ISLAMABAD: Highlighting the repeated ‘scarcity and glut’ cycles of petroleum products, the oil refining sector has asked the government to immediately announce petroleum refining policy and keep at least 1,500 MW of power plants running on furnace oil (FO) to ensure existing refineries operate optimally for minimal product imports.

“The unfortunate delay in final approval of the refining policy may jeopardise the refineries upgradation plans worth $4-5 billion and another $8-10bn investment in green field refinery,” a senior government official quoted a communication from refineries as telling the government.

This has been conveyed to the Petroleum Division by the local refineries in response to Secretary Petroleum Ali Raza Bhutta’s directions for playing their effective role in averting product availability crisis. Recently Mr Bhutta had asked all refineries to enhance their production to meet the growing demand of petroleum products in the country, especially FO and diesel.

The refineries have assured the Petroleum Division that despite serious challenges being confronted by the sector, they will make best efforts to enhance their respective throughputs, especially maximisation of FO production keeping in view problems in getting regular LNG supplies from the international markets.

Seek announcement of petroleum refining policy

However, the refineries reminded the secretary that only a few months back in December 2021 and January 2022, they were struggling to operate due to high stocks of FO with little or no consumption in the power sector. “Some of the refineries even had to shutdown their operations because of ullage issues and some had to export FO at substantial financial loss.

“This cycle of scarcity and glut of FO has not happened for the first time and the country has been confronted by such crisis in the past too,” the refineries wrote to the Petroleum Division. In order to avoid repeated recurrence of such situations, it was critically important to find a permanent solution that enables maximum utilisation and sustainability of the refining sector and also ensures availability of petroleum products to the maximum possible extent.

In a working paper, the refineries have also suggested to the Petroleum Division to for running about 1,500MW equivalent FO-based power plants on regular basis so that refineries keep running at optimal level, meet maximum requirement of production consumption and minimise import of finished products at a higher foreign exchange cost.

The sources said the refiners have also asked the government that the formal announcement of new refining policy would allow the existing refineries to up-grade and expand their respective units to produce Euro-V compliant fuels with increased production.

The refineries maintain that the growing demand of petroleum products in the country coupled with changing geopolitical situation necessitated the need for having a modern and vibrant refining sector in Pakistan to ensure its energy security. “It is because of these reasons that the refineries have been emphasising the need for approving the draft refining policy which was diligently prepared by Petroleum Division in consultation with refineries over the last two years” to enable the refineries to modernise and increase their production capacities.

This comes at a time the country’s overall stocks of jet fuel and high speed diesel (HSD) have declined to an average of 11-12 days against 24-days cover earlier this month. These stocks may appear good on average, but these are not evenly available across the country. For example, HSD stocks in Punjab are for less than 10 days while these range between 14 and 15 days in three other provinces and just for 7 days in Gilgit. Likewise, petrol stocks in Punjab are for less than 9 days followed by 10 days in Khyber Pakhtunkhwa and Balochistan and 46 days in Sindh and 7 days in Gilgit.

With peak fuel demand for power generation in the absence of sufficient LNG supplies and water storage in dams, total FO stocks are no more than 125,000 tonnes or less than 10 days for power generation. The local refineries, on the other hand, have total average crude stocks of 7-8 days. Of this, Attock and Cnergyico refineries had crude stocks for three and four days, followed by 8 days each with Parco, 12 days with National Refinery and 18 days of Pakistan Refinery.

This is despite the fact that an agreement between Saudi Fund for Development (SFD) and the government of Pakistan has become operational under which crude oil worth $100 million per month can be imported on deferred payment for one year.

The SFD programme had become operative on March 7 this year and accordingly procurement of oil has commenced. In the year 2022, Parco and NRL are planning to import 16.89m and 15.81m barrels, respectively. Parco has utilised $100m under the programme in March 2022 for cargos of February 2022.

The facility is available for a 12-month period which may be extended for another year with mutual consent. Repayment of the withdrawn amounts plus the margin at the rate of 3.8pc shall be made in one annual installment in dollars. This agreement will not affect the overall prices of petroleum products in the country.

Published in Dawn, April 19th, 2022