If Nikiski’s Agrium ammonia plant were to re-start in the future, the company could be eligible for a corporate income tax credit when it begins operation.
The bill creating the credit was passed by the Legislature on Sunday and now awaits Gov. Bill Walker’s signature to become law.
Introduced by Rep. Mike Chenault, R-Nikiski, in February 2015, the credit was passed by the House of Representatives in April of that year. It will be available to urea and ammonia manufacturers, who use methane from natural gas to create fertilizers and other products.
Agrium, a Calgary, Alberta-based agricultural chemical company, operated Alaska’s only such manufacturing plant in Nikiski. Agrium closed the facility in 2007 due to a decline in Cook Inlet’s gas supply, and its officials have since speculated about reopening it.
The credit is designed to entice Agrium into reopening the plant while remaining budget neutral by balancing the deferred tax revenue from the credit with income from royalty payments made by Agrium’s potential gas supplier. The credit is equal to the royalty paid by the supplier under its state lease.
Agrium has estimated $15 million to be the royalty value of the gas a reopened Nikiski plant would consume annually, giving it a potential $15 million credit. However, Agrium has estimated its annual corporate income tax liability between $3 million and $4 million. The credit does not allow a tax liability less than zero.
In addition to paying royalties to balance the credit, potential gas suppliers would also be the key to make an Agrium reopening possible in the first place. Prior to its closure, the Nikiski Agrium plant used gas supplied by Unocal, which in 2004 announced it would raise the price of its gas. Agrium and Unocal failed to renegotiate a supply agreement.
Agrium Manager of Government Affairs Adam Diamond said the company is now “absolutely talking to all the suppliers in the Inlet” about potential deals to fuel the Nikiski plant.
“We continue to work with all of the suppliers,” he said.
Diamond has previously stated that the decision of whether or not to reopen the Nikiski Agrium plant would be discussed by Agrium’s board of directors, which he said have yet to take up the question. Diamond said the tax credit “will go into the decision, but there hasn’t been a decision at this point.”
“The decision on re-opening the facility is going to be based on the availability and cost of gas and the overall project economics,” Diamond said. “This incentive absolutely factors into that overall economics decision. But we still are looking at the availability of gas, we still are looking at the overall project economics.”
The credit will take effect July 1, 2017, and will remain available until 2024. Diamond said this time limit was not likely to be a factor in deciding whether to reopen the plant.
“By itself, I don’t think that’s an incentive to make a decision more quickly,” Diamond said. “It’s a huge investment, and we have to make sure there’s enough gas. We don’t want to be caught in a position where there’s no gas availability. We want to make sure there’s enough gas not only for us, but for utilities and all the other users. Because we recognize that utilities will always come first in terms of gas supply. So we’re going to do our due diligence before we make a decision.”
Reach Ben Boettger at email@example.com.