Tuesday April 16, 2024

Pakistan pursues Russian oil imports at G7 price cap, wants better crudes

By Khalid Mustafa
September 20, 2023

ISLAMABAD: Pakistan is seeking a monthly supply of crude oil from Russia at a price not exceeding the $60 per barrel limit set by the Group of Seven (G7) nations, a senior official of the Energy Ministry told The News on Tuesday.

The official said the country had decided to import Russian crude every month after examining the results of a pilot shipment of 100,000 tonnes of URAL crude, which was refined by Pakistan Refinery Limited (PRL).

PRL produced 10 percent petrol, 60 percent furnace oil and 10-15 percent diesel from the URAL crude, and the remaining 15 percent other products, the official said. The PRL had to export furnace oil at a loss of 25 percent of the Brent crude price.

The furnace oil out of URAL has been produced 50 percent with high viscosity at 700cSt and PRL has to mix 10 percent diesel in it to decrease its viscosity at 180 cSt so that it could flow. This is how the furnace oil production at 180 cSt escalates to 60 percent and diesel production is reduced by 10 percent.

So the net diesel production stand at 10-15 percent out of URAL. This means that out of 100,000 tons of URAL crude, the decades-old PRL has to export 60 percent URAL crude in the shape of furnace oil at a discount price. “Moscow has indicated that Russia will purchase the furnace oil from Pakistan, but the price is yet to be determined,” the official said.

He said that Pakistan had asked Russia to provide better crudes such as SOKOL or Siberian Light Oil, which are more costly in the international market than URAL. “It is up to the Russian authorities if they would offer SOKOL or Siberian light oil with a huge discount of $35 per barrel or not.”

The official said that at a time when Brent crude price had risen to over $95 per barrel and was predicted to touch $100 per barrel because of the production cut by OPEC+, Pakistan felt it should have one Russian crude shipment a month.

“Now the question arises if Russia would provide the crude oil to Pakistan at a discount of $35 per barrel as the Brent price has reached $95.03 per barrel and the price cap stands at $60 per barrel."

The official said that Pakistan also needed a long-term commercial agreement with Russia for the import of crude. A committee headed by DG Oil comprising representatives of PSO and PRL had held meetings to discuss the formation of a Special Vehicle Purpose (SPV) for importing Russian crude.

However, Pakistan LNG Limited (PLL) could also be used as an entity to import Russian crude instead of SPV as in its terms and articles, the import of crude was also mentioned, the official said.

The Petroleum Division had recently updated caretaker Prime Minister Anwar-ul-Haq on Russian crude and its impact on POL prices and the risks involved in 30-36 days transition with squeezing discount and production of furnace oil of 50-60 percent, the official said.

The Prime Minister was told that if PRL, which is a government entity, continued to refine Russian oil, then the maximum benefit of Rs1 could be passed on to consumers in per litre of petrol and diesel price if PRL kept Rs1 per litre as refining margin apart from refining cost, the official said.

The Prime Minister was also told that if PARCO and NRL joined and equally refined the Russian oil, then the benefit could go up to Rs3 per litre depending on the volume of the Russian crude.

However, no company except PRL was ready to refine the Russian oil as it was heavy and sour and required upgrading facilities, which only PARCO had among all refineries in Pakistan, the official said.

As PARCO, being comparatively the latest refinery and better plants will help increase the yields of Russian crude and reduce the production of furnace oil to some extent. However, PARCO, and NRL have refused to refine Russian oil.