Alaska Digest

Posted: Thursday, December 16, 2004

Without more gas, Nikiski plant will close

KENAI - Agrium's Nikiski nitrogen plant will close by the end of next year without a new supply of gas, company president Mike Wilson said.

The warning comes with a favorable settlement of a gas-supply dispute with Unocal Corp. this week.

The Agrium plant is a cornerstone of the Kenai Peninsula Borough's economy, and closing the plant could be devastating to the area.

Gov. Frank Murkowski said the state was prepared to do what it can to help find a new source of inexpensive gas that would keep the plant operating. Closure could mean the loss of about 230 full-time jobs, as well as those of about 50 more contract employees, Murkowski said.

Agrium needs about 80 million cubic feet of gas per day to operate. Under the new gas supply agreement, Unocal will deliver about 101 million cubic feet per day. But the contract ends Oct. 31, 2005, meaning Agrium faces a limited time in which it must find a relatively inexpensive supply of gas somewhere, Murkowski said.

"We're facing a real time crunch," he said.

Given the current demand for, and commitments of, the existing Cook Inlet-area reserves, however, the prospects aren't good. Murkowski now is exploring what role the state should take in finding that supply.

Agrium and Unocal reach settlement

KENAI - Unocal and Agrium have reached an agreement in a lengthy legal dispute over natural gas sales by the oil giant to the fertilizer company.

Unocal Corp. announced Tuesday that all litigation between Union Oil of California, Agrium Inc. and Agrium U.S. Inc. would be dismissed "with prejudice," meaning all outstanding issues are resolved and claims ended.

The net result, Unocal said, is $25 million for Agrium and supplying gas under a new contract through Oct. 31, 2005.

According to Agrium, the settlement obliges Unocal to supply a total of 34 billion cubic feet of gas at the existing contract's price. That volume would permit Agrium to run its fertilizer plant at an average rate of 66 percent through October.

"This agreement delivers numerous important benefits for Agrium," said Agrium president Mike Wilson. "One key advantage is that it clearly defines firm gas supplies from Unocal in 2005, with improved remedies for nonperformance."

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