Canadian energy company Agrium Inc has been awarded over $38 million in damages by an arbitration over reduced natural gas supplies

Agrium Inc. has been awarded $38.6 million US in damages by an arbitration panel which also ruled Union Oil Co. of California must supply more natural gas to an Alaskan nitrogen plant owned by the Canadian fertilizer producer.

The Calgary-based company said yesterday it was pleased by the arbitrator’s decision, which will clear the way for it to increase production and extend the life of its Kenai plant.

The plant, which ships its output to Australia, Chile, Mexico and Southeast Asia, has been operating at reduced capacity due to a shortage of natural gas.

Agrium bought the plant from Unocal in September 2000, in a $250-million deal that included a long-term gas supply contract worth 155 million cubic feet per day, conditional upon adequate reserves.

The Canadian company launched legal action last year, claiming the U.S. oil and gas producer had unilaterally reduced gas deliveries to the nitrogen plant in violation of their agreement.

Agrium subsequently took a $140-million-US charge against earnings due to the impact of the gas shortage.

Natural gas is a key ingredient in the products produced at the Kenai plant.

The Kenai plant accounts for about 25% of Agrium’s total nitrogen production capacity and 15% of its total fertilizer capacity.

“The life of the plant could be extended through to June of 2007, assuming Unocal meets its contractual obligations as determined by the panel,” said Mike Wilson, Agrium’s president and CEO.

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