Agrium cuts back Nikiski operations, lack of gas blamed

Posted: Wednesday, February 25, 2004

Last year was a good year for Agrium Inc. as the Canada-based international company reported its highest third-quarter earnings in five years.


But those high numbers didn't extend to the corporation's Nikiski fertilizer plant, which by year's end was operating at less than half its capacity and actively seeking new supplies of natural gas.

By December of 2003, Agrium officials were warning that unless a sufficient supply of gas could be secured, the Nikiski complex could cease operations by the end of 2005.

Along with that announcement came notice the corporation was adjusting the facility's "carrying cost," or asset value, downward by $140 million in its fourth-quarter financial statements.

Agrium President and CEO Mike Wilson has blamed Unocal, with which Agrium has a legal dispute over a gas-supply contract, for putting the fertilizer operation in its current position. Agrium purchased the Nikiski facility from Unocal in September 2000 and expected a sufficient gas supply through its contract with the seller.

Unocal officials have thus far declined to discuss details of the case in the press but have stated that Unocal was meeting its contractual obligations to Agrium and would continue to do so.


Photo by M. Scott Moon

Agruim's Nikiski fertilizer plant manufactures amonia and urea.

Photo by M. SCOTT MOON

Without enough gas, Agrium began pulling back production in 2003 and was down to about 66 percent capacity by fall. The onset of cold winter weather led to a further reduction to less than 50 percent capacity by December, primarily because more of the available gas was going to utility companies.

The ongoing litigation with Unocal involves 14 points of contention. The gas-supply question is just one part of the overall dispute, according to an Agrium spokesperson.

"Arbitration is still scheduled for May 2004 on the gas contract with Unocal," Lisa Parker said in an interview in mid-January. "I wish we had great news to tell you, (but) the gas-supply situation has not changed since the December announcement."

The Nikiski complex's two ammonia plants and two urea plants need 155,000 cubic feet of gas per day to operate at what would be considered full capacity, Parker said. Less would do, but not for full capacity.

"If we had 120,000 cubic feet, we would be able to operate all four plants," she said.

The Nikiski operation currently employs approximately 230 workers in what are fairly good paying jobs important for the local economy. Going to full capacity, however, wouldn't necessarily mean more employment.

"If we go to full capacity, I don't anticipate anything different than today approximately 230," Parker said.

The company anticipates the gas supply during the second and third quarters of 2004 will be sufficient to keep all four plants operating.

"As for the fourth quarter of 2004 and beyond, we will have to evaluate it at that time," Parker said.

Agrium's Alaska operation (Agrium USA Inc.) has been undergoing a major restructuring since the spring of last year. Between April and June, the company laid off 65 workers in an effort to curb costs and increase competitiveness. Agrium recognizes the value of the Nikiski complex to the Kenai Peninsula, Parker said.

"The one thing important to know is that Agrium is very committed to keeping the Kenai plant operating, and operating for many years into the future," she said. "I hope we are successful. We like being part of the Kenai Peninsula and want to stay being an integral part of the Kenai Peninsula."

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