New hope for Agrium: fertilizer plant considers new technology using coal gasification to provide feedstock for industrial use; other potential energy benefits for Southcentral region.

• Author: Liles, Patricia

Even as Agrium U.S. Inc. continues with plans to shut down production of fertilizer at its Nikiski plant on the Kenai Peninsula, the company is researching whether the tight supply of Cook Inlet natural gas can be replaced with a coal-gasification project.

Agrium and its partners in the "Blue Sky" coal-gasification study, Healy-based Usibelli Coal Mine and engineering firms Black & Veatch and Uhde, anticipate completing the first phase of research later this spring. The companies will decide then whether to continue with its investigation, launching a second phase of study that would include engineering, permitting and securing joint venture partners for the multi-million-dollar project, according to Lisa Parker, Agrium spokeswoman.

"I can say it is an exciting project, something we do hope to take to the next phase," Parker said in early March. "We have a few things to knock out before we make a decision whether to advance."

So far, the company and its partners have spent about 15 months researching the possibility of replacing natural gas, used as a feedstock to produce urea and ammonia fertilizers that Agrium ships to customers throughout North and South America.

ALTERNATIVES

Agrium is strongly considering the alternative feedstock resource, because the supply of natural gas produced in Cook Inlet is steadily declining and demand is outpacing resources replaced by exploration. Already operating at 50 percent of its capacity, the Agrium plant in Nikiski is facing a Nov. 1 shutdown if additional gas supply is not identified.

"At this point, we don't have any additional contracts," Parker said. "We are working very hard to secure additional gas contracts to keep the plant operational. If we succeed, it will probably be like the contracts we signed last year, a year-to-year type of contract."

The company planned for a late fall shutdown in 2005, but was able to secure additional gas supplies in order to keep the plant producing through the winter.

DEMAND EXCEEDS SUPPLY

Waiting for gas prospectors to find a big discovery in Cook Inlet isn't a key part of the company's game plan for its Alaska plant. Parker noted that three Cook Inlet exploration wells were drilled last year, all coming up dry.

"Cook Inlet has reached the point where demand is exceeding supply. It's going to be an issue for years to come, unless additional fields are brought online," she said.

Instead of processing conventional natural gas, Agrium is considering use of local...