The Marketing Opportunity of Sulfur, a Byproduct in the Oil and Gas Industry - Coursework Example

The Marketing opportunity of Sulphur, a Byproduct in the Oil and Gas industry CONTENTS LIST List of sections Page Executive Summary 3 Introduction 4 Evidence and Analysis 5 PEST Analysis 6 Customer Relationship Management 6 Current Status 7 Opportunities 9 Synergy 10 Conclusions 12 Recommendations 13 References 14 The Marketing opportunity of Sulphur, a Byproduct in the Oil and Gas industry      Executive Summary  Oil reserves of the world contain Hydrogen Sulphide (H2S) and Sulphur.  Removal of Sulphur in the oil refining process is mandatory in view of the environmental concerns on account of pollution and global warming. The sulphur recovered by the oil refineries has good marketing potential considering the steady supply which is linked to the refining of crude oil.  The increasing use of sulphur in various forms of its compounds in commercial and industrial establishments is the basis of the demand for sulphur compounds or products in the market place.  It is in this backdrop, we identify Sulphur as ‘a product with great potential’, offering excellent marketing opportunity, which is sustainable in the long run.  There is good scope for diversification by creating new uses in the variants, through value addition, to cater to the needs of the existing customers and new customers of the products.  It is to be understood that proper strategies should be evolved in this connection to absorb the sulphur based products produced by the refineries, process these byproducts to convert it into useable byproducts, regulate the supply through strong distribution channels to match the demands emerging from various sectors of various geographical areas and make continuous research in the field to expand the usage of the products, after taking into account the safety and environmental issues.    Introduction  The symbol of the chemical element sulphur is ‘S’, and its atomic number is 16.  Sulphur is naturally available in many forms and found in salt domes, volcanoes, hot springs, gypsum, Epsom salts, etc. Sulphur is useful and essential for human life.  Various forms of sulphur such as Carbon disulphide, copper sulphate, hydrogen sulphide, and sulphur dioxide are related to human life.  Though useful and essential for human life, these compounds of sulphur should be handled with care, as they have dangerous properties. In addition to the normal production or extraction of sulphur, hydrodesulphurisation of oil and gas resulted into abundance of the supply of sulphur. There is regular supply of sulphur, assured by the Oil & Gas industry on account of desulphurisation of oil and gas, which is undertaken for the purpose of pollution control and the issue of global warming.  According to ‘the EU's large combustion plant directive (LCPD) … all coal and oil fired power stations not equipped with flue gas desulphurization to remove harmful sulphur dioxide emissions will need to close by 2015.’ (POWER-GEN Worldwide, 2009). Therefore, it is obvious that the success lies in processing of these byproducts to make them usable in the market and storage and transportation of the products to the end users.  Sulphur has many commercial uses in day to day life, and mainly used in the manufacturing of fertilizers, pesticides, gunpowder, matches, etc.  The application of the compounds of sulphur is found in detergents, dyestuffs, photography, pharmaceutical industry, etc. For example consumption of sulphuric acid is considered as an important pointer to the industrial development.  Needless to say, sulphuric acid is used for various purposes in the industries. Copper sulphate is an analytical reagent widely used in laboratories and hospitals for various tests and organic synthesis. The aim of this paper is to study the opportunities in marketing of sulphur products, after processing of sulphur byproducts available with impurities on a regular basis from desulphurization process by refineries in the oil and gas industry.                             Evidence and Analysis                            Embarking upon marketing of a product with large number of variants affords opportunities for growth.  However, the marketing strategy should be in line with the size of the investment proposed to be made in various areas of the business, customer profile, market segmentation, etc. The level of investment proposed in respect of ‘value addition’, consequently ‘branding’ of the products etc. play crucial role in defining the strategy.  Likewise, stages in which the expansion of product portfolio is planned, depends upon the quality and the categories of the by products available from the refineries. Processing of the byproducts to make it useable or saleable to the end users is the critical area in the project. It is stated by Shell: ‘Our goal is to create a virtuous circle of sulphur management; removing sulphur where it adds little value, and then using this recovered sulphur to add value, for example as a component of new end-products which have the potential for large scale commercialization with significant benefits.’ (http://www.shell.com, 2010).  