The demand for furnace oil (FO) is likely to grow at an average rate of 7 percent annually during the next five years from FY09 to FY13. The Oil Companies Advisory Committee (Ocac) in its 2008 annual report has recently given out demand projections for furnace oil (FO).
"Looking at the sharp erosion in furnace oil price (down 58 percent from peak), declining gas supplies to power sector (3 percent annually for the last 4 years) and commissioning of new power plants, we believe FO will remain a priority product for power generation," Farhan Mahmood, an analyst at JS Global Capital said.
However, considering some delays in upcoming power projects, we are assuming FO demand to grow by 6 percent during this period. With 86 percent share in FO business, PSO will continue to reap the benefit of higher demand for this product.
FO is a main source of energy for industrial and power sector in Pakistan after natural gas. In power, main customers of FO are Wapda, KESC, IPPs and few captive power plants. As per the latest statistics, 93 percent of total FO demand comes from power sector alone while 32 percent of the electricity is generated through furnace oil. Besides FO, 34 percent, 30 percent and 0.7 percent of the total electricity in Pakistan is generated through gas, water and diesel, respectively, while, the rest is generated through nuclear energy and coal. Some five years back, 16 percent of the electricity was generated through FO, while 49 percent and 33 percent from gas and water, respectively.
Owing to rising gas shortage and availability of alternative fuel like furnace oil (FO), gas supply to power plants declined annually by 3 percent during the last 4-years. Besides these factors, phenomenal increase in CNG consumption (43 percent CAGR) during this period also restricted gas supplies to power sector.
"With the partial resolution of circular debt led by power sector, we believe FO supplies will improve. We will also see improvement in inventory levels as well," he said and added, "For FY09, we are assuming FO sales to grow by 5 percent (sales up one percent during the first eight months of FY08). Owing to higher demand for this product, we believe PSO to remain in limelight," he said.
"We expect PSO to post 4-year (FY10-FY13) CAGR growth of 10 percent in the bottom-line," he added.
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