Agrium Inc., one of the largest manufacturers in Alaska, has successfully negotiated a new natural gas supply contract with Cook Inlet producers to allow its Kenai, AK-based fertilizer plant to continue to operate until at least November 2006. Agrium’s continued operations are seen as one of the keys to progress on the long proposed North Slope gas pipeline.

Hurt by rising gas prices, the Calgary-based company said late last year that it would close Alaska’s largest manufacturer this November unless lower cost gas contracts were completed. The new contract supplies enough gas to run the plant at half-capacity through October 2006, Agrium said. It added that it would continue to seek gas to operate the plant beyond that date. Details of the agreement with gas producers were called “strictly confidential.”

“This positive outcome is a result of a lot of hard work and support from many different groups,” said CEO Mike Wilson. Wilson said the negotiations were “made possible through the cooperation of all Cook Inlet gas producers, Enstar and the pipeline companies. We will continue to work with all parties in the coming year in an effort to obtain longer-term gas supplies for the facility.”

Wilson also noted the “invaluable support provided by Alaska’s Gov. Frank Murkowski and his staff.”

The nitrogen facility first opened in 1969, and it has provided a lot of higher paying jobs for the region. The contract was heralded by Murkowski, who has championed the needs of industrial users, considered instrumental to ensure a spur gas line that will carry North Slope gas to the Cook Inlet area (see Daily GPI, Jan. 14).

“To have lost this plant at this time would have been a devastating blow to the concept of this lateral line,” Murkowski said.

Agrium purchased the plant from Unocal in 2000, but the two companies never completed a deal for Unocal to supply gas to the plant. Unocal instead paid Agrium cash last year (see Daily GPI, July 26, 2004), but without a gas contract, Agrium announced that the plant likely would close. Murkowski and other state officials encouraged Agrium to continue negotiations.

Local officials are hoping that a recent upsurge in Cook Inlet gas drilling, as well as the possible arrival of a gas line spur, will meet Agrium’s future needs.

Murkowski, speaking at a press conference, said all of the local producers had to agree to change pipeline routes and procedures to ensure the transaction was a success. Alaskan officials rejected the idea of using its royalty gas to assist Agrium, because they said that the solution would only create shortages elsewhere in the state, Murkowski said. No state subsidies were involved, and the governor added that his role was to “jawbone” to keep the negotiations moving.

“When you go to the symphony, somebody has to pick up the baton,” Murkowski said. State regulators of Alaska’s pipelines were said to have played a big role in the agreement. The gas producers that mediated with Agrium agreed to open a subsea pipeline from Cook Inlet to carry gas for the Agrium plant (see Daily GPI, March 29).

The Cook Inlet Gas Gathering System pipeline had been operated privately by Marathon and Unocal, but the state Regulatory Commission of Alaska (RCA) ruled in April that the pipeline should be subject to regulation, and mediation between Agrium and the producers began. RCA approved the agreement to open the pipe in late June, which will allow trapped gas to be transported to market.

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