$25 million payroll sizeable part of Kenai economy
Because its jobs pay so well, the "multiplier" effect of Agrium Corp.’s ammonia and urea fertilizer plant in the Kenai Peninsula economy is extraordinarily high, says Jim Calvin, managing director of McDowell Group, a Juneau-based economic consulting firm.
A study of the economic impact of the Agrium plant on the regional economy was completed and released Oct. 23.
The plant employs 292 people, either Agrium workers or company contractors doing maintenance. The employees live in the community and their spending employs another 700 people locally, or almost 1,000 direct and indirect jobs, Calvin said.
Those jobs support about 2,150 people on the Kenai Peninsula, when families are included, Calvin said.
Agrium’s payroll of about $25 million per year creates an additional $25 million in pay indirectly, for an annual total of $50 million, through the local spending by employees of the plant.
This amounts to almost 9 percent of the Kenai Peninsula Borough wages and salaries paid in the Kenai borough, according to the study.
The plant also results in about $4 million in annual funds to the Kenai Peninsula Borough and its schools, according to the McDowell Group report. This comes through $2.4 million in property taxes paid by the plant itself, $212,700 in residential property taxes paid by Agrium’s employees, and $1.4 million the borough receives in additional state education funds because children of Agrium’s employees are in local schools.
Children of Agrium workers represent 3.3 percent of the students in schools on the peninsula.
Agrium also spends $90.5 million per year on goods and services provided to the plant, although about $80 million of this is for natural gas, according to Calvin.
Purchases were made from 118 businesses on the Kenai Peninsula and 129 firms in Anchorage, Wasilla and Palmer, the study said.
"Besides the gas producers, the suppliers include construction contractors, engineering and environmental service firms, utilities, retail and wholesale firms and other types of businesses," Calvin said.
It’s important to maintain "value-added" plants like Agrium’s, Calvin said in an Oct. 19 presentation to the Alaska Support Industry Alliance in Anchorage.
Agrium Corp. packs a big economic punch for the Kenai Peninsula economy, but rising natural gas prices and possible shortages of gas in Cook Inlet could threaten the plant’s viability.
The company operates a major nitrogen fertilizer plant at Nikiski, north of Kenai, and is one of the peninsula’s major employers. Agrium workers earn an average of $83,000 per year, more than three times the $25,000 yearly paid on average by other private employers on the peninsula, according to a new report by McDowell Group, a Juneau-based economic consulting firm.
"For good-paying jobs created by value-added manufacturing of raw resources, this is as good as it gets," said Jim Calvin, managing director of the McDowell Group. Directly and indirectly the plant creates 1,000 jobs on the peninsula, which support about 2,500 people, he said.
Calvin presented the study Oct. 24 to the Alaska Support Industry Alliance in Anchorage.
The problem Agrium faces is that natural gas is a vital raw material for the plant and rising prices for gas could make it difficult for the plant to compete in export markets, according to Mike Nugent, Agrium’s Alaska area manager.
Agrium sells its ammonia and urea fertilizer mostly in export markets where its competitors in south Asia, the Persian Gulf and Russia make fertilizer from cheaper gas.
Agrium now buys gas from Unocal Corp. for $1.60 per thousand cubic feet under a contract that expires in 2009. However, Enstar Natural Gas Co., the Southcentral gas utility, is now buying gas from Cook Inlet producers for $2.70 per thousand cubic feeet.
"If we had to pay that we couldn’t afford it," said Nugent. "Gas is our biggest cost. It’s our largest raw material requirement," he said.
The plant requires about 53 billion cubic feet of gas per year and is the third-largest user of gas in Southcentral Alaska.
The liquefied natural gas plant next door to Agrium’s plant in Nikiski uses about 80 million cubic feet per year, and the gas and electric utilities in Southcentral use about 60 million cubic feet per year.
Agrium’s contract price for gas was negotiated with Unocal when the company acquired the ammonia and fertilizer plant from Unocal in 1999, Nugent said.
After 2009 the price will be renegotiated, Nugent said.
If Agrium contracts for gas from other producers, or for additional supplies from Unocal even before 2009, the price may also be higher, Nugent said.
The liquefied natural gas plant is in a different position because its owners, ConocoPhillips Alaska Inc. and Marathon Oil Co., are also gas producers. Gas for the LNG plant comes from the North Kenai gas field owned by ConocoPhillips.
Agrium is in a dilemma, however, because the company recognizes there is a potential shortage of gas in Southcentral Alaska. There are only seven to nine years of gas left for all users in Southcentral unless additional discoveries are made, Nugent said.
To encourage the exploration needed to find more gas, higher prices will have to be paid, which Agrium may not be able to afford.
Approval of the Enstar price by the Regulatory Commission of Alaska, under which Enstar can buy gas for $2.70 per Mcf, has already stimulated new exploration for gas on the Kenai Peninsula, according to Mark Myers, director of the state Division of Oil and Gas.
Gas discoveries have already been made, he said.
Marathon and Unocal have found new gas reserves near Ninilchik and plan to begin construction of a pipeline next spring.
Nugent strongly supports new exploration in Cook Inlet and the Kenai Peninsula. "We’re really optimistic that new supplies will be found. A number of people are now interested in new exploration and development," he said.
But he hopes the producers of newly discovered gas will set a reasonable price for Agrium. "This plant cannot tolerate gas that is too expensive," he said.
The problem is shared with the producers, he pointed out, because if the price for new gas is too high and the plant closes, a large customer for gas will also disappear.
That will cause the gas surplus to appear again, bringing prices down. Meanwhile, the ammonia and fertilizer plant will be shut down and its jobs gone.
Unocal built the ammonia and urea fertilizer plant in 1968 because there were large gas discoveries on the Kenai Peninsula, but no market, Nugent said. Making fertilizer for export with "stranded" gas was a viable proposition. Unocal expanded the plant in 1977.
In 2001 the plant manufactured 1.4 million tons of ammonia and urea fertilizer. The Nikiski plant is the largest nitrogen fertilizer plant Agrium operates.
It represents 23 percent of the company’s fertilizer-making ca-pacity and 6 percent of total North American fertilizer-making capacity, according to Lisa Parker, Agrium’s public affairs manager.