Dave's Energy

Friday, May 25, 2007

Sulfur, sulfur everywhere

A number of recent experiences have me thinking again about sulfur. More specifically, about how much sulfur we produce and whether we are headed toward an overabundance that could hamper oil production and gasoline refining. Typically, sulfur production is a good thing (as opposed to sulfur emissions, which are not a good thing). Sulfur is one of the most widely used industrial chemicals on earth. It is a key component in certain fertilizers and is used in many other applications. Increasing sulfur consumption is often thought of as an indicator of strong growth of an industrial economy. But the convergence of a few trends has me wondering if sulfur production may get too high to dispose of it all (or at a minimum, decrease its value so much that it becomes a liability).

The first trend is the increase of high-sulfur crude oils being produced in the world. The second trend is the significantly lower sulfur content standards for end-product fuels, specifically Ultra-Low-Sulfur-Diesel (ULSD). The third trend is the increasing production of Canadian Oil Sands bitumen and the sulfur produced from that activity, and the final trend is the increase in natural gas production from sour (high-sulfur) gas wells.

My first thought on the subject came on a trip to the Athabasca oil sands of Northern Alberta. Along the Athabasca River outside the city of Fort McMurray I took this photo of a gigantic pile of sulfur. Looks to be about the size of CAL's football stadium:

I asked where it would ultimately go but did not get any satisfactory answer…sort of a “we’re stockpiling it for now”. When I asked an executive at another major oil company where there sulfur goes, he merely replied that there is always a market for it, but he didn’t pay much attention to who the buyers were. The answer in Canada is that they export a lot of it to the U.S. The U.S. G.S. reports that of the roughly 4 million tons of sulfur and sulfuric acid imported into the U.S. each year, Canada supplies over 70% of it. The U.S. produces about 8 million tons per year and therefore uses a total of about 12 million tons per year with agricultural chemicals being the major user. The price of sulfur per ton has actually risen from about $12 in 2002 to $32 in 2004 and has trended back down to around $28 as of 2006.

Refiners have been upgrading to handle more high-sulfur crude oil inputs, which sell at an increasingly large discount to sweeter West Texas Intermediate. ULSD in the U.S. has now moved to a standard below 15 parts-per-million (PPM) from 500 PPM just a few years ago. With more coming in the front end and less going out the back, sulfur extraction will reach all-time highs at refineries and natural gas processing plants over the next few years. Maybe we won’t have any problem selling it into an expanding worldwide economy, but at the very least, price pressures should exist for a long time. My next stop is figuring out whether we will reach a point where the inability to dispose of sulfur could be a hindrance to refinery operations.

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