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Agrium would like to grow Cook Inlet operation Company concerned about gas supply and price; state’s royalty rate also a concern as some utility gas prices are now contracted to rise to match Henry Hub price in Lower 48 Kristen Nelson PNA Editor-in-Chief
Chris Tworek, vice president of supply management for Agrium Inc., told the Legislature's Joint Committee on Natural Gas Pipelines Nov. 8 that the company would like to expand the Nikiski ammonia and urea facilities it purchased from Unocal.
But, he said, that expansion would require both a long-term extension of the current base supply for the plant of 50-55 billion cubic feet a year, and an additional 30 billion cubic feet a year.
And those industrial natural gas supplies would have to be at worldwide competitive prices, he said, because Agrium competes against gas sold in the range of 75 cents to $1 per million Btu in the world nitrogen market. The company is currently paying in the range of $1.20-$1.50 MMBtu for gas in Alaska, Tworek said.
Nikiski plant could be expanded “We really see that there is an expansion opportunity,” Tworek said.
The Nikiski plant is close to Pacific Rim markets and there is a positive business climate here and a skilled work force. And the plant is world scale today, he said.
But the plant will need things done to it or it will reach the end of its economic life, and Tworek said it's not the most efficient plant Agrium has by about 10 percent.
“So we try to do things with that plant in order to maintain its competitiveness. Today we use that 50-55 Bcf. We have drawn up various expansion plans where over a five-year period we could add another 30 Bcf.”
The committee had heard forecasts from the state about declining reserves in Cook Inlet — and projections that if both Agrium and the liquefied natural gas plant were still in operation in 2015, and no new gas discoveries were in Cook Inlet — there would not be enough gas remaining to meet utility needs.
Tworek said that based on those forecasts, “we'd be hard pressed to commit another $200-$300 million for the plant expansion based on those gas outlooks. If you're going to spend that kind of money you expect 15-20-25 years of economic life out of your facility. So we do have to find a solution for this.”
Royalty rate issues a concern Agrium has put in some pre-investment in some of its other locations, Tworek said, buying gas production or investing in infrastructure of pipelines and has even done exploration and drilling partnerships to reduce the risk for the explorer and put some cash on the table to help with exploration, especially for independents.
But in addition to supply, Tworek said Agrium is concerned about the state's royalty rate.
The gap that is opening up between utility gas and industrial gas “could expose the industrial gas to a higher royalty load than they now pay, which could hurt competitiveness,” he said.
State royalties are based on the highest contract prices, he said, without consideration of volume rate or individual contract price.
“So you can have a peaking utility contract say at $5. And your royalties, even though you're maybe paying $1.20 or $1.50 or whatever else, would be based on $5 rather than what you were actually paying to your producer.”
Agrium, he said, would like to see royalties kept at the existing level and based on actual contracts or a volume-weighted price, “rather than just being exposed to the highest possible prices in the Cook Inlet.”
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