|
Agrium teams with Alaska Railroad Usibelli, Homer Electric also working Blue Sky project to gasify coal as feedstock for fertilizer plant, produce power for sale Kristen Nelson Petroleum News
Agrium is in phase 2, front-end engineering design, of its Kenai Blue Sky project, which would use gasified coal as feedstock to replace natural gas for the company’s Nikiski fertilizer facility.
In a Feb. 26 presentation to the Alaska Legislature, Alaska Railroad Corp. President and CEO Pat Gamble said not only was the railroad involved in Blue Sky as a coal transporter, but the company was also hoping to use its ability to generate tax-free bonds to finance a portion of the project.Agrium officials began talking to railroad executives last fall about financing. Alaska Railroad management has since put together a resolution for the Blue Sky project using the corporation’s bonding capacity and will present it to the Alaska Railroad board of directors Friday, March 9.
Assuming the board approves the resolution, “the Alaska Legislature will then have to approve issuing tax-exempt debt to finance a portion of the project,” Tim Thompson told Petroleum News March 1. Thompson is manager of external affairs for Alaska Railroad.
In addition to Agrium and the railroad, other Blue Sky participants include Usibelli Coal Mine, which is working on the coal side of the project, and Homer Electric Association, which is involved in the power plant and would be responsible for sale of electricity to the Southcentral grid.
“The gas supply in Cook Inlet today, from an industrial user’s standpoint, is at a crisis situation,” Tim Johnson, Kenai Blue Sky project manager for Agrium, told the Senate Resources committee of the Alaska Legislature Feb. 26. Supply is declining and prices, now tied to Henry Hub spot prices, are rising, he said.
Agrium has been struggling with gas supply for the fertilizer plant it bought from Unocal in 2000, with supplies under a contract with Unocal depleted in 2005. The company has lost 80 jobs at the facility since 2005 even with only a portion of the facility in operation for a part of the year. It suspended manufacturing Oct. 23 last year, Johnson said, and hopes to start up again by the end of the first quarter.
“We have gas now to continue operations through the end of 2007 and no other gas contracts into the future,” he said, although the company continues to look for sources of gas.
Asked by Resources Chair Charlie Huggins, R-Wasilla, if the price of Cook Inlet gas was the issue, Johnson said currently “our biggest challenge is with supply, there simply hasn’t been the supply available. We lost supply early, in October,” he said, after expecting to have it into November. “And although there will eventually be a price concern, at this point in time the supply is our problem.”
Gasification would provide feedstock The Blue Sky project is Agrium’s solution to its feedstock problem. It would bring coal from Healy in the Interior via rail to the Anchorage area for shipment by barge to Nikiski. “We’d construct a new dock to receive the coal in that area and that would be supplied to both the gasifier and the power-production facility,” Johnson said. CO2 would be shipped to oil fields for enhanced oil recovery and excess power would be sold on the Southcentral grid.
Fertilizer production — and export — would continue.
The Blue Sky project “gasifier would convert coal and air into the building blocks that are needed for fertilizer production,” he said, supplying hydrogen, nitrogen and CO2 to the current fertilizer facility.
The process requires power, so a new power plant would be built “to supply at least 100 megawatts of power to the process.”
About 3 million metric tons of coal would be needed annually, producing almost 1.5 million tons of urea and 100,000 tons of ammonia for export. The estimate now, Johnson said, is that 70 megawatts of power would be available for sale to the grid.
Because of energy requirements, the facilities must be co-located. The gasifier and power plant would be built on a field south of the Agrium facility.
Gas needed in short term Blue Sky is in phase 2 of four phases. If the project is developed, it wouldn’t be in operation until late 2011.
Agrium needs to secure natural gas resources for the plant between now and then. It’s crucial that Agrium maintain its existing facility and personnel between now and the startup of Blue Sky, “so our people are out right now looking for additional gas supplies” to keep the plant running, Johnson said.
If the project remains on its current schedule, construction would begin in the spring or summer of 2009.
Phase 1 found the project feasible, he said: coal can replace natural gas as feedstock and after a detailed look at environmental permitting Agrium believes the gasifier and the power plant can be permitted in the Kenai industrial area.
