Short-term sulphur oversupply on the horizon

By Kasia Patel
Published: Monday, 22 July 2013

Supply growing is faster than demand, driven by oil and gas markets; balance depends on fertiliser demand growth


Global sulphur production has been steadily increasing since 2009 to an estimated 70m tonnes in 2012 according to figures from the US Geological Survey (USGS), and a substantial amount of additional sulphur capacity has been planned over the course of the next two years.

Rather than growing as a response to demand, however, supply has been rising in line with increased activity in the production of oil and gas. Bearing in mind the recent dip in sulphur demand due to a drop in phosphate rock consumption, this steady growth may lead the industry into a sulphur oversupply in the near future, unless demand for the mineral can keep up.



SUPPLY SECURITY

Sulphur is a naturally-occurring mineral and is the 13th most abundant element in the earth’s crust. It can be mined in its elemental form using the Frasch process as a method of extraction from underground deposits.

However, more common since the late 20th century is the production of elemental sulphur as a by-product of the oil and gas industry, as sulphur needs to be removed prior to refining or marketing, resulting in a higher quality and higher priced end product. Oil refiners need to comply with regulation regarding the level of sulphur in the end product, and the production and storage of sulphur waste must adhere to strict regulations, as the discharge of sulphur compounds into the atmosphere is severely restricted.

Sulphur can also be produced as a by-product of metal smelting, in sulphuric acid form, or it can be released as sulphur dioxide.

2012 world sulphur production is estimated at 70m tonnes by the USGS, a slight decrease from 70.5m in 2011, although on the whole production has been increasing at a steady pace for the last few years.

The latest figures from the USGS show that China leads production with 9.7m tonnes produced in 2012. This total was contributed to by 66 producers. Sinopec is the largest Chinese producer, followed by CNPC and other local refiners. Consumption of sulphur in China is expected to grow, however import requirements are declining and will continue to do so as China’s own sulphur capacity increases.

The second largest sulphur producer in 2012 was the US with a total of 9.05m tonnes, followed by Russia (7.3m tonnes); Canada (6.6m tonnes); Saudi Arabia (4.6m tonnes); Germany (3.7m tonnes) and Japan (3.2m tonnes).



US production

Total US shipments of sulphur and by-product sulphuric acid were valued at around $1.3bn. Production took place at 109 operations in the US.

Elemental sulphur production accounted for 87% of all sulphur produced at 8.4m tonnes, with the states of Louisiana and Texas accounting for 53% of domestic production. Recovery came from petroleum refineries (accounting for the highest tonnages), natural-gas processing plants and coking plants from 39 companies, according to USGS data. 59% of elemental sulphur produced was consumed domestically.

By-product sulphuric acid represented 7% of all sulphur produced with recovery from seven non-ferrous smelters from five companies. This accounted for 5% of domestic consumption.

The remaining 36% of sulphur consumed in the US was imported mainly from Canada, Mexico, Venezuela and India.



Additional capacity 2013-2014

The USGS anticipates that global sulphur production will continue to steadily increase provided another downturn in the economy does not limit investment in expected new operations.

According to figures from the International Fertilizer Industry Association (IFA), significant additional sulphur capacity is planned as a consequence of liquefied natural gas operations in the Middle East, and oil sands operations in Canada. 2013 and 2014 additional capacity is expected to come online from the following projects:

PetroChina/Chevron

Chevron operates the 1,969km2 natural gas area at Chuandongbei in the onshore Shichaun Basin.

The company has invested $6.4bn in a major development project in which it has a 49% stake. Two sour-gas processing plants with a 740m cubic feet per day capacity will enable the company to produce gas that meets customer specifications, natural gas liquids and elemental sulphur.

The project development will bring the company’s sulphur recovery capacity to 1.5m tpa. The first natural gas processing plant is expected to be mechanically complete by the end of 2013 and site preparation for the second plant began in 2012. The company plans to begin an exploration well in the area in Q3 2013.



Turkmengaz

The national gas company of Turkmenistan, Turkmengaz, is planning additional capacity at the South Yoloten gas field. The development will bring the company’s sulphur recovery capacity up to 750,000 tpa.

The $3.4bn contract for the engineering, procurement, construction and commissioning of the project was awarded to Petrofac. The project includes the building of a 10bn cubic metre per year (bcma) gas processing plant, infrastructure and pipelines for the 20 bcma development.

The South Yoloten field is the second largest globally, with over 700 tcf gas reserves, and is located 400km south east of Turkmenistan’s capital Ashgabat.

BP


The company is investing billions of dollars into the modernisation of its Whiting Refinery in Northwest Indiana, US.

