Pakistan refineries in upgrade phase

Many companies are making heavy investment to ramp up business

KARACHI:

Pakistan’s dying petroleum oil refineries are in the planning phase or at an advanced stage of heavy investment-led upgrades to remain in business, as almost all of them are operating at half of their installed capacity due to production of out-of-demand products like furnace oil.

Output of the outdated product sometimes spills over the storage capacity and hinders manufacturing of co-products in demand like petrol and diesel from the crude oil. Owing to the emergence of gas crisis time and again in the country for the past couple of years, the government agreed to lift the ban on use of furnace oil to produce electricity on and off.

Furnace oil is among the most expensive options to produce power. Besides, its use causes higher pollution compared to the low-priced gas and becomes a concern of climate change.

The up-gradation of refineries, including replacing lower grade petrol and diesel with the advanced ones Euro-5 and Euro-6, would substantially reduce the country’s reliance on import of refined oil products and return refineries to profit by 2025-27.

“Byco is investing $800 million…to add different types of 14 plants to convert the out-of-demand furnace oil into advanced quality Euro-5 and Euro-6 petrol and diesel,” Byco Petroleum Chairman Mohammad Wasi Khan said while talking to a group of journalists.

“We will stand fully upgraded over the next three to four years. As per our plans, we are to implement up-gradation plan by the year 2025,” he said.

Byco is the single largest oil refinery in Pakistan. It has an installed capacity to process 155,000 barrel per day of crude oil into a range of refined products like petrol, diesel, jet oil, kerosene and liquefied petroleum gas (LPG).

“At present, Byco is processing 50,000-60,000 barrels per day, meaning it is operating at 35-40% of the installed capacity,” Khan said. “The increase in use of the installed capacity surges stock of unwanted furnace oil…since setting up of gas-fired power plant sometimes around 2017-18 in the country.”

Total demand for furnace oil has dropped to 2-2.5 million tons per year in the country from around nine million tons till 2017-18. “The government’s decision to move on gas-based power plants was abrupt,” he said.

There are five major oil refineries that have a combined installed capacity of slightly over 417,000 barrel per day in Pakistan. The other four refineries are Attock Refinery Limited (ARL), National Refinery Limited (NRL), Pak Arab Refinery (Parco), and Pakistan Refinery Limited (PRL).

All the refineries are operating at around half of their installed capacity these days to cope with furnace oil production.

The government has given them a deadline to submit their respective up-gradation plans by December 2021 under the recently announced new oil refinery policy. The policy gives them a number of incentives including five-year tax holidays on import of crude oil, incentive in their products prices through tariff protection, which will earn them additional revenue to invest, upgrade and remain in the business. They will be required some five-year to fully implement the plans after committing revival plans, meaning they would get fully upgraded by the years 2026-27.

The low output at domestic refineries has prompted the government and oil marketing companies (OMCs) like Pakistan State Oil (PSO) and others in the private sector to meet local demand of oil products through imports.

The country is meeting some 70% demand of petrol and some 50-60% demand of diesel through imports these days.

The up-gradation would cut import of refined products substantially and save net $5-6 per barrel on import substitution at local refineries.

Pakistan has imported 12.56 million ton of refined petroleum products at the landed cost of $4.43 billion and imported almost eight million ton crude oil for $2.72 billion in the first 11 months (Jul-May) of the previous fiscal year 2021, according to the Pakistan Bureau of Statistics (PBS).

“Byco was the first refinery to react to the furnace oil supply gluts. We prepared the up-gradation plan in 2017 and officially announced in 2020. Right now, we are in the implementing phase,” said the Byco chairman.

“We are selling some 50-70% of our refined products through our marketing arm these days. We have some 400 petrol pumps, out of the total 10,000 pumps belonging to all OMCs across the country.”

Besides, the vertically integrated petroleum conglomerate operates a floating jetty called single point mooring (SPM) in deep sea at Port Qasim.

Byco Petroleum has changed its name to Cinergyco PK Limited after change of management of their off-shore investors from the troubled Abraaj Group to IGCF Oil and Gas, Mauritius.

Published in The Express Tribune, July 18^th, 2021.

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