What are we going to do with all
that Sulphur?
Source: http://www.huskyenergy.ca/commodities/commodities_sulphur.asp
By: Ronnie Yu
To: Joseph Doucet
Date: February 28, 2005
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Table of Contents
Executive Summary ...................................................................................................................... 3
1.0
Introduction....................................................................................................................... 4
2.0
Primary Objective ............................................................................................................. 4
3.0
Oil Sands Background...................................................................................................... 5
4.0
Extracting sulphur from the Oil Sands ........................................................................... 6
5.0
Sulphur Market & Prices................................................................................................. 6
6.0
What can Produces do with all that Sulphur? ............................................................... 8
6.1 Blocking ........................................................................................................................ 8
6.2 Forming......................................................................................................................... 9
6.3 Retail in domestic and off-shore Markets ................................................................... 10
7.0
Alternative Products from Sulphur .............................................................................. 12
7.1 Phosphate Fertilizer..................................................................................................... 12
7.2 Sulphur Enhanced Asphalt Modifiers (SEAM) .......................................................... 13
7.3 Nickel-cobalt leaching ................................................................................................ 13
7.4 Heat Source ................................................................................................................. 14
7.5 Other potential products.............................................................................................. 14
8.0
Future problems with domestic Sulphur Market ........................................................ 15
9.0
China’s Growth and Canada’s Sulphur problems ...................................................... 15
10.0 Corporate strategies........................................................................................................ 16
11.0 Conclusion ....................................................................................................................... 17
12.0 Appendices....................................................................................................................... 18
12.1 Appendix 1: Natural Gas and Sulphur Price Forecast .............................................. 19
12.2 Appendix 2: Price Indicators .................................................................................... 20
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Executive Summary
The oil sands is a milestone in Canada’s history providing an abundance of petroleum to the
global market but the by-product Sulphur is becoming an important phenomenon to the financial
books of many corporations. So the question remains what to do with all that sulphur that is
being extracted from the production of oil and gas? Currently, the Sulphur ma rket is increasing
at a slow pace particularly over the last couple of years to a current price of $64 USD/MT FOB
Vancouver. In order for organizations to be profitable, logistical costs, long-term contracts and
planning need to be assessed or result in losses as some companies are currently experiencing.
Organizations have a number of options such as storing sulphur by means of blocking or forming
the element into small, solid pastilles where it can be retailed to domestic markets such as the
United States (Tampa Bay, Idaho and North Carolina for production of phosphate fertilizers) or
to international markets such as China and Africa. Companies like Shell Canada, a leader in the
sulphur market, have devised a number of methods to earn an annual profit. Their strategy was
to penetrate the Chinese market in 2001 whereby it is now one of the largest exporters of Sulphur.
Second, Shell has implemented a number of alternative sulphur products such as fertilizer,
enhanced asphalt, concrete and other viable products that utilize the by-product. Companies are
beginning to realize that action must be taken now to mitigate future losses and to fully utilize
current markets in order to stay competitive.
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1.0
Introduction
We live in a world where there is a relentless need for energy but for that energy there are costs
attributed to it. Sulphur is a by-product from the production of marketable oil & gas and is a
growing concern for many petroleum companies. Thus far, it is suggested that no other oil & gas
company, other than Shell Canada Ltd is generating a positive return from their sulphur retail.1
So the question remains what should companies do with all that sulphur? Organizations have a
number of options from storing to retailing to the introduction of marketable products; however,
it is difficult to determine an ideal method as different companies will have different strategies
that will be later discussed in this study. Currently, the sulphur market is a growing market with
exports with China, Africa, India and other countries around the globe. The potential is there,
companies need to seize it!
2.0
Primary Objective
The oil sands in Alberta are one form of oil reserves that can be extracted and refined into
marketable oil; sulphur is the end by-product from this process and is becoming a major issue for
petroleum corporations.
With marginal profit/loss, petroleum companies need alternative
solutions to combat this burden. The primary objective of this research project is to explore the
various options organizations have to store or sell this by-product and alternative products that
can be produced. A summary of each of these alternatives will be presented and a suggested
course of action for a few companies will be assessed.
