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Legislature passes an Agrium bill; has tax credits for Nikiski plant
The Alaska Legislature has passed House Bill 100, a bill that grants credits against corporate income tax for an in-state facility that manufactures ammonia or urea from gas produced from state oil and gas leases. The bill has now gone to the governor for his signature. The tax credit would equal any royalty that the state received for gas delivered as feedstock to the facility.
Although the bill does not explicitly name Agrium Inc.’s mothballed fertilizer plant at Nikiski on the Kenai Peninsula, the bill is clearly targeting that particular plant. The concept behind the bill is to tip the economic scales in favor of fertilizer plant viability, thus encouraging Agrium to re-open the plant. In addition to creating jobs and pumping money into the Kenai Peninsula economy, a re-opening of the plant would create a new market opportunity for Cook Inlet natural gas producers.
Closed in 2007 Agrium’s Nikiski plant, which uses natural gas to manufacture ammonia and urea for fertilizer production, closed down in 2007 because of a shortage of gas supplies from the Cook Inlet basin. But a resurgence of the Cook Inlet oil and gas industry in recent years has resulted in a surplus of gas production capabilities over gas demand, much of which comes from local gas and electricity utilities. The viability of new gas exploration and development hinges on the availability of markets into which to sell the gas.
Agrium, an international supplier of fertilizers, purchased the Nikiski plant from Unocal in 2000. Unocal had built the plant in 1968 as a means of monetizing surplus natural gas found in the Cook Inlet basin in conjunction with exploration for oil fields. Although the plant operated for many years, enjoying an abundance of relatively cheap, locally produced gas, with the plant doubling in size in 1978, an eventual decline in gas production led to the plant’s mothballing.
Interest in re-opening In recent years, with the new uptick in gas production in the basin, Agrium has expressed an interest in re-opening the plant. In March 2015 Steve Wendt, manager of Agrium’s Kenai nitrogen operations, told the House Resources Committee that his company felt “very encouraged by the new gas discoveries and the potential for us to restart.” The plant is capable of producing about a million tons of ammonia and urea annually. But rehabilitating the plant for a restart would cost around $275 million. And the plant restart would have to compete for capital with other potential Agrium projects, Wendt said.
Wendt also said that the Nikiski plant, when in operation, had employed about 300 people and spent about $75 million annually on gas supplies and on contracts with about 400 vendors in Alaska.
Adam Diamond, Agrium’s manager of government relations, has told Petroleum News that the provisions of HB 100 would be a significant factor in improving the economics of the re-opening of the Nikiski fertilizer plant but that a decision to re-open would be driven by the price and long-term availability of gas from the Cook Inlet basin, and on commodity pricing. Gas availability would have to take into account access to adequate gas supplies for the region’s utilities and other gas users, he said.
One amendment The version of HB 100 which has gone to the governor has changed little from the version that was initially introduced to the House in February 2015. On April 16 of this year Senate Finance added one amendment to include language requiring the gas producer supplying gas to the fertilizer plant to, as much as possible, hire in-state residents and make use of in-state hiring facilities and job centers.
The provisions of the bill do not entail any immediate or direct expenditure for the state. If Agrium invests in putting the Nikiski plant back into operation, the state would ultimately lose some corporate income tax revenue, with that revenue being more than offset in royalties obtained from gas production used to supply the plant with feedstock. During a Senate Finance Committee review of the fiscal note for the bill on April 16, Sen. Peter Micciche said that an anticipated annual loss in corporate income tax of between $3 million and $4 million would be offset by gas production royalties of about $15 million, leaving a net annual benefit to the state of somewhere around $12 million.
- ALAN BAILEY
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