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Agrium takes over Unocal's fertilizer plant

Posted: Thursday, March 01, 2001

Taking a role as one of the star players in a growing company has put Nikiski's former Alaska Nitrogen Products plant in the spotlight after last year's sale to a Canadian fertilizer company.

And that spotlight will continue to get brighter as the parent company looks to the peninsula plant to expand its production capacity and improve product quality to compete in a global market, said plant manager Mike Nugent.

Agrium Inc., of Calgary, Alberta, last fall ended two years of negotiations with its purchase of the plant from Unocal Alaska, a $321 million deal that also included Unocal agricultural products facilities in Washington, Oregon and California .

The Nikiski facility, now called the Agrium U.S. Inc. Kenai Nitrogen Operation, produces ammonia from Cook Inlet natural gas as well as nitrogen taken from the air.

Urea also is produced from a process that combines some of the ammonia with carbon dioxide. Nugent said in 2000, the plant sold 844,000 metric tons of ammonia and 740,000 metric tons of urea, mostly to Pacific Rim countries like Korea, Thailand, Taiwan and China. Revenues topped $220 million.

Agrium hired all but five of the 290 employees at the Nikiski plant, and Nugent said everyone is still settling in to a new system.

Headquarters:

Calgary, Alberta

Alaska manager:

Mike Nugent

Employees: 290

Production in 2000:

844,000 metric tons of ammonia, 740,000 metric tons of urea

Local phone:

776-8121

Web site:

www.agrium.com

Outlook for 2001:

The former Alaska Nitrogen Products plant is a crucial piece of the corporate

puzzle for new owner Agrium Inc. The plant, now called the Agrium U.S. Inc. Kenai Nitrogen Operation, is expected to compete well for the companys capital as it expands into future world markets.

"Everyone was glad to get past that closing date," Nugent said. "We didn't have hard feelings about Unocal, but we were not part of their core business. They are focusing more on oil and gas production."

In September 1999, Unocal, based in El Segundo, Calif., spun off the Nikiski plant as Alaska Nitrogen Products LLC. It also restructured its West Coast agricultural holdings as Prodica LLC and created a separate unit for its oil and gas business.

Nugent said with Agrium, the plant has gone from a business holding to an integral part of the company's growth into a global operation.

"We are part of the core business with Agrium -- this is what they do," Nugent said. "The Nikiski plant is one of their largest assets. We're the center of attention every day and it feels pretty good."

For the year 2000, Nugent said two projects stood out for the company: A $25 million cogeneration project with Homer Electric Association to move HEA's Soldotna 1 generator to the Nikiski site; and the installation of a third air compressor to aid in the capture of nitrogen.

The generator has been moved, and Nugent said he expects to test-fire the entire system in March. Agrium will capture waste heat from the 313-ton, gas-fired generator to make steam for use in manufacturing its nitrogen-based fertilizers.

Nugent said Agrium will use 5 megawatts of power from the 40-megawatt generator, and HEA will feed the rest into the power grid.

"It will cut costs for us, and HEA will produce electricity that costs less," Nugent said.

Nugent said the installation of the third compressor will lead to increased production.

"We've been historically short on nitrogen and limited on our air-compression capabilities," Nugent said.

"We were always running at capacity. The addition of the third compressor will allow production to expand."

Nugent said for 2001, the bar has been set high for capital projects aimed at expanding the facility's production and improving product quality.

"We have approached Agrium with an ambitious capital plan," Nugent said. "We're still in the planning stages, so I don't know how things are going to work out. Agrium didn't buy this plant to watch it stagnate.

"I see a real opportunity to grow and expand."

He said improvements to product quality -- especially with urea -- are essential as farmers improve processes concerning fertilizer.

"The Asian farmers are improving their processes with more mechanization and are more interested in a higher quality urea product," Nugent said. "Urea is produced as round balls, and they are seeking a more uniform pellet to be used in the machinery to apply fertilizer. We have to strive to produce that."

As for increased production, Nugent said, any expansion of the plant's capabilities hinges on additional gas reserves being discovered. As part of the Agrium sale, Unocal will continue to supply natural gas to the plant under contract until 2009.

"There is adequate gas in that contract to meet our needs until 2009," Nugent said.

"The current Cook Inlet reserves are reaching the end of their lives. We've had discussions with several producers in the region and feel there is a need to explore other reserves."



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