Aquila said last week it plans to target its energy risk management expertise at the ailing fertilizer industry, which has suffered tremendously over the past two years from volatile natural gas prices. Natural gas can account for up to 80% of a fertilizer product’s costs. The company also purchased the proposed Red Lake Storage Project in Arizona from Southwest Gas Corp. last week for an undisclosed sum.

As part of its plan to help the fertilizer industry, Aquila said it will enter the nitrogen market first, and within 12 months it plans to expand into the sulfur and phosphate markets. Targeted clients will be large resellers of chemical fertilizers and farm cooperatives “who are willing to share the risks and rewards in strategic areas of their business,” said Aquila COO Ed Mills.

Aquila will focus geographically in areas where the company already is well established. While the company has a global footprint, providing energy, coal and risk management services in North America and Europe, much of the U.S. chemical fertilizer market is within easy reach of the company’s base in Kansas City, MO. Roughly 90% of the nitrogen used for agriculture in the United States is applied within 500 miles of Kansas City.

“This represents an opportunity for Aquila to help chemical fertilizer firms manage, for example, the price and margin risks associated with the impact of natural gas prices on their business,” said Mills.

“The chemical fertilizer market is undergoing significant upheaval as a result of the volatility in natural gas prices and supplies,” said Kevin Fox, senior vice president and general manager of Aquila’s commodity transaction group. “Without help in managing the risks associated with such a market, the domestic industry stands to lose profitability at a time when the industry is facing extremely difficult conditions worldwide.”

Aquila’s storage purchase includes 36,000 acres about 30 miles north of Kingman, AZ, and the rights to develop a salt cavern gas storage facility. Along with the land, Aquila purchased the water and mineral rights necessary to develop the facility.

It will have a gas storage capacity of 12 Bcf. The first phase of the project is expected to provide 6 Bcf of capacity by the fourth quarter of 2003, with the full 12 Bcf planned for the fourth quarter of 2004. The facility will connect to pipelines operated by El Paso Natural Gas Pipeline and Transwestern Pipeline Co. Aquila anticipates beginning an open season for the facility within the next seven to 10 days.

“This facility fits with our strategy to build or acquire assets that enable us to provide clients with the energy they need when they encounter dramatic increases in demand,” said Aquila COO Ed Mills.

The facility is positioned to serve Arizona power plants, as well as other facilities in Nevada and California. There are 60 gas-fired power plants in Arizona, representing one of the largest single concentrations of such facilities in the United States

Aquila currently owns the 21 Bcf Katy Storage Hub in East Texas. It also is completing the acquisition of a storage facility near Lodi, CA, which will provide services to northern California.

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