The continued operation of all four alumina plants in Jamaica, including even the most efficient, CAW, depends on the industry having a long-term source of competitive energy, as well as resolving certain bauxite-reserve issues.
Two actions are necessary to achieve these objectives: Substituting oil with a cheaper fuel and making the necessary investments to accommodate the new fuel; and making the necessary investments to improve the efficiency of whatever fuel is used.
Although relying on imported oil for 90 per cent of its energy needs, the Jamaican economy developed over many years on the basis of relatively cheap oil imports which prevailed in the 1950s, 1960s and 1970s prior to the OPEC action in 1973.
These relatively low prices were a factor in the growth rates of the economy in the 1950s (average annual rate of six per cent) and the 1960s (average annual rate of 2.9 per cent). Specifically, low prices contributed to the rapid growth of the bauxite sector during these two decades:
The Kirkvine, Manchester, alumina refinery grew from an almost 'pilot plant' level of about 40,000 tonnes per annum in 1952, to current capacity of 550,000 tonnes per annum.
The Ewarton, St Catherine, alumina refinery opened in 1959 and reached a capacity of 550,000 tonnes per annum.
The Alpart, St Elizabeth, refinery opened in 1969 with a starting capacity of about 850,000 tonnes per annum, then the largest starting capacity of any alumina plant in the world.
The Halse Hall, CAW refinery, opened in 1972 with a starting capacity of about 450,000 tonnes per annum.
The only thing that cheap oil did not allow for was to enable the country to go further 'upstream' by smelting alumina into aluminium; however, oil prices were sufficiently low for the matter to be looked at seriously by the Government of Jamaica and private firms.
This 'agreeable' state of affairs was to change in a dramatic way following the action of OPEC in late 1973 which fundamentally changed the international oil market. The data in Table 1 show that the average price between 1974 and 1979 quadrupled over the average level for the early 1970s. This higher average price doubled in the 1980s, despite a 50 per cent fall in prices in the latter part of the decade.
But a further and more devastating 'deluge' was to occur in the latter half of the last decade, establishing a 'new norm' hovering close to US$100 per barrel. What is even more startling are current projections of US$150, or even US$200, per barrel after the global economy fully recovers from the recession which has been lingering since 2008.
The price rises - although mitigated somewhat by the PetroCaribe arrangement between Venezuela and several Caribbean countries, including Jamaica - have adverse impacts right across the economy, affecting mining, manufacturing, agriculture, transportation, the service sector (prominently tourism), the cost of electricity to householders, and the country's foreign-exchange budget.
Three sectors, bauxite and alumina, electricity, and transport, account for most of the oil consumed domestically. Table 2 shows oil consumption for the period 2004-2008. The volumes used by each sector do not tell the full story. Although representing the smallest volume of the 'Big Three' in 2008, the transport sector represents more than 40 per cent of the energy bill because it uses more refined and, consequently, more expensive fuels.
The energy situation calls for urgent action, characterised by 'fixity of purpose and continuity of effort' by the stakeholders in the economy, led by the Government. Much can be said about what needs to be done to make the economy more energy competitive in all vital sectors. For example, the institution of a rational public transportation system; improving the efficiency of converting fuel to electricity, and effecting greater conservation; but this brief article will focus on the bauxite and alumina sector.
Future of bauxite plants
Jamaica has four alumina refineries and one bauxite-mining (for export) operation. The use of energy by the bauxite-mining operation is relatively small compared to the alumina operations, so our consideration will be in respect of the alumina operations.
The four operations and their production capacities are as follows:
The plants operated at or near full capacity to the end of 2008, but combined high oil prices and the recession resulted in all but the CAW plant being closed. Subsequently, the Ewarton plant was reopened (albeit with levy concessions) and the Kirkvine plant has been said, several times, to be on the verge of being reopened (also with levy concessions); nothing has been said about the future of the island's largest plant, Alpart.
The continued operation of all four plants, including even the most efficient, CAW, depends on the industry having a long-term source of competitive energy, as well as resolving certain bauxite-reserve issues. With the possible exception of the CAW plant, all the other plants will only be operated if alumina prices cover high operating costs, but shut down if they don't. Also, no long-term investments will be made in sustaining (beyond the barest minimum to meet safety standards), modernising or expanding the plants.
Two actions are necessary to achieve these objectives:
1. Substituting oil with a cheaper fuel and making the necessary investments to accommodate the new fuel;
2. Making the necessary investments to improve the efficiency of whatever fuel is used.
The data in Table 3 show why there is little or no future for an industry based on oil. The table shows the average cost of oil in the production of a tonne of alumina was US$51.2 in 2004, but in 2008 it more than tripled to US$169.5! The situation can be illustrated by calculating the cost to the industry using the production level achieved in 2008, which was four million tonnes. At US$51 per tonne, this amounts to U$204 million, whereas at US$169.5 per tonne, the cost is US$678 million, a difference of more than US$474 million. This is not a sustainable basis on which to operate, even with upward adjustments to alumina prices.
Replacing oil with a cheaper fuel is an absolute necessity for the industry
A recent report for the Jamaica Public Service Company (JPS) indicates the possibility of natural gas being had, at the respective plant sites, for about US$9 per million British thermal units (mmbtu). This is some US$1.50 more than I would expect (given the considerable reserves of shale gas in the USA); but even if we accepted the US$9 per mmbtu assumption, it would put the local industry on a more competitive footing. (The study indicated that at this price, the cost to the Jamaican consumer would be reduced by more than 25 per cent below current levels.)
Assuming efficiency measures are put in place, the cost of fuel to produce a tonne of alumina would average between US$90 and US$100 - a situation similar to what obtained in 2005-2006, and better than what it is costing the industry currently.
Energy efficiency possible
Whatever fuel is used, there is room for energy-efficiency improvement by all four plants.
The most energy-efficient Jamaican plant uses about 1.7 barrels of oil to produce a tonne of alumina, while the less-efficient local ones use between 2.2 and 2.5 barrels. These figures are much higher than what obtains worldwide, where many plants use about 1.2 barrels of oil per tonne of alumina. Hence, the Jamaican situation demands considerable improvement.
In the case of fuel change, data from the alumina plants indicate that using natural gas would require less capital investment than coal. For example, in one plant, conversion from oil to natural gas would involve an investment of US$30 million, while converting to coal would require an investment of US$250 million. The relative long-term prices of these alternatives are, of course, an important consideration in determining which way to go.
Given the importance of the cost of energy in the production of alumina, and the consensus that oil will be more expensive over the long term than natural gas or coal, it is incumbent that oil is replaced by one of these two fuels. However, it is necessary for the industry to increase the efficiency of whatever fuel is used. Given what is at stake, the Government has a lead role in effecting this transformation.
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