POL demand surges to two-year high

Steep rise in car sales, economic activity drive demand for petroleum products

KARACHI:

The demand for petroleum oil products like petrol, diesel and furnace oil bounced back to two-year high at 19.38 million tons in the previous fiscal year ended June 30 in the wake of gas crisis and steep growth in car sales during the year in Pakistan.

Besides, turnaround in economic activities amid all-time high output of major agriculture crops like wheat and running of factories close to their full installed capacities during the year and record high electricity generation in the past two consecutive months (Apr and May); all created increased demand for oil during the year.

The demand bounced backed by 18% to 19.38 million tons in fiscal year 2021 compared to 16.41 million tons in the prior fiscal year 2020, JS Research reported citing Oil Companies Advisory Committee (OCAC) on Monday.

The recovery in demand for petroleum products was seen after consecutive decline in the prior three years (FY18, FY19 and FY20) compared to the high hit in FY17. The demand at 19.38 million tons in FY21 is still low compared to 24.70 million tons in the first (FY18) of the three successive years.

“The return of furnace oil (FO) in Pakistan (in light of the gas crisis) did play a major role as demand grew by a massive 54% in FO compared to the last year, one cannot simply ignore the double-digit growth in the sales of motor spirit (MS/petrol) and high speed diesel (HSD) in FY21,” JS Research’s analyst Ali H Zaidi said in a commentary. “Given that the oil industry sales are still well below the highs seen in FY17 (at 25.80 million tons), we believe one can reasonably expect the growth to continue impressively, albeit at a slower pace,” he said.

To recall, the government had banned use of expensive furnace oil to produce power in the prior years. However, low production of gas from domestic fields, low import of gas in a couple of months and continuous surge in demand for gas from residential, industrial and commercial users convinced the government to generate electricity from FO-based power plants in the year.

Together, the three main products (petrol, diesel and furnace oil) account for almost 80% of the total output of the POL (petroleum, oil and lubricant) industry. “The increase in transportation activities and robust sales of automobiles explain the growth in production of these items,” the central bank said in the second quarterly (Oct-Dec FY21) report on the state of Pakistan’s economy.

While the production of petrol and diesel increased overall in H1-FY21, the acceleration in the overall POL production from Q1-FY21 to Q2-FY21 can largely be traced to furnace oil. “Lifting of restrictions on utilising furnace oil for electricity generation in the wake of gas shortages supported the recovery in this segment. This is also evident from an increase in furnace oil’s share in the power generation mix and a simultaneous drop in the share of gas during the review period,” State Bank of Pakistan said. “The transition towards Euro-5 standard fuel and curbs on furnace oil for electricity production has created a challenging situation for the refineries.”

The demand for petrol increased 12% to 8.24 million tons in FY21 compared to 7.33 million tons in FY20. Similarly, sale of diesel surged 17% to 7.69 million tons in the year under review compared to 6.57 million tons in the preceding year. The demand for furnace oil rose 54% to 2.99 million tons in FY21 compared to 1.93 million tons in FY20.

Company-wise growth

From a company-specific view-point, the research house finds that Pakistan State Oil (PSO) has outperformed the industry with sales growing by 24% year-on-year. And this outperformance is seen in all major products in FY21, according to the research house.

On the other hand, Hascol Petroleum was the only large oil marketing company (OMC) to witness a contraction, not just in overall sales but across all major products.

Attock Petroleum Limited (APL) too witnessed a decline in the sales of retail fuels, though the black oil segment proved to be its saviour. Overall, APL barely managed to maintain its sales around the last year’s 1.7 million ton mark.

Meanwhile, sales growth of Shell Pakistan was broadly in line with the industry.

Published in The Express Tribune, July 6^th, 2021.

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