1
As per Peter Zissos at Shell Canada on February 23, 2005
-4-
3.0
Oil Sands Background
Alberta’s oil sands are one of the province’s crowning achievements in
the exploration of oil reserves. It helps to secure North America’s energy
future with nearly 28.3 billion cubic metres (178 million barrels) of
reserves. 2 The oil sands contain a vast quantity of sand, bitumen, clay
and water. Bitumen is the key ingredient to produc ing light, sweet crude
Source: Alberta Department of Energy
oil that companies such as Syncrude, Shell Canada, Suncor and Imperial
Oil are producing. The oil sands can be found in a number of areas but the three distinct areas
are the Athabasca, Peace River and Cold Lake regions accounting for nearly “50 per cent of
Canada's total crude oil output, and 10 per cent of North American production. ” 3 The quality of
the oil from the oil sands is not nearly as high quality as Saudi Arabia’s oil. Saudi oil is sweet
and low in sulphur content, which enables Saudi Arabia to produce oil at a much lower cost. In
the past, the oil sands were not a feasible investment for investors because of the cost to mine,
extract, upgrade and logistics that were required for the lower grade of oil. However, with the
rise in prices of “NYMEX Light Sweet Crude”, currently ranging around $48 USD/barrel, it
would suggest that there is profit to be made. 4
2
Canada’s Oil Sands – Opportunities and Challenges to 2015 retrieved on February 10, 2005
http://www.energy.gov.ab.ca/100.asp retrieved on February 10, 2005
4
http://www.nymex.com/jsp/markets/lsco_pre_agree.jsp retrieved on February 12, 2005
3
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4.0
Extracting sulphur from the Oil Sands
Bitumen is the oil that comes from the oil sands; a molasses- like substance, with a mixture of
carbon (83.2%), hydrogen (10.4%), oxygen (0.94%), nitrogen (0.36%) and sulphur (4.8%). 5
Unlike conventional crude, bitumen requires additional upgrading where sand and water is
removed and transformed into a synthetic crude oil before it can be refined into the ir desired
product. For instance, the Syncrude plant at Fort McMurray, Alberta, undergoes a number of
processes before producing their marketable oil and extracting the sulphur. Mining two tonnes
of oil sands makes up nearly one barrel of oil. 6 This is transported via pipeline as slurry from
mining to extraction. An alternative is to use trucks weighing nearly two fully- loaded Boeing
747s. The oil sands are initially washed down to remove sand and water in a froth tank and sent
to the upgrader where the oil, sulphur and nitrogen and other elements are separated creating
Syncrude Sweet Blend. The sulphur is one of the end products of this process and is an issue in
a number of organizations. Costs to store, remove and sell this element have profited some
producers compared to those who have to pay remove to it. 7
5.0
Sulphur Market & Prices
“Canada is currently ranked second in world sulphur production behind the United States.”8 The
sulphur market is a mature market with growth from 1998 to 2005 which has been seen with
prices as low as $18USD/LT to $65USD/LT (LT stands for long tonne which is a UK
5
http://collections.ic.gc.ca/oil/faq.htm retrieved on February 9, 2005
http://www.energy.gov.ab.ca/100.asp retrieved on February 19, 2005
7
As per –Peter Read Syncrude tour with BUEC 560 on February 18, 2005
8
http://www.nrcan.gc.ca/mms/cmy/content/2000/58.pdf retrieved on February 22, 2005
6
-6-
measurement, ST stands for short tonne which is a US Measurement. 1LT = 1.12 ST). Note that
the stated prices are for FOB Vancouver which means it is the landed price for Vancouver.
Sulphur FOB Vancouver Price Trend
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
20 03
04
(Q
20 1)
04
(Q
20 2)
04
(Q
20 3)
04
(Q
4)
$US/LT
30.22
44.96
54.99
36.28
34.75
24.59
33.74
38.14
18.29
29.38
59.81
60.00
67.00
65.00
60.00
Sulphur FOB Vancouver
($US/LT)
Years
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004(Q1)
2004(Q2)
2004(Q3)
2004(Q4)
Years
Source: http://collection.nlc-bnc.ca/100/201/300/cdn_natural_gas_focus/2004/cngf200404.pdf
In 1993, sulphur prices were relatively cheap followed by a short increase
and a downturn for most of the latter half of the 1990s. It wasn’t until 2003 that prices began to
increase to $60-67 USD and has been steady since. This incline over the last decade is due to an
increase in demand as offshore countries are utilizing elemental sulphur for alternative products
such as phosphate fertilizer and asphalt.9 Using a conservative 2.5% growth per annum and the
continuation of China’s growth, it can be assumed that sulphur prices will continue to increase to
$70 FOB Vancouver for at least another 3 to 5 years assuming China continues to import sulphur.
