Last week's announced closure of the Agrium Inc. fertilizer plant in Kenai due to a shortage of natural gas in the region could be the shot in the arm needed to move an already-pondered "bullet" pipeline from Alaska's North Slope to bring gas to Cook Inlet, the project's backer said last week.

Agrium Inc. is closing its Kenai, AK, nitrogen fertilizer operations because of a gas supply shortage in Alaska's Cook Inlet. The shutdown is expected by the end of the month.

Local gas distribution utility Enstar Natural Gas Co. has been looking at ways to get additional supplies into Cook Inlet, spokesman Curtis Thayer told NGI. One option would be to encourage more development of local reserves. A second would be a spur pipeline off of a larger Lower 48-bound pipeline from Fairbanks to Cook Inlet. And the third option, proposed by Enstar, would be a bullet line to bring gas from the North Slope to Cook Inlet.

"We have worked in Juneau to get a bullet line concept, to bring a bullet line form the North Slope down to south-central [Alaska]," Thayer said. "We only actually need to bring it about 60 miles north of Anchorage into our pipeline system, and then we could carry the gas through Anchorage and then, of course, down into the Kenai Peninsula. And at the time we were looking at having the Agrium plant as well as the LNG [liquefied natural gas plant] plant be an anchor tenant or anchor customer."

Another project, proposed by the Alaska Natural Gas Development Authority, would tap a pipeline from the North Slope on its way to Canada at Delta Junction, AK, and move gas to Glennallen then on to Valdez as well as Kenai. If a Canada- or Lower 48-bound pipeline is not built, the project would run all the way to the North Slope to pick up gas supply, explained Development Authority CEO Harold Heinze.

"Agrium being there or not, in my mind, doesn't change anything," he said of his project's merits. "In terms of an Alaskan policy decision, it seems clear to us which route is preferred. It's the best route in terms of the consumer interest.

"Enstar is proposing a project that will not receive any traction until a decision is made on the big [pipeline] project. The instant a big project is moving forward, they can forget their idea. If a big project is not moving forward, then people are going to have to look at how to satisfy the in-state market. Because of the stakes involved in the big project, you're going to have to play that hand out, and right now our governor is doing that, and I think most Alaskans think she is entitled to do that without a lot of interference or kibitzing."

Heinze said the Gas Development Authority's project is targeted to serve residential consumers with 250-400 MMcf/d. "We have presumed that Agrium went away in the next year anyway, he said. "In all our work we have looked toward not providing them with gas. Basically Agrium's issue here has been seen coming for a long time."

Agrium, which has been Cook Inlet's biggest employer, said it had "diligently attempted to encourage development of natural gas supply and to negotiate contracts for 2008 and beyond. Despite these efforts, and after offering what it believed to be competitive prices and incentives, Agrium was unable to secure gas supply." Closing the facility will result in the layoff of more than 100 employees.

"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," said Agrium CEO Mike Wilson. "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% of capacity.

"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."

Agrium has had problems securing gas for the plant for several years. Late last year Calgary-based Agrium said it would make a final decision in 2008 on whether to build a coal gasification plant to ensure that it would have enough power for its operations (see NGI, Dec. 4, 2006).

The company estimated that the facility would contribute about C$6 million in earnings this year and "account for less than 1%" of the company's total earnings. The facility produced about 325,000 tons of urea and ammonia in 2007 during the five months it was operational. The company said the reduction in nitrogen fertilizer supply would further tighten the global market in 2008. Agrium purchased 53 Bcf of natural gas in 2001, "and this supply has steadily diminished to only 10 Bcf in 2007."

Thayer said the loss of Agrium has reignited interest in the bullet line project, and the plant's closure doesn't have to be permanent.

"We need to do something for our own customers in the power generation [sector] in Cook Inlet," Thayer said. "We need to be looking at that, and I think really with this Agrium closure it just speeds up the need as far as looking at this whole process."

Thayer said that such a bullet line, carrying up to 0.5 Bcf/d, would be exempt from Alaska Gov. Sarah Palin's Alaska Gasline Inducement Act (AGIA) process. AGIA sets forth the process for bringing Alaska's dream of a pipeline to the Lower 48 to fruition (see NGI, May 21).

"We have already done a lot of preliminary right-of-way work and some engineering as far as Fairbanks, and now we're looking at continuing that north to the [North] Slope," Thayer said of bullet line planning.

So the Agrium closure could become a blessing in disguise for Cook Inlet gas consumers, who could see a pipeline from the North Slope to serve their market in as few as five years, Thayer said.

"To be honest with you, I think [Agrium] probably helps [the pipeline proposal] because the plant isn't being dismantled," Thayer said. "And it shows the importance and need for gas in Cook Inlet. They plan on mothballing it and keeping people so it can be restarted one day. The one thing we do know is we could get a line off the North Slope down into Cook Inlet a lot faster than having a spur line run to a line to the Lower 48."

Piggybacking a larger pipeline to the Lower 48 could take 10 to 15 years, Thayer said, and its completion would depend upon how quickly the state, gas producers and pipeline backers could come to terms on a project that has been envisioned for decades.

"We could have a whole new set of industry here. We could be looking forward to a new generation of employment and economic opportunity," said Kenai Peninsula Borough Mayor John Williams, as quoted by the Peninsula Clarion.

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