ISLAMABAD: The oil industry has warned the government and the energy regulator — Ogra — that a crisis is looming in high speed diesel (HSD) supplies, especially during the peak harvest season, due to a host of external and domestic factors.
In a letter, the Oil Companies Advisory Council (OCAC) — an umbrella association of more than two dozen refineries and major oil companies — told the Ministry of Energy and the Oil & Gas Regulatory Authority (Ogra) that the stock position at present was satisfactory, but could lead to a major crisis unless effective measures were put in place, authentic sources in the petroleum division told Dawn.
“If planning is not done today, we may face problems in meeting the demand during harvesting season,” wrote the OCAC, adding that because of financial issues of Hascol, the local banks were reluctant to raise credit limits for the oil sector since banks had identified oil companies as high risk entities.
The OCAC said shortages of HSD had been reported over the last 10 days by international energy experts, chiefly because of depletion in HSD stocks in the United States of America, exceptionally high gas prices and lower than normal through-put operations of refineries in the European Union.
It explained that during 2020, the use of jet fuel was minimal due to global travel bans and refineries adjusted their production slate to high HSD production. With the increase in jet fuel demand in 2021-22, refineries are producing more jet fuel to cater for the demand, which in turn reduced the availability of HSD.
Moreover, China has slapped a ban on HSD exports, said the OCAC, adding that jet fuel premiums were more attractive than on HSD.
This is prompting refineries to increase jet fuel production and to curtail HSD availability. The price differential between crude oil and HSD prices as reported in Platts was about $16 per barrel _ the highest over the last few years.
Likewise, the HSD prices are higher than petrol prices _ a phenomenon not seen during the last 18 months. On top of that, a fire in a major refinery in Taiwan had also contributed to supply concerns.
Since the harvesting season would be in full swing in South East Asia from March to June, the availability constraints are anticipated to push HSD prices higher and countries dependent on imported HSD will struggle to procure the product.
Pakistan imports over 40pc of its requirement from the international market and most of the importing OMCs – barring the top four – are dependent on a single supplier, which is facing investigations by agencies over alleged involvement in Hascol default with banks, the OCAC explained.
As of now, the HSD stock situation is satisfactory in the country as 460,000 tonnes of useable stocks can provide 22 days’ cover, based on 21000 tonnes but with the commencement of harvesting season the daily HSD sales range between 25000-30000 tonnes per day.
The OCAC has called upon the government and the regulator to engage with refineries to plan their crude procurement for March-June period to operate on maximum through-put to meet high demand.
For this, the constraints faced by refineries to operate at capacity should be removed at the earliest to ensure maximum product availability locally.
The OCAC, however, warned that any unplanned HSD demand by power sector must be avoided during the March–June period as it will further aggravate the stocks situation.
Instead, local furnace oil burning to a maximum by power sector will also allow refineries to operate on optimum throughput thus producing more HSD.
Secondly, all the importing OMCs be advised to plan their HSD imports keeping availability in international market and their demand forecast and they should revisit their supply chain and reduce reliance on a single supply source to avert breakdown of country’s supply chain.
If the authorities and industry stakeholders act now in a coordinated manner, the country “will be able to overcome the challenge of managing the supply chain and avert situation faced in 2015 and 2020”, the OCAC said.
Published in Dawn, February 23rd, 2022