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Vol. 10, No. 47 Week of November 20, 2005
Providing coverage of Alaska and northern Canada's oil and gas industry

Step closer to coal

By 2010 Agrium, Usibelli expect to replace gas with coal as feedstock for Nikiski plant

Alan Bailey

Petroleum News Staff Writer

Agrium announced Nov. 16 that it and Usibelli Coal Mine have completed the first part of a study into the use of a coal gasification plant to generate feedstock for the company’s fertilizer plant in Nikiski, Alaska. The evaluation indicated the plant should be workable and that a complete feasibility study is justified.

If the Blue Sky Project goes ahead the coal gasification plant would completely replace the use of natural gas at the fertilizer plant, perhaps by 2011.

Faced with dwindling supplies of natural gas from Cook Inlet, the plant would in effect replace increasingly expensive natural gas with plentiful supplies of Alaska coal.

“We believe this proposal contains a lot of merit,” Bill Boycott, general manager of Agrium Kenai nitrogen operations, said. “We plan on working with a number of partners to evaluate the potential to commercialize one of Alaska’s largest natural resources in an environmentally responsible manner.”

Preliminary engineering

Two engineering firms, Black & Veatch and Uhde, have worked on the preliminary engineering of the proposed plant. And Agrium has discussed with Shell that company’s proprietary coal gasification technology. Agrium has also been working with the U.S. Department of Energy and Alaska’s congressional delegation, Boycott said.

“The Energy Bill that was passed this year has significant incentives for the utilization of coal gasification,” Boycott said, “… The Department of Energy is actually embarking on a study within the next two weeks to look at exactly this opportunity in the Cook Inlet relative to our facility.”

At present, because of natural gas shortages, Agrium is only able to operate the Nikiski fertilizer plant at half capacity and has only secured gas supplies up to October 2006, Boycott said.

The gasification plant would enable the fertilizer plant to operate at full capacity and would effectively double the size of Agrium’s Nikiski industrial complex. A coal-fired electricity power plant that would power the gasification plant could export up to 250 megawatts of excess electrical power into the Kenai electricity grid.

Oxygen and coal

Gasification of coal involves combining the coal at very high temperatures with pure oxygen, separated from air, to form hydrogen and carbon monoxide. The carbon monoxide and hydrogen would be further refined into feedstock for the fertilizer plant. The process of removing oxygen from air leaves nitrogen, another feedstock for generating ammonia and urea in the fertilizer plant. The process also generates carbon dioxide which Agrium could use in the production of urea and sell for use in oilfield enhanced oil recovery operations.

The only other product from the plant would be an inert, environmentally harmless slag that could be used for applications such as road construction.

“(Coal gasification) is a very mature process and one that’s used all over the world,” Boycott said. “(The process) has seen a lot of improvements and developments over the last few years.”

Boycott and Steve Denton, vice president for business development for Usibelli, have just returned visiting an operational, state-of-the-art gasification plant in the Netherlands, to assess the issues associated with operating this type of plant in Alaska.

“The technology is extremely clean,” Boycott said. “In fact we can look at the potential for emissions that are lower than power generation in a natural gas-fired unit.”

Two coal fields

Coal for the gasification plant would arrive in Nikiski by barge and would come from Usibelli’s coal mine in Healy and from the huge Beluga coal field on the west side of the Cook Inlet. The Beluga coal is particularly conveniently located for supplying the Nikiski plant. Healy coal would be shipped by railroad to Anchorage or Seward for barging to Nikiski.

“We’re talking about a complex that will consume roughly 4 million tons a year of coal and produce 2 million tons a year of fertilizer for sale into the Pacific Rim,” Boycott said.

The two coal fields contain proven reserves that could easily supply the gasification plant with coal for 100 years, Denton said.

“We’re not coal supply limited,” he said.

Plant could close in April 2006

Boycott said the remainder of the first phase of the project, scheduled for completion in April 2006, involves finishing the preliminary process design and refining the preliminary cost estimate.

“The integration of this new complex with the existing operation needs to be defined in more detail,” Boycott said.

As part of this project phase the project team will also complete the required environmental scoping.

“We have completed a first phase of screening of the required permits and what it would take to execute this project, but that needs further definition,” Boycott said.

Agrium will also assess the financial structuring of this large, complex project and the company anticipates seeking partners to help fund the project.

“We now believe we have something of substance, which is why we are … announcing that we are moving into the next phase of development of this project,” Boycott said.

But a decision to go forward beyond phase one will depend on funding being in place.

“We’re prepared to embark on significant expense in mine development and detailed engineering for the complex,” Boycott said.

If Agrium fails to find gas supplies for the existing fertilizer plant after October 2006 the plant will have to close until the gasification plant goes into operation, Boycott said.

“If this project is going to proceed and we are unable to secure additional gas beyond October of ’06 we’d be looking at additional layoffs,” Boycott. “It obviously wouldn’t be all of our people because we would need some folks on site to take care of the equipment that’s there and also obviously for the development of the project.”

And Boycott emphasized that the ramp up of construction of the new plant would require large numbers of contract workers.

Alaska Gov. Murkowski expressed particular gratification that someone had found a practical use for the Beluga coal and that Agrium had found a means to achieve a long-term, sustainable future for the Agrium nitrogen facility that forms such a critical part of the economy of the central Kenai Peninsula.

“It’s significant because it marks a major breakthrough to utilize the huge coal reserves that we have in Alaska, particularly in the Cook Inlet area,” Murkowski said.

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