Pakistan consolidates its position in the club of furnace oil exporting countries

Till recently Pakistan was suffering from glut of furnace oil (FO), mainly because the incumbent government had decided to stop its use in power generation. However, the efforts by Pak Arab Refinery (PARCO) have made Pakistan a FO exporting country. PARCO is scheduled to export another shipment of 50,000 tons FO by the end of this month.

This would be the refinery’s second export cargo during the current financial year (FY24), as it exported 50,000 tons FO in the last month too.

Amidst the high stocks across the country, PARCO holds the largest stockpile of FO at above 55% of the total stock of fuel oil available with the local refineries.

PARCO has opted to export FO in order to gain maximum in terms of foreign currency to address its issue related to payment of dividend to its foreign partner.

During the last fiscal year (FY23), PARCO along with Pakistan Refinery (PRL) exported a record over 264,000 tons fuel oil because of refusal of power plants to lift it for power generation as it fell in the bottom of the priority list of sources for generation of electricity.

As a result of the refusal, the country accumulated a huge stock of fuel last year, of which some quantity was exported by the two refineries.

During FY24, only PARCO has exported the fuel oil so far in order to earn foreign exchange as other refineries have been selling it in the local market.

According to energy sector experts, PARCO currently possesses 57% of the total FO stock of the refineries followed by PRL, having 14% of total stocks.

Attock Refinery (ARL) possesses 12% of the total stock followed by National Refinery (NRL) and Cnergyico with 11% and 6% stock respectively.

Sector people said that lifting of the fuel oil by the power plants has seen some improvement in recent weeks as the heat of summer has pushed the demand of electricity higher, particularly in Punjab. Although hydropower generation has also gone up significantly, power demand is also being met with the furnace oil burning in the power plants, which improved the lifting of fuel oil from the local refineries.

The government of Pakistan has been trying to phase out fuel oil from the power generation mix to move to greener and more sustainable indigenous options. As per the Generation Capacity Expansion Plan (IGCEP) 2022-31, the total share of green energy is targeted to reach 59%, while FO is set to be phased out by 2031.

Pakistan: PARCO issues fuel oil sales tender

Pakistan’s Pak-Arab Refinery (PARCO) has offered fuel oil for July loading in its latest tender, underlining an ongoing shift in market dynamics as the South Asian country turned to exporting instead of importing fuel oil this summer.

The refinery has offered 50,000 tons of high-sulphur fuel oil (HSFO) with maximum 3.5% sulphur content, for loading at Karachi port between July 15 and 17.

The tender closed on July 05, Parco had previously closed an HSFO sales tender in May this year.

Imports of fuel oil into Pakistan slumped in the second quarter this year as companies resorted to burning more coal for power generation due to its cheaper cost and easy availability.

Monthly imports had hit a four-year high in the second quarter last year.

The country’s fuel oil exports have trended higher in 2023 so far compared to 2022, a total of 340,000 tons in Q2CY2023. It did not export any fuel in the same quarter last year, data from shipping analytics firm Kpler showed.

The country typically imports fuel oil from the Middle East.

Exports have so far gone to Singapore and the United Arab Emirates this year.

The export trend could continue in the coming months as the peak summer demand season is already retreating, with refineries seeking to clear inventories, trade sources said.

 

Pakistan exports 50,000 tons furnace oil to Singapore

Refineries in Pakistan were facing glut of furnace oil, which was also hampering their operations. Pak Arab Refinery Limited (PARCO) takes the lead by exporting the first cargo of 55,000 metric tons on Sunday night. This opens the door for other refineries to follow the footsteps of PARCO.

According to a report, the tender for this cargo was floated by PARCO at the beginning of December 2022, and Dubai-based E3 Energy DMCC won the tender for the export.

According to the sources in the refining sector, PARCO had to export furnace oil to keep the refinery running. PARCO Managing Director Shahid Mahmood Khan took the decision to export the fuel oil.

If the decision was not taken, the refinery would have shut down due to the accumulation of huge furnace oil stocks. Before the export of fuel oil, PARCO had almost fifty percent of total stockpile with the local refineries following slump in demand.

The demand dropped because thermal power plants stopped stockpiling furnace oil which was on the bottom of the electricity generation merit list. Also, electricity demand had declined due to winter.

As PARCO started accumulating excess furnace oil, which was not being taken by the power plants, it started storing the fuel at Port Qasim for exports.

Reportedly, PARCO sold the stock to a foreign group at free on board (FOB) plus five dollars. Although the export price was low, it would help the refinery keep the operations.

Before the export of 55,000 tons, the country’s total furnace oil stock stood at 592,000 tons. Refineries have 233,000 tons or 39% of the total stock.

Oil marketing companies hold 186,000 tons or 31% of the total stock, whereas power plants carry 172,000 tons or 29% of the total stocks available in the country.

Out of the total stocks with refineries, PARCO held 108,000 tons furnace oil or 46%. That has now reduced to 53,000 tons, following Sunday’s export to Singapore.

Cnergyico has 45,000 tons furnace oil or 19% of total stock carried by refineries.

Attock Refinery Limited (ARL) holds 37,000 tons or 16%.

Pakistan Refinery Limited (PRL) stockpile stands at 25,000 tons or 11%.

National Refinery Limited (NRL) is carrying 17,000 tons or 7%.

It may be recalled that Furnace oil stockpiles started increasing after power plants refused to lift it despite government instructions. Their reason of refusal was the low demand of electricity, which made power generation from expensive furnace oil economically unfeasible.