’s Hydro to build an aluminium smelter at Mesaieed Industrial City with a first phase capacity of 570,000 tonnes a year (t/y) to target growing markets in Asia, Europe and North America. The estimated investment cost was $3bn.
During 2005, a feasibility study was undertaken to prove the viability of the project, which raised the estimated investment cost to $4.8bn. The study also recommended increasing the smelter’s capacity to 585,000 t/y.
- December 2004: Heads of agreement signed
- March 2006: Joint venture agreement and approval of feasibility
- October 2006: Investment decision
- January 2007: Site preparation startup
- July 2007: Final approval
- November 2007: Construction commences
- April 2009: Power from grid and gas for commissioning
- September 2009: Fuel gas for power plant startup
- September 2009: Startup of regular anode production
- October 2009: Casthouse test production
- November 2009: Initial power available from power plant
- December 2009: Potlines on stream
- August 2010: Project completion
UK consultancy WS Atkins was commissioned to undertake the environmental impact assessment for the project. This was filed to Qatar’s Supreme Council for Environment & Natural Reserves in September 2006 and approval was received the following month.
That same year, the agreement between QP and Hydro was formalised with the signing of a 50:50 joint venture establishing Qatalum. Under the deal, QP agreed to provide the site, industrial infrastructure and energy for the project, while Hydro would supply its in-house technology and market the smelter’s output using its global sales network.
With more than 80 years of aluminium industry experience behind it, as well as 35 years’ experience of working in Qatar, Hydro also agreed to manage the planning, construction and commissioning of the Qatalum project.From the outset, the project management team decided to use an engineering, procurement, construction (EPC) procurement strategy. The scheme was split into more than 20 contracts and potential bidders were invited to submit prequalification proposals.
We were entering a hot contracting market, so it was important to have a global philosophy for procurement
Jan Arve Haugan, CEO, Qatalum
“We had our own internal project management agreement with Hydro,” explains Jan Arve Haugan, chief executive officer of Qatalum. “They have experience of contracting in the oil and gas industry and so have this philosophy of conducting a proper competition between suppliers with 10-15 EPC contractors. In this way you can spread the risk.”
During 2006-2007, when the tenders for the Qatalum project were issued, the GCC was experiencing a major construction boom. Construction materials and contractors were in short supply and the prices of both were rising rapidly. In response, the project management team sourced its materials and contractors from all over the world and, whenever possible, signed fixed-price, lump-sum contracts.
- Anode baking plant: FATA and K Home International
- Anode service plant: Kempe Engineering Service
- Anode superstructures: China Great Wall Construction
- Busbar materials: Salzburger Aluminium
- Casthouse: FATA and K Home International
- Construction village: Saudi Arabian Trading & Construction
- Fume treatment plants: Solios Environnement
- Jetty and seawater intake: Archirodon Construction
- Paste plant: Solios Carbone
- Pot control system: ABB
- Potshells: Ahmed Mansoor AlA’Ali Company
- Pot tending machines: NKM Noell Special Cranes
- Power Plant: GE and Doosan Heavy Industries
- Rectifiers and transformers: ABB
- Reduction cells and potroom equipment installation: Dutco McConnel Dowell
- Service area and potroom building: SNC Lavalin
“When we launched the project in 2006/2007 we were entering an extremely hot contracting market, so it was important for us to have a global procurement philosophy,” says Haugan. “We also wanted to build using ready-assembled units, as far as possible.”
In total, 21 EPC contracts were signed, with companies from the GCC, Europe, Asia, Australia, the US and Canada. The major facilities that comprise the Qatalum works are the reduction plant, or potroom; the carbon plant (which includes paste and anode plants); the casthouse; and a dedicated combined-cycle power plant.
Canada’s SNC Lavalin was awarded a $700m contract to build the potroom; the administration and service buildings; general infrastructure and utilities; and the harbour facilities, which included ship unloading and bulk storage and handling systems.
Dutco McConnell Dowell, a joint venture of the UAE-based Dutco and Australian firm McConnell Dowell, was awarded a $750m contract for the installation of the reduction cells and potroom equipment.
A consortium of Italy’s Fata and the UK’s K Home International were awarded contracts totalling $500m to build the anode plant and the casthouse. France’s Solios Carbone won the tender for the paste plant, while Australia’s Kempe Engineering built the anode service plant. Marine works for the seawater intake system were carried out by Geneva-based Archirodon Construction.
A $900m contract for the construction of a 1,350MW power plant to run the smelter was awarded to a team of GE of the US and South Korea’s Doosan Heavy Industries.
The design of Qatalum was modelled on Hydro’s Sunndal 4 project in Norway, which was completed in 2004 and uses Hydro’s in-house developed electrolytic reduction cell technology. Engineers who had worked on the Sunndal project were seconded to Qatar to design and develop the Qatalum project. There is one significant difference between Qatalum and the reference plant, however, and that is size. The Sunndal 4 plant has a capacity of 238,800 tonnes a year, less than half the capacity of Qatalum.
“It is a proven technology,” says Roald Holten, reduction manager, Qatalum. “There are some differences from Sunndal, but the differences are improvements. The main difference is the scale of the potline.”
