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The calm before the storm

Hydrocarbon Engineering,

When one considers that the price for elemental sulfur has cycled from a high of US$ 800/t to zero in the last few years, the current state of affairs is relatively benign. The current price of sulfur is in the US$ 180 – 200/t range, and in the short term the market is perceived as fairly strong, with prices set to remain good for the next few years.

But looks can be deceiving. In the last several years, sulfur prices have gone through the roof before crashing to nothing. Many believe that the oil and gas sector has lost any sense of keeping up with the normal development of business, and has lost respect for elemental sulfur as a commodity.

Supply and demand

Most sulfur is generated at refineries. When crude oil goes through hydroprocessing (where it is exposed to hydrogen and a catalyst), a byproduct is acid gas, which is essentially hydrogen sulfide. Hydrogen sulfide is extremely poisonous, and must be rendered into harmless elemental form through a complex treatment known as Claus processing.

The Claus module has a thermal and a catalytic step. In the thermal process, hydrogen sulfide is heated to 850 °C in the presence of oxygen to produce liquid elemental sulfur and water. This captures approximately 70% of the sulfur. Most of the rest is captured by running the remaining hydrogen sulfide over activated alumina or titanium oxide catalysts in the presence of sulfur dioxide. The amount each refinery produces depends on various factors, including feed and output, but a 100 000 bpd plant with 500 ppm crude feedstock and a mixed production slate of fuels might produce approximately 10 tpd. In the US alone, refineries and gas plants produce over 22 000 tpd of sulfur.

According to ICIS, a UK based petrochemical data consultancy, approximately 45% of sulfur demand is in the industrial and mining sectors, where it is consumed as a chemical feedstock for manufacturing purposes, and for leaching ores. Common methods for the mining of nickel, copper and zinc are high pressure acid leaching (HPAL) and heap leaching, which require sulfuric acid to extract the ores and process their mineral value. While its growth has not recently been as strong as fertilisers’, the base metals market shows promise in the longer term for increased sulfur consumption. Currently, approximately 2 million tpy of incremental sulfur production is expected to come from nickel and copper projects in Australia (Ravensthorpe), Madagascar (Ambatovy), New Caledonia (Goro), Papua New Guinea (Ramu Nickel) and Chile (Noracid).

Another 46% is consumed in agriculture, where sulfuric acid is used to produce phosphoric acid, a building block for fertiliser. The drought in the US has pushed up crop future prices, meaning that there is a short term trend toward using more fertiliser. Longer term demand for fertiliser should increase as China and other parts of Asia increase their middle class and improve their diet. Estimates state that deliveries for fertiliser production will grow by 2 – 3%/y.

Trouble ahead

Thanks to a wide variety of variables (including the recent global recession that cut fuel consumption in North America), worldwide production of sulfur has been sufficiently low to allow refineries and other oil and gas facilities to sell the unwanted byproduct, but that benign state is expected to change dramatically in the next few years.

While the impending glut is still a few years away, US refiners have more immediate sulfur related worries because the EPA is advancing sulfur reductions under its existing regulatory authority. Refiners have already reduced sulfur in gasoline by 90% (from 300 ppm to 30 ppm) in 2004 – 2007. Those efforts will continue, leading to emissions reductions as more of the vehicle fleet turns over. Despite this reality, EPA is still looking for refiners to reduce gasoline sulfur to 10 ppm over the 2016 – 2017 time frame. EPA’s upcoming Tier 3 gasoline sulfur reductions alone will be extremely costly. Depending on the approach the agency takes, the regulations could cost up to US$ 17 billion up front and as much US$ 13 billion/y. Another way to put it is it will raise refiners’ costs by approximately 6 – 25 ¢/gal. In their most stringent form, the regulations could lead to up to seven refinery closures.

The future

In the short term, the sulfur market is expected to remain sufficiently buoyant to prevent the kind of meltdown that in 2008 left some refiners with few sulfur disposal options. But this period of relative calm is likely to be replaced by volatile supply and price gyrations that could disrupt the market unless changes are made to how the commodity is treated.

Nobody knows what the future may hold, but if the EPA continues down its current course, US refiners are undoubtedly going to have a harder time competing in a global marketplace. The downstream industry has a number of great opportunities to become more competitive by taking advantage of lower cost crude supplies from Canada and US shale reserves. However, such opportunities could be squandered if the country proceeds down the current regulatory path. Many within the industry feel that Congress needs to pass a law that requires an objective analysis of the true costs of these regulations and looks at how to address many of the conflicts various regulations are starting to create.

Written by Gordon Cope.

The full version of this article can be read in the October 2012 issue of Hydrocarbon Engineering. Subscribers can sign in here.

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