Production of bitumen and heavy oil in Alberta faces a constraint unrelated to problems receiving the most attention.
The usual worries are water and energy supplies, rising royalty rates, and air-emission regulations.
But specialists at the Oil Sands and Heavy Oil Conference in Calgary July 15-17 said a bigger problem might be sulfur.
A strong global market that now prices sulfur at a robust $800/tonne will cycle into "extreme oversupply," according to Bill Kennedy, retired from Shell Canada Ltd.
"It's only a matter of when," he said.
His reasoning: After a period of strong growth, demand for sulfur is leveling. But supply is zooming from bitumen upgraders in northern Alberta, refineries responding to gasoline and diesel desulfurization regulations in the US and Europe, and large sour-gas projects in China, Kazakhstan, and the Middle East.
Kennedy said he expects sulfur supply to double in the next 5-10 years, creating "a market meltdown and transportation gridlock."
In a sulfur-market collapse, said Kennedy, Albertaalong with other high-cost producers like Russia and Kazakhstanwill be unable to sell the byproduct.
Storing sulfur will be necessary. But acquiring permits to build sulfur-storage facilities, called blocks, is time-consuming and likely to remain so in Alberta. Other options, such as hydrogen-sulfide injection or burial, are limited or lack approval.
In Alberta, noted Doug Houston of Kinder Morgan Devco USA, most sulfur storage facilities are in central and southern regions. Transportation connections to them from upgraders in the north are poor.
Producers and processors unable to dispose of or store sulfur will have to curtail operations.
Kennedy said the inability to handle byproduct sulfur could shut down not just upgraders in Alberta but also gas processing plants in the province and refineries in the US with limited sulfur storage.
Response to the possible sulfur crunch by oil and gas companies has been limited, Kennedy said.
Gerard d'Aquin of Con-Sul Inc. urged companies to develop new storage strategies and new markets for sulfur, now used mostly in fertilizer and chemicals.
"The funding is there to do something," he said. "You've got to think about it now. You've got to be market-makers."
(Online July 18, 2008; author's e-mail: email@example.com)