Fall in local oil production leads to record imports

KARACHI: The fall in local oil production amid growing circular debt has led to record imports of oil products, according to an analyst.

Oil marketing companies (OMCs) imported 1.4 million tons in May compared with the average monthly imports of one million tons.

At a time when the current account deficit has dropped close to two per cent of Gross Domestic Product (GDP), the rising oil imports can be a challenge for the government next year along with uncertainty about the new International Monetary Fund (IMF) loan tranche, said Topline Securities analyst Farhan Mahmood in his research report.

Oil products import rise

Total oil products imports were up 26 per cent to 11.2 million tons during the first 11 months of the current fiscal year against 8.9 million tons during the same period last year.

This was led by furnace oil (FO) imports which stood 30 per cent higher on yearly basis, said Mahmood.

Spike in furnace oil import

Imports of furnace oil, a major fuel for electricity generation, stood at a record 750,000 tons in May.

Imports of furnace oil are constantly increasing because of the rising demand by thermal power plants, said Mahmood.

Why refineries slash production?

Circular debt is the major reason behind the declining refinery production, said Mahmood.

Demand for crude oil by the refineries has decreased because of liquidity shortage, Mahmood added.

Refineries have only imported six million tons this year compared with 7.1 million tons last year, according to the Oil Companies Advisory Committee (OCAC) website.

Only in May this year, crude oil imports stood at 500,000 tons, the lowest monthly imports in the last 18 months.

Refineries meet 73 per cent of the crude requirement through imports.

Two big oil refinery plants are expected to start in the next six to 18 months with a combined processing capacity of 220,000 barrels per day, more than 80 per cent of the country’s existing refinery capacity, which will help decrease the imports. These are Byco’s 120,000 barrels per day and TransAsia’s 100,000 barrels per day processing plants.

Published in The Express Tribune, June 22^nd, 2010.