UPDATED: 02/27/2018 — see Change Log

OWNER: Nutrien, formerly Agrium
PROJECT: Idle plant, Ammonia-urea restart[memberful does_not_have_subscription=”1314-ammonia-industry-annual-subscription,1311-ammonia-industry-monthly-subscription,3338-ammonia-industry-30-day-subscription”]

EXISTING PLANT:
COST (reported): None given
JOB CREATION (reported): was 264 permanent when fully operational — see Job Openings [LINK]
START-UP DATE (reported): 1969, 1977

RESTART:
COST (reported): $200-$250 million
JOB CREATION (reported): 140 permanent — see Job Openings [LINK]
START-UP DATE (reported): None given

CAPACITY	USGS[1]	COMPANY[2]	PERMIT[3]	ADJUSTED[4]
Ammonia	280,000 mtpy	650,000 mtpy	[Membership required]	[Membership required]
Units: stpd, stpy, mtpd, mtpy = short/metric tons per day/year. [1] United States Geological Survey (USGS) Mineral Yearbook, Nitrogen gives capacity in metric tons per year, calculated as “engineering design capacity adjusted for 340 days per year of effective production capability,” rounded to three significant digits. Source: most recent year, Table 4: Domestic Producers of Ammonia, http://minerals.usgs.gov/minerals/pubs/commodity/nitrogen/. [2] Company press releases. [3] [Membership required]. Sources: linked below. [4] [Membership required]. See Methodology.

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SUMMARY STATUS: Planning Phase
Nutrien continues to evaluate whether to restart one of the two ammonia-urea lines at its export-oriented plant in Alaska. Originally, in 2013, Agrium had intended to make its investment decision by early 2015. The project received its first environmental permits in 2015 and continued permitting in 2016. It garnered state tax incentives in 2016 and 2017, with local incentives under discussion in 2018. Agrium’s decision to restart the plant was, however, totally dependent on new availability of natural gas from the nearby Cook Inlet, which has not yet materialized. In January 2018, Nutrien was formed through a “merger of equals” between Agrium and PotashCorp that was originally announced in September 2016.

EXISTING PLANT:
COST: $50 million in 1968, $200+ million in 1975
JOB CREATION: 264 permanent when fully operational — see Job Openings [LINK]
START-UP DATE: 1969, 1977

RESTART:
COST: $200-$250 million
JOB CREATION: 140 permanent — see Job Openings [LINK]
START-UP DATE: 2020 earliest estimate
LIKELIHOOD: Possible — see Methodology

CAPACITY	USGS[1]	COMPANY[2]	PERMIT[3]	ADJUSTED[4]
Ammonia	280,000 mtpy	650,000 mtpy GROSS 280,000 mtpy NET	2,160 stpd	IDLE: 1,390,714 mtpy RESTART: 745,025 mtpy GROSS 350,373 mtpy NET
Urea		640,000 mtpy	1,200 stpd	IDLE: 1,192,041 mtpy RESTART: 678,801 mtpy
Units: stpd, stpy, mtpd, mtpy = short/metric tons per day/year. [1] United States Geological Survey (USGS) Mineral Yearbook, Nitrogen gives capacity in metric tons per year, calculated as “engineering design capacity adjusted for 340 days per year of effective production capability,” rounded to three significant digits. Source: most recent year, Table 4: Domestic Producers of Ammonia, http://minerals.usgs.gov/minerals/pubs/commodity/nitrogen/. [2] Company press releases. [3] Alaska DEC, final Air Quality Construction Permit, January 2015, units converted from tons per hour (x24). Sources: linked below. [4] Adjusted Capacity is in metric tons per year assuming operations for 365 days per year; based on daily capacities provided to AIDEA in funding documents. Sources: linked below. See Methodology.

FEEDSTOCK: Natural gas
END PRODUCTS: Ammonia, Urea

RESEARCH NOTES:
In January 2018, Nutrien was formed through a “merger of equals” between Agrium and PotashCorp that was originally announced in September 2016.

Now that the merger is complete, the restart could move forward, but not in a hurry. In its first corporate reporting, the Q4 2017 earnings presentation, Nutrien described its first Capital Priority as “Continue to invest in growth opportunities – focus on Retail.” The Retail segment of the company is separate from its production segment, meaning that the Kenai restart is not one of Nutrien’s priorities.

Nonetheless, local press and the local plant manager continue to talk about the project:

The company formerly known as Agrium has a new name and a new Alaska manager, but plans to re-open its shuttered fertilizer plant in Nikiski still depend on corporate investment priorities and the always-looming question of whether it can get the natural gas it uses as raw material …

What the merger means for the prospects of the plant in Nikiski is still uncertain, according to Nutrien Government Affairs Manager Adam Diamond. Agrium’s leadership had put other plans — including whether to study a possible reopening of the Nikiski plant — on hold to focus on the complex process of the company’s $26 billion merger with Potash, he said …

Asked how the merger had changed the company’s investment priorities and view of a possible reopening of the Nikiski plant, Diamond said Nutrien’s management would review their post-merger prospects over the next six months.
Peninsula Clarion, Fertilizer plant restart still dependent upon gas supply, 01/29/2018

Agrium had been considering a restart of its Kenai plant, on the Nikinski Peninsula, since 2013 but the project stalled pending the development of new natural gas fields in the Cook Inlet, which will determine whether the plant can secure a sufficient, reliable feedstock supply. In its 3Q 2015 earnings call, in November 2015, Agrium had warned that there would be no “imminent” announcements.

