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Agrium to Mothball Alaska Gasification Facility

March 17, 2008
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Saying "current economics are not sufficient to proceed," Agrium Inc. is setting aside plans for a coal gasification facility to supply syngas to its Nikiski nitrogen plant in Kenai, AK. Mothballing of the facility will be completed shortly, Agrium said, and the plans may be revisited again in the future.

Plans had called for the Homer, AK, Electric Association to take the lead in building the Kenai Blue Sky Coal Gasification Project, which would have included a 190 MW coal-fired power plant. About two-thirds of the power would be dedicated to the gasifier planned by Agrium. Another 70 MW would be available for the regional grid.

The announcement came less than six months after Agrium said it would close its nitrogen fertilizer operations at Kenai because of a natural gas supply shortage in Alaska's Cook Inlet (see NGI, Oct. 1, 2007).

Agrium had problems securing gas for the plant for several years. Agrium considered shuttering the fertilizer facility in 2005 after it had trouble securing gas contracts with area producers (see NGI, Nov. 21, 2005). However, Alaskan officials and Agrium in 2006 considered using coal gasification as a feedstock for the facility and began a feasibility review (see NGI, Sept. 11, 2006). In late 2006 Agrium said it was planning to switch the Nikiski plant from gas to coal (see NGI, Dec. 4, 2006). If work on the plant had moved forward, it would have been operational in late 2011.

Cook Inlet holds an estimated 1.6 Tcf of proven gas reserves and an estimated 1.7 Tcf in undiscovered resources. More than one-third of the basin's production goes to large industrial users, such as the Kenai liquefied natural gas (LNG) liquefaction plant and Agrium's fertilizer plant. Starting operations in 1969, the Nikiski facility was the first LNG terminal in North America.

Last year Alaska Gov. Sarah Palin told federal energy authorities she would support a two-year extension of the Kenai LNG plant's export license if its owners agreed to conditions aimed at protecting the region's utility gas consumers, the economy and Cook Inlet's gas industry (see NGI, April 16, 2007).

Last month ExxonMobil Corp. and Fairbanks Natural Gas LLC (FNG) announced a long-term contract to supply Alaska North Slope gas to FNG customers in interior Alaska (see NGI, Feb. 18). ExxonMobil Gas & Power Marketing Co. will supply gas to a new gas liquefaction plant at Prudhoe Bay to be built and owned by Polar LNG LLC, an affiliate of FNG. FNG will truck the LNG nearly 500 miles from the North Slope to its Fairbanks distribution system. FNG owns and operates two LNG storage and regasification facilities in Fairbanks. The primary driver of the project is to ensure security of gas supply, particularly since supplies are tight in the Cook Inlet area, where FNG currently gets its gas.

FNG initiated gas service to its first customer during the spring of 1998 and now serves more than 1,100 residential and commercial customers. FNG said it continues to broaden its underground distribution system to serve the Fairbanks community. There still is no gas pipeline to bring supplies to the area. FNG trucks in LNG from the Cook Inlet area that it buys from the area's local distribution utility, Enstar Natural Gas Co. The LNG is stored at FNG's two Fairbanks LNG storage and vaporization facilities until gas is needed to serve FNG customers.

The Cook Inlet area has been struggling to boost its own supplies of natural gas. A recent agreement between the state and the owners of an LNG liquefaction plant on the Kenai Peninsula specified that the owners, Marathon Oil Corp. and ConocoPhillips, develop additional gas reserves in Cook Inlet and allow third parties to monetize their gas production through the LNG plant. Marathon and ConocoPhillips have also agreed to sell Cook Inlet seismic and well data to third parties (see NGI, Jan. 7).

In addition to the development of area reserves, other options that have been considered to bring more gas to the region are a spur pipeline off a larger Lower 48-bound pipeline from Fairbanks to Cook Inlet, as well as a bullet line to bring gas from the North Slope to Cook Inlet.

Agrium said it will continue to examine other gasification possibilities. The Calgary-based company is reviewing gasification opportunities from syngas derived from byproducts of bitumen upgrading. Agrium has a nitrogen off-take agreement with Faustina Hydrogen Products LLC in Louisiana with an anticipated start-up in 2011.

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