Refineries mull oil export

Say absence of HSFO demand forcing them to shut down plants

ISLAMABAD:

Oil refineries have sent an SOS message to the government, requesting it to take measures for procurement of high sulphur fuel oil (HSFO) to safeguard strategic assets of the country as power plants have stopped taking furnace oil supplies.

At the same time, the refineries are considering exporting furnace oil for which initial process has begun.

According to sources, independent power producers (IPPs) are keeping HSFO stocks below 30 days of requirement and storage capacity of all power plants is currently under-utilised.

In the SOS, the refineries warned the federal government that they were heading towards forced shutdown, which would also impact supplies of motor spirit (petrol), high-speed diesel and jet fuel to consumers.

“The situation of local refineries requires immediate action from the Ministry of Energy to compensate and accommodate, enabling the refineries to ensure refinery continuity. We reiterate that until and unless IPPs increase HSFO burning/ consumption, there is no way to keep up refinery operations,” said a letter sent by a refinery to the director general (oil) of the Petroleum Division.

However, to the dismay of refineries, the export option is clearly not viable due to certain reasons such as port congestion, negligible demand for HSFO in the international market and financial losses caused by high stocks in storages.

“Refineries have floated an HSFO export tender last week and have not yet received any workable offer,” revealed the refinery in the letter.

According to sources, the IPPs are required to keep stocks as per the fuel supply agreement, which is part of the power purchase agreement (PPA).

As per PPA amendments signed with oil-fired and other IPPs in February 2021, the power plants agreed to replenish their fuel stocks (for 20 to 30 days) as per their original PPAs.

Earlier, in a letter sent to the Petroleum Division on November 22, Pakistan State Oil (PSO) also pointed to the refusal of IPPs to procure furnace oil despite a firm commitment.

PSO had also written a letter on the same issue on November 11.

“It is noted with concern that actual purchase by IPPs/ Gencos since July 2021 is significantly short of the Ministry of Energy and/or customer demand, resulting in accumulation of stock inventory,” the letter said.

As a result, PSO’s inventory has reached the optimum level at around 136,000 tons, the oil marketing company said.

Published in The Express Tribune, December 1^st, 2021.

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