Word has come from Calgary that Agrium will put a 3 billion dollar greenfield project in the U.S. on hold. The news comes as executives from Agrium weigh the potential risks in such a large nitrogen venture. The facility would have operated at a production capacity of 1.8 million tonnes annually.
At the same time, a 160,000 tonne expansion project has also been red-lighted as the company seeks to mitigate the risk of nitrogen production by first attracting a partner to share the costs, and then secure a long-term natural gas contract at favorable margins. Without a partner, a $3 billion project is a lot to shoulder, but North American natural gas is a greater concern.
Nitrogen demand is a year-over certainty. What is uncertain is the future of natural gas in the United Sates. Nitrogen production skidded to a near halt duiring the 1990's as U.S. natgas priced itself right out of producers margins, forcing producers to rely on volitile imports for feedstock.
Debate over exports is starting to heat up, and public opinion seems to sway toward domestic utilization. Opponents of natgas exports fear domestic nattie would become tied to global pricing factors, elevating prices here at home. But with a U.S. economy only recently beginning to find its economic feet under itself, LNG export dollars are attractive to legislators.
1.8 million tonnes at one facility is an ambitious project -- so ambitious, in fact, that even an ag giant like Agrium hesitates to proceed alone. If Agrium can negotiate a favorable offtake rate for natural gas as a feedstock, experts believe they may consider moving ahead without a partner. But we are talking about a huge greenfield project that would undoubtedly take up to three years to complete and -- ag giant or not -- Agrium may find it very difficult to negotiate a natural gas supply deal before the plant is even built.