Agrium project in line for $5 million from state

Posted: Tuesday, May 09, 2006

Agrium USA’s proposed Kenai Blue Sky coal-gasification project could get a significant boost from a $5 million state appropriation currently in the fiscal year 2007 state capital budget bill.

The general fund money, which would come through the Department of Commerce, Community and Economic Development, was added to the capital budget bill at the request of Sen. Tom Wagoner, R-Kenai.

The money is intended to provide a portion of the financing necessary for Agrium to complete engineering and fiscal analysis of the project and determine its overall feasibility, a decision that still is about 18 months away.

Agrium would pay back the $5 million with interest over 20 years if the project goes ahead to construction. Should the company determine building a coal-gasification plant to supply energy and feedstock to the fertilizer complex is not feasible, the money would be treated as an outright grant.

Wagoner is pushing for the $5 million grant-loan package noting the importance of Agrium’s project to the Kenai Peninsula economy.

“It is a primary economic driver second only to a new gas pipeline,” he said.

For decades, Agrium has purchased its feedstock gas supply from Cook Inlet producers. The cost of that gas, however, has been rising in recent years. After unsuccessful attempts to secure a steady supply at a favorable price from producers, Agrium announced in 2004 that it intended to close operations entirely by the end of 2005.

An interim gas supply contract signed last year has allowed Agrium to continue fertilizer plant operations through this year. However, the work force that once ranged from around 230 to 250 has been cut to 150 and the plant now operates at 50 percent capacity. The loss of those high-paying jobs has been felt in the local economy.

Operations beyond 2006 will depend on whether the company can reach agreement with suppliers on new contracts, the company said.

A gasification plant turning coal from the Beluga coalfield on the west side of Cook Inlet into natural gas would provide all the feedstock gas and electrical energy (about 100 megawatts) Agrium needs to produce fertilizer products, ending their dependence on Cook Inlet gas producers.

There would be several other advantages to a gasification plant. For one thing, depending on its size, it could produce as much as 250 megawatts of excess energy that would be available for the Railbelt Energy grid serving Southcentral Alaska.

Another byproduct of the gasification process would be excess carbon dioxide that the oil industry could use to help recover an estimated 300 million barrels of oil in Cook Inlet.

Beyond that, the demand for coal would provide the needed anchor to develop the Beluga coalfield, according to Agrium.

If built, Kenai Blue Sky project would keep the fertilizer plant operating and producing more than 2 million tons of ammonia and urea annually, and along with that, retain hundreds of high-paying jobs, the company said.

Lisa Parker, spokesperson for Agrium USA, said Phase 2 would take about 18 months and cost an estimated $20 million. During that time, engineers would define the basic framework of the project in preparation for the detailed engineering that would occur in Phase 3. The company would begin work on environmental permitting during Phase 2. If things remain on schedule, the gasification plant could be up and operating in 2011 or 2012, Parker said.

As of Monday, the $5 million appropriation was still in the capital budget bill. Mary Jackson, Sen. Wagoner’s chief of staff, said there was no guarantee it would remain in the final version, nor a guarantee it wouldn’t be vetoed. She suggested it could become a chip on the table for Gov. Frank Murkowski to use if he needs to encourage Wagoner’s vote on his Petroleum Profits Tax proposal.

Parker said that should the appropriation not make it into the spending plan, or should it be vetoed, it would slow down, but not stop, the project.

Presuming the project gets the final go-ahead and interim gas supply contracts can keep the plant operating at some level for a few more years, the entire plant would likely shutdown around 2009 or 2010. It would take about two years to build the gasification plant and bring it on line. Parker said employment would then increase to roughly 230 to 250 workers once again.

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