April 27, 2007

By Russell Stigall

Frontiersman MAT-SU - The Willow to Port MacKenzie rail spur could get its start with a $300 million Alaska Railroad bond.

The Alaska House of Representatives recently passed legislation that will allow the Alaska Railroad to grant $2.9 billion in low-interest bonds to the ammonia and urea manufacturer Agrium, based in Nikiski. The bill was amended to add the Port Mac rail link.

If the Senate agrees with the House decision, Agrium will use the bonds to finance its Blue Sky coal-to-gas facility and the rail infrastructure to supply the facility's coal. Agrium will use the output syngas - similar to methane and natural gas - to replace dwindling Cook Inlet natural gas supplies.

The original bill did not include the Willow to Port Mac rail link. An amendment offered by Reps. Mike Chenault R-Nikiski, Bill Stoltze, R-Chugiak, and Les Gara, D-Anchorage, added $300 million to finance the link.

Since Port Mac's inception, the borough has worked to get a rail spur into the port, said Mark Van Dongen, director of Port MacKenzie.

“We see a rail line as a critical component of the long-term success of the port,” Van Dongen said.

Plans for the rail spur to Port Mac include a three-mile loop where the port can stockpile commodities, such as wood chips, sand and gravel, and large volumes of coal, Van Dongen said.

But Port Mac is not designed to compete with the Port of Anchorage, Van Dongen said. Anchorage offloads container ships, while Port Mac is being developed to export bulk natural resources.

As an example, Anchorage has 115 acres to stockpile and cannot store coal or gravel, Van Dongen said.

“Port Mac has 14 square miles,” he said. “We also have deeper water.”

However, the railroad stands to save millions of dollars in freight costs by taking the shorter route to Port Mac as opposed to the current ports of Anchorage, Seward and Whittier, according to a report prepared for the borough by Northern Economics Inc. Over the next three decades, the Railroad could save $257 million over going to the Port of Anchorage, $585 million over going to Whittier and nearly a $1 billion over going to Seward.

A Port Mac rail link would also open the interior of Alaska to new export opportunities, said Curt Menard, Mat-Su Borough Mayor and Alaska Railroad board member. Limestone deposits near Fairbanks, 1.6 billion tons worth, could be shipped by rail out of a deposit off the Elliott Highway north of Fairbanks.

Menard quoted Northern Economics' report that estimates that at least 3.5 million tons of Portland cement would be shipped from the mine site by rail to Port Mac for export to the Lower 48. This would provide the U.S. with 15 percent of its cement import requirements.

The push right now is Agrium's Blue Sky plant, which was the main part of the House bill, Menard said.

Agrium needs a steady supply of coal from the Usibelli coal mine near Healy - about 3 million metric tons per year - to feed its Blue Sky coal-to-gas plant.

“That is a 100 cars of coal every 18 hours for nine to 10 months a year,” Menard said.

With that much rail traffic, Menard said, safety becomes an issue.

“With the number of tourist trains and fuel trains from Fairbanks, if you had another 100 cars it is going to be a little tight if we have no other alternatives,” Menard said.

However, Port Mac's rail link does not rely completely on the success of Agrium's plans.

“Even if the Agrium plant does not go, the rail link would still make long-term sense,” Menard said.

Though the bill still has to pass through the Senate, Menard said he is not anticipating any major hurdles.

“But in the world of politics you never know,” he said. “It is a positive for the state, and we'll have to see how that plays out.”

The next step for the borough is to come up with the estimated $12 million for an environmental impact statement. The statement, required by the federal government, would take as much as two years to complete.

“If we get the money to do the environmental impact study then the sand in the hourglass starts going,” Menard said. “Until we have the finances for the EIS, we cannot move forward with exact routes.”

Even though 92 percent of the proposed spur route is on borough and state land, there will be impacts to private land popular winter trail systems closer to the Willow area, Menard said. How the borough will lessen this impact will be the topic of much discussion.

“We will try to accommodate major trails and such to mitigate the impacts of the link,” Menard said.

However, Menard said he doesn't want the difficulties associated with the spur to stop its progress.

“We have to have the courage to move forward,” Menard said. “When our forefathers built the railroad from Seward or came across the West, they didn't have the money or the amenities we have today. There are always some things that can get in the way, but we have to help the jobs, the economy and the tax base in our area.”

Agrium expects to complete the Blue Sky project by 2012. With construction started in 2009, the railroad link is expected to be finished to fit in with Agrium's timeline.

Contact Russell Stigall at 352-2267 or russell.stigall@frontiersman.com