KARACHI: Operational constraints continue to affect the oil refining sector even though the local crude processors first raised the issue more than a month ago.

Independent power producers (IPPs) are still not lifting locally processed furnace oil that they’re required to store on their premises for emergency use, said Mohammad Wasi Khan, chairman of Cnergyico PK Ltd (formerly Byco Petroleum), while speaking to Dawn on Wednesday.

The country’s energy managers imported excess furnace oil for IPPs while expecting a shortage of LNG in winter months given its unusually high international prices. Their miscalculation created a glut in the local market as the five refineries were left with huge stocks that IPPs refused to lift.

As a result, Cnergyico PK Ltd along with Pakistan Refinery Ltd and National Refinery Ltd had to suspend their operations last month.

All refineries are currently operating at low capacities. Their optimum throughput of furnace oil is about three million tonnes a year, which translates to the average production of 8,000-9,000 tonnes a day after accounting for all variables. The current production is estimated to be 3,000-4,000 tonnes a day as refineries’ own storages are almost full, said Mr Khan.

Given the lack of demand for furnace oil within the country, local refineries have been forced to export their output at a loss. The News reported on Wednesday that Pak Arab Refinery Ltd is exporting its furnace oil at a price that’s over $100 per tonne lower than the prevalent ex-refinery price. “It’s highly challenging for the local refineries to maintain their operations under these circumstances,” said Mr Khan.

He suggested that the government should earmark a power generation capacity of at least 1,500 megawatts for furnace oil — a level of output that’s “adequate to consume local refineries’ production at their optimum capacities”.

It takes about five tonnes of furnace oil to produce one megawatt of electricity. It means the local production of 8,000 tonnes of furnace oil should be sufficient for generating 1,500-1,600MW per day, he said. Letting refineries stay operational will also result in the local production of petrol, diesel and jet fuels for domestic supplies, which will reduce import dependence.

Electricity consumption ranges between 12,000MW and 25,000MW every year. “Earmarking 1,500MW (for furnace oil) should be manageable, particularly when it’s resolving a country-wide energy supply chain issue. Refineries running consistently and utilising their optimum capacities will address at least one of the critical variables in the supply chain parameters,” said Mr Khan.

Speaking to Dawn, Ministry of Energy spokesperson Muzzammil Aslam said IPPs are currently lifting 5,000-6,000 tonnes of furnace oil every day from local refineries. “The situation will improve further when they start lifting up to 15,000 tonnes a day after Jan 10,” he said while referring to the expected increase in demand for furnace oil amid a reduced share of hydel-based electricity in total power generation during the winter months.

As for the refineries’ demand that the merit order be partially suspended to accommodate the locally produced furnace oil in the power mix, Mr Aslam said only the Economic Coordination Committee can take such a decision.

Published in Dawn, January 6th, 2022