Gas costs push fertilizer firms to idle N American plants

Knoxville, Tn (Platts)--14Dec2005

The arrival of cold weather and the associated rise in natural gas prices
continued to take an increasingly heavy toll on fertilizer manufacturers
Wednesday, with two more plants being shuttered until gas costs moderate.

     Calgary-based Agrium said Wednesday it has idled its Fort Saskatchewan
plant in Alberta and plans to shut down operations at its Borger plant in the
Texas Panhandle during the next week.

     An Agrium spokesman said the plants are closing to "ensure we don't build
too much inventory" with gas at current prices; gas comprises about 80% of the
cost of producing ammonia-based fertilizer. The Texas plant can use up to 16.6
Bcf/year of gas, while the Fort Saskatchewan plant consumes about 15 Bcf/year
at full capacity.

     The spokesman said the company will take the opportunity to perform some
maintenance at the two facilities during the shutdowns, "although it makes it
more difficult to fix things when it's cold out." Agrium has no firm plans for
re-starting the plants, he said.

     Terra Industries recently announced that it was suspending production at
its Woodward, Oklahoma, facility, and said it would not resume production "in
the near term due to high natural gas costs which have not been offset by
increases in nitrogen products and methanol selling prices, the seasonal lull
in nitrogen fertilizer demand and uncertainty over how much nitrogen
fertilizer is likely to be used in 2006."

     Terra President and CEO Michael Bennett said that "continuing high
natural gas costs make it imprudent to build nitrogen product inventories that
are not covered by firm sales orders." 

     Terra said it would performance maintenance and equipment updates in the
meantime at the plant to make it more efficient when it does reopen; the
facility can consume an estimated 16.6 Bcf/year.

     Although the company originally said it might be able restart the plant
in the second half of December, "gas prices are not cooperating," a spokesman
said Wednesday. "We will return the plant to service when market conditions
return to a better balance with gas prices and [our] product prices."

     The spokesman said Terra was "doing everything we can to try to encourage
more exploration" of gas reserves in order to reduce energy prices, including
active support for a House bill that would open up drilling along the Outer
Continental Shelf.

     "We're in a pretty rough situation right now," a spokeswoman for The
Fertilizer Institute said Wednesday. "We're basically importing about 45% of
[our] nitrogen into the US. Everyone is sort of trying to hang on and do what
they can."

     Most of the imported fertilizer is coming from Trinidad, whose cheap gas
supplies and proximity to the US make it attractive for manufacturing, she
said.

     The spokeswoman added that the increased reliance on fertilizer imports
could begin to strain the industry domestically. "It will be interesting to
see how the spring unfolds," she said. "The outstanding question is whether
the transportation and storage infrastructure can handle those imports."

     For more information, take a trial to Platts Petrochemical Report at
http://petrochemicalreport.platts.com.

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