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Govt may ban import of furnace oil

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ISLAMABAD: Amid grim supply challenges following topped up storages, the government is likely to impose an immediate ban on import of furnace oil and ask some of the oil-based power plants to lift some stocks for easing pressure on refineries.

This comes at a time the country’s largest refinery – Byco Refinery – was compelled to closed down its major refining plant of 120,000 tonnes capacity and all other refineries running at sub-optimum capacity and six shipload of furnace oil belonging to the largest oil supplier – Pakistan State Oil (PSO) – lined up for arrival at Karachi.

Informed sources told Dawn that an understanding to this was reached when heads of all the refineries in the country and PSO had a meeting with secretary petroleum here on Wednesday. The secretary petroleum and secretary power would hold another round of internal consultations before taking up the matter for a decision by prime minister, a senior official at the Petroleum Division said.

Byco shuts its largest refining unit

The official said Byco has formally reported to the Petroleum Division that it has closed down its largest refining complex due to low upliftment of high sulphur furnace oil (HSFO) without any support from the oil marketing companies. It said it was still operating its smaller unit of 35,000 tonnes capacity at the minimum possible throughput.

Likewise, the Karachi-based Pakistan Refinery Ltd and National Refinery Ltd, Multan-based second largest refinery Parco and Rawalpindi-based Attock Refinery were operating at the lowest possible capacity utilisation of ranging between 60-70pc.

The heads of refineries warned the government not to look at the furnace oil consumption in isolation and its replacement with LNG on an abrupt basis because it would lead to closure of refineries. In such a situation, it would not be possible to transport local crude production to Karachi for export. This was particularly important for Attock Refinery which was utilising entire crude from Kohat that would also affect allied gas production from fields in Khyber Pakhtunkhwa.

“We are heading towards disaster,” one of the participants was quoted as telling the secretary petroleum because the domestic production of petrol, diesel, kerosene and jet fuel would also need to be imported involving a lot of foreign exchange.

It was in this background agreed that some of the power plants be asked to start lifting furnace oil from local refineries to create space of production of other products. About 70pc requirement of furnace oil or about 6 million tonnes are imported while remaining 30pc is produced by local refineries at the rate of about 10,000-12,000 tonnes per day.

PSO also reported that consumption of power plants was still negligible and its storages were almost topped up. “PSO is not being able to uplift HSFO and LSFO from local refineries and the import cargoes are exposed to huge demurrages,” it said explaining that this situation was leading towards total shutdown of refineries.

“This is very critical situation and may hamper availability of all other products”, the PSO said. It proposed to top up Genco’s storages to create space for one cargo and allow PSO to lift 50pc HSFO production from local refineries and the remaining by other OMCs.

The oil companies told the government that the situation was affecting the availability of products like petrol, high-speed diesel and jet fuels – both JP-1 for Pakistan International Airlines and JP-8 for Pakistan Air Force.

The problem had been aggravated by poor planning at the government level as PSO, despite its stuck up amounts of over Rs310bn, had booked six ships full of furnace oil from abroad on the instructions of the power sector as late as Oct 25 while Prime Minister Shahid Khaqan Abbasi ordered closure of oil based plants two days later ie Oct 27 to facilitate maximum utilisation of LNG.

The ministry was told that ARL was also heading towards a total shutdown and thereafter not only will the product availability be affected as for the other refineries but JP-1 supplies to Islamabad Airport will totally stop.

ARL told the government to make alternate arrangements in case of its imminent closure. The oil companies said the PSO had lined up a total of eight import cargos including carryover from the previous month and berthing of HSFO tankers was already seriously compromised.

The domestic refineries are responsible for 30 percent of high and low sulphur furnace oil supplies which comes to around 300,000 tonnes per month while PSO is responsible for about 66 per cent of the total HSFO/LSFO supplies with other importers also catering for the remainder of fuel oil.

The oil industry advised the government to urgently address the crisis and the power division should be direct all thermal power plants to urgently lift local refinery product as well as PSO product to create ullage in the system. “If this situation is not alleviated, it will result in widespread shortages of all the other products across the country”, they said in writing.

Published in Dawn, November 23rd, 2017