UPDATE 2-Agrium to boost nitrogen capacity with Egypt plant

(Adds stock price, comments from company spokeswoman. Changes dateline from Toronto; in U.S. dollars unless noted)

WINNIPEG, Manitoba, May 1 (Reuters) - Agrium Inc. (AGU.TO) will boost its nitrogen capacity by 20 percent by 2010 by building a $1.2 billion plant in Damietta, Egypt, Canada's second-largest fertilizer producer said on Tuesday.

The new plant will give Agrium proximity to Europe and Asia, and is part of a push for the Calgary, Alberta-based company to become a bigger force in world markets, a spokeswoman said.

"The nice thing about Damietta ... is it can access Europe by means of the Mediterranean, or you can go through the Suez Canal and get to the Asian market or North America or wherever you need to be," Christine Gillespie said.

World nitrogen prices and demand have soared along with grain prices as the push to produce biofuels has added to already strong demand to grow more food.

"Every year the demand for nitrogen products grows, and the world needs two to three world-scale plants every year just to keep up with the growth in demand," Gillespie said.

Agrium will have a 60 percent stake in the Egyptian plant, which will comprise two ammonia and urea trains with combined capacity of 1.3 million tonnes of urea and 100,000 tonnes of net ammonia.

Agrium has a current nitrogen capacity of 6.4 million tonnes at its 10 existing plants in Canada, the United States and Argentina.

Agrium shares were down 70 Canadian cents at C$42.30 at the Toronto Stock Exchange on Tuesday.

Egyptian government-owned entities EChem and EGAS will hold a 24 percent interest in the joint venture, GASCO, a national operator of the gas distribution grid, will hold a 9 percent interest and Arab Petroleum Investment Corp. will hold the remaining 7 percent.

Work on the project should start this month. Most of it will be financed through non-recourse debt and the remainder by equity contributions from co-owners, Agrium said.

Agrium has been investigating since 2005 whether to build the plant, which it believes will have one of the lowest operating costs in the world, due in part to long-term gas contracts.

The company last built a new nitrogen plant in 2000 in Argentina.

($1=$1.11 Canadian)