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Vol. 16, No. 23 Week of June 05, 2011
Providing coverage of Alaska and northern Canada's oil and gas industry

Oil Patch Insider: The Nigerian Connection emerges again for Agrium plant at Kenai

The strange saga of the Agrium nitrogen fertilizer plant keeps pointing to Nigeria.

The Dutch shipping company Fairstar Heavy Transport N.V. recently announced that it was awarded a $28-million contract to move the mothballed plant from Kenai, Alaska, to Ossiomo, Nigeria.

But Agrium said the plant hasn’t been sold yet.

Fairstar said it plans to use its two open stern, semi-submersible vessels — the Fjord and the Fjell — to move 111 modules and 70 containers from the plant starting this August.

Agrium mothballed the Kenai Peninsula plant in late 2007 because tightening natural gas supplies in Cook Inlet made it increasingly difficult for the plant to obtain feedstock.

“Fairstar has successfully arranged the first ‘door-to-door’ contract ever awarded to a marine heavy transport company,” Chris Muilwijk of Fairstar’s Client Services Group said in a prepared statement on the Norwegian Stock Exchange. “The complexity of this assignment gives Fairstar a unique opportunity to showcase not only the special features of Fjord and Fjell as two of the most versatile open stern semi-submersible vessels in the global fleet today, but also shows the value of the Fairstar Team as project managers.”

Despite the announcement, Agrium insisted that its plans for the plants remain uncertain.

“Agrium has yet to make a final decision on our Kenai operation,” Paul Poister, manager of U.S. government relations for Agrium, told Petroleum News on May 31.

Fairstar offered many details about the project, though.

The company said the ships would first transport the components by sea from Kenai to Koko, Nigeria, where they would then be shipped by land to a greenfield site in Ossiomo.

The $28 million contract only covers the marine transport. “The cost of land transport will be established once the tender process has completed and the winning sub-contractors have been selected,” Fairstar CEO Philip Adkins said in a prepared statement.

The Fjord and Fjell are currently transporting tugboats from Singapore to Venezuela.

Word about the Nigerian deal broke earlier this year, after Dave Harbour, a former Regulatory Commission of Alaska commissioner, posted a report from Heavy Lift & Project Forwarding International on his blog Northern Gas Pipelines. The report claimed that Fairstar “signed a Letter of Intent to provide a total land and marine logistics solution to transport 115 modules as well as related equipment from the Agrium Kenai Nitrogen Operations, comprising Plants 4, 5, and 6, from Kenai, Alaska to Ossiomo, Nigeria.”

Old hopes for revival

Although closed for more than three years, the Agrium fertilizer plant never died.

For months after the announcement, Agrium continued work on its long-standing Blue Sky project, studying the possibility of converting the plant to run on hydrogen generated from gasified coal, but ultimately decided in early 2008 that it wasn’t economic.

Hope remerged again when Enstar Natural Gas proposed a 500 million cubic foot per day “bullet line” from the natural gas fields in the foothills of the Brooks Range to the Southcentral transmission grid as a way to bolster declining supplies in the Cook Inlet.

Because of the scope of the project, Enstar said that having big industrial customers like Agrium would be essential for keeping the shipping rates low for smaller customers.

Agrium showed interest in the idea, but said it would need to happen quickly.

“The longer that facility just sits, the more difficult it is to restart,” Agrium spokeswoman Lisa Parker told Petroleum News in March 2008, adding that a serious proposal for an in-state natural gas pipeline would have to come forward within a few years to be feasible.

Those plans for a bullet line ultimately slowed, though.

This summer, more than three years later, the Alaska Gasline Development Corp. will present a report to the Alaska Legislature on the economics of an in-state gas pipeline, so that lawmakers can then decide whether to move ahead with the project.

Now, even if they do, it might be too late for Agrium.

—Eric Lidji

The rise and fall and rise of North American LNG exports

These are interesting days for liquefied natural gas.

