Oil sales drop 3% as furnace oil demand falls

Petrol consumption shows stellar growth of 21% in FY12.

KARACHI:

Pakistan’s oil consumption has dropped by 3% in fiscal year 2011-12 to 19.1 million tons, compared with 19.7 million tons in the previous year mainly because of a decline in furnace oil consumption in power production, data shows.

Despite electricity shortage, the cash problems due to inter-corporate debt prompted power companies to reduce furnace oil consumption, which fell by 7% to 8.4 million tons. Furnace oil accounts for around 45% of total oil consumption of the country.

According to figures released by the Oil Companies Advisory Committee (OCAC), the power sector consumed 5% less furnace oil as the government increased gas supplies to power companies by 4% in recent months.

Gas is a cheaper source of power generation and power companies have been given priority over others in gas allocation.

Moreover, liquidity constraints with oil marketing companies (OMCs) also led to restricted furnace oil supplies.

Smuggled diesel swamps market

Sales of gas oil, commonly known as high-speed diesel, declined by 1% to 6.8 million tons.

Topline Securities, in a report on Monday, said it believed that in FY12 diesel consumption could have been much higher, had there been no inflow of Iranian diesel through illegal channels. The market was swamped with smuggled diesel from Iran whose share had increased in the past few months, it said.

The research house cited rising price disparity between the two products as the reason behind increasing smuggling because Pakistani diesel cost more than Iranian diesel after continuous rise in taxes on the local product.

Gasoline consumption surges

Gasoline (petrol) sales depicted a robust growth of 21% on the back of growing automobile market and rising gas curtailment for compressed natural gas (CNG) filling stations, prompting consumers to switch to gasoline.

CNG industry officials claim that their gas consumption has dropped by at least 40% because of weekly shutdown of filling stations across the country to cope with gas shortage.

The share of petrol in total oil consumption rose to 14% in FY12 against 12% last year. In FY08, the share was 8%.

Atif Zafar, an analyst at JS Global Capital Limited, linked the decline in overall oil consumption to the problem of circular debt, which has adversely affected production at oil refineries.

Though domestic oil consumption had been declining in recent years, the share of imported oil was increasing because of the cash flow problem at oil refineries, which are not operating at their optimum levels, Zafar added.

Published in The Express Tribune, July 24^th, 2012.