South West Focus Conference, 2 May 2007
Wayne Osborn
Managing Director, Alcoa of Australia
Introduction
Thank you for the introduction and for the opportunity to speak today. I want to commend the South West Chambers of Commerce and Industry for another outstanding program. I also wish to thank the sponsors for making this event possible. It’s a great opportunity to hear and share experiences in the most dynamic region in the State – and I would say, the country.
Overview
When I last addressed this forum in 2004, the resources boom was only just emerging and I spoke about opportunities for the region. Looking back now, it’s fair to say that none of us could have imagined the strength of the growth period. Today, I will share some of Alcoa’s experiences on growth over the past three years. I will also discuss the global market outlook for alumina and aluminium. I will then focus on the main theme of the conference which is long-term sustainability. It is without question that the biggest sustainability challenge of our generation is climate change. This has profound economic and environmental consequences for the region, including the alumina industry. I’d like to share with you some of Alcoa’s responses and challenges on climate change.
Alcoa and the South West
First, a brief snapshot of Alcoa. Alcoa has been a part of the South West for over 40 years. We built our first alumina refinery at Kwinana in 1963, followed by Pinjarra and Wagerup in the 70s and 80s. We also operate bauxite mines at Huntly and Willowdale, and dedicated port facilities at Kwinana and Bunbury.
Economic contribution
Alcoa’s operations make a significant contribution to the local economy. We provide over 4000 direct jobs in the South West and are a stable employer. Most of our employees live in the region and we have second and even third generation employees. We also support local businesses and communities through local spending and community partnerships. In terms of exports, the South West accounts for most of Alcoa’s $A 4.2 billion in Australian exports. Around 80 cents in every export dollar we earn stays in Australia as wages, rates and taxes, dividends or local spending.
Growth of the alumina industry
The past few years have seen the growth of the alumina industry in the South West. Production in WA grew by 25 per cent in 2006 – to a total of $A 4.6 billion. This growth has been driven by major refinery expansions. Worsley Alumina completed a major expansion in June last year. At Alcoa, we completed our Pinjarra refinery expansion – which made it the world’s largest alumina refinery. And we’re continuing to progress our Wagerup expansion project which is in the detailed engineering and design stage. Growth in the alumina industry has delivered real benefits through local spending and jobs. For instance, around 1500 contractors were employed on Alcoa’s Pinjarra expansion in 2005. We also worked closely with the local community to maximise benefits to local businesses.
Challenges to growth
It’s no secret though, that the Pinjarra expansion took place in a challenging environment. Rising building costs and the skills shortage are limiting the State’s ability to attract investment. At Pinjarra, we were forced to manage the skills shortage by fitting the work to the people available. This resulted in a longer, flatter construction period rather than a short, peak period of activity. Ensuring the availability of energy is also critical for local industry. Growth in the South West has been underpinned by access to stable and competitively priced energy. We have natural advantages from gas and we would want to see this continue as an economic advantage for WA.
So to summarise, the challenge for industry is to:
- manage costs
- manage scarce resources such as water and energy, and to
- ensure that what we’re doing makes greenhouse sense
Global market outlook
Let me now turn to the global market outlook for alumina and aluminium. The market will remain strong on the back of global demand for aluminium. It’s no surprise to see here that demand is being driven by China. Aluminium demand in China grew by 17 per cent last year. And we expect it to be even higher this year with demand of around 23 per cent. To give an idea of where this aluminium is going, the three leading sources of demand are: building and construction, transport and electrical. If we drill down these numbers, it is even more interesting. Building and construction demand is forecast to grow by 16 per cent by 2009 – driven by rapid demand for aluminium in residential and commercial buildings. Commercial transport will grow by 27 per cent – from demand in trucks and buses. And electronics will grow by 17 per cent – from demand in LCD TVs, laptops, electronics and mobile phone cases. Turning to the global market, a useful indicator is current aluminium stockpiles. If we look at current stocks expressed as days of global consumption, we can see a downward trend from 1994. And the long term fundamentals are strong. World demand for aluminium will almost double by 2020. This is being driven by population growth and urbanisation in Brazil, Russia, India, Korea, and of course China. Over the next 15 years, Asia will grow to a consumption level equal to that of the entire world today. I should add that it takes around 2 tonnes of alumina to produce a tonne of aluminium. So unless there is a recession or a major catastrophe, we can also expect to see strong demand for alumina for quite some time.
Climate change challenge
I will now turn to the greatest sustainability challenge of our generation - climate change. The economic and environmental consequences are profound and we’re already seeing this in the South West. According to the CSIRO, the region is experiencing one of Australia’s highest rates of climate change. May to July rainfall has fallen by 15 per cent since 1975 and run-off into metropolitan dams by more than half. As a major energy and water user, Alcoa has a responsibility to address climate change.
