KARACHI: The gross refining margin of Byco Petroleum — a vertically integrated energy firm with its own floating jetty, refinery and oil marketing arm — is expected to double from $3 per barrel to $6 once it completes the ongoing upgrade process by 2025, according to company chairman Mohammad Wasi Khan.

Speaking to a group of journalists at the company headquarters on Friday, Mr Khan said Byco is adding as many as 14 plants to its processing facilities, which will turn 90 per cent of the refinery’s output into value-added, high-margin products.

With a capacity of 155,000 barrels per day, Byco is the largest among the five refineries operating in Pakistan. However, it’s currently operating at 35-40pc of its capacity because the demand for its major output — furnace oil — has substantially gone down in recent years. The capacity utilisation levels are low across all refineries for the same reason.

Plans to add 14 more plants to produce high-end products

Annual demand for furnace oil now hovers around 2-2.5 million tonnes, down from 9m tonnes before 2017 when the country changed its fuel mix for power generation in favour of imported liquefied natural gas (LNG). The state-owned power purchaser stopped despatching furnace oil–based power plants, leaving refineries with a slate of products that have few buyers.

The share of furnace oil in power generation in 2020-21 remained 4.8pc against 3.4pc in 2019-20.

The extent of refining crude oil determines whether the output consists of heavier hydrocarbons (furnace oil) that have a lower profit margin or lighter hydrocarbons (petrol, diesel etc) that fetch higher market prices.

“Byco is the only refinery at the moment that is actively implementing its furnace oil upgrade project. We are putting up a fluid catalytic cracking (FCC) plant, which is a secondary unit operation that produces additional gasoline,” he said, adding that furnace oil will be only 11pc of Byco’s entire output in 2025. The share of petrol will go up to 30pc and that of diesel will be 50pc. Other products like jet fuel and kerosene will constitute the rest of the product slate, he said.

The government is encouraging all refineries to start producing Euro V and VI fuels. “We’re adding 10-12 processing plants in addition to FCC and diesel hydro desulphurisation units. It’ll solve the issue of furnace oil (excess production),” he said, adding that the total upgrade cost will be $800m.

Mr Khan expects furnace oil–based power plants will soon be phased out entirely. The refinery will likely operate at full capacity by 2025, providing locally refined substitutes for imported petrol and diesel, he said.

But what if history repeats itself and petrol and diesel are largely replaced by cleaner fuels in coming years? After all, it was only in 2012 that Byco installed its second refinery of 120,000 barrels per day, which is the capacity that’s largely lying idle in the wake of dwindling demand for furnace oil. “Pakistan is one of those countries where electric vehicles haven’t penetrated the market. It’ll take some time,” he said.

Mr Khan added diesel isn’t going anywhere and neither is jet fuel. “A refinery should have the flexibility to start making petrochemicals if its gasoline demand goes down. Byco is doing exactly that. Our upgraded plants will have that provision. We’ll be able to convert them into making petrochemical feedstock,” he said.

The company made a net profit of Rs1.2bn in the quarter ending on March 31, up from a net loss of Rs2.8bn a year ago. Its capacity utilisation in the most recent fiscal year was just 30.8pc.

Mr Khan refused to comment on the upcoming refining policy. On the 2021-22 budget, he said the imposition of sales tax on the import of crude oil will create cash-flow problems for refineries. “We’ll adjust it at a later stage, but it’ll affect our credit cycle,” he said, noting that sales tax should ideally be imposed on raw materials in industries that are undocumented — which is not true in case of refineries.

He did not comment on market reports that Byco was planning to increase its overall refining capacity in tandem with the system upgrade.

He also refused to confirm or deny that his company was about to acquire Puma Energy, an oil marketing company with 542 retail pumps and a market share of 2pc.

The share price of Byco was Rs10.64 on July 16, up 19pc from a day ago.

Published in Dawn, July 18th, 2021