The potlines are where the raw material, alumina (aluminium oxide), is converted by electrolysis to liquid aluminium.
Qatalum’s reduction plant contains 704 pots, while Sunndal 4 has 340 reduction pots. The pots are arranged in two lines, each 1,150 metres long. Each line comprises two rows of 176 pots. The first pot started up on 19 December and, by the end of February, 125 pots had come on stream. The remainder will be online by the fourth quarter of this year. Each pot will produce 2.27 tonnes a day of primary aluminium.
The carbon plant comprises a 60-tonne-an-hour paste plant – where anodes used in the electrolytic reduction process are made from coke and pitch – and a 340,000-t/y anode baking plant and service area, where the anodes are prepared for use in the potroom, and later recycled. The casthouse is where liquid aluminium is cast to form products such as extrusion ingots and foundry alloys. It has a capacity of 625,000 t/y. The molten aluminium is transported at a temperature of 900 degrees Celsius from the smelter to the casthouse in crucibles using trucks.
Each crucible holds 9 tonnes of molten metal. At full capacity, 12 trucks will together make 200 journeys a day between the potroom and casthouse. The truck method was developed at Sunndal. Qatalum has five casting lines; two lines for the production of extrusion ingots used and three for foundry alloys.
Having agreed fixed price contracts, the Qatalum management could only sit and watch as prices of materials and labour tumbled
The production processes at Qatalum are automated as far as possible, again using in-house technology, and each of the four rows in the potroom has a sophisticated fume treatment plant attached to keep emissions to a minimum. The fume treatment plants were supplied by France’s Solios Environnement.
“We took the best concepts from our smelters elsewhere and applied them here in Qatar,” says Pal Vigeland, group casthouse manager at Qatalum.
The final decision to go ahead with construction was taken in July 2007 after contracts for the long-lead equipment had been agreed, and a ground-breaking ceremony was held in November that year.
At the peak of construction activity there were some 23,000 workers on the Qatalum site. Many of these lived at a special-purpose residential village on a 490,000-square-metre plot adjacent to the smelter. The village was built by Saudi Arabian Trading & Construction to accommodate 10,000 workers. It includes two internet cafes, an electronic games room, an outdoor cinema, a hairdresser’s, a clinic, supermarket and laundrette. The village has about 440 accommodation blocks, each with two canteens serving food supplied from one large central kitchen. There are also football and basketball fields and a mosque.
From mid-2008 onwards, the project faced a new challenge in the form of the global financial crisis. Payment delays to suppliers became increasingly common in the Gulf construction sector and Qatalum had to prepare for the possibility that some of its contractors might go out of business.
“It was important for us to have a feeling of how contractors were able to handle the financial crisis,” says Haugan. “Although we didn’t [in the end] have any problems, we needed to monitor the situation, as it is important to have early warning on these things.”
Furthermore, having agreed to pursue a policy of fixed-price, lump-sum contracts to shield the project from price rises and cost overruns, the Qatalum management could only sit and watch as the prices of raw materials and labour came tumbling down.
In total, the cost of building the smelter and setting up the Qatalum company was $5.7bn. This equates to a capital investment per tonne of aluminium produced of $9,743 – more than double the initial estimate of $4,000 a tonne when the project was first announced.
Equity from the owners funded 54 per cent – $3.1bn – of the cost, while the remaining $2.6bn was sourced through project finance. The term of the project finance loan is 16.5 years from when it was agreed in August 2007. The limited recourse financing comprised a $2.25bn commercial bank loan and a $350m export credit facility with the Norwegian Guarantee Institute for Export Credits.
My objective is to start the plant, fine-tune the operations and then compete on cost with global smelters
Jan Arve Haugan, CEO, Qatalum
The commercial loan facility was joined by 30 banks and Export Development Canada. France’s BNP Paribas was the financial adviser for the project and the US’ White & Case acted as the legal adviser.
During the recession, prices of aluminium plunged, falling from above $3,000 a tonne in early 2008 to less than $1,400 a tonne in March 2009. Time and again Qatalum was asked to justify its investment in an industry for which demand was now falling. Each time, company executives said it was an investment for the long term, and since all industries were cyclical by nature, consumption levels would recover.
Indeed, by the time Qatalum produced its first metal in December 2009, aluminium prices had recovered to above $2,000 a tonne. Global demand for the metal this year is expected to be 39 million tonnes, some 15 per cent higher than in 2009. More importantly, aluminium prices are now above the $1,800-1,900-a-tonne level that would deliver satisfactory project economics for Qatalum.
Construction activity on site is now winding down as the plant nears completion and the ramp-up phase moves ahead. But work could soon begin all over again. The possibility of doubling the capacity of the facility to 1.2 million t/y has been spoken about ever since the project was first mooted back in 2004. The Environmental Impact Assessment suggests this could be undertaken in two further phases, with 300,000-t/y potlines added each time. But the detail and the timing of these future expansions have not yet been decided.
“My objective now is to start the plant, work hard on debottlenecking – making physical and technical improvements to fine-tune operations – then to compete on cost with global smelters,” says Haugen.