An ugly waste product of oil refining has been transformed into a golden windfall for energy companies as demand for fertilisers drives the price of sulphur to unprecedented levels.

For decades oil refiners have struggled to shift stockpiles of the yellow chemical, which is used to make sulphuric acid, essential in the manufacture of fertilisers. Food shortages and higher grain prices are boosting demand for fertilisers, and in only a year the price of sulphur has risen more than tenfold from $50 a tonne to $500 a tonne, according to ICIS, the chemicals-pricing service.

The extraordinary surge in the price of sulphur is expected to generate windfall profits for some oil companies, notably Royal Dutch Shell and Chevron, as well as Gulf oil producers, such as Saudi Aramco and Adnoc, the Abu Dhabi national oil company.

“Shell is one of the most-efficient producers of sulphur,” Barry Clarke, a sulphur market analyst for Pentasul, said. Shell produces about 3.5 million tonnes of sulphur, much of it from its Canadian oil sands business, and its cost, Mr Clarke reckons, is merely the rail freight cost of getting the sulphur to a port, about $25 a tonne.

Mr Clarke agrees that sulphur, once a burden, could earn the oil industry billions this year. “It’s going to show up in the earnings of companies,” he said. The price is expected to rise further with spot cargoes changing hands for as much as $700 a tonne. Demand for metals is also keeping sulphur bubbling, as sulphuric acid is used in the mining industry to leech metal from ore.

So large was the sulphur surplus a decade ago that mountains of the chemical were being formed, notably in Kazakhstan, where high-sulphur “sour” crude oil is produced in large quantities at Chevron’s Tengiz project. A spokesman for Chevron confirmed that the stockpiles were beginning to erode as the company was finding demand for more than the annual output from the Tengiz field.

“Last year we sold a record 2 million tonnes,” he said. “We sold 126 per cent of production.”

Chevron wants to raise output to 3 million tonnes, further levelling its stockpiles, and Shell has recently developed a separate global business, based in Canada, to market its sulphur output.

Patrick Romeo, general manager of sulphur marketing for Shell, said that the market was undersupplied. The reason for the extraordinary price surge, he said, is that sulphur producers cannot respond to price increases and produce more. Sulphur output is purely a function of the amount of “sour” crude oil and sour gas that is processed by refineries. Mr Romeo said: “There is not much you can do about producing more sulphur. We are trying our best to put everything we have in stock into the market.”

The cost of sulphur and phosphates, another essential fertiliser ingredient, is sparking protests from politicians in developing countries, such as India, where the Government subsidises fertiliser to keep costs down for poor farmers.

J.S. Sarma, secretary to the government department of fertilisers in India, said that prices were abnormally high and not justified. “I would not be honest if I said that it is not putting a strain on [India’s] financial resources,” he said.

The estimated cost to the Indian Government of the fertiliser subsidy is $22 billion (£11 billion), more than double last year’s figure.

According to Pentasul, the world produces about 47 million tonnes of sulphur annually, but the world’s ravenous demand for food is telling the sulphur market that 49 million tonnes is needed. Meanwhile, the opening of new mining projects adds further pressure on demand, creating huge price spikes.

Shell is confident that the price surge is temporary, and the company is developing products, such as sulphur-based concrete, anticipating a future surplus. It said: “There will be more sulphur in the market in the longer term and it will be overproduced as the world uses more unconventional oils, such as oil sands. Unconventional oil means more sulphur.”

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts