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Vol. 12, No. 39 Week of September 30, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Agrium shutting down

Kenai Peninsula nitrogen facility being mothballed until it gets new feedstock

Kay Cashman

Petroleum News

Agrium is closing its nitrogen fertilizer operations on Alaska’s Kenai Peninsula by the end of September due to a shortage of natural gas supply in Alaska’s Cook Inlet basin, the Calgary-based company said in a Sept. 25 statement.

Closing the Nikiski facility will result in the layoff of more than 100 of Agrium’s 140 employees starting in December, Lisa Parker told Petroleum News on Sept. 27. “We’ll have stopped getting gas and making product by the end of September. We still have three shiploads of product to ship out. The layoff of employees will begin in December.” The company, she said, is giving employees a 60-day notice.

Agrium said it’s continuing to work on the “feasibility of a coal gasification project to use coal as a feedstock” instead of natural gas for the Kenai facility. A decision on whether to proceed with the next stage of the project is anticipated later this year. The earliest a gasification facility could be operational is 2012, Agrium said.

The number of employees that will be kept on to keep the nitrogen fertilizer facility warm and to work on the coal gasification project is yet to be decided, Parker said.

In its press release the company said it has “diligently attempted to encourage development of natural gas supply and to negotiate contracts for 2008 and beyond,” but “despite these efforts, and after offering what it believed to be competitive prices and incentives, Agrium was unable to secure gas supply.”

Agrium purchased 53 billion cubic feet of natural gas in 2001, but this year could only purchase 10 billion cubic feet.

The company estimates the facility will account for $6 million, or less than 1 percent, of its 2007 earnings before interest, taxes, depreciation and amortization. The plant produced 325,000 metric tons of urea and ammonia this year during its five months of operations. (The plant was closed down during the winter of 2006-07 for lack of a gas supply.)

When asked if there was a chance the Nikiski facility could be reopened between now and 2012 if a producer comes forward with a new supply of natural gas, Parker said yes. The company, she said, had been prepared to continue to operate the plant for half the year again in 2008 on a short-term gas supply contract, but no gas was available for the coming year. To bring the workforce back after laying off more than 100 employees would require a longer-term gas contract, she said.

Agrium expects incremental costs of the closure to be less than 5 cents per share this year. It will not face impairment charges since it wrote down the book value of Kenai operations in 2003 and accrued shutdown costs then, the company said.

“It is a sad day for us to have to close this facility which has added much value to the Alaskan economy for the past 40 years. It has been a major supplier to international markets in the Pacific region and was Alaska’s third largest exporter in 2006, despite running at 50 percent of capacity,” said Mike Wilson, president and CEO of Agrium. “Our employees at Kenai have been the key to the success of the operation. Had it not been for the natural gas supply situation in the Cook Inlet, we would not have had to make this difficult decision which will impact our employees, customers and the community.”

State offers assistance

The day after news of the shutdown was announced, Alaska Gov. Sarah Palin directed the Department of Labor and Workforce Development to continue assisting workers who will soon lose their jobs at the Agrium fertilizer plant in Nikiski. “It’s unfortunate to see the closure of a facility that has provided so many jobs that support families on the Peninsula,” said Palin. “I am heartened to hear that Agrium is willing to keep its options open if sufficient long-term supplies of gas can be found. We know there is more gas to be found and developed in Cook Inlet, so I remain hopeful that those jobs can be preserved.”

The Department of Labor had been working with Agrium and the local community prior to the announcement, assisting employees with information and referrals. A transition center will be set up to act as a central point for Agrium employees to receive help as they transition from one career to another.

Palin said she plans to “meet with the Tri-Borough mayors to identify solutions to the natural gas supply crunch in Cook Inlet.”

Borough mayor calls for jack-up, more exploration

In a Sept. 25 press release, the Kenai Peninsula Borough said it had offered “to assist Agrium in any way that it can.”

Borough Mayor John Williams said he was “extremely concerned about the employees and will be doing everything in my power to help in transitioning to new employment, whether that is with existing industrial facilities on the Kenai Peninsula or the North Slope.”

He said Agrium’s facility closure “illustrates the dire need for exploration in the Cook Inlet as well as the need for a natural gas line from the North Slope. There have been a lot of discussions about exploration and bringing jack-up rigs to Cook Inlet but so far they have not materialized.”

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