Agrium not done yet

Beluga coal eyed as energy source and fertilizer feedstock

Posted: Thursday, November 17, 2005

Agrium USA announced Wednesday is looking to the Beluga Coal Field across Cook Inlet as a future source of feedstock gas with which to continue operations at its Nikiski ammonia and urea plants, perhaps for decades.

To that end, Agrium said it is joining with industry partners to conduct a feasibility study to evaluate the potential of using coal gasification to produce the natural gas it needs. An Agrium official said the company envisions erecting the gasification plant next door to its existing facility, perhaps doubling the size of the existing complex.

That complex today consists of two ammonia and two urea production plants.

If the gasification project comes to fruition, it could mean as many as 2,000 direct and indirect jobs, said Bill Boycott, general manager of Agrium Kenai Nitrogen Operations, at a press conference late Wednesday afternoon.

In a prepared statement released just before the press conference, Boycott said a successful gasification project would not only keep the state’s largest value-added industry in business for decades, but also would be exceedingly good news for the financially strapped Kenai Peninsula Borough.

An accompanying coal-fired power plant would produce as much as 355 megawatts of electricity, enough to operate the plant at full capacity and offer some 255 megawatts for sale to the Railbelt power grid, roughly what is produced at the Beluga power station.

It also would produce an estimated 6,000 metric tons of carbon dioxide that could be used by Cook Inlet oil producers to recover an estimated 670 million barrels of oil.

Partners in the study include Usibelli Coal Mine and the engineering firms of Black and Veatch, a Kansas-based company, and Uhde, headquartered in Germany, the company said.

Boycott said one source of coal would be the Beluga Coal Field located 40 miles across Cook Inlet from the Agrium plant in Nikiski. That field, according to Agrium, contains more than 2 billion tons of proven coal reserves, making it one of the world’s largest low-sulfur coalfields. To supply its needs, Agrium would need some 4 million tons per year to produce 2 million tons of fertilizer annually, Boycott said.

Coal also might come from the Usibelli Coal Mine in Healy.

Agrium is in discussions with Shell Oil for its proprietary coal gasification technology, a technology that is being successfully used in the United States and Europe, and soon China, Boycott said. Agrium’s gasification study project, under way for several months, is being called “Blue Sky” in reference to the new, environmentally friendly coal gasification process, the company said.

Boycott said Agrium would reach a “go/no-go” decision point by April of next year. If the company commits to gasification, it would begin an irreversible process of designing and eventually constructing the gasification plant, moving the fertilizer facility from a dependence on natural gas supplies to more reliable coal supplies.

Agrium’s ammonia and urea production plants in Nikiski are capable of producing about 700,000 metric tons of anhydrous ammonia and 1.1 million metric tons of urea annually when at full capacity. However, the plant has not been fully functional of late.

In 2004, the company announced it would close the four operating plants by the late fall of this year because its gas supply contracts were terminating and the cost of replacement gas was too high. A reduction of the work force followed, slicing employment from a peak of 295 to its current 180 workers.

Earlier this year, however, Agrium announced it had reached a gas-supply deal that would keep some of the production plants operating until October 2006. The company continues to search for gas supply at an acceptable price.

According to Agrium, if the gasification project comes together, it could mean saving about 230 jobs at the Agrium complex itself, creation of 80 direct jobs in the coal gasification system and more than 200 direct jobs in coal mining and transportation. The employment estimate reaches 2,000 when indirect jobs are included in the analysis, Boycott said.

Agrium said a gasification facility could be in operation as early as 2011 if results from the analysis are positive.

Between now and then, it isn’t clear what employment will be like at the facility. Boycott said they have enough gas to operate for another year and are working to secure more.

If they cannot, even if the company decides to make the move to coal, more layoffs could be expected, and there could be “a cold period,” Boycott said. However, he added that not long after that, there would be “a significant ramp-up” in contractor work and site preparation.

At this point, Boycott said, Agrium is working to determine if the gasification idea is a “bankable deal.” They are looking for investors.

He also said the modern gasification process is extremely clean, pointing to its use in the Netherlands, where environmental rules are strict.

Asked why Agrium had not investigated the gasification option two or more years ago before their gas contracts expired, Boycott admitted there had been “some level of denial” as to just how critical the gas shortage in the Cook Inlet region would become.

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