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Agrium moves forward on Blue Sky coal gasification project to feed Nikiski fertilizer plant
It’s still all systems go for Agrium’s Blue Sky project to use coal gasification to feed the company’s fertilizer plant on Alaska’s Kenai Peninsula. Aug. 31 the company announced that the project is proceeding to phase two, a detailed feasibility review. Phase one, which started at the end of 2005, involved doing an initial process, commercial and environmental analysis for a preliminary feasibility report.
“At this point we’re going forward,” Agrium spokeswoman Lisa Parker told Petroleum News Sept. 5.
But the costs and uncertainties associated with this massive undertaking require that the project moves forward one step at a time — Agrium has in the past indicated an eventual price tag in excess of $1.5 billion.
So, although the findings of phase one have justified moving to phase two, a more complete understanding of the project viability will depend on completion of that second phase.
“At the end of phase two we will make that determination whether we go to detailed design and engineering, which would be phase three,” Parker said. “Phase four would be construction.”
If all goes according to plan, construction of the modified plant might be completed as early as 2011.
Instead of natural gas Agrium announced the Blue Sky project in November 2004 as a solution to the problem of natural gas supply shortages from the Cook Inlet basin. The current fertilizer plant generates ammonia and urea by reacting natural gas with nitrogen from the air — essentially the natural gas provides a source of hydrogen for the fertilizer chemicals. But gas supply shortages have caused Agrium to cut back production at the plant to half capacity and have placed the future of the plant in jeopardy.
If the Blue Sky project proceeds to completion, coal gasification would entirely replace natural gas as a source of hydrogen.
The gasification process involves combining coal at very high temperatures with pure oxygen, separated from air, to produce hydrogen and carbon dioxide. The process of removing oxygen from air leaves nitrogen, another feedstock for generating ammonia and urea in the fertilizer plant. Urea production would also use some of the carbon dioxide generated in the gasification process.
A coal-fired electricity power plant needed as part of the new plant design could also supply electricity into the Southcentral electricity grid.
Scaled back design A key result of the phase one investigations has been to scale back the design of the plant — the original concept envisaged an increase in the plant size. The new design involves a fertilizer production capacity similar to the current plant.
“We’re (now) looking at one gasifier, one (power plant) boiler,” Parker said. “Total (electrical) power will be 200 megawatts of power, with us utilizing the majority of that and about 70 megawatts for the Southcentral power grid.”
Agrium had originally talked of exporting up to 250 megawatts of electrical power into the Southcentral grid, although limitations in the capacity of the power line between the Kenai Peninsula and Anchorage has raised question marks over how much energy the grid could absorb from Nikiski.
Blue Sky project Manager Tim Johnson said that some design optimization work and an analysis of the feasibility of the project had pointed to the scaling back.
“The big driver for power production is the needs of this facility and we’ve reduced the scale of the gasifier to be more economical and less capital intensive,” Johnson said. “And the power sales are more in line with the profile that we think we need to provide.” Johnson said Agrium has found that the optimum design for the new plant involves increased urea production relative to ammonia production.
“We believe we’ve found the optimal point and capital cost and economies of scale with the (new) design that we have,” Johnson said. “… We will still produce ammonia but we’re looking to maximize production from our existing urea facilities.”
Use the existing plant And scaling the new plant to the capacity of the old plant should have major advantages in minimizing the amount of plant conversion that is required.
“The advantage to the design of the plant that we have coming out of phase one is that we are able to contribute a lot more of the existing facility into the new plant so that they will merge together,” Johnson said. “It’s an add-on to the front end, to be able to get (coal gasification) feedstock to the existing plant.”
And by, in essence, replacing the hydrogen generation end of the current fertilizer process Agrium expects to minimize disruption to plant operations when converting the plant. It should be possible to build the new coal gasification front end while the existing plant is running.
“Because of the new design there’s a great opportunity to continue in operating mode very close to the time when we switch over to the new project,” Johnson said.
Agrium has talked about obtaining coal for the project from the undeveloped Beluga coal field on the west side of Cook Inlet. But the new scaled-down design will require less coal than the original design.
“We could, if it works out that way, just utilize Healy coal,” Parker said, referring to Usibelli Coal Mine Inc.’s operational coal mine at Healy in the Alaska Interior. “… We’re still refining it, to nail down that number (for coal usage) at this point in time.”
But even a scaled-down plant will generate huge quantities of carbon dioxide and Agrium has been talking to the Cook Inlet oil producers about the potential use of this carbon dioxide for enhanced oil recovery.
“It is something we will continue to be analyzing in phase two,” Parker said, adding that the U.S. Department of Energy has estimated that carbon dioxide enhanced oil recovery could enable the recovery of an additional 300 million barrels of oil from existing Cook Inlet oil fields.
Phase two Phase two of Blue Sky will likely take 18 months to complete, Parker said.
“In phase two we’ll be refining the design from phase one and we’ll start the environmental permitting,” Johnson said. “We’ll be in the process of putting together the commercial arrangements around the deal and talking to strategic investors.”
Parker particularly emphasized the importance of starting the permitting process as early as phase two, to avoid a later delay because of permitting complications. For example, the company will take a look at the requirements for complying with the National Environmental Policy Act.
“What we will be doing mostly is looking at the NEPA process and then starting the work that we will need to do for both the air quality permit and the National Pollutant Discharge Elimination System,” Parker said.
And what kind of investors might the company be looking for in phase two?
“We’re having a lot of interesting conversations with companies,” Parker said.
Agrium has announced that Alaska’s Denali Commission and the State of Alaska will contribute to the phase two costs, to the tune of $2 million and $5 million respectively. The company has not released its current cost estimate for the phase two work, Parker said.
Parker said that Agrium has also been engaged in discussions about potential federal funding, although nothing has yet been determined on that front. And the company hopes to obtain federal tax credits and loan guarantees.
“The Energy Policy Act of 2005 provided a couple of provisions for both tax credits and loan guarantees and this is something we will continue to explore,” Parker said.
Important for Alaska Parker emphasized the importance of the project to Alaska. With the Nikiski fertilizer plant running at full capacity again, the workforce at the plant would increase from the current level of 150 employees to something in the range of 230 to 250 jobs. And that doesn’t include new jobs associated with the new additions to the plant.
“We’d have additional jobs with the power plant, the gasifier, the air separation unit and additional jobs with transportation to get the coal here,” Parker said. “You’re looking at somewhere in the neighborhood of 400, 450 jobs for Alaska.”
And the new plant would be adding value to Alaska resources.
“We’re taking an Alaska resource and then adding value to it, and that’s something that’s very exciting for Alaska,” Parker said.
—Alan Bailey
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