The reconfiguration of its largest crude distillation unit will enable BP to process heavier crude, taking its processing capability from 20% today to 85% heavy crude by the end of this year, with the goal of becoming the premier refinery in North America.

Expectations are that the modernised refinery will come on-stream in the second half of 2013, and will bring BP’s sulphur recovery to a total of 480,000 tpa.



Indian Oil

With a current production capacity of 246,600 tpa, IndianOil has a number of oil projects planned in Paradip, India, which will bring the company’s sulphur recovery capacity to 335,000 tpa in 2013.

Gasco

The Abu Dhabi Gas Industries (GASCO) gas development projects plans to add additional onshore and offshore gas processing capacity at Habshan and Ruwais in Abu Dhabi.

Currently the Habshan gas complex produces approximately 4,500 tpd liquid sulphur as a by-product of acid gas processing, which is then delivered to GASCO Ruwais facilities for granulation and export. A new complex called Habshan 5 will be comprised of a gas processing facility, a natural gas liquids recovery unit, four sulphur recovery units and utilities, and offsite facilities.

The development will bring the company’s sulphur recovery capacity up to 3m tpa, expected in 2014. Transportaion of liquid sulphur from the Habshan plants will take place through electrically heated pipelines, storage of liquid sulphur, granulation, storage of granulated sulphur, and then by loading onto rail wagons. The project is under EPC phase of implementation.



ADNOC

The company is expanding its operations at the Shah sour gas field, located 230km south of Abu Dhabi and 70km south west of the Asab field. The project, with an estimated Capex of $10bn, includes the development of high-sulphur content reservoirs within the Shah field. Construction will involve several gas gathering systems, new gas and liquid pipelines, and processing trains.

Full field development of the project is expected to be completed and first field production scheduled to begin by 2014. The expansion will bring the company’s sulphur capacity to 3m tpa.

Saudi Aramco

The Manifa crude oil development, which began first phase operations three months ahead of schedule in April 2013, was designed to ultimately produce 900,000 bdp Arabian heavy crude oil, 90m scfd sour gas, and 65,000 bdp hydrocarbon condensate.

The $17bn project - which when finished will consist of 41km of causeways, 3km of bridges, 27 drilling islands, 13 offshore platforms, 15 onshore drill sites, water supply wells, injection facilities, multiple pipelines and a 420-megawatt heat and electricity plant - will bring the company’s total sulphur recovery capacity to 450,000 tpa.



MARKET DEMAND

General manager for Transfert FZCO, Robert Whelan, told IM that there is little surprise that the Middle East is primarily driving additional quantities considering the increased activity in oil and gas production.

“The general consensus is that supply is growing faster than demand as Abu Dhabi alone will increase its production in excess of 8m plus tonnes alone. Qatar will increase to 4m plus tonnes. Kuwait to 1.5m tonnes,” he said.

He added that: “KSA will also increase but will use much of the increased production to manufacture diammonium phosphate (DAP) for export.ÊTherefore the increased DAP for export will have a negative effect on sulphur demand as a feedstock in more traditional outlets.”

Although sulphur supply may be currently increasing due to other avenues apart from demand for its end uses, it still remains inextricably linked to the fertiliser market. Figures from the IFA indicate that 46% of sulphur demand comes from fertilisers, 40% of which are phosphoric acid-based fertilisers, with the remaining 6% accounting for other sulphur-based fertilisers. 45% of sulphur demand is driven by industrial sulphuric acid uses, and 9% of demand comes from other industries.

Fertiliser demand

Sulphur is primarily utilised in the production of sulphuric acid (H2SO4) the main use of which is phosphoric acid production. This is then in turn used for the manufacture of phosphate fertilisers and non-fertiliser phosphates, meaning that demand for sulphur is very closely linked to phosphate rock consumption.

Speaking to IM about the recent drop in phosphate rock consumption, Whelan said: “It has had a significant effect mainly due to the situation in India where last year many other non-DAP fertilisers were imported (NPK, NPs) in large volume as they were selling at a significant discount to DAP and could be purchased year round from China.”

Whelan added that in addition to the lower demand from India, the wet season was heavily delayed last year causing stocks not to be used.

“We will have to see after this season, as the rains have been plentiful, as to the net effect.Ê It is too early to tell if the DAP market fundamentals have changed or not,” he said.

One Chinese source confirmed to IM that: “Currently, as the phosphate fertiliser is excessive, the sulphur market is also fatigued and weak.”

