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Agrium Kenai plant may reopen
Motivated by an upsurge in the Cook Inlet gas industry, Agrium Inc. is seriously considering re-opening its fertilizer plant at Nikiski on Alaska’s Kenai Peninsula, Agrium executives confirmed to the state House Resources Committee on March 11.
“We’re very encouraged by the new gas discoveries and the potential for us to restart,” Steve Wendt, manager of Agrium’s Kenai nitrogen operations, told the committee.
The Nikiski plant, which uses natural gas as a feedstock for the production of ammonia and urea, closed down in 2007 because of a shortage of gas supplies from the Cook Inlet basin. However, the resurgence of the Cook Inlet oil and gas industry has resulted in a situation where there is a pending gas surplus. Some producers have expressed concern about the viability of new gas field development, in the absence of commercial outlets for the gas.
HB100 The Alaska Legislature is currently considering House Bill 100, a bill that would grant 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 tax credit would equal any royalty that the state receives for the production of gas delivered to the facility. The concept behind the bill is to tip the economic scales in favor of fertilizer plant viability, thus further encouraging Agrium to re-open the plant.
Wendt said that Unocal constructed the plant in 1968 and that the plant had first gone into operation in 1969. In 1978 Unocal doubled the plant’s size. Agrium, an international supplier of fertilizers, purchased the plant from Unocal in 2000. Agrium is based in Calgary, Canada.
“We are looking at restarting that 1978 model of the facility,” Wendt said. “It’s capable of producing approximately 1 million tons of ammonia and urea on an annual basis.”
$275-million restart Wendt said that rehabilitating the plant for a restart would cost around $275 million. The re-opening of the plant would have to compete with other potential Agrium projects for a limited amount capital - the state tax credit would help in making a compelling case for a re-opening, for presentation to Agrium’s board of directors, Wendt said.
Adam Diamond, manager of government relations in Agrium’s U.S. headquarters in Denver, commented that the bill, if enacted, would prove revenue neutral or positive for the state, given the linkage between the tax credit and gas royalties. The tax credit would not impact any current state revenue stream, he said.
Wendt said that Agrium has been meeting regularly with Cook Inlet gas producers and has found that there have been significant new gas discoveries. Most or all of the gas that the Agrium plant would use would come from new developments, from gas sources that are not currently being produced, he said.
When the Nikiski plant was previously in operation it employed about 300 people and spent about $75 million annually on gas supplies and on contracts with about 400 vendors in Alaska, Wendt said. The plant had also made a major contribution to Kenai Peninsula Borough property taxes, he said.
Questions from lawmakers Rep. Mike Hawker questioned whether there may be some way of ensuring that any tax credit would only apply to taxes resulting from business activity in Alaska, rather than from Agrium’s worldwide activities. Rep. Paul Seaton asked for confirmation that one potential benefit of the plant’s operation is that it can use carbon dioxide that is mixed with the feedstock gas - a challenge for the proposed Alaska natural gas project is the significant percentage of carbon dioxide in natural gas produced from the Prudhoe Bay field on the North Slope. Wendt said that fertilizer plant can use some percentage of carbon dioxide in the gas.
- Alan Bailey
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