Agrium Corp. said a combination of rising construction costs and a worsening U.S. economy were key factors in its decision not to proceed with an innovative coal gasification project the company hoped would salvage its Kenai fertilizer plant.
Lisa Parker, spokeswoman for Agrium, said construction cost estimates had exceeded $2 billion. The slowdown in the U.S. economy was a concern because it creates a poor environment for Agrium to raise financing for the project.
The announcement, made March 13, was also a blow to Fairbanks-based Usibelli Mines Inc., which would have supplied 3 million tons of coal a year from the company's coal mine in Healy, south of Fairbanks.
Had it gone forward, the project would have converted coal to a synthetic gas that would have been a substitute for natural gas as a chemical feedstock in the manufacture of ammonia and urea fertilizer.
Agrium has been short of gas for the plant due to the depletion of reserves in Cook Inlet fields. The plant operated seasonally for two years due to gas shortages but suspended operations indefinitely in late 2007, until a decision could be made on the coal gasification.
"Agrium has determined that current economics are not sufficient to proceed with a gasification facility to supply coal-based syn-gas to our Kenai nitrogen facility. The mothball of the facility will be completed shortly," Agrium said in a press release announcing the move.
Parker said the company hasn't made a decision to dismantle the plant but the March 13 announcement does mean the complete suspension of operations.
The company has about 50 employees engaged in shutdown activities, Parker said, and this work will go on until June. After that the plant will be in a complete mothball status, except for a co-generation facility Agrium operates with Homer Electric Association, as well as a security staff.
There is a possibility of a restart if new supplies of natural gas are available, such as from a possible bullet line from the North Slope being discussed by Enstar Natural Gas Co., Parker said.
Enstar told state legislators in Juneau March 12 it is seriously considering a 660-mile pipeline that would bring gas from the North Slope to Southcentral Alaska on a route generally parallel to the Parks Highway.
"Restarting is not out of the question but there will be a cost in restarting. We can't just flip a switch," Parker said. "We'll continue our discussions with Enstar as they look at the bullet line concept," but there is only so long the plant can be kept in mothball status without deterioration of equipment and facilities.
"Realistically, something concrete has to happen in the next year or two," if there is to be a restart, Parker said.
Kenai Peninsula Borough Mayor John Williams said there are ways Agrium can preserve the equipment.
"Obviously we are very unhappy and concerned about this. We were hoping something would come out of the coal gasification project, and maybe Enstar or ANGDA (the Alaska Natural Gas Development Authority) can make a bullet line possible to bring gas from the North Slope," Williams said.
"But in reality, when you take a look at what it costs to build major projects today for this project or a pipeline, all the steel, cement and other materials that are needed, the price of energy will have to be high to pay for those things."
Parker said Agrium had hoped to be in Alaska for a long time when it purchased the fertilizer plant from Unocal Corp. in 2000.
"We're very disappointed that we may not be able to do business here," she said.
Unocal built the plant in 1969 to make products from Cook Inlet natural gas that was then in surplus and was inexpensive. Over the years gas reserves have been drawn down, and gas prices have increased. Shortages are now to the point that Agrium can't secure enough gas to operate the plant even though it is willing to pay market prices.
Agrium's March 13 announcement likely will stoke interest by state officials and legislators in a bullet line.
State Sen. Tom Wagoner, R-Kenai, said he has already been on the phone with Harold Heinze, executive director of ANGDA, the state corporation working on a spur pipeline.
Wagoner said he hopes a small-diameter line could be built that would bring natural gas liquids, or NGLs, to Southcentral Alaska along with gas.
