Alaska Cook Inlet Natural Gas Competitiveness Alaska Joint Committee on Natural Gas Pipelines November 2001 Chris W. Tworek Vice President, Supply Management Agrium 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 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 The Company

Products 6% of N.A. Nitrogen Production Ammonia - 700,000 (net) tons Urea million tons Kenai Nitrogen Operations BCF/yr of Natural Gas Consumption Employees 300 Full-Time, Highly Skilled 30 Contractors on average

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 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 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 World Competitiveness * 20 M tons N - Ammonia, Urea, Nitrate, UAN solutions ( BCF/d natural gas consumption)

Ammonia takes 33.5 MMBTU per ton Gas is 75 – 90% of ammonia production cost WorldRecent Prices N.A. Feed (MMBTU/ton)33.5 Gas Price ($/MMBTU)x 1.00x 5.00 Variable Feed /ton$34$168 Cash Conversion /ton$25 Cash Production /ton$59  $  $193 Importance of Natural Gas

Source: CERA, BJ&A, Fertecon, Agrium Projections for 2001 (US$/MMBtu) Canada $4.50 FSU $1.30 Latin America $ Alaska $ Western Europe $3.60 China $2.50 India $4.50 Middle East $1.00 Indonesia/Malaysia $ United States $5.00 Trinidad $ World Industrial Gas Cost Comparison High-Cost Low-Cost Australia $

2001 vs 2000 (Crop Year) Nitrogen (million st/yr) Normal Production19 Production reductions(3) Increased imports3 Supply19 Market Demand18 Inventory Build1.0 The North America Balance

Trinidad 3,228 2,418 FSU 1,692 1,092 Latin America Asia Middle East 91 0 Major Ammonia Exporters to North America Source: USDC, Statistics Canada ‘000 Tons of NH / /01

Source: USDC, Statistics Canada ‘000 Tons of Urea Middle East 1, Asia Africa Trinidad W. Europe Latin America Major Urea Exporters to North America 1999/ /01

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 Affect of High N.A Gas Pricing

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 The Alaskan Situation 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 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 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 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