The general feeling from producers is that with population growth, a rebound in fertiliser demand is inevitable. According to The Sulphur Institute (TSI), the rate of global population and calorie consumption growth will cause food demand to double by 2050, meaning an increase in fertiliser application will be needed to achieve food security.

“Meeting the expected demand for food requires strategies to slow the loss of farmland and create an environment where marginal soils can be more productive,” TSI said at the April 2013 Sulphur World Symposium in Beijing.

Increased urbanisation, industrialisation and the need for food production is intensifying pressure on the earth’s arable land mass.

“As the world’s population continues to soar there could be another 2.5bn people in the next 40 years, and more than 60% of the world’s population will be living in big cities within the next 15 years,” TSI said.

According to research from TSI, although government and non-governmental organisations have advocated the application of nitrogen (N), phosphorus (P) and potassium (K) based fertilisers, sulphur, which has become less abundant in soils, is also recognised for its importance to plant growth through balanced fertilisation.

Crop nutrients, including sulphur-based fertilisers, will need to be added to increase yields and improve crop quality, but sulphur application as a fertiliser is an immediate way to enhance food production and its protein content, TSI explained.

“Sulphur must now be deliberately applied to meet the growing demand for plant nutrition and to improve crop quality,” it added.

Whelan added that increasing populations in developing countries will be key to fertiliser demand.

“Our opinion is over time demand for all fertilisers will increase substantially as areas such as South East Asia, Indian Sub-Continent, Africa and Latin America are well ‘under-nourished’ compared to what is applied in North America and Europe per hector,” he said.

“The differential is enormous and over time these developing areas will catch up. How long this will take is in question,” Whelan added.



China’s sulphur deficiency

As the world’s most populated country, holding 1.3bn people or (19% of the world’s population), but with only 9% of the world’s arable land, China has to overcome the additional problem of soil nutrient deficiency, with over 44% of soils deficient in sulphur.

“The China situation is that the population is huge and grain production and fertiliser use is also huge, but the arable land is small. That is a serious challenge,” Donald Messick, vice president of agricultural programmes for TSI, told the Sulphur World Symposium in April.

According to data from TSI, 10.6m hectares (106km2) of land were found to be sulphur deficient. Further research was conducted by the organisation to determine the economics and value to cost ratio of applying sulphur as a fertiliser to nutrient deficient soils.

“We worked in 18 provinces on field trades and province testing. Our studies and trials showed an economic return of around $20-$25 return/dollar invested,” he added.

To educate the agricultural industry and enable farmers to gain a better understanding of where sulphur was needed, in 2008, TSI and the Chinese Ministry of Agriculture conducted a nationwide project examining sulphur as a component of the government’s Soil Testing and Fertiliser Recommendation programme.

A delegate attending the Sulphur World Symposium told IM: “I don’t think the function of sulphur to the plants/crops is recognised completely, especially some by peasants in China.”

“It is analysed that in most provinces of China, soil is seriously lacking in sulphur. Now the government has promised to take precedence to advocate the function of sulphur, thus an increase in sulphur-based fertiliser application is undoubted,” the source, who did not want to be named, added.

Increasing Chinese consumption

To improve fertiliser efficiency, another issue in China, TSI also examined the application of sulphur together with nitrogen and phosphorous, as well as the potential this type of application has to increase yields.

Although single super phosphate (SSP) fertilisers dominate the Chinese market, recent increased awareness of sulphur-based fertilisers is driving growth in this area.

“It’s a diverse system. You have many different sulphate fertilisers, but a lot are new and are just coming in to recognition. So the market share of sulphur fertilisers definitely has the potential to grow in the future,” Messick said.

“SSP dominates the industry but we’ve seen more diammonium phosphate (DAP), monoammonium phosphate (MAP), and we can expect to see a continued decline in SSP as sulphur use increases. Fertilisers containing other nutrients are also increasing, and things are getting more and more complex as you move into the sulphur business,” he added.

Sulphur production in China began in the late 1990s and early 2000s, and the use of sulphur to make compounds began to climb as awareness of the mineral grew, with China importing around 10-12m tonnes in recent years.

“In the market right now there is a need for another 2m tpa, and there is potential for this to grow to an additional 6m tpa,” Messick said. “We’re only going to see this market grow in the future.”

He added that increasing the use of sulphur fertilisers not only benefits the manufacturers, but benefits farmers, the agricultural community, human health and nutrition and the environment.

Whelan agrees that China will be the driving force behind demand considering in 2012 it imported in excess of 11m tonnes sulphur, and Chinese customs data shows that these figures have been increasing at least for the first part of 2013 (see figure 4). Although imports experienced a slight dip in 2011, data shows 2012 imports at 11.2m tonnes, while imports for January and February in 2013 were already higher than 2012 levels.

