With the merger of two industry leaders in early January, Potash Corp. and Agrium, Alaska could see the re-opening of its North Kenai fertilizer facility, the new Alaska manager told Petroleum News Jan 23.
“A long-term natural gas supply in Cook Inlet is crucial to re-opening the facility,” Fred Werth said in the interview. “Gas price is our biggest challenge,” natural gas feedstock being the highest cost component in the manufacturing process.
The former Agrium facility employed 400 well-paid Alaskans when in full operation. It closed in 2007, when the Cook Inlet gas fields were in significant decline and the facility was unable to secure enough supply to operate. The inlet gas industry has since experienced a resurgence of gas exploration and production.
What Canada-based Nutrien, which trades as NTR on the Toronto and New York stock exchanges, offers natural gas producers in the Cook Inlet basin is a stable, long-term gas contract. Although the price Nutrien can justify would be under current market value, which is currently high compared to other markets, it will not be subject to the fluctuations of consumer demand and thus allow producers to make long-term development plans, Werth said.
Starting as manager of the former Agrium facility in June, he has lived in a home between Nikiski and Stirling for 35 years, 21 with Agrium. When the facility closed 11 years ago he went to the North Slope to work for BP, followed by Gazprom in the Soviet Union.
“I’ve worked all over the world, but my time off is spent in Alaska,” he said. “This is my home.”
Agrium’s North Kenai facility had been the second largest producer of ammonia and urea in the United States, most of which was sold overseas to South Korea, Mexico and Taiwan.
Urea popular in developing countries
“The greatest advantage the merger was that it brought together Potash Corp. and Agrium’s marketing and production strengths, making products more readily available across North America,” Werth said, noting the merged company trades all over the world.
The Alaska facility, consisting of two utility, two ammonia and two urea plants, “is strategically located in North Kenai on a deepwater port to distribute to the Pacific Rim,” he said.
Unocal, which sold the North Kenai facility to Agrium in 2000 as it was divesting all its inlet oil and gas assets, “picked the location with distribution to the Pacific Rim in mind, including the western coast of North America and Asia,” Werth said.
Potash and urea ammonia are used in caring for crops. Potash adds potassium, while urea ammonia supplies nitrogen.
The fastest developing markets for urea are Southeast Asia and East Asia, chiefly China, Latin America, Turkey and Russia.
Urea is the most popular form of solid nitrogen fertilizer, particularly in the developing regions of the world. Currently, the Southwest Asian region along with China consumes more than 55 percent of the urea produced worldwide.
“They don’t need any special equipment to put urea on their fields, so it really appeals to Asian farmers - they can put it on with a gunny sack and a coffee can,” Werth said.
Liquid nitrogen, which the North Kenai Nutrien facility would also produce, is primarily used in North America, as it is sprayed on. Before U.S. farmers used nitrogen, their average yield was 100 bushels an acre for corn; today production is 250 bushels per acre, Werth said.
Majority control of NA’s potash biz
The merger of Saskatoon-based Potash Corp. and Calgary’s Agrium required U.S. regulatory approval because Nutrien would control the majority of North America’s potash capacity as well as a large farm retail business. That approval came at the end of December; the merger closed the first week of January.
“This final clearance marks a significant milestone in bringing two industry leaders together,” said Chuck Magro, president and chief executive officer of Agrium, who now heads up Nutrien. “Given our extensive integration planning work, we expect to move quickly upon closing to begin delivering on the many strategic benefits and synergy potential of this combination.”
Potash Corp. was the world’s largest crop nutrient company and played an integral role in global food production as the largest producer, by capacity, of potash and one of the largest producers of nitrogen and phosphate.
Agrium was a major global producer and distributor of agricultural products, services and solutions, producing nitrogen, potash and phosphate fertilizers. The company supplied key products and services directly to growers, including crop nutrients, crop protection, seed and agronomic and application services.
Agrium brought to the merger its retail distribution, which had an unmatched network of approximately 1,500 facilities and more than 3,300 crop consultants who provide advice and products to its grower customers to help them increase their yields and returns on hundreds of different crops.
With a focus on sustainability that carries over to Nutrien’s philosophy, the company strove to improve the communities in which it operated through safety, education, environmental improvement and new technologies such as the development of precision agriculture and controlled release nutrient products.
Favorable Alaska tax law
If Cook Inlet gas producers can meet Nutrien’s gas supply and price needs for the North Kenai facility, a 2016 Alaska law should also help the operation, although in a much smaller way as former Agrium spokespeople have said natural gas feedstock represents 80-90 percent of the cost of producing fertilizer.
House Bill 100 grants credits against corporate income tax for an in-state facility that manufactures ammonia or urea from natural gas produced from state oil and gas leases.
The bill clearly targeted the potential re-opening of Agrium’s mothballed fertilizer facility on the Kenai Peninsula, which could provide a significant economic boost for the region.
Agrium executives said at the time that rehabilitating the plant for a restart would cost about $275 million; and that a restart would depend on the long-term availability of Cook Inlet basin gas, as well as on the commodity’s price.
Werth did not provide such details but he did emphasize the need for a long-term, affordable natural gas contract as crucial to re-opening the facility.
