Furnace oil imports at all-time high

KARACHI: The import of furnace oil rose to a record high at 0.7 million tons in October at a time when oil marketing companies were facing a severe liquidity crunch.

The highest monthly imports witnessed over the last decade were due to increasing furnace oil demand from new thermal power plants, gas supply cut in winter for power generation and Pak-Arab Refinery Company’s plant shutdown, said Topline Securities analyst Farhan Mahmood.

October imports stood 40 per cent higher than average monthly imports last year. This trend is likely to continue as power generation is expected to be more oil-based once new expensive furnace oil-based power plants start production, added Mahmood in a sector report.

However, there remains the circular debt issue which restricts furnace oil demand unless all the cost is passed on to the consumers according to an agreement with the International Monetary Fund (IMF). Pakistan produces 35 per cent of electricity from furnace oil, which was only 16 per cent five years ago and is expected to reach between 48 and 50 per cent by fiscal 2013.

Rising demand from new plants

The primary reason for the rising furnace oil demand is the new thermal power plants including Nishat Power (NPL) and Nishat Chunian Power (NCPL), which started operations in June-July this year.

Both power plants have designed capacity of 200 megawatts each. These power plants require 0.7 million tons of furnace oil annually, 10 per cent of the country’s annual furnace oil imports which stood at 6.7 million tons in fiscal year 2010, according to Topline Securities.

Pre-buying due to winter

The other factor is the annual gas curtailment to different consumers, including the power sector, during winter season. Annual maintenance by exploration and production companies and higher gas demand from the domestic sector results in a shortage, informed Mahmood. Thus, gas supply to power plants is reduced and dependence on alternate furnace oil increases. Currently, gas contributes 32 per cent to total electricity generation.

The plant shutdown by Parco, the country’s largest refinery, because of the floods was another major factor which triggered demand for imported furnace oil, concluded Mahmood.

Prices up by Rs2,284 per ton

Local furnace oil prices have witnessed a sharp increase of Rs2,284 per ton, in line with rising international oil prices.

Oil marketing companies informed The Express Tribune that the price of imported furnace oil has now reached Rs53,145 per ton. Following the dearer rates of fuel from abroad, local refineries have also hiked prices of the fuel.

Pakistan Refinery and National Refinery have increased rates by Rs2,035 to Rs52,951 per ton, while Pak-Arab Refinery has raised its rates by Rs2,664 to Rs55,461 per ton.

Analysts explained that oil prices have historically trended higher in the winter months due to more consumption of fuel for heating purposes. Continuing sanctions against Iran, a major oil producer, are also being seen as a factor for higher oil prices in the coming months. Brent crude oil prices have jumped over $87 per barrel at the London exchange.



Published in The Express Tribune, November 16^th, 2010.