Demand is a factor of price; and the phenomenon is visible from robust 18 percent jump in petrol volume during FY16 while the growth in diesel (HSD) was 3 percent. Higher growth in Mogas (petrol) is due to two factors - lower prices and substitution from CNG. Low HSD demand is attributed to shift of diesel based power plants on imported RLNG, while in case of transportation, diesel consumption is heading north.
All time record high volumes of 5.7 million tons of Mogas and 7.7 million of diesel are too much to test the capacity of ports to handle petroleum imports, given the stagnating capacity of local refineries. The local refineries produced mere 1.6 million tons of petrol and 3.1 million tons of diesel in FY16. The gap of consumption volume to local refining is building up as refining of Mogas increased by 0.5 percent in FY16 versus 16 percent growth in overall volume.
In the case of FO, there is no issue of port capacity as consumption has not grown and the handling is not too sophisticated. And with power plants in pipeline on coal and RLNG, there is no issue of handing FO in future. The consumption of FO at 9 million tons today may considerably reduce by 2018, once RLNG and coal based power plants come online.
However, out of 11.3 million tons refining in the country in FY16, two third is FO (3 mn tons) and HSD (4.3 mn tons) while mogas is a mere 13 percent. The growing gap between the consumption and local refining capacity is alarming as the capacity to handle better fuel is low at Port Qasim and it is visibly chocking.
Building capacity of handling petrol import is capital intensive and has been stagnant for decades. OGRA has a policy of keeping strategic reserves of each fuel for 20 days in case of emergency; but the ground reality is different as according to industry sources, reserves have been hovering between 10-15 days, of late.
That is not a good omen and it can create acute shortage anytime. Does it remind you of anything? Yes, in January 2015, there was a case of severe shortage of petrol for days. The demand is picking up, but nothing has been done so far to increase refining capacity or to build further handling capacity at port.
The total refining capacity in Pakistan is 19.3 million tons; but the total refined fuel was 11 million tons last year. There is an idle capacity of Byco of 5.5 million tons, because PSO is not buying diesel from the refinery. The state owned oil marketing company has a long term contract with Kuwait petroleum at discounted price and it would never buy that fuel from Byco. And since the refinery gets a 7.5 percent tax advantage on selling to PSO over exporting; it chooses to remain idle.
Thus, the effective refining capacity is 13.8 million tons and after factoring fuel losses, the production is limited to around 11 million tons. The high fuel losses are a concern as the refineries in Pakistan run at far from optimal efficiencies.
The bottom line is that any pick in the demand is to be filled with imports and in FY16 total imports of refined fuel was 13.8 million tons. Something has to be done to enhance the refining capacity at home. That is why signing MOUs on new refinery projects is in fashion these days.
There are three mega refining projects are in pipeline - PSO is coming up with a project of 8.5 million tons capacity while Khalifa refinery project at PARCO is back in news almost after a decade. It will produce around 11 million tons fuel. And lately Punjab Board of Investment has signed an MOU to refine 9.7 million tons in Punjab.
If all these projects come online, 30 million tons capacity would be added in the country and after adding 11 million tons production today, there would be a case of exporting refined fuel. But that is a distant dream. However, in absence of new refineries, the day is not far when the country would be having load shedding of petrol.
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