Pakistan faces furnace oil glut of 632,000 tons

Pakistan faces furnace oil (FO) glut of 632,000 tons following refusal of power plants to stockpile the fuel and poor export feasibility due to its low price in the global market.

The FO stocks have been accumulating since the start of last winter when power demand shrunk. Power plants are still not lifting furnace oil as electricity generation is mainly coming from hydel and nuclear sources, which have cut the demand of fuel oil for power generation.

The attempts by refineries to export furnace oil did not prove lucrative because of low price. Refineries determined it was financially unviable to export FO, as it could eat up their profits if the fuel was exported in the international market at a low price.

According to the sources in the oil sector, total 632,000 FO stocks include 539,080 tons of useable stocks and 93,147 tons of dead stocks.

Pakistan’s oil marketing companies (OMCS) currently hold 203,879 tons of furnace oil stocks, which is 32% of total stocks. The country’s power sector holds 202,280 tons of the fuel oil stocks with it, which is 33%, while local refineries have 220,068 tons, which is 35% of the total stocks.

The breakup of FO with the local refineries shows that PARCO holds 116,004 tons, National Refinery Limited has 32,327 tons and Pakistan Refinery 44,455 tons, Attock Refinery 16,826 tons, and Cnergyico has 10,457 tons of FO stocks.

The present FO stock is huge and is making the operations of local refineries vulnerable because it has been interrupting their operational capacity. They said that if the FO stocks were not lifting, it could further lead towards a shutdown of refineries’ operations.

On exporting the FO, industry people said that PARCO exported 60,000 tons and PRL exported 25,000 tons but the export price was not lucrative. The price in the global market is on the lower side and it can cause financial issues for the refineries if the stocks are exported at this price.

The situation is not attractive for the local refineries as power generation from FO in the month of February slumped by 80% compared to the same month of last year and in the first eight months of the current fiscal. Electricity production from FO also decreased by 50% compared to the same period of the last financial year.

 

National Refinery stops supplying fuel to Pakistan State Oil Company

According to media reports, National Refinery (NRL) has decided to halt supplies to Pakistan State Oil Company (PSO) after the state-owned oil marketing company stopped the payments to the refinery.

PSO has been suffering from a severe financial crisis due to lack of payments from various sectors on account of supply of petroleum products. Currently, the PSO owes National Refinery PKR 3.469 billion.

PSO stopped the payments of refineries a couple of days back. These refineries are the suppliers of diesel, petrol, aviation fuel, furnace oil etc. to the state-owned company, having the largest share in the sales of petroleum products in the country.

“NRL has decided to halt the supply to PSO after the stoppage of payment and intimated the OMC in written,” said sources familiar to the development. They added, NRL was the first and other refineries might follow suit.

PSO has been entangled in financial woes for the last many years, but in recent months the situation has aggravated immensely as its inter-corporate debt has increased to PKR1,024 billion with receivables at PKR762.653 billion and payables at PKR261.155 billion.

The breakup of the PSO payments to the local refineries showed that it has to pay PKR25 billion to Pak-Arab Refinery Company (PARCO), PKR10 billion to Pakistan Refinery (PRL), PKR3.469 billion to National Refinery, PKR9.049 billion to Attock Refinery (ARL), and PKR4.108 billion to Cnergyico.

Details of the company’s receivables show that the Sui Northern Gas Pipelines (SNGPL) has so far emerged as the biggest defaulter of Pakistan State Oil.

The SNGPL owes PSO PKR492.102 billion as of March 08, 2023.

The power sector continues to haunt the state-owned oil marketing company as it is required to PKR Rs178 billion followed by Pakistan International Airlines (PIA) and the government of Pakistan, which owe PSO PKR92.5 billion.

The most crucial payment of PKR124.666 billion in the head of LPS (late payment surcharge) is also part of the total receivables that have soared to PKR762.653 billion.