Unocal cuts Agrium's gas supply

Reduction could result in additional layoffs at Nikiski fertilizer plant

Posted: Wednesday, June 11, 2003

Production at the Agrium Corp. fertilizer plant near Nikiski is expected to decline following a cut in natural gas supply from Unocal Corp.

Unocal has made further cuts in the natural gas it supplies to Agrium ammonia and urea fertilizer plant in Nikiski.

Agrium issued a press release last week from its corporate headquarters in Calgary, Alberta, announcing it had been given notice of the reduction in supply by Unocal, which has a gas supply contract to supply Agrium.

Lisa Parker, Agrium's spokesperson in Alaska, said the latest reduction could bring the gas supply to the plant down to 50 percent of what it needs to operate at full capacity.

Unocal said it is still meeting terms of its gas supply contract with Agrium even with the reduced supply, and that the company is in frequent communication with Agrium, Unocal spokesperson Roxanne Sinz said. The two companies are in litigation over the contract, she added.

The Agrium plant already is operating with 75 percent of the supply it needs since Unocal reduced supply earlier this year. The plant needs 155 million cubic feet of gas per day to operate at its full capacity.

Parker said Unocal gave no reason as to why the supply of gas was cut for the second time. There was no information as to whether the supply under the contract can be increased in the future, she said.

Bill Popp, oil and gas liaison for the Kenai Peninsula Borough, said he was surprised that the supply cutback was done at this time of the year.

Late spring and summer are usually a time of slack demand for gas among utilities in the Southcentral region, and there should be deliverable gas available, Popp said.

The state Division of Oil and Gas said it has been given no information on the supply cutback or the reasons for it, according to Bill Van Dyke, senior petroleum manager for the division.

Natural gas is a feedstock used in the plant to make ammonia and urea fertilizer, which Agrium sells mainly in export markets. Unocal built the plant in 1969 and operated it until Agrium purchased the facility in 2000. As a part of the sale agreement, Unocal was to continue supplying gas to the plant.

The two companies are now engaged in litigation over the gas supply contract.

Parker said Agrium has been able to keep the two ammonia and two urea manufacturing units in the Nikiski plant operating at the 70 percent supply level, although the units are producing at less-than-full capacity.

If the gas supply drops to 50 percent of what the plant needs, it is likely that two of the units, one urea and one ammonia unit, will have to be shut down, she said. That would result in layoffs.

Agrium already is in the process of reducing its workforce by 65 people as part of a corporate cost-reduction effort.

When that is completed, Agrium will employ 231 at the Nikiski plant. Additional layoffs, if two of the plant's four manufacturing units are idled, will be in addition to the 65 now being let go, Parker said.

Parker said Agrium has been working to line up gas supplies from other producers in Cook Inlet and has been partly successful. However, the company has been unable to take delivery of 15 million cubic feet per day contracted from one producer on the west side of Cook Inlet because space in the gas pipeline system on the west side could not be obtained, she said.

In its press release, Agrium said the company "disputes Unocal's attempt to unilaterally reduce its gas deliveries to the Kenai facility and continues to pursue legal remedies with regard to Unocal's reduction in natural gas supply.

"In addition, Agrium is continuing to have discussions with other potential natural gas producers regarding the supply of gas on both a short- and long-term basis to attempt to offset Unocal's failure to supply sufficient gas," the release said.

Tim Bradner is a writer for the Alaska Oil and Gas Reporter.

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