PACRA blames POL production, consumption gap on refineries

KARACHI: Lack of conversion and deep-conversion capabilities at local refineries leads to a mismatch between the national petroleum, oil and lubricant (POL) production and consumption mix, a study showed.

Higher production levels and slower off-take of furnace oil has a tendency to cause bottlenecks in the production process. Currently, the refineries can only store 7.6 percent of annual average furnace oil yield.

Pakistan maintains low stocks of crude oil, as total national crude oil storage capacity only accounts for 7.8 percent of the annual average crude off-take, a latest study of PACRA on refineries stated.

About the financial risks to the refineries, in September 2022 industry borrowings stood at Rs147.109 billion versus Rs129.8 billion in the same month of last year, increasing by 13.3 percent year-on-year.

Short-term financing held a 68 percent share in the total borrowings mix and grew by 5.4 percent YoY. On the other hand, long-term financing held a 14 percent share in total borrowings; decreasing by 15.7 percent YoY.

“Increased borrowings during peaking interest rates are reasonably expected to adversely impact the industry’s bottom line going forward,” it stated.

Pakistan significantly relies on imports to meet its demand of crude oil. On average, around 8.6 million tonnes of crude oil is imported every year. Total crude oil imports in FY22 amounted to $5.6 billion, which was $3.1 billion in the previous fiscal, representing 7.1 percent of total import bill.

While the volume imported increased by just 0.5 million tonnes to 9.3 million tonnes against 8.8 million tonnes in FY21, value of imports increased most likely due to annual 35 percent currency depreciation against dollar.

POL imports for FY22 rose to 13.1 million tonnes against 10.1 million tonnes in FY21, an increase of 29.7 percent YoY, the study said.

In FY22 POL import bill amounted to $12.1 billion against $5.2 billion in the previous fiscal, representing 15 percent share in total imports. The hefty bill resulted due to a culmination of rupee depreciation, higher oil prices in international market and surge in demand, the report stated.

In the first quarter of FY23, petroleum products’ imports declined in quantity by 31 percent YoY to 1.1 million tonnes, reflecting high pump prices and suppressed demand due to flash floods in the recent months.

Currently, there are five refineries operating in the country, namely Attock Refinery Limited (ATRL); Pakistan Refinery Limited (PRL); National Refinery Limited (NRL); Pak Arab Refinery Limited (PARCO) and Byco Petroleum Pakistan Limited (BYCO).

The sector is highly regulated with prices of two major products, ie MOGAS and diesel, being determined by the Oil and Gas Regulatory Authority on fortnightly basis.