Market Prospects for Sulphur Recovered from the Oilsands

1
Market Prospects for Sulphur Recovered from the
Oilsands 
CHOA Meeting Calgary , AB April 12th, 2006

• PentaSul Inc.

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FERTILIZER NUTRIENTS - NPKS
N Urea Ammonia
K
POTASH
P
- P2O5 - PHOSPHATE - PRODUCTION REQUIRES SULPHUR
SULPHUR as NUTRIENT
S
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Sulphur - End Uses
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WORLD ELEMENTAL SULPHUR CONSUMPTION
Sulphur is the fuel for the production of
sulphuric acid
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PHOSPHATE CONSUMPTION (million tonnes P2O5)
million tonnes P2O5 million tonnes sulphur
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China and World Demand (000 tonnes)

• Year China Change World Change China
• 1996 874 tonnes() 36,058 tonnes ()
  of World
• 1997 1,119 245 (28) 37,297 1,239 (3.4)
  3
• 1998 1,565 446 (40) 37,886 589 (1.6)
  4
• 1999 1,947 382 (24) 38,555 669 (1.8)
  5
• 2000 2,740 793 (41) 39,121 566 (1.5)
  7
• 2001 3,558 818 (30) 38,836 (285)
  (-0.7) 9
• 2002 4,670 1,112(31) 41,710 2,580
  (6.6) 11
• 2003 5,658 988 (21) 43,245 1,535
  (3.7) 13
• 2004 7,505 1,847(33) 45,862
  2,617(6.1) 16
• 2005 9,086 1,581(21) 47,675 1,813 (3.9)
  19
• Estimate
• 2006 10,364 1,278(14) 49,589 1,914 (4.0)
  21

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China Sulphur Imports(million tonnes)
Actual 2005 8.3 million
Growth rates
23
22
22
36
7
11
9
6
5
Forecast prepared October 2005
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China Sets World Prices

• Delivered price to China has become the
  benchmark international price.
• Middle East and WC NA fob prices based on
  netbacks from cfr China.
• Decline since August 05 has been steep.
• December 05 Saudi price fell to 92 cfr and
  Canada to 94
• Further declines expected in Q1 2006

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World Sulphur Trade
Forecast
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WORLD SULPHUR TRADE - 2004
(million tonnes)

• EXPORTERS 2004
• Canada 8.3
• Middle East 6.3
• West Europe 1.9
• Japan/Korea 1.4
• Russia 4.3
• Kaz./Other FSU 1.0
• Poland 0.6
• USA 0.8
• L. America 1.4
• Others 0.4
• TOTAL 26.4

• IMPORTERS 2004
• China 7.0
• Morocco 3.4
• USA 3.0
• India 2.1
• Brazil 2.0
• Tunisia 1.5
• S. Africa 0.6
• Jordan 0.6
• Australia 0.6
• Israel 0.6
• Others 5.0
• TOTAL 26.4

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Market Diversity Diminishes, Reliance on China
Increases for Vancouver Exports
Markets 2005 (000 tonnes)

• Markets 1998
• Shipments to 23 markets including
• Morocco
• Tunisia
• India
• Israel
• Mexico
• Senegal

2005, shipments to 10 markets with almost 70 to
China.
1998, largest market was Morocco which
represented 13 of sales.
13

• Imports decline in 2005 due to severe drought and
  financial crisis in agricultural sector.
• Competition is key factor for Canada.
• US (Gulf Coast), Aruba and other Caribbean
  sulphur will target Brazil.

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Sulphur Production SourcesWorld Market Summary
2004

million tonnes
0.8
1
FRASCH
MINED
ELEMENTAL
23.8
35
GAS
RECOVERED
ALL FORMS
21.4
32
OIL/Other
PYRITE
4.7
7
MINED
NON-ELEMENTAL
OTHER
16.3
25
SMELTERS
TOTAL 67 million tonnes
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• The main thrust of the investment is expected to
  come from China.
• China plans to spend 3 billion over the next
  two years on refinery units able to process
  cheaper, lower-quality Middle East crude.