“With Kenai, it’s all about natural gas. We are looking for [a] 10-year contract up there. And right now, there are some questions around the gas development in terms of whether the state is going to extend the incentives for drilling and production.”

While waiting for the natural gas feedstock to become available, the project’s other moving parts came slowly into alignment. A tax incentive bill, sometimes referred to as the Agrium bill, was passed by the Alaska House in 2015, passed by the Senate in April 2016, signed into law in September 2016, and went into effect in July 2017.

According to documents filed on behalf of Agrium to AIDEA in January 2014, the idle production units at Kenai include two ammonia-urea lines: Plants #1 and #2, with capacities of 1,950 stpd ammonia and 1,550 stpd urea, and Plants #4 and #5, with 2,250 stpd ammonia and 2,050 stpd urea. The complex has a total idle capacity of 4,200 stpd ammonia and 3,600 stpd urea.

For the Senate Finance Committee hearings in April 2016, the Alaska State Legislature published a raft of updated documents, including Agrium’s economic analysis of the Kenai project, and dozens of statements of support – and opposition – for the bill.

Agrium was originally only considering restarting the more modern line, plants #4 and #5, which began operations in 1977. In the latest documents, from April 2016, Agrium talks about possibly also restarting the original line, plants #1 and #2. (I assume Agrium does this primarily to illustrate the largest possible scale of economic benefits that would accrue to the state if it supported the project with tax incentives, and not because Agrium really plans to restart the older line.)

Agrium’s current plan is to restart just the newer train, employing 140 fulltime workers with an annual labor income of approximately $14 million.

The second train could start up at a later date, determined largely by the availability of natural gas. A two-train operation would employ 240 workers on a permanent, full-time basis. Annual labor income would increase to $24 million … Including direct, indirect and induced effects, at full production (two trains), Agrium’s Kenai operations could account for approximately 600 jobs and $50 million in annual labor income in Alaska.

The documents filed for the Senate committee hearing also give a more precise timeline than was previously available.

The path toward re-opening operations includes inspection, assessment, and renovation of the existing facility. Inspecting equipment and assessing operational readiness of the facility would take about a year … During this phase, Agrium is seeking to identify and potentially secure the natural gas supplies needed to feed the plant. Agrium expects to invest approximately $6 million in this phase.

Assuming plant rehabilitation is economical, and assuming an adequate supply of natural gas can be secured, Agrium would move into a 26-month renovation phase.

It is not clear whether Agrium has yet begun working to this schedule, but I now estimate the earliest start-up for the first ammonia-urea line would be roughly a year plus 26 months – or 2019 at the earliest.

It was October 2013 when Agrium first disclosed that it was evaluating whether to restart “at least one of the two production trains” at Kenai, and its investment decision was originally expected in late 2014 or early 2015, when it planned to present the project to the board for approval. Agrium estimated that it would cost $200 to $250 million to bring the single ammonia-urea train back into production.

The project started receiving its environmental permits in January 2015 and, in September 2016, received its draft water permit. However, the single greatest stumbling block Agrium faces in restarting Kenai has always been securing sufficient feedstock supply, from Cook Inlet natural gas.

At a minimum, the Kenai restart would require natural gas feedstock at a rate of 80 million cubic feet per day for five years at a “commercially reasonable” price. Despite lots of activity in and around the Cook Inlet, a reliable supply has not yet been confirmed.

In March 2016, in a local news story about the state tax incentives, Agrium reps confirmed that “there’s been some positive developments in the Cook Inlet … [but] The company needs to be confident that there’s going to be a large enough supply for the plant as well as utilities and other uses. We don’t want to get put in a situation where there’s a supply issue again.” The Kenai plant manager described the status of the restart as follows:

“It’s not a slam dunk that this project is going to go … We originally planned to be up and running this year [2016], but the slow development of gas and the decline of commodity prices has made it much tougher for us, so we’ve had to look at other options, and continue to work to make it something that could compete against other internal projects within Agrium that the board would consider. At this point we’re not putting it forward to the board.”

The Kenai plant used to be the second largest ammonia plant in the US, with a capacity of 1,390,000 tons of ammonia per year. At its peak, the plant’s sales represented “7.3 percent of all Alaska exports.”