Alcoa responding to climate change
Since 1990, Alcoa has voluntarily cut its global greenhouse emissions by 25 per cent. We achieved this in 2003 and we’re now working to maintain this as we grow. We’ve received international recognition for our efforts but we must do more. Here in Australia, we’re reducing greenhouse emissions through energy efficiency and new technology.
Alcoa’s South West alumina is greenhouse efficient Alcoa’s operations in the South West are among of the most greenhouse and energy efficient in the world. Energy is a major business cost for us so we’ve always recognised that energy and sustainability go hand in hand. Alumina produced by Alcoa here uses just over half the energy than if made in China. In terms of greenhouse, our performance is even better. Every tonne of alumina produces less than half the greenhouse emissions compared to Chinese alumina. So from a global greenhouse footprint, our operations in the South West are highly efficient.
Gas fired cogeneration
Alcoa’s greenhouse improvements have been underpinned by innovation and new technology. For instance, Alcoa and Alinta Limited have partnered to build greenhouse friendly cogeneration power plants at our refineries. The plants produce electricity and steam from natural gas, delivering greenhouse benefits. Cogeneration plants at Alcoa’s Pinjarra and Wagerup refineries could save over 1.8 million tonnes of greenhouse emissions each year compared to conventional plants. That’s equivalent to taking 450,000 cars off the road – a significant greenhouse benefit.
Alcoa carbon capture technology
Alcoa has developed new carbon capture technology that uses waste CO2 to treat bauxite residue. Bauxite residue is produced by alumina refineries and requires long term storage. The new process delivers greenhouse benefits by locking up CO2 that would otherwise be released into the atmosphere. Our first residue carbon capture plant is operating at our Kwinana refinery and uses waste CO2 from a nearby ammonia plant. The project has potential global application and we plan to deploy the technology worldwide. I should add that the technology was developed by Alcoa right here in WA. Projects like cogen and carbon capture place WA at the forefront of international efforts. This is also reflected across the Australian aluminium industry. Given Australia has six aluminium smelters compared to 80 smelters in China, Australian industry can make a significant global contribution by sharing best practices and technology.
Responding at the grassroots
Alcoa is also supporting efforts by individuals and households to cut greenhouse emissions. As a first for Australian industry, Alcoa, the Alcoa Foundation and Greening Australia have developed a greenhouse reduction program for employees and communities. The ‘Make an Impact’ program includes a greenhouse footprint calculator and tips to cut energy, water use and waste. Given that households generate almost one-fifth of Australia’s greenhouse emissions, helping change everyday activities can have a real impact.
Aluminium – part of the solution
We also know that aluminium is part of the solution on climate change. Aluminium is endlessly recyclable and recycling saves 95 per cent of the energy needed to make new metal. It is also light-weight which means significant energy savings in transport. Every kilogram of aluminium used in a car saves a net 20 kilos of greenhouse emissions over the car’s life. Given increasing use of aluminium in transport, aluminium has the potential to be climate neutral by 2020. This means that emissions from making aluminium will be fully offset by emissions saved by the use of aluminium in the transport industry.
Water
I mentioned how climate change is already having an impact in terms of rainfall in the South West. The alumina industry is a significant user of water for both mining and refining. Alcoa sources water from Darling Range surface water, as well as groundwater, stormwater runoff and waste water. In 2002, we developed a new Water Conservation Strategy for our WA operations.
The Strategy focuses on:
- reducing overall consumption
- increasing water use efficiency; and
- replacing high grade water sources, which are used by the broader community, with lower grade sources.
We’ve made some progress so far. For instance, our mining operations have reduced total water use by 22 per cent since 2000 while also increasing waste water recycling and storm water capture. Our Pinjarra refinery uses treated waste water from the Water Corporation’s Pinjarra sewage treatment plant. We are now working in partnership with Water Corporation on proposals to use additional treated effluent in our Pinjarra and Kwinana refineries. We recognise that for Australia, a carbon constrained world is also a water constrained one.
Conclusion
The last 3 years have been one of unprecedented growth and prosperity in the region. For the alumina industry, we’ve seen major investments that will underpin the industry’s future for the next 20 years. The global outlook for the industry is strong with world demand for aluminium expected to almost double by 2020. Our greatest challenge, however, is climate change and the need to respond to it. As Alcoa recognised over a decade ago, the public debate has moved from whether climate change is occurring to what we can do to address it. I’ve shared some of Alcoa’s experiences, including how new technology is helping reduce emissions. However, no industry sector or government can do this alone and we need joint efforts across many sectors. Alcoa therefore supports the introduction of a properly designed national emissions trading scheme:
- that includes all major emitters and sectors; and
- which allows Australian industry to grow and thrive
Such a scheme can deliver real environmental outcomes at the global level by promoting investment in greenhouse efficient industries and locations. It is critical that any scheme pass the fundamental test of reducing global emissions. Unless it does so, it’s not addressing the problem the world faces. However, I am confident that we can all grow and prosper in a carbon constrained world. We need to fundamentally change the way we produce across the globe and I believe the commitment is there. The challenge now is to translate this commitment into real outcomes.
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