Alaska Cook Inlet
Natural Gas
Competitiveness
Alaska Joint Committee on Natural Gas Pipelines
November 2001
Chris W. Tworek
Vice President, Supply Management
Agrium Inc.
Agenda
The Company
Kenai Nitrogen Operations
World Competitiveness
The Alaskan Situation
Partners in Growth
The Company
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
$2.0 Billion
(
Retail
22%
Nitrogen
48%
Phosphate
5%
Potash
20%
Sulphate
5%
The Company
World Scale Facilities
High Efficient / Low Cost Producer
Strategically Located Near Key Markets
Tidewater Access to International Markets
Highly Skilled Workforce
More Than 5000 Employees World Wide
Committed to Safety & The Environment
Kenai Nitrogen Operations
Products
6% of N.A. Nitrogen
Production
• Ammonia - 700,000
(net) tons
• Urea - 1.1 million
tons
50-55 BCF/yr
of Natural Gas Consumption
Employees
300 Full-Time, Highly Skilled
30 Contractors on average
Kenai Nitrogen Operations
Primary Markets
Ammonia – Pacific Rim
Urea – Mexico, South America, Taiwan and
Korea
Competition
FSU, South America, Trinidad and Pacific Rim
Many new plants built in last decade
World product prices tend to be capped by
trapped gas economics
Kenai Nitrogen Operations
Community
Investments
Economic Benefits
– over 130 M$/yr
Large Local Employer
• 300 Highly Skilled
Employees
Donations &
Sponsorships
•
•
•
•
Caring for The Kenai
United Way
Challenger Learning Center
Boys & Girls Club, etc.
Gas, Power
and Pipeline*
$70+
Other Local
Wages &
Spending
Benefits
$14
$25
Federal
Property Taxes
$18
Tax
$3
*Includes Royalties
Commitment to Safety &
Environment
World Competitiveness
Nitrogen is a World Traded Commodity
Easiest 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
* 20 M tons N - Ammonia, Urea, Nitrate, UAN solutions
(2.0 - 2.3 BCF/d natural gas consumption)
Importance of Natural Gas
Ammonia takes 33.5 MMBTU per ton
Gas is 75 – 90% of ammonia
production cost
World
Feed (MMBTU/ton)
Recent
Prices
N.A.
33.5
33.5
x 1.00
x 5.00
Variable Feed /ton
$34
$168
Cash Conversion /ton
$25
$25
Cash Production /ton
$59
Gas Price ($/MMBTU)
$100-190
$193
World Industrial Gas Cost Comparison
Projections for 2001
(US$/MMBtu)
Alaska
$1.20-1.50
Western Europe
$3.60
Canada
FSU
$4.50
$1.30
United States
$5.00
Middle East
$1.00
Trinidad
$0.75-1.50
China
$2.50
India
$4.50
Indonesia/Malaysia
$1.00-1.50
Latin America
$0.60-1.50
Australia
$1.00-1.30
High-Cost
Source: CERA, BJ&A, Fertecon, Agrium
Low-Cost
The North America Balance
2001 vs 2000
(Crop Year)
Normal Production
Production reductions
Increased imports
Supply
Market Demand
Inventory Build
Nitrogen
(million st/yr)
19
(3)
3
19
18
1.0
Major Ammonia Exporters to North America
‘000 Tons of NH3
1,692
3,228
1,092
2,418
FSU
0
91
Middle East
Trinidad
180 311
Latin America
1999/00
Source: USDC, Statistics Canada
2000/01
226
23
Asia
Major Urea Exporters to North America
‘000 Tons of Urea
1,671
160
280
878
753
W. Europe
297
389
426
97
Trinidad
38
Africa
150
Latin America
1999/00
Source: USDC, Statistics Canada
2000/01
52
Middle East
Asia
Affect of High N.A. 2001 Gas Pricing
Plant Shut Downs
Up to 50% at Peak Gas Pricing
Loss of Market Share
Imports almost doubled
$ 4-5 gas cannot compete against $1 gas
Offshore competition won
Gas Producers lost sales
• N was about 0.75 of 3-5 BCF/d industrial demand
destruction
• High prices were not sustained
The Alaskan Situation
Cook Inlet Products are exported
Fertilizer and LNG compete globally
New industries (e.g. gas to liquids) will also have
to compete internationally
Our prices are based on international markets
not lower 48
US$/ton
NOLA
$300
Black Sea
$275
$250
New Orleans
$225
$200
$175
$150
$125
$100
$75
World Market
$50
$25
$0
Oct-93
Oct-94
Oct-95
Oct-96
Source: Green Markets, Blue Johnson
Oct-97
Oct-98
Oct-99
Oct-00
Oct-01
The Alaskan Situation
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
Partners in Growth
Expansion Opportunity
Based 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 Alaska
Grows Current Local Economic Contribution
of $130 M annually
Increases Sales/Exports
Expands skilled employment
Allows Greater Community Investment
Increases Tax Base
Encourages Gas Exploration
Opens Up Other Industries to Export Markets
Must Be Based on Competitiveness
Reliable and Internationally Competitive
Supply of Gas
Partners in Growth
Some Possible Solutions
Spur 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
In Closing…
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
November 2001