Refineries gear up for Euro V shift, set to slash furnace oil output

KARACHI: Local refineries are poised to ramp up production of high-margin petroleum products, petrol and diesel, following a significant reduction in furnace oil output, in line with agreements made under the government’s Brownfield Refinery Policy.

The policy, crafted with input from the refinery industry, aims to align local production with Euro V standards, enhancing the output of motor spirit (MS) and diesel while curtailing furnace oil (FO) production.

“Pakistan Refinery Limited (PRL) has already signed the agreement for upgradation, and Attock Refinery Limited is expected to follow suit shortly,” industry sources told The News. Pakistan’s total average requirement for the last five years for petroleum products stands at 24 million tonnes, out of which 11.35 million tonnes have been produced locally while the rest (12.90 million tonnes) were imported, a report of Arif Habib Limited said.

Pakistan, having a total capacity of 20 million tonnes, cannot fully utilize its capacity due to the lower demand for FO in the country, amid a shift in the energy mix within the power sector. To note, refineries are unable to significantly change their production slate, hence reducing their throughput.

The government, being cognizant of the overall situation, announced a policy on August 17, 2023 for the upgradation of brownfield refineries, which was further amended for brownfield refineries in February 2024.

Refineries that endorse the policy will receive additional tariff protection or deemed duty incentives, amounting to 10 percent for Motor Spirit (MS) and 2.5 percent for diesel for seven years.

The upgradation policy is anticipated to enable refineries to increase total production of MS (99 percent) and diesel (47 percent). The production of furnace oil is expected to reduce by 78 percent.

The report said that the refinery sector is the backbone of industrial development and products being used in transportation, industrial use, power generation, and other energy products. Major types of refining processes are Hydro Skimming, conversion/cracking, and deep conversion.

Presently, in Pakistan, there are five oil refining companies, namely, Pak-Arab Refinery Limited (PARCO), Attock Refinery Limited (ATRL), National Refinery Limited (NRL), Pakistan Refinery Limited (PRL), and Cnergyico Pk Limited (CNERGY).

All refineries in Pakistan are based on Hydro skimming technology, except for PARCO, which has a mild conversion refinery.

In FY23, the country’s total refinery capacity was recorded at 20 million tonnes per annum (450,000 bpd), but the actual utilization was 10 million tonnes per annum (utilization: 50 percent). Whereas, the total demand in Pakistan was 21 million tonnes per annum, due to this Pakistan had to import 11 million tonnes in FY23.

The production slate of all existing local refineries consists of Naphtha, Motor Gasoline (MS), High-Speed Diesel (HSD), Furnace Oil (FO), Kerosene, Jet fuel (JP-1 & JP-8), High-Octane Blending Component (HOBC), Liquefied Petroleum Gas (LPG), and Light Diesel Oil (LDO).

With the change in the country’s energy mix over the last 3-4 years, furnace oil demand is plummeting amid lower offtakes from power generation companies. Due to this, refineries reduced their overall production, which resulted in lower utilization, the report said.