Phase 2 work is focused on nailing down the detailed design and verifying that coal is available, Johnson said. Agrium will also be screening partners to invest in the gasifier project and selecting a permitting contractor.
Sen. Bill Wielechowski, D-Anchorage, asked whether mercury emissions from a coal-fired power plant, with a limited mercury allocation for Alaska, weren’t a problem for the project.
Johnson said while the Clean Air Mercury Rule has only a minor allocation of mercury for Alaska, there is litigation pending to challenge that allocation and the rule includes a trading program for mercury credits.
“We would look to minimize mercury emissions through air quality in the engineering design,” Johnson said. Agrium looked at the Clean Air Mercury Rule when it did an evaluation and “determined there were no show stoppers for permitting,” he said.
200 megawatt power plant Sen. Tom Wagoner, R-Kenai, asked how large the power plant would be, and how much power Agrium would use.
Johnson said the power plant would be sized to produce about 200 megawatts, 120 to 130 of which would be used at the air separation unit, the gasifier and the existing fertilizer plant. “Additionally, there’s about 85 megawatts worth of thermal energy that’s transferred to the fertilizer plant as steam.”
Wagoner also asked if there would be byproducts other than CO2.
The gasifier also produces slag, “which is molten ash from the coal,” Johnson said. Where gasifiers exist elsewhere in the world, “that slag is put to use as a value-added byproduct” that is sold as road base and used to make cinder block or construction block, he said.
Huggins asked about the source of the coal, noting that at one time Agrium was looking at using coal from Beluga.
While Beluga was the source envisioned early in the project, Johnson said, the Healy mine is a good fit for the 3 million ton scenario. Agrium is looking at both options, he said. “An advantage for Healy is it’s an existing mine and an existing operation, with a rail link” to water. “Beluga is a very large resource … with a mine that is in permitting but not in production.” Both are being considered for feedstock, “but we’ve been working on the Healy option to help us develop our preliminary feasibility economics.”
Railroad a financing possibility “One of the proposals that we have for financing of the project would be to work with the Alaska Railroad and their bonding ability to help provide some of the financing for the project,” Johnson said.
Gamble said the railroad was approached by Agrium both for transportation of the coal and for “the possibility of contributing to financing with the use of the railroad’s tax-free bonding capabilities.”
The railroad’s financing team is looking at the funding side of the project and on the operating side the railroad is looking at transportation options, including bringing coal to the Port of Anchorage for shipment by barge and the possibility of a new 42-mile line from the neighborhood of Willow to Port MacKenzie.
At the Port of Anchorage, Gamble said, it’s a matter of designing the needed off-loading capability for the coal into a growing port. That proposal is being considered with the Port of Anchorage, he said.
Building a spur to Port MacKenzie would be “a significant investment,” he said. Port MacKenzie “is a pricey project” but if that line were down there would be “a real opportunity to move goods to tidewater that would be hard to move all the way around to the Port of Anchorage,” including products from the Interior “that would probably do well to go direct to an industrial Port Mackenzie whereas the container business and some of the … containers on flatcar or just the straight container business would grow and continue to come into the Port of Anchorage,” Gamble said.
Tax-exempt bonding Alaska Railroad Chief Financial Officer Bill O’Leary reviewed the railroad’s tax-exempt bonding authority, which is based on provisions in the federal act that transferred the railroad from the federal government to the state. He said the railroad hasn’t tested the language in the act and its power to issue tax-exempt bonds, but believes tax-exempt bonding would be positive for the project.
Bonding is possible for two components of the project — partnering with Agrium on the larger project is one; the second is the rail link to Port MacKenzie.
O’Leary said the total could be in the $2.5 billion to $2.6 billion range, legislative authorization required for the railroad to issue bonds. The bonds would be non-recourse to the Alaska Railroad or the State of Alaska; they would be backed by the project, he said.
The Internal Revenue Service would be asked for a private letter ruling on whether the bonds would be tax exempt, O’Leary said, a process which takes six months from when IRS deems the application complete. Part of the importance of legislative approval, he said, is that it makes the project very real which is important in an application for an IRS private letter ruling.
| 