The gas industry was hit with more permanent demand destruction this week as a result of high gas prices. Terra Industries and Mississippi Chemical Corp. announced ammonia and urea plant closures that result in the loss of at least 80 MMcf/d of gas demand (29.2 Bcf/year).

Sioux City, IA-based Terra announced plans to discontinue production at its Blytheville, AR, nitrogen products manufacturing facility at the end of May and then to prepare the production plants for permanent closure, which will cost about $4 million. The plant produces about 420,000 short tons of ammonia per year and about 480,000 short tons of urea per year. Terra will continue to operate the facility’s storage and distribution assets as a terminal for ammonia produced at its Verdigris, OK, facility or obtained from other sources.

“We decided to permanently close our Blytheville production plants now because of continuing high natural gas costs, the upcoming off-season lull in nitrogen markets and the likelihood that competition from imported ammonia and urea barged up the Mississippi River will make future major maintenance and capital investments at the Blytheville facility unsound,” said Terra Nitrogen Corp. Chairman Michael L. Bennett.

The plants were shut down for all of the third quarter of 2003 because of nitrogen market conditions and high natural gas costs, a spokesman said. The plants ran during all of 2002 but in 2001 they also were shut down for about three months because of gas prices.

Terra operates 10 ammonia plants at eight sites worldwide, including six plants at five locations in the United States. It produces about 3.8 million short tons of ammonia per year and all of its plants currently are operating at full capacity. It takes about 32-35 MMBtu of gas to produce one short ton of ammonia. Urea consumes some gas for fuel but gas is not part of the feedstock as it is for ammonia.

“Our Blytheville plant is right on the Mississippi River where we have to compete with barges that come up from New Orleans from off-loaded vessels from overseas, so it’s the most vulnerable to imports,” said Terra spokesman Mark Rosenbury. “There are no plans to shut any other plants at this time. But we do have this problem where once the season is over for nitrogen if gas prices continue to increase it will be difficult for us to make inventory for next season.”

Meanwhile, Yazoo City, MS-based Mississippi Chemical Corp., which is in bankruptcy protection, said earlier this week that it will permanently close its melamine and urea operation and its No. 1 ammonia facility at Triad Nitrogen LLC in Donaldsonville, LA. The company said it will continue to operate its No. 2 ammonia plant in Donaldsonville as swing production, operating as needed based on customer demand and market conditions.

Securing a stable customer base with profitable pricing has been difficult in the current marketplace, and ammonia market conditions continue to be adversely affected by extreme natural gas price fluctuations relative to ammonia prices, the company said in a statement. It has initiated efforts to locate a buyer for its melamine business and related assets. Mississippi Chemical filed for Chapter 11 bankruptcy protection last May, citing the combination of the depression in the agricultural sector and the extreme increase and volatility in the price of domestic natural gas, its primary raw material.

The company’s Donaldsonville complex consists of two melamine production plants, two ammonia production plants, one urea production plant and a deepwater port terminal on the Mississippi River. These facilities have an annual capacity to produce approximately 1 million tons of ammonia, with 534,000 tons of such capacity attributable to the No. 2 ammonia plant, and 578,000 tons of urea synthesis. A majority of the urea synthesis production used to produce 396,000 tons of prilled urea was shut down in January 2003.

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