In late May, the U.S. Department of Energy gave Cheniere Energy Inc. permission to ship up to 2.2 billion cubic feet of LNG per day over 20 years from the Sabine Pass LNG Terminal, an import facility in Louisiana, to any country where U.S. trade is allowed.

Practically, exports won’t begin anytime soon. The Federal Energy Regulatory Commission must still weigh in, and Cheniere must finance, design and build an export operation at its import terminal. Symbolically, though, the news is a big deal.

Sabine Pass is the first LNG operation in the country to get an export license from the federal government since the Federal Power Commission gave Phillips Petroleum Co. and Marathon Oil Co. a 15-year license to export Cook Inlet LNG from Alaska in 1967.

The Sabine Pass project is seen as a sign that shale gas plays across the Lower 48 are completely upending the dynamics of natural gas production in the United States.

To prove that domestic needs wouldn’t be crimped by exports, Cheniere pointed to reports from the U.S. Energy Information Administration, the Potential Gas Committee, the Massachusetts Institute of Technology and the ARI Resource Report showing that shale development is increasing natural gas drilling, production and reserve estimates.

“The evidence does not show a present or likely future threat to energy security in relation to the adequacy of domestic natural gas supplies,” the DOE concluded.

Cheniere is hardly the only company looking to export LNG. In fact, the glut of natural gas on the market from shale development is creating a rush of export proposals.

In late April, Freeport LNG Development L.P. asked the DOE for permission to export up to 24 bcf of LNG over two years from its receiving terminal on Quintana Island, Texas. And in early May, Lake Charles Exports LLC — a jointly owned subsidiary of BG Group plc and Southern Union Co. — asked the DOE for permission to export up to 2 bcf per day over 25 years from an existing import terminal in Lake Charles, La.

And those are just the official requests. Other LNG operators, most notably Dominion Cove Point LNG in Maryland, are publicly mulling over the idea of exports. Meanwhile, drillers in western Canada increasingly believe the proposed Kitimat LNG export facility is the only way to develop remote shale plays like the Horn River and Montney basins.

So what does it all mean for Alaska?

All this is going on as LNG exports are winding down in Alaska.

While Cheniere is negotiating supply agreements overseas, ConocoPhillips and Marathon are preparing their final shipments to China and Japan before mothballing the Kenai LNG plant this fall because they could no longer secure contracts from Asia past April 2013.

Shale became a thorn in the side of Alaska in 2008, after geologists announced that the Marcellus Shale in Pennsylvania might be one of the largest natural gas fields in the world. The size of that thorn is up for debate, though. Optimists, including Gov. Sean Parnell, say that domestic natural gas will at most delay a natural gas pipeline from the North Slope. Pessimists believe that shale effectively killed the Alaska gas pipeline.

The Sabine Pass license, though, might actually bode well for Alaska.

While BP and ConocoPhillips recently threw up their hands after they couldn’t get enough customer commitments to justify Denali—The Alaska Gas Pipeline, a roughly $35 billion natural gas pipeline from the North Slope to Alberta, a TransCanada-ExxonMobil joint venture backed by the State of Alaska is required to seek FERC certification for its pipeline regardless of whether or not it gets shippers to commit.

And that project includes the possibility of exports, if shippers want it.

The supporters of that “all-Alaska pipeline” from the North Slope to Valdez have long had to answer charges that the federal government would never allow domestic energy supplies to be shipped overseas. Sabine Pass throws that assumption into question.

Even if the North Slope pipeline fails to take off, some policymakers in Alaska have expressed hope that an in-state pipeline could be used to restart the Kenai LNG facility.

And Alaska might even gain an advantage over the Lower 48.

The Sabine Pass application raised issues that didn’t sidetrack Cheniere but could grow as more companies seek to export LNG. Those include the environmental charges against shale gas and the possibility that sustained LNG exports would “link” the United States to the world, creating a global natural gas market as problematic as the global oil market.

For once, Alaska might benefit from being isolated.

—Eric Lidji

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