Fertilizer plant restart still dependent upon gas supply

Editor’s note: This story has been changed to correct a measurement unit of natural gas — a thousand cubic feet misreported as a million cubic feet —and to add additional information about the Cook Inlet gas market during Agrium’s 2000 purchase of the Nikiski fertilizer plant. 

The company formerly known as Agrium has a new name and a new Alaska manager, but plans to re-open its shuttered fertilizer plant in Nikiski still depend on corporate investment priorities and the always-looming question of whether it can get the natural gas it uses as raw material.

In June, Kenai Peninsula resident Fred Werth became the Alaska manager for Nutrien — a global fertilizer manufacturer and marketer formed from the merger of Alberta-based Agrium and its Saskatchewan-based rival Potash Corp. Werth, who worked previously at Agrium’s Nikiski plant, is replacing retiring manager Steve Wendt.

What the merger means for the prospects of the plant in Nikiski is still uncertain, according to Nutrien Government Affairs Manager Adam Diamond. Agrium’s leadership had put other plans — including whether to study a possible reopening of the Nikiski plant — on hold to focus on the complex process of the company’s $26 billion merger with Potash, he said. The merger plans were first announced in September 2016, and required regulatory approval in Canada, China, India, and the United States. After the U.S Federal Trade Commission became last regulator to approve it on Dec. 27, 2017, Nutrien announced the merger’s closure on Jan. 2, 2018.

Asked how the merger had changed the company’s investment priorities and view of a possible reopening of the Nikiski plant, Diamond said Nutrien’s management would review their post-merger prospects over the next six months.

“Something of that magnitude, it’s too soon to make those kinds of statements,” he said.

In 2016 interviews, Diamond said reopening the plant would cost an estimated $275 million — a calculation he said the company hasn’t refined since.

Gas supply

For the Kenai plant — which uses nitrogen from the atmosphere and methane, the primary component of natural gas, to make ammonia and urea fertilizers — the most important question is still whether Nutrien could negotiate long-term gas supply at a favorable cost. The plant needs 155 million cubic feet of gas per day to operate at full capacity — about 56 billion cubic feet per year, more than the approximately 33 billion cubic feet per year used by regional gas utility ENSTAR.

Oil and gas company Unocal built the plant in 1969, a time when Cook Inlet produced enough gas to supply not only local heat and electrical utilies, but also export businesses such as the fertilizer plant and the neighboring ConocoPhillips liquified natural gas terminal built the same year. The LNG terminal’s exports became intermittent after 2010, and it has been for sale since 2016.

Cook Inlet natural gas production peaked at 311 billion cubic feet in 1991, but underinvestment in drilling and exploration led to a decline that was threatening gas shortages by the late 2000s.

When Agrium purchased the plant from Unocal in 2000, the Alaska Division of Oil and Gas calculated the price of Cook Inlet gas at $1.20 per thousand cubic feet — giving the Nikiski plant the cheapest gas supply of any facility Agrium operated, according to previous Clarion reporting. In 2001, however, the prevailing price per thousand cubic feet of Cook Inlet gas passed $2 for the first time in the Alaska Department of Revenue’s record, and continued a gradual climb over the next several years. By 2003, Agrium was litigating with Unocal over the gas supply contract it had entered as part of the plant sale, and an undersupply of gas had dropped the Kenai plant’s operations to 66 percent of its capacity, with about half the 400 employees it had at its peak. Prevailing gas prices came close to $6 in 2007 — the year Agrium closed the plant after Unocal could no longer deliver gas at the former price — and have since varied between $5 and $7.

The approximately 230 jobs lost when the plant closed were among the highest paying in the Kenai Peninsula Borough at the time, with an average annual salary of $80,000, the Clarion reported in 2005. The plant also provided at the time 5 percent of the borough’s property tax revenue, approximately $2 million.

Though Cook Inlet has since seen an increase in new gas drilling and exploration — spurred in part by state tax credits — the question remains whether the new production can meet Nutrien’s demand.

If Nutrien were to reopen the plant, it would be able to take advantage of a tax credit crafted by Rep. Mike Chenault (R-Nikiski), which went into effect in July 2017. Nutrien’s corporate income tax liability would be credited equal to the royalty payments made to the state by the producers who supply Nutrien its gas, making it financially neutral for the state government.

Reach Ben Boettger at ben.boettger@peninsulaclarion.com.

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