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Agrium to close

Limited supply of gas forces shutdown

Posted: Wednesday, September 26, 2007

 

  Agrium announced Tuesday it will shut down its North Kenai nitrogen fertilizer plant operations due to the declining supply of natural gas in the Cook Inlet basin. Clarion photo

Agrium announced Tuesday it will shut down its North Kenai nitrogen fertilizer plant operations due to the declining supply of natural gas in the Cook Inlet basin.

Clarion photo

Agrium's Kenai nitrogen fertilizer plant will close permanently by the end of the month, the Canadian-based company announced Tuesday.

While the plant will cease to produce fertilizer products and put more than 100 employees out of work, the ongoing feasibility study on the proposed Blue Sky coal-gasification project will continue, the company said.

The facility is facing a severe shortage of natural gas supply in the Cook Inlet region, Agrium Inc. said in a press release. Agrium USA spokeswoman Lisa Parker said the decision eventually would affect about 140 employees working at the plant, which is currently operating at reduced capacity. Employees will see a program of layered layoffs as the plant is mothballed that is, shut-in, but left capable of being fired up again.

"It is a sad day for us to have to close this facility, which has added much value to the Alaskan economy for the past 40 years. It has been a major supplier to international markets in the Pacific region and was Alaska's third-largest exporter in 2006, despite running at 50 percent of capacity," said Mike Wilson, president and CEO of Agrium. "Our employees at Kenai have been key to the success of the operation. Had it not been for the natural gas supply situation in the Cook Inlet, we would not have had to make this difficult decision which will impact our employees, customers and the community."

The company said its coal-gasification feasibility study would continue, and that that project's future is yet to be determined. If built, the coal-gasification plant would turn coal mined at Healy or perhaps Chuitna into the feedstock gas necessary to produce fertilizer products at the Kenai plant. A decision whether to proceed to the next stage of the feasibility study is expected later this year. The earliest a gasification plant would be operational is 2012.

Agrium said negotiations with gas suppliers in an attempt to put together supply contracts for 2008 and beyond proved futile.

"Despite these efforts, and after offering what it believed to be competitive prices and incentives, Agrium was unable to secure gas supply," the company said.

According to company figures, Agrium USA purchased 53 billion cubic feet of gas in 2001, but supply diminished steadily over the years. The company bought only 10 billion cubic feet this year.

Agrium stockholders will likely feel minimal impact from the shutdown. Although the facility will contribute this year about $6 million in EBITDA (earnings before interest, expense, income taxes, depreciation, amortization and asset impairment), that represents less than 1 percent of Agrium's worldwide 2007 EBITDA. Richard Downey, senior director of investor relations, said EBITDA, a measure of financial performance important to investors, was "a proxy amount for cash generated" by the facility.

The facility produced 325,000 tons of urea and ammonia during the five months it was operational in 2007, the company said. Global nitrogen markets in 2008 are expected to tighten as a result of the plant closure.

Shutdown should be mostly complete around the end of September. Meanwhile, Downey said, the company is inquiring of workers destined for layoff whether any are interested in working elsewhere for Agrium.

"There are positions open," he said.

Employees have been provided with severance-package estimates, he said.

According to borough data, Agrium was the 14th-largest employer in the borough in 2006. Parker said the current labor force had a total payroll this year of about $16 million.

As of Jan. 1, 2007, the Agrium facility had an assessed value of just over $49 million, generating in excess of $550,000 in property tax revenue to the borough and various service areas.

Reactions from government officials came swiftly, mostly expressing disappointment and a measure of resignation.

"I am saddened by the plant closure announcement today," said Borough Mayor John Williams, noting that the plant had provided top-paying jobs for generations.

"I am extremely concerned about the employees and will be doing everything in my power to help in transitioning to new employment, whether that is with existing industrial facilities on the Kenai Peninsula or the North Slope. I have called the governor and asked for her to provide any assistance that she can."

Joe Balash, special assistant to Gov. Sarah Palin, said the governor was not prepared to issue a formal statement yet, but that the Cook Inlet gas supply situation was recognized as a "tough one."

He said the Department of Labor had been notified and was "swinging into action to assist displaced folks."

He also said the governor was encouraged that Agrium had not completely shut the door on fertilizer production at Nikiski, saying the company had indicated that if a long-term supply of gas could be found, they would consider reopening the facility.

Assemblyman Gary Superman, of Nikiski, in whose district the plant resides, said it the announcement wasn't entirely unexpected.

"Obviously, we've been waiting for the announcement. It was pretty much understood they were up against it," he said. "It's not going to be pretty for a while, but hopefully, eventually something will come about in a positive way for them at that facility," he said referring to the gasification project.

"I hate to see us absorb anymore downward trend in Nikiski. Hopefully, this is the end of it," he said.

Sen. Tom Wagoner, R-Kenai, said it was disappointing, but Agrium had simply made a business decision based on gas economics.

"They've been negotiating for a year to find a contract for more gas. There's just is no gas available to them," he said.

If the gasification project goes forward and the plant can reopen in five years or so, that would be good, he said, but the company could be about to lose a group of highly skilled workers.

"Replacing them could be tough," Wagoner said.

Wagoner wondered if Agrium's decision would influence its position regarding an export license extension ConocoPhillips and Marathon Oil are seeking. Those companies have contended there is enough gas available to supply local needs and export product overseas. Agrium disagrees and is not prepared to change its position, Downey said.

"Our position is pretty clear," he said. "We'll just leave it at that."

Hal Spence can be reached at hspence@ptialaska.net.



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