China is currently fourth in the world as a sulphur producer. 10 The Canadian Natural Gas Focus
(Appendix 1), April 2004 edition, speculated that sulphur prices will drop from $64 USD in 2005
to $49 USD over the next decade; however, in light of the above reasoning and discussions with
a number of analysts, sulphur prices should continue a steady incline.
9
As per Suncor Energy on February 12, 2005
www.nrcan.gc.ca/mms/cmy/content/2003/58.pdf retrieved on February 20, 2005
10
-7-
6.0
What can Produces do with all that Sulphur?
6.1
Blocking
Many oil producers are battling a
dilemma with low sulphur prices
(marginal
return
due
to
high
logistical costs) and the uncertainty
of the market.
Some companies
have resorted to blocking, a method
Source: http://www.huskyenergy.ca/about/downloads/Sulphur.pdf
to store the sulphur in large quantities as seen at Syncrude in Ft. McMurray. Blocking can be
done in two ways, above ground or in-situ. Above ground consist of solidifying the liquid
sulphur into blocks ranging from 10-20 meters high and hundreds of meters wide on a piece of
land. This is accomplished using aluminium to fortify the perimeter of the block and liquid
sulphur is subsequently poured into the block in a red, hot molten state creating layers of sulphur.
After eight hours, the sulphur turns into a sold yellow state, de-gasified and inert. This storage
approach is very successful if producers have available land. Syncrude has one of the largest
sulphur blocks (5.2 million metric tones). By using this form of storage, Syncrude benefits the
market as it keeps the supply off the marketplace and reduces price volatility. Having the ability
to block is an added advantage because it gives producers the option to either sell the sulphur or
to store it once prices begin to decrease. Storage costs can range around $5 to $10/tonne. 11
11
http://www.syncrude.com/syn_library/health_safety95/waste.htm#deal on February 15, 2005,
As per Laura Gallant at Syncrude via emails,
http://www.enitecnologie.it/eni_en/tpoint/articoli/FT_upstreampoilgas/LongTermStorage3_2004.pdf on February 15,
2005
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Another alternative that is currently being reviewed is in-situ blocking or dumping H2 S into
depleted reservoirs. The new Heartland Upgrader plant that is currently being constructed in
Strathcona County is reviewing such a method as well as Alberta Sulphur Research Limited
(ASRL). By injecting the H2 S gas into a formation, the existing water will absorb the H2 S and
neutralize the gas. This method would be more cost effective and would eliminate the 0.01% to
0.08% possibility of sulphur emissions being released into the atmosphere. 12 It is theoretically
more environmentally friendly; however, long term effects to the ground have yet to be
determined.
Although there are a number of positive advantages to blocking, there are also number of
environmental impacts such as the spread of sulphur and the impact it has on its surroundings.
H2 S and SO2 are two key hazards that can impact the general public during or after the
solidification process or ecological events that may weaken the integrity of the blocks causing
the pH levels in the ground to decrease and the affecting runoff water. 13
6.2
Forming
Forming is a method to solidify sulphur into small, low-dust pastilles. This is accomplished by
transporting the liquid sulphur to the forming facility where the process undergoes one of two
ways, slating or prilling. Slating is where liquid sulphur is poured onto conveyor belts and
partially immersed in water and eventually hardens as it is dropped onto another conveyor and
broken into various pieces. The second is utilizing large prilling towers where liquid sulphur is
12
As per Russ Veroba from the Stratford Upgrader Plant on February 16, 2005,
http://www.hatch.ca/Sustainable_Development/Articles/CALGARY_BPS.pdf on February 15, 2005
13
http://www.enitecnologie.it/eni_en/tpoint/articoli/FT_upstreampoilgas/LongTermStorage3_2004.pdf
-9-
sprayed from the top of the tower and the droplets solidify as they fall to the bottom. 14 Different
producers form sulphur in a number of ways, but the above process is a simplified version. The
premium form of solid sulphur is rotoform that Shell Canada pioneered. The advantage of this
kind of solidification is that it allows for consistent burn rates, very durable with curved edges,
easy storage, handling and processing.
