Industry raises red flag over imminent oil crisis

Updated December 11, 2017


ISLAMABAD: The oil industry has raised the red flag over imminent closure of local refineries and related inability of the oil companies to provide enough fuels for smooth operations of aviation and security aircraft.

In an “SOS-Rush to Desk” to the petroleum division, the Oil Companies Advisory Council (OCAC) — an umbrella body of around three dozen refineries and oil marketing companies — said the refineries had been forced to continuously scale down production now reaching a point of a complete shutdown and impacting jet fuels.

The oil industry has been struggling for a sixth week to cope with setback caused by closure of oil-based power plants in October.

The jet fuels at almost all the airports had reached critical stage. The throughput reduction was “severely impacting the supply of all other petroleum products. The impact is especially pronounced on the availability of JP-1 for the airports and of JP-8 to the Air Force”, wrote the OCAC to petroleum secretary Sultan Sikandar Raja, who is on an extended joyride trip to Singapore and Dubai to attend board meetings of an oil company and a refinery.

Informed sources said the largest fuel supplier and state-run PSO was already advising its clients of aircraft operators to fly in with additional fuel and keep reliance for refuelling in Pakistan to a bare minimum. It has ordered two additional vessels of jet fuels on an urgent basis, but their arrival would be due by this weekend.

On the weekend, the OCAC reported that Pakistan Refinery Limited (PRL) had been forced to “recycle” furnace oil to keep its machines functioning but would be forced to shut down on Monday and impact jet fuel to Karachi airport. The country’s largest refinery – Byco – remains closed for a third week.

The PSO had last week told the government that its upcountry airports – Lahore, Islamabad, Sialkot, Multan, Faisalabad and Peshawar – were on a dry-out position and the aviation authorities could be compelled to declare NOTAM – a situation where a Notice to Airmen – is issued to alert aircraft pilots of potential hazards along a flight route or at a location that could affect the safety of the flight.

A senior official at the petroleum division said that despite its sincere efforts in consultation with the oil industry, the power division was not forthcoming with furnace oil consumptions. A power division official said the electricity demand had gone down in winter and was being met by cheaper plants on the economic merit order – hydro, natural gas, imported re-gasified liquid natural gas (RLNG), nuclear and coal.

The petroleum division official said the problem of very low or zero usage of local furnace oil persisted and, unless addressed, would lead to product shortfalls to the market.

“When a Refinery operates, it produces the whole range of product, from LPG, petrol, kerosene, diesel, Jet Fuels (JP-1 and JP-8) and residual furnace oil (RFO). With RFO not being used, storages have filled up, forcing the refineries to reduce throughput to the bare minimum. Critically needed volumes of Jet Fuel (JP-1 for the airports and JP-8 for the Air Force) are already under threat,” he said.

The OCAC deplored that despite best efforts and a series of meetings with senior officials of the power division, no respite is forthcoming to the refineries to keep them operational. The PRL reported that this low rate of furnace oil lifting of around only 400-500 tonnes per day had forced it to recycle RFO to crude tanks.

“The other refineries also are looking at very low ullages in their RFO storages, and operating at sub-optimal throughput including NRL which, too, will not be able to meet its jet fuel commitments to both Karachi airport as well as to the Air Force. ARL too will not be able to supply the additional jet volumes demanded by the airports and the Air Force and Parco”, the OCAC noted.

It deplored that Prime Minister Shahid Khaqan Abbasi had ordered during a meeting on Wednesday for close coordination between power and petroleum divisions to find a solution. “Despite regular attempts and meetings with the power division by (OCAC and petroleum division), we see no understanding of the situation by the concerned nor an appreciation of the fact that shortage of petroleum supplies to the market are imminent.”

Officials explained that refineries together were responsible for 30 per cent of the furnace oil supplies or around 300,000 tonnes per month while PSO is responsible for around 66pc of the total furnace oil supplies, with other importers catering for the remainder.

The oil industry also advised creation of a proper forum for planning of energy supplies to the power sector given the fact that this was the second time this year that supply crisis had occurred “purely because of the lack of planning and coordination on the part of the national power control centre and the power sector” that put the entire country’s oil supply chain at risk.

The OCAC argued that the forum should comprise the representatives of the NPCC, Wapda, the ministry of energy, power division and petroleum division and PSO and be tasked with the planning for energy supply of the country for the next three months. “This will remove the ad hoc decision-making which is currently taking place and will protect the supply chain.

The permanent solution, said an official, lied with understanding of the problem by all concerned, including the ministries and divisions that could work out a proper plan for RFO use to ensure that the already imported RFO volumes were utilised along with production from local refineries for their optimal capacity utilisation.

The sources said the defence authorities had written a series of letters to the quarters concerned to keep a close watch on fuel supplies required for the Air Force in view of depleting stocks. Defence authorities are reported to have expressed serious concerns over the situation at a last week product review meeting and warned of serious consequences.

The problem emerged after the authorities concerned were directed by the prime minister office on Oct 27 to shut down furnace oil-based plants even though the power sector authorities had ordered fresh imports on Oct 25. As a result, the furnace oil storages were topped up, affecting production of other petroleum products.

Published in Dawn, December 11th, 2017