Agrium seeks gas proposals

Company offers to buy more expensive gas to keep plant open

Posted: Tuesday, March 22, 2005

Agrium submitted a request for proposals to all seven gas producers in the Cook Inlet Basin on Thursday offering a higher price for gas to continue operating its plant at half capacity.

The request for proposals offered to pay $3 per thousand cubic feet of gas — higher than their previous target prices, said Richard Downey, director of investor relations for Agrium. The company has historically paid on average less than $2 per thousand cubic feet for its gas at the North Kenai plant.

The deadline for responses from the gas producers is April 15.

The fertilizer plant is slated to close Oct. 31 because it is not able to secure enough natural gas to continue operations. Gas is a key ingredient in the production of ammonia.

Since announcing the plant's closure last year, Agrium said it has made efforts to secure more gas to continue operations.

In 2003, Agrium submitted requests for proposals to gas producers and lease holders to secure additional gas, said Agrium spokesperson Lisa Parker. She would not specify how much the company offered to pay for gas.

Downey said $3 is an acceptable price.

"We would like to continue operating that facility," he said. "Our preference is to keep it open long term."

"I'm amazed it's taken them this long (to) ante up to $3," said Steve Laciak, an analyst who follows Agrium for National Bank Financial in Toronto.

Ammonia prices are still high and it is worth Agrium's while to continue operating to capitalize on that, Laciak said.

But historically, swings in the price of ammonia can be large, and the price could drop. This means their target price for gas might not extend the life of the plant long term, he said. If there was a contract where the gas price fluctuated with the price of ammonia, then the plant may have a chance to operate long term, he said.

The request is to secure gas from Nov. 1 through 2009, Parker said. She said for it to be successful, Agrium would need a contract of 24 billion cubic feet per year of gas at that price for at least two years. Agrium consumed 39.4 billion cubic feet of gas last year operating at 75 percent. Parker said she would not speculate if Agrium would try to get out of the contract if the price of ammonia dropped.

Loren Hollers, an operator at Agrium for 16 years, said it would be encouraging if the plant could continue operating for another couple of years.

"I think it would be incredible," he said. "It would give employees more time to look for new jobs," he said, adding it also would provide more time to explore for more gas for the plant.

"The plant is pretty much a part of peninsula life," he said.

Hollers said the sooner Agrium figures out if it will extend operations, the better. The plant currently is being operated safely and efficiently, he said, but with employees anticipating its closure and looking for jobs, many talented and experienced employees will be leaving.

If a decision is not made soon, Agrium will reach a point where it will be difficult to find qualified employees to continue running it beyond Oct. 31, he said.

"The company right now is right on the edge of being able to continue operating safely," Hollers said.

Parker said by next month, the plant will have 190 employees, down from 230. Work force issues will be addressed after the company knows if it will be able to secure additional gas, she said.

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