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