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Power plants to start lifting of furnace oil

Updated December 12, 2017

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ISLAMABAD: Amid continuing challenges at the second Liquefied Natural Gas (LNG) terminal, the government has decided in principle to ensure simultaneous lifting of domestic and imported furnace oil for power plants to ease jet fuel challenges.

A broad understanding to this was reached on Monday after a series of meetings among the stakeholders – power and petroleum divisions and the oil industry – and is subject to approval by Prime Minister Shahid Khaqan Abbasi in a day or two.

Informed sources said the two divisions – petroleum and power – of the PM-led ministry of energy would submit a formal summary to Mr Abbasi under which the power plants would be directed to lift a combination of furnace oil produced by local refineries and imports arranged by Pakistan State Oil (PSO).

This is expected to facilitate optimal utilisation of local refining capacity so that shortages of petroleum products particularly those required by aviation and air force are overcome and increasing demurrage costs to PSO are checked. In one of the meetings, it was also put on record that the import price of jet fuels was Rs3-4 per litre higher than domestic prices hence resulting in a large price differential claims.

Govt moves to end fuel crisis as the second LNG terminal remains in trouble

The storage tanks of PSO and local refineries have been full to the brim since the prime minister office ordered closure of oil-based plants on Oct 27 as winter electricity demand plunged even though relevant authorities have been ordering higher furnace oil imports. With no space for furnace oil storage and little consumption, the refineries were compelled to reduce crude processing, effectively cutting down the production of other petroleum products.

On Monday, the furnace oil stocks were estimated to have gone beyond 935,000 tonnes enough for almost 65 days of average coverage while aviation stocks were reported no more than four days of consumption or about 11,000 tonnes.

The government would need to approve this additional cost into the product pricing as a special case. It was informed that two vessels carrying PSO’s low and high sulphur furnace oil of 60,000 tonnes each were waiting discharge at Karachi Port since November 28 and incurring $15,000-25,000 per day demurrage charges that would need to be built into the price.

Already, the PSO’s receivables had gone beyond Rs316bn including Rs273bn outstanding against the power sector, Rs16bn against Pakistan International Airlines (PIA) and about Rs10bn against the government on account of price differential claim.

A spokesman for PSO said the company was committed to meeting domestic demand of various petroleum products as a result of evolving energy mix to eliminate energy shortages in line with the strategic direction set by the government. He said the company was maintaining overall supply chain of petroleum products especially when other companies curtail and restrict their sales for short-term commercial gains which overburdens PSO.

The spokesman said while PSO optimised its product sourcing through refineries and imports and regularly updates its import plans in line with market demand, the local refineries were directly supplying JP-8 to defence authorities. He said the company had already arranged imported cargoes of Jet A-1 to meet the surge in consumption of jet fuel due to Umrah, upcoming holiday season as well as lower supplies by local refineries.

The meeting was told that due to delayed commissioning of second LNG terminal developed by Pakistan GasPort Ltd (PGPL), upliftment of furnace oil had already started. The terminal inaugurated by Prime Minister Shahid Khaqan Abbasi on Nov 20 has been unable so far to function smoothly.

The sources said the terminal and its allied infrastructure faced three leakages while developing gas pressure to the required level on Dec 2, 8 and 10 and could not contribute regasified LNG to the terminal. In the process, about 200 million cubic feet of RLNG is reported to have been lost.

Fasih Ahmad, a spokesman for the PGPL, did not agree that FSRU faced three incidents in less than 10 days but confirmed that there were some teething problems common with such projects. Last week, he had told Dawn that the unit would start gas supplies to the national gas system effective Dec 8, but this did not happen.

Mr Fasih said on Monday that commissioning procedures were under way following the successful receipt into the FSRU of the commissioning cargo. “During these standard commissioning tests, overseen by independent international consultants, two insulation joints were found to be underperforming. Both have now been rectified and the system is available and good to go,” he said.

He said the insulation joints pertained to the overland pipeline only and rectifications were made by the Chinese to the full satisfaction of all parties.

Responding to another question about the second leak, Mr Ahmad said the FSRU “commenced supplies after rectifying that insulation joint. There was another small disruption because “another insulation joint farther away was also underperforming and keeping with globally applicable safety standards and best practices, the PGPL halted despatch briefly to ensure the second insulation joint operated as envisaged.

He said the entire system had been triple tested and was operational but sidestepped question whether RLNG processed by his terminal was now flowing to the national gas infrastructure. He said the gas flows themselves were being fluctuated, again, as part of the commissioning procedures which when would result in average discharge rate 600mmscfd peaking at 690mmscfd.

Published in Dawn, December 12th, 2017