Unocal gas production shorting Agrium

The Associated Press

Unocal Corp. is doing what it can to supply Agrium’s Nikiski plant with natural gas, but it is unclear it can produce enough from dedicated wells to satisfy an agreement reached earlier this year, a company spokeswoman said.

“Unocal is in full-out production from the dedicated gas fields,” said Roxanne Sinz. “We are delivering that product to Agrium.” Sinz said the wells dedicated to fulfilling the Agrium contract are tapping “very old fields” incapable of the level of production necessary.

Sinz said the exact amount delivered from each of Unocal’s dedicated properties varies monthly. The gas is produced by roughly 25 active, producing wells.

Agrium Corp. officials announced Oct. 4 that Unocal had informed the company it would be unable to supply the quantities of gas required under the July 2004 arbitration agreement.

The arbitration panel had determined that Unocal had failed to deliver the gas it promised when the two companies signed a gas purchase and sale agreement in 2000, transferring ownership of the Nikiski plant from Unocal to Agrium.

At that time, Agrium President and CEO Mike Wilson had said the company was pleased the panel had found the contract obligated Unocal to supply gas “substantially in excess” of the volumes proposed.

The panel required Unocal to supply 48.7 billion cubic feet of gas during the current contract year, a figure Wilson said should allow the plant to operate at 92 percent of capacity through June 30, 2005, and at 70 percent of capacity the following contract year without additional gas purchased from third parties.

The inability of Unocal to meet that obligation means Agrium will be unable to operate at near full capacity as planned, said Agrium spokeswoman Lisa Parker.

If Unocal finds new gas sources that exceed the needs of its other customers, it would look to market that gas. Again, however, Unocal would not be required to divert that gas to meet its Agrium shortfall.

Agrium would be free to consider a new contract with Unocal for that new gas, however, Sinz said.