The government has decided to consume furnace oil being produced by domestic refineries as it has not enough dollars to pay for imports, but the decision may be a sigh of relief for the refining industry that is struggling to export the fuel owing to thin demand in the country.
According to sources, sales of furnace oil have suffered badly, plunging 94% in April 2023 compared to sales made in the same period of last year. On the other hand, sales of high-speed diesel and petrol went down by 49% and 16% year-on-year respectively in April 2023.
Demand for furnace oil slumped despite the fact that its prices stood at the lowest level in Pakistan when compared with the international market. At present, the average refinery price of furnace oil is Rs120,000 per ton against import parity price of about Rs160,000 per ton in the international market.
However, according to sources, there is no demand for the fuel in the country even at the low price, which is forcing refineries to explore options for export.
Pak Arab Refinery Limited (Parco) has recently exported its second cargo of about 60,000 tons while Pakistan Refinery Limited (PRL) is also preparing to make its second export shipment for which tendering process is underway.
During the previous government’s tenure, the refineries had faced a similar situation and even they had to partially shut down their several units due to the piling up of furnace oil stocks.
The previous political administration, dominated by power-sector lobbies, had decided that oil companies could take on rent the storages of independent power plants (IPPs).
“Storages at refineries are full to capacity. In this scenario, Parco and PRL are compelled to rent additional storages to ensure the continuity of operations,” a source revealed.
Attock Refinery Limited (ARL), which banks on local crude supplies, had also been experiencing a similar situation in the past. However, it has the advantage of supplying furnace oil to a power plant owned by its group and, therefore, it may survive.
On the contrary, the two other refineries namely Parco and PRL are encountering the worst situation and are scrambling to dispose of furnace oil stocks by making exports. If their efforts did not bear fruit, it could result in closure of their plants.
At present, Pakistan has 600,000 tons of furnace oil stocks. Of the total, the share of refineries is 32%, power sector 34% and oil marketing companies 34%.
Parco has 70,000 tons of furnace oil in storages whereas PRL has 59,000 tons. National Refinery Limited has stocks of 34,000 tons while ARL has 19,000 tons.
Energy Minister Khurram Dastgir announced at a press conference on Tuesday that the government had decided that power producers would lift stocks of furnace oil from refineries over the next four months to ease the pressure on foreign exchange reserves.
Published in The Express Tribune, April 12th, 2023.
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