This form of sulphur improves the handling by
eliminating the likelihood of dust or breakage that can get into the environment and also reduce
potential product loss. This form also contains nearly 99.8%+ of sulphur and a density of 1120 –
1200 Kg/M3. 15 Rotoform is highly used when transporting to off-shore markets compared to
liquid form in the domestic market. 16
Forming is an alternative solution for petroleum
companies who do not have the storage capacity to house their sulphur and have to retail to
domestic or off-shore markets.
6.3
Retail in domestic and off-shore Markets
One of the biggest challenges for
sulphur producers such as Suncor is
logistic costs. Ft. McMurray is not
an easily accessible location and as a
result, producers in this region
would have to truck the sulphur to
Lynton and subsequently load onto
Source: http://www.huskyenergy.ca/about/downloads/Sulphur.pdf
rail bound for Vancouver where it would later be shipped to their destination such as Asia and
14
https://ds.wcb.ab.ca/WCB.RateManual.WebServer/IndustryDescription.aspx?ID=6501
http://www.shell.ca/code/products/exploration/sulphur/sulphur_product.html
16
As per Dru Thompson at Shell Canada on February 16, 2005
15
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Africa. Currently, Suncor does not have the storage capacity to block and would have to retail
their sulphur supply to the domestic market, particularly to Tampa Bay and Galveston, the
central location for fertilizer in the US. The logistics cost is estimated to be about $70/MT (FOB
Vancouver), market price is about $65/MT, thus Suncor is taking a loss but is currently in the
process of reviewing their strategy and determining the best course of action. FOB Vancouver
stands for landed price in Vancouver and if you want to purchase from Alberta, the logistics cost
to get to Vancouver would be backed out and hence the spot price (Appendix 2). 17
The cost for Syncrude to transport sulphur from Ft. McMurray to Vancouver also ranges from
$70-$72/MT (FOB Vancouver). 18 It is also dependent on the form of the sulphur as it can be in a
liquid state where the cost would increase to maintain a level of heat compared to forming where
it would be easier to transport via regular rail units. Syncrude’s current sulphur strategy is
blocking due to their remote location and high logistical costs to send to market.
Shell Canada exports molten sulphur domestically in North America and solid sulphur abroad
particularly to China. Unlike Syncrude’s distance from the market, Shell has a number of
locations in central and southern Alberta. For example in any given day at Shell’s Scotford Plant
in Edmonton, bitumen is sent down via pipeline from Ft. McMurray and the sulphur is produced
by processing natural gas containing hydrogen sulphide (sour gas). The sulphur is then either
sent via railway or via truck. Railway companies such as Sultran Ltd. are more cost effective
and can carry nearly 112 car units at any given time from Edmonton to Vancouver. There are a
number of costs associated with this form of transportation such as handling, loading and
17
18
As per Suncor Energy on February 12, 2005
As per Phil Lachambre at Syncrude on February 11, 2005
- 11 -
inspecting costs. The average cost is about $30-40USD / MT. 19 In comparison to Syncrude,
Shell has an accessibility advantage. With a given current price of $60-65/ MT, Shell is able to
earn an estimated profit of $30/MT.
