ISLAMABAD: As several countries are struggling to buy cheaper oil amid a drastic plunge in demand due to the coronavirus fuelled lockdowns, Pakistan’s attempts to take advantage of the slump in oil prices have failed due to lack of strategic storages in the country.
The country does not have any space available in onshore storages to import cheaper oil for future needs. Considering this, the Ministry of Maritime Affairs had floated a proposal to store oil in offshore storages, which was turned down by the government due to the high storage cost demanded by Pakistan National Shipping Corporation (PNSC).
The Petroleum Division had informed the government that cost of storing oil in offshore storages was even higher than the offer of forward and future contracts of oil. Forward contracts mean that Pakistan can make forward buying for oil contracts that would be in stocks of oil importing countries and the stock could be imported in the coming months. According to the Petroleum Division, the cost of such contracts was lower compared to the cost of oil to be stored in offshore storages that would reflect in consumers’ prices.
Sources told The Express Tribune that the idea of offshore storages was floated in a Cabinet Committee on Energy meeting chaired by Minister for Planning Asad Umar.
The cost of offshore storages was $9.45 to $15.45 per metric tons for one month. In addition to this cost, one-time expenditure of three aframax will be $2.12 million and $4.41 million for one VLCC.
Keeping in view such a scenario, the Petroleum Division had informed that the cabinet body had shelved a plan of offshore storages to store oil.
Officials told The Express Tribune that the Ministry of Maritime Affairs had informed the government that there was no onshore storage available at this time to store the oil. However, it had worked out a plan for offshore storages in the country to store products due to slump in global oil prices.
The global oil prices had crashed which had provided an opportunity for oil importing countries like Pakistan to import the commodity and store it for future use. Unfortunately, due to a lack of strategic storages the country was unable to take advantage of the slump.
In Pakistan, oil marketing companies are bound to store petroleum products for 20 days. But they had been unable to maintain stocks due to which the country had faced a diesel shortage crisis.
Owing to low demand of petroleum products, oil marketing companies had refused to uplift products from refineries. Some refineries had to close operations due to lack of storage facility in the country.
In the past, Pakistan has had to face oil shortage several times, while Punjab had faced the worst petrol crisis in 2015, following which some senior officials from the petroleum ministry had been removed at the time.
Even then, the country’s power corridors raised serious questions and concerns over the lack of storage facilities in the country. No lessons were drawn from that ordeal and the current crisis has exposed the country’s shortcomings in this scenario.
Meanwhile on the global front, media reports put China’s current oil reserves at around 400 million barrels in total, with a capacity of around 500 million barrels.
On the other hand, the US had the largest emergency supply in the world, and its underground tanks in Louisiana and Texas had capacity for 797 million barrels. The United States had started work on petroleum reserves in 1975 after oil supplies were interrupted during the oil embargo in 1973 to counter future supply disruptions.
Indian Strategic Petroleum Reserves Limited (ISPRL) maintains an emergency fuel store of total 5.33 million metric tons or 36.92 million barrels.
Pakistan oil refineries are bound to maintain 20 day stocks, however, during the recent crisis of high speed diesel in Punjab, all oil marketing companies had average two to three days’ worth of stock except Pakistan State Oil (PSO) that claimed it had stock for 15 days.
The petroleum levy that the government collected from petroleum products was supposed to be spent on the development sector. However, the taxes collected were never spent on building storages as was the case with Gas Infrastructure Development Cess (GIDC) meant for spending on gas pipeline projects. It too was spent either on orange line project or went into pockets of other industries.
One official suggested the government allocate funds from the development programme to build strategic reserves and recover the cost from consumers by reflecting it in the price.
He added that the government should import cheaper products and store in the country but since it wasn’t feasible due to lack of storage, it should ink forward contracts for petroleum products to take benefit of the current slump in global oil prices.
Published in The Express Tribune, May 10th, 2020.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.