The regulation question

The successful growth of China’s sulphur industry partly depends on the route it chooses to take regarding regulation. Messick drew attention to the two very different methods of regulating fertiliser imports into the US and India, questioning which route China might take to regulate its own fertiliser industry.

“The regulatory environment needs to be dealt with. China has used fertilisers in the past which haven’t worked so they are choosing to regulate,” he said.

Regulation of fertilisers in India is extremely complex, Messick explained, while in the US the responsibility lies with the manufacturer to provide what has been agreed and ensure specifications are met.

“What will China do? We hope they will follow the example where the manufacturer is responsible, however they are looking at what other countries, such as India, are doing in terms of regulation,” he said.

“This is our last obstacle, to try and ensure the Chinese government (...) stays sensible to allow the industry to grow,” he added.

The fertiliser industry in China has come under increasing scrutiny because of doubts surrounding the effectiveness of fertiliser application.

This is due to a lack of balanced fertilisation and a heavy reliance on crop nutrition from nitrates which cannot be properly absorbed if there is not enough sulphur present in the soil.

“The nutrient deficiency has been caused by more food being grown and more fertiliser application, so nutrients are being increasingly taken out of the soil and not being replaced in the way they should be because there hasn’t been balanced fertilisation,” Messick explained.

The importance of metal leaching

The use of sulphuric acid in ore leaching is a growing industrial use for sulphur, used mainly in copper and nickel acid leaching, but also for uranium and zinc.

High pressure acid leach (HPAL) is the main method of nickel leaching, and a number of nickel leaching projects are expected to drive demand in this area.

These projects include the Ravensthorpe nickel operation in Australia, which needs 500,000 tpa sulphur at full capacity; The Ramu project in Papa New Guinea, which will require 350,000 tpa; the Goro nickel project in New Caledonia, which will need 460,000 tpa at full capacity; and the Ambatovy nickel proeject in Madagascar, which at full capacity will utilise 600,000 tpa sulphur.

PRICE TRENDS

According to data from the USGS, contract prices in Tampa, FL, began 2013 at around $220/tonne, decreasing to $170/tonne in May 2012. Although prices remained relatively stable throughout much of the year, in October the price dropped further to $160/tonne, with export prices at similar values.

The current spot price for sulphur (Canadian solid, spot, FOB Vancouver) is reported at $135-$160/tonne according to the IM database, (pp 57-59), while sulphur (FOB Middle East) stands around $145-$155/tonne.

“The market has been under tremendous pressure for the past two months. FOBs have been cut in half the 2nd quarter to levels well below $100/tonne,” Whelan told IM.

“Cargo from Canada is now reaching China at less than $95/tonne CFR and same from Middle East. One report was $85/tonne CFR from Vancouver, which would give an FOB net back of $65/tonne,” he said.

Another source indicated to IM that the database prices listed are similar to those on the Chinese market, and recent price decreases mean that in some Chinese provinces sulphur is being sold at RMB 900/tonne ($146/tonne*).

“There isn’t any sign to show that the price will increase, perhaps it will keep several months,” the source said.

Whelan added that although it difficult to predict whether prices will continue to fall over the course of 2013 due to the variety of factors affecting the price, “we feel one should be cautious about further significant market erosion”.

MARKET OUTLOOK

Despite the growth in fertiliser demand, figures from the IFA indicate that a sulphur oversupply is on the cards at least in the near future, as shown in Figure 3, and that until 2016 at least, production of sulphur from the oil and gas industry will outstrip demand.

Asked if we are already experiencing a sulphur oversupply, Whelan says that current producers disagree, while end users say that yes, we are already experiencing one. He is however more positive about the future, and hopeful that the demand from fertilisers will help create some balance.

“We are cautiously optimistic about the fertiliser market as a whole which should help sulphur recover somewhat,” he told IM.

As to whether an oversupply looms over the future of sulphur, this remains to be seen.

“As of now, we do not see where all the new Middle East production will land up. But it is too early to predict beyond 2014, which seems fairly balanced,” Whelan says.

*Conversions made July 2013


Sulphur uses

Other uses of sulphur include caprolactam, pigments, hydrofluoric acid, pulp and paper chemicals, sulphur fertilisers, petroleum refining, batteries, detergents, fungicides, carbon disulphide, pharmaceuticals, personal care products, cosmetics, leather tanning, rubber vulcanisation, plasticisers, dyestuffs, explosives, aramid fibers, construction materials, sugar manufacture, dehydrating agent in organic chemical and petrochemical processes, water treatment, and steel pickling.