7.0
Alternative Products from Sulphur
7.1
Phosphate Fertilizer
Sulphur is considered one of the key ingredients in the production of phosphate that in turn
creates fertilizer that are sold domestically and internationally. As previously mentioned, Suncor
retails their sulphur to Tampa, the core of the US’s phosphate production (75%). 20 The two
leading phosphate crop nutrients are diammonium phosphate (DAP) and Monoammonium
Phosphate (MAP). DAP accounts for the bulk of total production of phosphate in the US. It’s
designed for use on grain and with other mixtures on cane and horticulture compared to MAP
which is designed for use on grain and oilseed crops. These two particular phosphates are in
demand specifically in China, however, this was not the case over the last decade with an
imposed restriction on fertilizer import set forth by China but with entry into the WTO, it is
expected that by 2008, DAP exports to China will reach nearly 7- million tons. 21 In early 2003,
DAP prices traded up to $178/ton fob Tampa, the highest since October 1999 and it is expected
to continue to rise as the demand for phosphate increases. 22
19
As per Russ Veroba from the Stratford Upgrader Plant on February 16, 2005,
http://www.floridaphosphatefacts.com/faq.htm on February 20, 2005
21
http://www.sptimes.com/2002/03/03/Business/Breaking_down_barrier.shtml
22
http://www.fmb -group.co.uk/samples/Phos08.pdf on February 20, 2005
20
- 12 -
Syncrude is another company that sells some of their sulphur for fertilizer but on site to Marsulex
Inc. Marsulex would retrieve the sulphur generated from the new coker, and turn it into
ammonium sulphate fertilizer and market it throughout North America like DAP and MAP.
7.2
Sulphur Enhanced Asphalt Modifiers (SEAM)
An area of growth for sulphur is sulphur enhanced asphalt modifiers (SEAM) which is used for
improved road strength. SEAM is a patented stabilizer Shell Canada created, designed to reduce
pavement cracking, increase longevity of the road, and used in paving places where heavy loads
exceed the capability of ordinary pavements. It also has reduced odour and fume emissions
during processing of the paving mix which was the previous drawback from its predecessor
sulphur enhanced asphalt (SEA) that was developed in the 1970s. “This patented SEAM product
is anticipated to consume up to one million tonnes of sulphur per year”. 23
7.3
Nickel-cobalt leaching
Nickel and cobalt are base metals that are commonly found close to the surface and can be easily
extracted; however, some nickel and cobalt metals in low-magnesium laterites can only be
extracted using sulphuric acid leaching.
Due to the increase in demand for nickel that is
estimated at a growth of 5-6% annually, it is safe to assume that a growth in this commodity
could lead to future demand for sulphur surpluses. 24
23
Connock, L. (2004). Sulphur 2003 Conference Review
http://www.shell.ca/code/products/exploration/seam/dir_seam.html on February 18, 2005
24
Connock, L. (2004). Sulphur 2003 Conference Review
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7.4
Heat Source
A potential on-site improvement to sulphur reduction is to extract the hydrogen from H2 S that is
generated from the Claus Process (method of sulphur recovery from natural gas) and fit it into
the existing cycle to heat the boilers. This method would be economically feasible and the
process would not produce C02 but will produce S02 emissions. 25
It is currently unknown
whether refineries use this technology, however environmental and safety comes into play. In
the future, if this heat source does get perfected, energy surpluses could be sold back to the
power grid as an extension of the oil & gas business.
7.5
Other potential products
The list below are products that uses sulphur but not in large quantities compared to fertilizer or
asphalt but are alternatives for petroleum organizations to consider with the oversupply of the
by-product. 26
Blocking agent
Fertilizers
Livestock feed
Cement sealant
Film
Asphalt
Dye
Fungicides
Water purification
Fire extinguishing
Explosives
Food preservatives
Matches
Tires
Paints
Pigments
Plastics
Pulp and paper
Photography
Metallurgical processing
25
Detergents
Pharmaceuticals
Glue
Cellophane
Viscose rayon
Celluloid
Insecticides
Rodent repellents
Electroplating
Leather
Plate glass
Resins
Petroleum products
Soap
Soda
Solvents
Steel
Storage batteries
Textiles
Synthetic fibers
http://www.hatch.ca/Sustainable_Development/Articles/CALGARY_BPS.pdf on February 20, 2005
http://www.ggordonstewart.com/ggstewar/SulphurRecovery.html on February 20, 2005
26
http://www.shell.ca/code/products/exploration/sulphur/sulphur_use.html on February 20, 2005
- 14 -
8.0
Future problems with domestic Sulphur Market
The domestic market (North America) will more than likely see increased competition as the US
will be producing more sulphur internally and thus pushing Western Canadian sulphur out. This
is as evident as President George W. Bush proposed the Clear Skies Plan designed to amend the
Clean Air act where drastic reduc tion in sulphur dioxide from power plants with a cap of nearly
4.5 million tons by 2010. Other emissions such as Nitrogen Oxides, mercury and carbon dioxide
will also be capped. 27 In light of this information, it is prudent to assume that the by-product
sulphur will increase in the coming years and would somewhat reduce domestic sulphur retail to
Tampa and would affect organizations such as Suncor Energy.