The original $50 million plant began operations in 1969 under the ownership of Collier Carbon and Chemical Corporation, a joint venture between feedstock supplier Union Oil Co of California (Unocal, now Chevron) and offtake purchaser Japan Gas-Chemical Co Ltd. The second ammonia-urea line started-up in 1977, at a cost of $200+ million.

In 1998, Unocal tried to sell its fertilizer assets but, when it couldn’t find a buyer, instead operated the Kenai plant as Alaska Nitrogen Products LLC, a wholly owned subsidiary.

In 2000, Agrium purchased Unocal’s plants at Kenai and Kennewick, where Agrium still upgrades ammonia to UAN and ammonium nitrate solution, as well as various distribution assets, for $398 million. Within two years, however, Agrium sued, “claiming that Unocal withheld critical information about natural gas reserves.”

After a few short-term supply agreements and payments to settle its grievances, Agrium closed Kenai in 2007-8 because of the long-term natural gas shortage. Ammonia production consumed 53 billion cubic feet in 2001, during the plant’s peak years, but feedstock supply had been constrained to 10 billion cubic feet by 2007. Agrium considered converting the plant to use coal as a feedstock, by adding coal gasification technology, but that didn’t happen. [/memberful]

View larger map with all ammonia plants.

ADDRESS: 47769 Kenai Spur Highway, Kenai, Alaska 99611, United States

WEBSITE: https://www.nutrien.com

REGULATORY SOURCES:

• USGS: Minerals Yearbook, Nitrogen [RECENT / ARCHIVE]
• Risk Management Plan: Right to Know Network: Agrium Kenai Nitrogen Operations [LINK]
• Alaska DEC: Air Permit documents [LINK], Final Permit to Construct, 2015 [PDF], draft water permit fact sheet (Pollutant Discharge Elimination System) [PDF]
• US Securities and Exchange Commission regulatory filings: EDGAR Search Results, AGRIUM INC CIK#: 0000943003 [LINK]
• Tax Incentive Legislation: Alaska State Legislature: DOCUMENTS FOR BILL HB 100 29TH LEGISLATURE [LINK]

NEWS SOURCES:

• 02/26/2018: Peninsula Clarion: Assembly to consider tax break targeted at fertilizer plant [LINK]
• 01/29/2018: Peninsula Clarion: Fertilizer plant restart still dependent upon gas supply [LINK]
• 01/28/2018: Petroleum News: Kenai plant re-opening? [LINK]
• 01/02/2018: Nutrien press release: Agrium and PotashCorp Merger Completed Forming Nutrien, a Leader in Global Agriculture [LINK]
• 01/2018: Nutrien Fact Book 2018 [PDF]
• 09/20/2016: Peninsula Clarion: Agrium seeking DEC permit to discharge from Nikiski plant [LINK]
• 09/13/2016: Alaska Journal of Commerce: Walker talks finances, LNG in Kenai [LINK]
• 09/12/2016: Agrium / PotashCorp merger presentation: Creation of a World-Class Integrated Global Supplier of Crop Inputs [PDF]
• 09/12/2016: Agrium press release: Agrium and PotashCorp to Combine in Merger of Equals to Create a World-Class Integrated Global Supplier of Crop Inputs [LINK]
• 06/29/2016: Alaska Journal: Constrained Inlet gas market remains a quandary [LINK]
• 04/20/2016: Peninsula Clarion: Agrium credit passes legislature [LINK]
• 03/26/2016: Peninsula Clarion: Agrium bill has senate resource committee hearing [LINK]
• 11/05/2015: Seeking Alpha earnings call transcript: Agrium (AGU) Charles V. Magro on Q3 2015 Results [LINK]
• 04/14/2015: Alaska Dispatch News: House OKs Agrium subsidy without checking 2014 financing application [LINK]
• 12/05/2014: Alaska Dispatch News: State releases draft of key permit for shuttered Kenai Peninsula fertilizer plant [LINK]
• 04/22/2014: Peninsula Clarion: Agrium nixed from tax credit bill [LINK]
• 01/14/2014: Alaska Industrial Development and Export Authority memorandum: Resolution No. G14-03 Authorizing Cost Reimbursement Agreement with Agrium U.S. Inc. regarding the restart of the Kenai Nitrogen Operation [PDF]
• 09/25/2007: Agrium press release: Agrium announces closure of Kenai nitrogen facility [LINK]
• 08/23/2006: Agrium press release: Agrium to Continue Operation of Kenai, Alaska Nitrogen Facility in 2007 [LINK]
• 07/14/2005: Agrium press release: Agrium to Continue Operation of Kenai, Alaska Nitrogen Facility [LINK]
• 04/01/2004: Alaksa Department of Natural Resources: Agrium report: The Economic Impact of Closing Agrium Kenai Nitrogen Operations [PDF]
• 09/29/2000: FTC press release: FTC Clears Agrium, Inc.’s Acquisition of Unocal [LINK]
• 04/16/1968: Fairbanks Daily News: Alaska Becoming 7th Ranking Oil State [LINK]