The concentration of their business to business strategy is mainly related to Concrete, Fertilisers and Roads. Marketing of these products of the refineries which don’t involve any re-processing could be considered as on option on global level with suitable distribution arrangements. However, reprocessing the byproducts with impurities received from the refineries, and developing new value added products holds promise for growth in the long run. ‘Marsulex provides total by-product management services to customers in North America, including conversion of sulphur by-products into high value industrial chemicals and the marketing of these chemicals to end-use customers.’ (All Business, 19 June 1997) PEST analysis   PEST analysis or PESTLE analysis of the macro environment on global scale with reference to the Political, Economical Social and Technological factors is essential in marketing sulphur products due to their inherent properties, and legal issues involved in storage, transport and usage. The management of the company has no control over these external environmental factors.  Therefore, it should take note of such constraints well in advance and plan its activities suitably. According to Rapidbi, ‘A PESTLE analysis is a business measurement tool, looking at factors external to the organization. It is often used within a strategic SWOT analysis (Strengths, Weaknesses, Opportunities and Threats analysis).’ (2010)  Customer Relationship Management  Adoption of CRM techniques in data management, in relation to various types of customers belonging to different categories, in detail for easy access of the information by the sales and marketing personnel, for identifying the customers’ needs and match these customer needs, requirements related to service, etc. to products and plans with the help of software, tailor-made to the organization for effective communication and interaction at all levels, both lateral as well as vertical.  Especially, analytical CRM would be useful in categorizing the customers and segmentation for the purpose of cross selling or in solving logistics problems. Feedback from the customers or field staff and earlier experiences would be useful in fine tuning the business intelligence, in this process.       Current status The concept of byproduct, relative to the main product in a process, in terms of the economic value of the products, undergoes changes.  A product which has been considered as byproduct at a particular time could gain in stature over a period of time due to its enhanced economic value on account of its new or expanded uses and demand.  For example Ethanol, a byproduct of sugarcane processing has become an alternative fuel to petrol.  Since it could be used as bio-fuel in the place of petrol, it is widely used in the vehicles in various countries.  Use of ethanol up to 10% with petrol has been stipulated in some countries.  Under these circumstances, ethanol would attain the status of the main product in the process, and may relegate sugar to the next level, a co-product or byproduct. Pricing of byproducts is mostly on arbitrary basis. There are several factors for this practice. While working out the cost of production of the primary products, the realizable value of the byproduct sulphur or sulphuric acid emerged in the process should be taken into account. But, the real situation is different. ‘Sulphur blocks pose a liability to their owners.  The costs of treating and neutralizing acidic water that runs off sulphur blocks can run as high as $3.00 annually per tonne of stored sulphur.’ (Schneider, W.H., 2006 May 03) However, Schneier futher quoted the words of Sulphur Institute, Washingtone, D.C.: ‘Sulphur needs to be viewed as a valuable, sustainable commodity, just like oil and gas, and not simply as a waste by-product.’ (2003 April 11) and concluded ‘Given the escalating world sulphur glut, converting "the waste into a marketable product" requires solutions that have not yet been found to be practical or viable.’  It is in this background, we have to consider the acquisition of two leading regional sulphur byproducts removal companies, Coulton Chemical Company of Ohio and the shares of Sulconam Inc. : ‘Marsulex, which is based in North York, Ontario, is an environmental services company which provides removal services for useable sulphur by-products for the mining, oil refining and chemical industries. These by-products are converted into useable industrial chemicals including sulphuric acid, liquid sulphur dioxide and elemental sulphur which Marsulex sells to customers throughout North America.’ (All Business, August 20, 1996, p.1). The impurities (mainly sulphur compounds) from the process are converted into useable products, sulphur and sulphuric acid. Mr. Belzberg, President and CEO of Harrowston said, ‘there is increasing demand for by-product removal services and with these acquisitions Marsulex will expand its market niche of providing sulphur by-product removal services.’ (All Business, August 20, 1996, p.2) The risk reward ratio in the marketing of sulphur is eminently in favour the marketing agencies in the long run, if it is in a position to leverage the ‘service’ and ‘environmental’ aspects suitably with the refineries, government and the society in view of the more and more stringent regulations on desulphurization in future. There is good demand for sulphuric acid in the markets. ‘Sulfuric acid prices in March hit a record high of $329/ton, according to Purchasingdata.com, after trading at $90/ton as recently as October. Buyer Bobbie Fallaw at Devro Castings received a 26% increase from a sulfuric acid supplier this week and says the increase is due to a combination of factors: rising sulfur prices, increasing demand for sulfuric acid from the fertilizer markets, and short supply of sulfuric acid.’ (Sulphuric Acid on the Web, 2008) It could be inferred by now, that there is a product as well as extensive demand for the product also. But, the bottleneck is ‘processing’ of the byproduct to make it usable. Probably, the entry barrier to this niche area might be the environmental regulations in treatment of the byproducts of the Oil & Gas industry, storage and transportation. In fact these entry barriers should be used as an advantage, since the competition as of now is very limited. Opportunities In order to create an established role in the marketing of sulphur, the company should be in a position to invest on a large scale basis for setting up facilities for processing the byproducts of Oil & Gas industry. It could be observed from the web site of shell http://www.shell.com/ that Sulphur is used in the area of agriculture, chemical production, industries and in asphalt, concrete, etc., and according to it Sulphur is Everywhere! ‘Sulphur is used in many textiles, rubber products such as tyres and boots, daily household products such as detergents, paints, paper and carpets.  It is also used in many life-saving medicines.’ Therefore, research and developments which is an ongoing process in the field of Oil and Gas is bound to churn out an array of new products with new uses for these products in every field including food and pharmaceuticals.  Branding holds the key for growth and consolidation in the long run, and the Intellectual Property rights and trademarks would also come into play.  A progressive policy in this regard should take into account these aspects of the business and evolve suitable strategies to take benefits in this process.  Value addition holds promise for extensive marketing considering the potential uses of the products, hitherto not yet discovered.    Greater marketing opportunity in the case of Sulphur is linked to value addition and investment in manufacturing of the value added products. The focus could be shifted on branded products in a phased manner.  Creating a family of brands and sub-brands enhances the value of the stakeholders in the long run.    Synergy  It should be remembered that the refineries are located in strategic points relative to logistics in meeting the requirements of the industrially developed regions.  Naturally, major part of the production could be marketed within these industrially or economically developed areas.  Proper logistics arrangements with the refineries and oil marketing companies may be considered. This strategy would be critical in distribution of the products.  The arrangements should be mutually beneficial for the refineries or oil marketing companies as well as the marketing agency in view of sharing of the overheads in this process. However, transportation of sulphuric acid needs special logistics arrangements, because sulphuric acid is very dense and called as oil of vitriol, with high exothermic reaction. (A chemical reaction in which heat is produced) Sulphur being an important byproduct in the process of refineries, research in this field has also been stepped up to improve the utility of the existing products and development of new products. The energy companies worldwide are financially sound to spend resources on research and development. ‘A $500 million research program announced by the energy company BP will bring farm bioenergy production to Illinois on a grand scale, say researchers’ (Tech.com, July 9, 2008).   The sulphur products marketing company could associate with the energy companies in their research programs, for the development of the new products, or improvements in the existing processes.  A detailed market survey of the products in various market segments would be useful in evolving strategies for marketing of the sulphur products. The oil companies could be consulted in this connection for firming up the strategies. The oil refineries would also welcome this idea of co-operation, because the survey is conducted for collecting information about the usage of the sulphur byproducts, from the actual users who belong to various industries and market segments.    Storage of the sulphur byproducts involves several safety and environmental issues in relation to regulations of the government. Removal of the byproducts with impurities is an important, but, a hazardous job. Therefore, a company with proper facilities to remove the byproducts on a regular basis would be a welcome development for them, so that they can concentrate on their core activity of oil refining. The oil refineries would be naturally interested to have good knowledge about the byproducts and their usage on constant basis for reporting or other purposes. If they are involved tactfully in the reprocessing, to the extent possible without making it as interference, they could be helpful in ‘process development’ for improvement of efficiencies in the processes, and in development of new products.   Conclusions                       ‘The leading US oil and gas, automotive, and outdoor power equipment trade associations are concerned that the US Environmental Protection Agency might permit ethanol's allowable motor fuels limit to rise’ (Oil & Gas Journal, May 17, 2010). The shift in energy management by the producer and user countries becomes inevitable for obvious reasons. However, if we ask ourselves a question, ‘whether consumption or use of sulphur by the human race could be reduced under the changing circumstances?’ the answer might be negative. According to Sulphur Institute, it is a valuable commodity, and not simply a waste. What we have to understand is the importance of processing of the byproducts as received from Oil & Gas companies, effective handling of the processed products and ensuring proper utilization of sulphur products by the mankind. ‘The vast majority of the 64,000,000 metric tons of sulfur produced worldwide in 2005 was byproduct sulphur from refineries and natural gas processing plants.’ (Citizendium, 2010). On the one hand the refineries are facing the problem of storage of the sulphur byproducts with impurities. But, the sulphuric acid prices are on rise due to short supply, on the other hand. As a consequence of the increase in prices of sulphuric acid, according to Sulphuric Acid News, lead acid battery prices were increased and mining capabilities were impacted. It further stated, ‘In September, Purchasing.com reported that the biofuels boom, particularly the proliferation of ethanol plants, is having a "double effect" on the demand for sulfuric acid, according to Paul Bacon, business director at Rhodia Eco Services, a French sulfuric acid producer. But a more recent story in February in the Ames (Iowa) Tribune says “the pricing of sulfuric acid, a manufacturing commodity used in the production of metals and fertilizer, has soared due in part to the increased additional demand from the manufacture of ethanol fuel”.’ For the Oil companies, society at large and the government, in the efficient use of sulphur products, the missing link is ‘processing’. Increasing the processing capacities is very important for the al-round industrial development, since sulphuric acid is widely used in various industries. It is also important from the environmental angle, because, storage of impure byproducts results in not only additional burden to the refineries in terms of space and safety, but also leads to environmental issues. Since this area is not crowded as of new, the competition is limited or negligible. Creation of additional capacities for processing the impure sulphur byproducts of the refineries would benefit all the stakeholders and the society at large. All the stakeholders and financial institutions would be in a position to extend their support and co-operation in their own interest as well as in the interest of the society. Recommendations 1. This paper being a preliminary study, a detailed project report should be prepared with investment proposal in respect of processing unit and infrastructure for marketing and distribution. 2. Undertake PEST analysis to make a comprehensive assessment of the external factors and its impact on the project and marketing.   3. Implement CRM for data management of the customers with all the relevant details about the uses of the products, type of industries, consumption levels, seasonal behavior, etc. 4. Make initial market survey with a view to assess the demand by products, geographical areas, industry groups, etc. and to understand the uses for which the products are put to, so that a blue print for the introduction of value added products could be prepared. 5. Series of discussions with the Oil & Gas industry experts and the knowledgeable sources from the supplier companies should be arranged with the project leaders and marketing staff of the company to explore the idea of joint efforts to deal with the specific problems or situations at the implementation stage and later during the product development stages.            References All Business, (August 20, 1996), Harrowston Subsidiary Marsulex Inc. To Acquire Two Leading Regional Sulphur By-Products Removal..., http://www.allbusiness.com/company-activities-management/company-structures-ownership/7259407-1.html All Business, 19 June (1997), RETRANSMISSION: Marsulex Inc. Acquires MajorityInterest In Sulconam Inc. Expands Company's..., http://www.allbusiness.com/company-activities-management/company-structures-ownership/6989676-1.html Citizendium, (2010), Upstream, midstream and downstream (petroleum industry), http://en.citizendium.org/wiki/Upstream,_midstream_and_downstream_%28petroleum_industry%29#_note-1 Oil & Gas Journal, Watching Government: Rushing the ethanol ruling, Volume 108, Issue 18, May 17, 2010 POWER-GEN Worldwide,  (2009), EU delays deadline for power plant NOx emissions reduction to 2019 – report, Penn Energy, http://www.pennenergy.com/index/energy-issues-and-solutions/display/7394497384/articles/powergenworldwide/Business/Policy/2010/05/eu-delays_deadline.html Rapidbi (2010), The Environment Scan - Environmental Organizational Scanning, http://rapidbi.com/pestle/ Ravensdown, (2006), Properties of Sulphuric Acid, http://www.ravensdown.co.nz/Resources/Education/Properties+of+Sulphuric+Acid.htm Schneider, W.H., (2006 May 030, Sulphur — waste by-product of mining, oil-refining and energy production, folc.ca, http://www.folc.ca/sulphur_storage/waste_sulphur.htm Shell, (2010), About Shell Sulphur Solutions, http://www.shell.com/home/content/sulphur/about/   Shell, (2010), Sulphur Facts, http://www.shell.com/home/content/sulphur/about/sulphur_facts/ Sulphuric Acid on the Web, (2008), Sulphuric Acid – NEWS, Updated December 31, 2008, http://www.sulphuric-acid.com/Sulphuric-Acid-on-the-Web/news2008.htm Tech.com, (July 9, 2008), BP announces $500M energy research program, http://www.tech.com/?p=9 Read More