9.0
China’s Growth and Canada’s Sulphur problems
The Chinese Fertilizer Market is highly profitable with nearly 80% of the population of 1.2
billion people still reliant on agriculture. 28 As the population continues to grow, the agriculture
and fertilizer industry will be just as important if not more. China also produces and consumes
phosphate fertilizer such as DAP and imports from Tampa; it is also probable with China’s
comparative advantage in cheap labour and vast resources, domestic production of DAP may
increase. If this is such, companies that exports to China will have an advantage compared to
companies that rely on domestic exports to the US. An indicator of such a possible occurrence
was in August 2003 when DAP exports declined by nearly 10%, mainly due to the decrease in
sales from China. 29
Although, there are numerous variables that may explain this decline,
27
http://cta.policy.net/fact/4pbook.pdf on February 20, 2005
http://www.stats.gov.cn/english/specialtopics/agcensus/t20020401_16292.htmon February 23, 2005
29
http://www.agrium.com/uploads/Navigator-October-2004_8pg_101304_FINAL.pdf on February 20, 2005
28
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sulphur demand has also increased with a record of 694,000 tonnes in September/2004. 30 Even
though China is the second largest producer of sulphuric acid it produces very little elemental
sulphur which is preferably used in the production of phosphates. 31
10.0 Corporate strategies
It is evident that Shell Canada is the leader in sulphur marketing; it utilizes forming technology
(rotoform) to export domestically and internationally (specifically to China), generating a profit
of $1 CDN per tonne in 2003 and selling nearly 10,700 tons/day. 32 It is also researching
alternatives uses for sulphur (ie. SEAM) and is followed by a number of other companies such as
Husky Energy.
Suncor and Syncrude for instance should expand their customer base
internatio nally, especially if China begins to produce more phosphate fertilizers and will require
an abundance of elemental sulphur. However, a cause for concern would be the rising ocean
freight costs (Sultran & Pacific Coast Terminals) that may hinder Asian fertilizer companies
from purchasing. With China’s growing phosphate production and the United States Clear Skies
Plan, domestic trade would decrease and Suncor for instance would have to either negotiate
long-term contracts or resort to international trade or align themselves with fertilizer or asphalt
companies. Regardless, they should continue to making a presence in the US market or market
to closer proximity users to reduce logistical costs.
30
http://www.pentasul.com/WMR%20October%202004.pdf on February 12, 2005
http://www.britishsulphur.com/Fertilizer%20Pages/Fertilizer_Brochures/ChineseFertilizerMarketMC91.pdf on
February 20, 2005
32
http://www.shell.ca/code/investor/ar03.pdf on February 20, 2005
31
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Syncrude cannot rely heavily on blocking as a means to mitigate sulphur but would either have
to perfect in-situ blocking (dumping H2 S into depleted reservoirs) once storage space diminishes
and/or transportation costs to other markets are too costly. Syncrude could also align more with
Marsulex, an onsite fertilizer company to produce an abundance of DAP to retail to offshore
markets (ie. India and Africa) or could research into alternative phosphate products.
11.0 Conclusion
The petroleum industry needs to start viewing sulphur as a primary product and action must be
taken to mitigate this growing oversupply. A company such as Suncor has determined that this
is an important matter where research, feasibility analysis, long-range planning and strategy
needs to be assessed to increase their bottom line. However, as previously mentioned, every
company have different strategies and this study has outlined the potential of various prospects to
storing capabilities, retail domestic and international opportunities and alternative product
introductions. Thus far, companies have viewed Shell Canada as the leader in this commodity
and should consider aligning or joining together to bring forth a greater good to the environment,
to the people and to the organization.
- 17 -
12.0 Appendices
- 18 -
12.1 Appendix 1: Natural Gas and Sulphur Price Forecast
Source:http://collection.nlc-bnc.ca/100/201/300/cdn_natural_gas_focus/2004/cngf200404.pdf
- 19 -
12.2 Appendix 2: Price Indicators
Source:http://www.pentasul.com/Nov04news.pdf
- 20 -