Of demand and austerity

Growth in the petroleum industry has gradually moved from positive to negative over the last four years. Product-wise overall growth that recovered post FY16 has been falling in the last two fiscal years. FY20 has been the weakest year in terms of year-on-year growth that stood at -20 percent as per SBP’s Annual Report for FY20 released yesterday. Year-on-year growth in individual key fuels has been catching up with the overall trend where FY20 saw all petroleum products including petrol (or Motor Spirit) incurring a negative growth rate.

This is a clear sign of falling petroleum demand in the country, which has been due to tougher economic times; falling industrial and manufacturing activity standstill in construction and infrastructure development; decline in car sales over particularly over the last two years. Petroleum consumption in the country started picking up pace in FY13 as lower oil prices, rise in demand by the power sector, increased infrastructure, and development activity, growing car sales and an overall increase in economic growth triggered volumetric sales by OMCs. China Pakistan Economic Corridor played a key role in growing OMCs sales as well as country’s petroleum imports with its power generation and infrastructure projects. However, rising oil prices and the change in government, anew IMF Programme, massive currency depreciation put brakes on the growth in the petroleum sector. Also, furnace oil sales that had a significant share in overall petroleum consumption started coming down with the change in power generation policy that aimed at curtailing and phasing out the expensive fuel. Moreover, as CPEC coal and infrastructure projects neared completion, and government signed RLNG contracts, consumption pf petroleum products particularly furnace oil and diesel were affected.

Still reeling from the curbs on FO and slow economic growth, FY20 brought with itself a new set of challenges. First and the most impactful was COVID-19 pandemic. SBP’s annual report highlights that post-outbreak mobility restrictions further diminished demand for energy products, which adversely affected the industry where the output eventually fell by 20.1 percent in FY20 compared to 8.4 percent contraction in FY19. FO was the biggest dampener for petroleum products, but all key products registered negative growth including petrol that had remained resilient over the years. Jet fuel consumption was also brought down to almost zero during the lockdown, and it still has not recovered completely.

Analyzing petroleum consumption by provinces show that bulk of the consumption lies with Punjab. Province wise data from OCAC shows that the Punjab accounts for over 60 percent of the total consumption of petroleum products that include furnace oil, high speed diesel, motor spirit, JP-1, Kerosene, etc. Product wise, FO’s declining trend can also be seen in Punjab’s where its share stood at 43 percent in FY20 versus 56 percent in FY05. Its share in petrol consumption has increased from around 60 percent in FY05 to over 64 percent in FY20. For HSD, Punjab accounted for 62 percent in FY20 versus 57 percent in FY05.