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World Elemental Sulphur Production Demand
Forecast
000 tonnes S
Revised March 2006
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World Sulphur Balance Price
fob Vancouver US/tonne
Revised March 2006
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Netback Calculation (typical central AB gas
plant , rail connected with on site forming)

• Selling price in China (cfr) US85.00
• Ocean Freight Vancouver China (28.00)
• Vancouver (fob) 57.00
• Delivery and terminal costs (7.00)
• Rail Alberta plant to Vancouver (22.00)
• Forming, loading, administration (8.00)
• Value at rail connected gas plant US20.00
• (significantly less for plants with no forming,
  no rail)

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2004 Formed Sulphur Shipments
PLANT Volume Rail Form (million
tonnes) Waterton 0.45 CP
Slate/GX Caroline/Shantz 2.10 CP Roto C P
2.55 43 Ram River 0.80 CN
Slate E. Calgary 0.62 CN
GX/Slate Strachan 0.16 CN
AP Hanlan 0.27 CN AP Kaybob III 0.36 CN
GX/Slate Kaybob I/II 0.29 CN
AP Edson 0.13 CN Slate/GX CN 2.63
44 Pine River, BC 0.72 BCR/CN WP Ft.
Nelson 0.12 BCR/CN WP BCR/CN 0.84
13 TOTAL 6.0 million tonnes APAirPrill
WPWet Prill
Prince Rupert
Oilsands
Edmonton
Calgary
Vancouver
PentaSul
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Canada

• Sulphur supply from gas declining
• Sulphur supply from oilsands increasing
• Inventories at prime rail located sites are
  diminishing quickly
• China and US are key markets
• Infrastructure developments proceed at an
  extremely slow pace.

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Canada Sulphur Balance

• 2005 (million tonnes)
• Opening inventory 13.2
• Production 7.7
• Shipments 8.8
• - Canada 0.8
• - US 2.0
• - Offshore 6.0
• Closing inventory 12.1
• Inventory Additions 0.4
• Inventory - remelt (1.5)
• Net Stock change (1.1)

From gas and oil
Liquid by truck to Edmonton area
Liquid by rail to US Consumers
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Long Term Forecast of Western Canadian Sulphur
Production
Actual for 2002 2004 and estimate for 2005
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Bitumen and Synthetic Crude Composition
Bitumen
Synthetic Crude (SCO)
20 Distillate
20 Naptha
Upgrading
30 Gas Oil
50 Distillate
Sulphur production 6,000-7,000 tonnes per million
barrels of SCO produced
50 Resid
30 Gas Oil
9.50 API 4.7 Sulphur
330 API 0.13 Sulphur
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Sulphur Production from Oilsands Operations
Surface Mining Sulphur With upgraders
tonnes(2005) Syncrude 542,696 Suncor 300,323
Surface Mining No upgrader AOSP (Muskeg
Mine) Upgraders AOSP (Scotford) 367,257 Lloydmi
nster (Husky) 140,000 Regina SK (Co-op) 100,000
TOTAL 1,450,276
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Oil Sands Sulphur Logistics
Sulphur Logistics from Ft. McMurray to sulphur
markets are extremely difficult and costly. From
Edmonton the situation is much improved.
Domestic By truck from Ft. McMurray to
Edmonton Distance 550 km Volume 200,000
tonnes/year USA Truck to Lynton, transfer to
railcars Rail Shortlines Athabasca Northern
Railway (ANR) to Boyle, Lakeview and Waterways
railway (LWR) to Edmonton. Mainline CN and CP to
US destinations. Volume 550,000 tonnes/year
(Suncor AOSP combined) Offshore Distance to
tide water 1,800 km No forming, high costs
exceed fob value. Volume Currently no
shipments.
Ft. McMurray
Prince Rupert
Lynton
Edmonton
Lloydminster

Calgary
Regina
Shortlines, ANR and LWR
Mainlines, CN CP
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Sulphur Production and Marketing from Western
Canadian Oilsands
2004
2005
(000 tonnes)
(000 tonnes)
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Canada Sulphur Inventory
6.2
5.9
Total inventory end 2005 12.1 million tonnes
Syncrude block now exceeds gas plant inventory
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Possible long term solution for sulphur surplus?
Source Alberta Sulphur Research Ltd.
Source Alberta Sulphur Research Ltd.
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Western Canada Offshore Export Forecast

• Exports of formed sulphur to remain at 6.0 7.0
  million tonnes/year through 2010.
• Oilsands production to increase and investment in
  logistics assist marketing - compensate for
  reduced output from gas plants.
• As US sulphur market moves to surplus less
  Canadian sulphur will be exported overland.
• Inventory. 12 million tonnes of block inventory,
  of which 50 is readily available at rail
  connected sites.
• Investment New grassroots, replacement and
  expanded premium forming plants, improved
  logistics and the possibility of a new offshore
  terminal in Prince Rupert.

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Leading Sources of World Sulphur Supply
Production Cost US/tonne
SICILY 1900-1930
PYRITE 1930-1950
FRASCH 1950-1970
BYPRODUCT 1980-2000
WASTE 2000 -