New fuel may allow Agrium plant to run at full throttle

Agrium U.S. Inc. hopes to switch its Kenai fertilizer plant’s feedstock from natural gas to coal, a move that might allow the plant to eventually return to its full production rate of 2 million tons per year of ammonia and urea fertilizer.

The plant is now producing at half capacity due to gas shortages.

If the project moves ahead it will still take several years to make the change, and operations at the plant may still have to be shut down if additional supplies of natural gas can’t be contracted, said Agrium’s Alaska manager, Bill Boycott, in a Nov. 16 briefing.

Agrium announced Nov. 16 it is considering installation of a coal gasifier at its Kenai fertilizer plant. If such a facility is built, along with a related power plant, it would approximately double the physical size of the Agrium plant in Nikiski, north of Kenai, Boycott said at the briefing.

The company’s study is independent of a U.S. Department of Energy study of coal gasification at the plant. Agrium has had a conceptual feasibility study of coal gasification underway for about six months and is encouraged by the results so far, Boycott said. It hopes to complete the study by April and then make a decision whether to proceed with the project, he said.

Boycott said the company is working with Alaska coal producer Usibelli Mine Inc., Kansas-based engineering firm Black & Veatch, and Uhde, a German engineering company.

The gasification plant could be completed by 2011. The timetable is aggressive because of deadlines in the recently enacted federal energy bill for grants and loans to aid coal gasification projects, Boycott said

Meanwhile, the DOE has contracted with Science Application International Corp. for a $490,000 study of a gasification plant located at the Agrium facility. The DOE study will proceed independently of Agrium’s effort and will also look at feasibility of using carbon dioxide that will be produced in the gasification process for enhanced oil recovery projects in nearby Cook Inlet oil fields. In such a project, the carbon dioxide would be injected into the oil wells to force more oil to the surface.

Teams working on both studies are expected to meet in early December to coordinate the work, Agrium spokeswoman Lisa Parker said.

Boycott said the conceptual feasibility study will consider a base case of 4 million tons of coal consumed yearly in two coal gasifiers, with a 350-megawatt power plant built adjacent to the gasifier complex. The gasifier and fertilizer plant would use 100 megawatts, which would leave 250 megawatts to be sold into the regional electric grid, he said.

Steve Denton, vice president for Usibelli Mine, said his company is working with Agrium in an analysis of coal supply options. Usibelli operates a mine in Healy, in Interior Alaska, and coal could initially be transported to the Agrium plant by rail and barge from the existing mine, Denton said.

The best option, however, is for coal to be supplied from undeveloped coal deposits at Beluga, on the west side of Cook Inlet 30 miles from the Agrium plant.

Coal leases at Beluga are held by two groups, Placer Dome U.S. and the Bass-Hunt group. Plans for a coal mine at Beluga have been made and permits have been secured, but neither leaseholder has been able to secure commitments from customers to proceed with mine development.

By coincidence, the power available for sale to the grid from the project could come when the proposed Pebble copper-gold mine will be in its initial phases of startup. Pebble will require 275 megawatts of power supply. Homer Electric Association is working with Northern Dynasty, the company developing Pebble, on a plan to provide power from the Kenai Peninsula by way of a submarine cable across lower Cook Inlet.

Agrium has a troubled history with its plant at Kenai. The facility was built by Union Oil of California in 1969 as a way of commercializing large Cook Inlet gas resources, which at the time had no markets. Unocal expanded the plant in 1975 and sold it to Agrium in 2000.

In 2002 Agrium began experiencing shortfalls in gas delivered by Unocal under a long-term supply contract that was part of the sale agreement. Litigation over the long-term contract resulted and a settlement agreement ultimately resulted in Unocal paying Agrium $35 million in compensation for reduced sales because of the supply shortage.

The settlement also provided for a termination of the long-term contract on Oct. 31, 2005. Last January, Agrium announced that it would close the plant if it was unable to secure additional gas supplies at a price it could afford. The company also issued requests for proposals from Cook Inlet gas producers for supplies beyond Oct. 31.

Neither Agrium nor Unocal has disclosed the price of gas in the long-term contract, but independent sources have determined it at $1.20 per thousand cubic feet (mcf) - a figure that Agrium has not disputed. In its request for new gas supply, Agrium said it would be willing to pay up to $3 per mcf.

The company was able to secure additional commitments of gas from several local producers at an undisclosed price, but Boycott said the contracts are short-term and will expire next November. Agrium is now working on securing additional commitments for gas, but if those cannot be obtained the plant will have to be shut down while the company works on its conversion to coal as a source of feedstock, Boycott said.

12/04/2016 - 5:43pm