Quebec aluminum producers seek lower energy costs

Relying on hydroelectric power, the nine aluminum smelters in Quebec have reduced their carbon footprint to “the lowest in the world,” an industry spokesman told a provincial government commission studying energy options on Monday.

But “a green ingot gives the industry nothing,” Jean Simard, president of the Aluminum Association of Canada, told the commission, which is travelling across the province to hear briefs on reducing greenhouse-gas emissions and energy independence.

Quebec counts about 10,000 direct jobs in aluminum, with the average smelter wage at $46 an hour, plus another 20,000 indirect jobs, in the industry’s 4,500 outside suppliers and 1,800 companies processing aluminum, many of them in the Montreal region.

Quebec’s three aluminum producers — Alcoa Canada, Alouette and Rio Tinto Alcan, — ship $3 billion in aluminum a year, accounting for 10 per cent of Quebec’s exports.

Simard, whose association speaks for the three companies with smelters in Quebec, said the industry finds itself uncompetitive because of the planetary glut of cheap shale gas and natural gas.

In Quebec, the base rate for electricity paid by aluminum smelters, and other industrial users, is 4.25 cents a kilowatt hour.

By contrast, Simard said, a smelter in New York State can buy electricity, generated with cheap natural gas, for 2.3 cents a kilowatt hour.

And new smelters in the Arabian Peninsula — in Oman, Qatar and the United Arab Emirates — are paying 2 cents a kilowatt hour.

China, where the hourly smelter wage is $3, Simard said, now is the world’s leading aluminum producer, but China absorbs most of its own production and is not a factor in export markets.

A proposed rate increase would raise Hydro-Québec’s L Tariff for industrial users to 4.46 cents a kilowatt hour, Simard noted.

To be competitive, he said in an interview, Quebec producers need a price closer to 2.5 cents to 2.8 cents a kilowatt hour.

“You are asking a lot of the government,” said Normand Mousseau, a Université de Montréal physics professor who is co-chairing the travelling commission.

Simard explained that aluminum companies plan over a 25-year cycle, so future investment decisions are being made now.

“The goal is to be globally competitive,” he said. “What does it take for an investor to continue investing here?

“A smelter that can look forward to no growth over the next 20 years is a smelter with no future.”

In Quebec, Alcan generates its own electricity at very low cost, accounting for 33 per cent of Quebec’s aluminum production

Of the remaining production, 22 per cent is subject to the full L Tariff, while the other 45 per cent benefits from Hydro-Québec’s long-term risk-sharing agreements, which adjust the L Tariff, to take account of the current aluminum price and the exchange rate with the U.S. dollar.

Simard said aluminum companies with risk-sharing agreements now pay about 3 cents a kilowatt hour.

But those agreements expire between 2014 and 2016.

An aide to Éliane Zakaïb, the Parti Québécois minister for industrial policy, said Monday the government has no plans to renew the risk-sharing agreements.