alaska cook inlet natural gas competitiveness alaska joint committee on natural gas pipelines...
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Alaska Cook InletNatural Gas CompetitivenessAlaska Joint Committee on Natural Gas PipelinesNovember 2001
Chris W. TworekVice President, Supply ManagementAgrium Inc.
The Company
Kenai Nitrogen Operations
World Competitiveness
The Alaskan Situation
Partners in Growth
Agenda
Agrium is One of World’s Largest Fertilizer Manufactures
14 Production Facilities
11 million tons (
Second Largest Ag. Retailer in N.A.
226 Outlets
Annual sales exceed US $2.0 Billion
The Company
World Scale FacilitiesHigh Efficient / Low Cost ProducerStrategically Located Near Key MarketsTidewater Access to International Markets
Highly Skilled WorkforceMore Than 5000 Employees World Wide
Committed to Safety & The Environment
The Company
Products6% of N.A. Nitrogen Production
• Ammonia - 700,000 (net) tons
• Urea - 1.1 million tons
Kenai Nitrogen Operations
50-55 BCF/yr of Natural Gas Consumption
Employees 300 Full-Time, Highly Skilled 30 Contractors on average
Primary MarketsAmmonia – Pacific Rim
Urea – Mexico, South America, Taiwan and Korea
Competition FSU, South America, Trinidad and Pacific Rim
Many new plants built in last decade
World product prices tend to be capped by trapped gas economics
Kenai Nitrogen Operations
Community Investments
Large Local Employer• 300 Highly Skilled Employees
Donations & Sponsorships• Caring for The Kenai• United Way• Challenger Learning Center• Boys & Girls Club, etc.
Commitment to Safety & Environment
Kenai Nitrogen Operations
Economic Benefits – over 130 M$/yr
*Includes Royalties
Nitrogen is a World Traded CommodityEasiest way to monetize & transport gas reserves
• $15/t to 50/t ocean freight
Recent high N.A. gas prices made N.A. Nitrogen production uneconomic
N.A. Produces 14% of World’s Nitrogen*• Up to 50% of N production shut-in at peak• U.S. Nitrogen imports doubled• Gas producers lost sales for all industrial products
World Competitiveness
* 20 M tons N - Ammonia, Urea, Nitrate, UAN solutions (2.0 - 2.3 BCF/d natural gas consumption)
Ammonia takes 33.5 MMBTU per ton
Gas is 75 – 90% of ammonia production cost
World Recent Prices
N.A.
Feed (MMBTU/ton) 33.5 33.5
Gas Price ($/MMBTU) x 1.00 x 5.00
Variable Feed /ton $34 $168
Cash Conversion /ton $25 $25
Cash Production /ton $59 $100-190
$193
Importance of Natural Gas
Source: CERA, BJ&A, Fertecon, Agrium
Projections for 2001(US$/MMBtu)
Canada$4.50 FSU
$1.30
Latin America$0.60-1.50
Alaska$1.20-1.50
Western Europe$3.60
China$2.50
India$4.50
Middle East$1.00
Indonesia/Malaysia$1.00-1.50
United States$5.00
Trinidad$0.75-1.50
World Industrial Gas Cost Comparison
High-Cost Low-Cost
Australia$1.00-1.30
2001 vs 2000 (Crop Year)
Nitrogen(million st/yr)
Normal Production 19
Production reductions (3)
Increased imports 3
Supply 19
Market Demand 18
Inventory Build 1.0
The North America Balance
Trinidad
3,228
2,418
FSU
1,692
1,092
Latin America
311180
Asia
22623
Middle East
910
Major Ammonia Exporters to North America
Source: USDC, Statistics Canada
‘000 Tons of NH3
1999/00 2000/01
Source: USDC, Statistics Canada
‘000 Tons of Urea
Middle East
1,671
878
Asia
753
52
Africa
426
97
Trinidad
389297
280160
W. Europe
Latin America
15038
Major Urea Exporters to North America
1999/00 2000/01
Plant Shut DownsUp to 50% at Peak Gas Pricing
Loss of Market ShareImports almost doubled
$ 4-5 gas cannot compete against $1 gasOffshore competition won
Gas Producers lost sales• N was about 0.75 of 3-5 BCF/d industrial demand
destruction
• High prices were not sustained
Affect of High N.A. 2001 Gas Pricing
Cook Inlet Products are exported
Fertilizer and LNG compete globallyNew industries (e.g. gas to liquids) will also have to compete internationallyOur prices are based on international markets not lower 48
The Alaskan Situation
$0
$25
$50
$75
$100
$125
$150
$175
$200
$225
$250
$275
$300
Oct-93 Oct-94 Oct-95 Oct-96 Oct-97 Oct-98 Oct-99 Oct-00 Oct-01
Source: Green Markets, Blue Johnson
US$/ton NOLA
Black Sea
World Market
New Orleans
Jones Act restricts exports to lower 48
Act requires U.S. Flag vessels to move
products among U.S. ports
Cook Inlet Fertilizer is forced to go off-shore
No U.S. flag ammonia vessels left
Urea limited to 1-2 sea going barge
The Alaskan Situation
Expansion OpportunityBased On Cook Inlet Advantages:
• Close to Pacific Rim markets
• Good Business Climate & Skilled Workforce
• World Scale Plant – Needs to expand to stay competitive
Agrium uses 50-55 BCF/yr today• Expansion plans add up to 30 BCF/yr
• Current base supply needs long term extension
Partners in Growth
Expansion Benefits to AlaskaGrows Current Local Economic Contribution of $130 M annuallyIncreases Sales/ExportsExpands skilled employmentAllows Greater Community InvestmentIncreases Tax BaseEncourages Gas ExplorationOpens Up Other Industries to Export Markets
Must Be Based on CompetitivenessReliable and Internationally Competitive Supply of Gas
Partners in Growth
Some Possible SolutionsSpur from Alaska Gas Pipeline is long term advantageous solution
Cook Inlet has immediate additional gas potential
• Anchorage Economic Development Corp Report: 1-3 TCF to be found
• Coal Bed Methane: 8 – 250 TCF
• Escopeta: 5-18 TCF
Partners in Growth
Agrium willing to work with State and Producers to encourage development:
Pre-investment on appropriate risk/reward:• Pre-bought gas production
• Infrastructure investment (e.g. pipelines)
• Exploration and drilling partnerships
Exploration Royalty Relief
Ongoing royalties based on actual contracts or weighted average sales prices
Purchase of State Royalty Gas
North Slope Spur Line
Partners in Growth
Successful partnering will:
Continue Alaska’s development for all sectors• Building Cook Inlet strengthens base for mega
projects such as Alaska Pipeline
Contribute to Alaska’s export position
Increase Agrium’s annual $130 M plus contribution to local economy
In Closing…
November 2001