Lower operation capacity could cause Agrium to downsize

Gas cutbacks may affect jobs

Posted: Wednesday, November 27, 2002

Even with the short-term fix of a 30-day natural gas supply, Agrium officials said the cutbacks to gas delivery from Unocal to the Nikiski plant could have a significant impact on Agrium's operation.

"The reality is that the inability to run the plant at capacity, combined with low product price in the market is going to cause us to re-evaluate our organization size in the coming months," said Mike Nugent, the Nikiski plant's general manager.

"We'll probably take a pretty close look at how many employees we have, what projects we undertake and what monies we spend in order to keep our costs as low as we can. We just don't know to what extent."

Nugent said employees at the plant are aware of the potential of short gas supplies.

"For several months we've talked about it here at the plant," he said.

The Agrium facility uses hydrogen from gas to produce urea and ammonia, which is sold for fertilizer and used in rocket fuels, glue and plastics. When Unocal scaled back its supply of natural gas to Agrium, the Calgary, Alberta-based chemical corporation began searching for alternate sources to maintain normal plant operations.

Agrium signed a 10-year contract with Unocal to deliver 155 million cubic feet per day of natural gas until 2009. As of Tuesday, Unocal was providing only 120 million cubic feet per day between November and April, according to Nugent. That is only enough for the plant to operate at about 70 percent of its capacity, said Agrium spokesperson Lisa Parker.

"There is ongoing litigation," she said. "We don't anticipate that's going to be resolved anytime soon."

Agrium announced last Thursday it had reached a 30-day agreement with a major Cook Inlet oil and gas producer, but didn't name the source at the gas company's request. Nugent said Agrium currently is exploring both long- and short-term solutions to its current gas shortfall.

"We actually have two efforts going," Nugent said, "one long-term, to establish as many Cook Inlet suppliers as it takes to be able to operate to capacity over the long term. This one is the first step in doing that."

He said the second step will be to continue to get more short-term relationships. Nugent said the price the company will pay for those short-term contracts "depends on the supplier, quantity, whether it's interruptible and what the supplier is able to do."

Bill Popp, the Kenai Peninsula Borough oil and gas liaison, said the price Agrium pays for short-term agreements is going to be key to what happens to the company in the coming months.

"Agrium has been forced into the spot market, which is a much higher gas market. Until they can find a longer solution, the price of gas will produce a longer impact," he said.

According to a study by Juneau-based economic consulting firm, the McDowell Group, Agrium injects a healthy supply of dollars into the peninsula's economy, driven primarily by a $25 million annual payroll. The study said the plant employs 292 people with an average salary of $84,000 a year. Including the multiplier effect of those employees, the study said the plant accounts for 9 percent of the peninsula's wages and salaries.

Popp said any negative impact to jobs and operations at the plant could reverberate through the borough.

"We recognize the importance of the Agrium facility to the economy with tax base to the borough, and the jobs that they provide," he said. "We would hope that they would not have to go through too many layoffs or that the layoffs would only be temporary."

Nugent said he is uncertain how long it will be before Agrium can begin operating at full capacity again.

"There are so many variables out there, that we hope that it is soon," he said. "But we realize that it might take quite a bit of time for these producers to get long-term gas into the system."

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