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November 28, 2018

Oil refineries fear shutdown on slow offtakes of furnace oil

Business

November 28, 2018

KARACHI: Oil refineries fear shutdown as slow offtakes of furnace fuel oil following the government’s shift to gas-based power production have left them with the key product surfeit and that can make their entire supply chain to break down, The News learnt on Tuesday.

Oil refineries proposed the government that a minimum of 10,000 metric tons (mt)/day, 300,000 metric tons/month or 3.6 million metric tons/year of the furnace oil should be made mandatory part of energy mix for electricity generation to ensure uniformity in production at refineries throughout the year.

“Furnace oil upliftment situation has not improved so far,” a body representing oil companies in the country said in a letter last week to the ministry of energy.

“For the period 1 to 21 November, only around 69,000mt or 3,285mt/day of furnace oil have been sold by all OMCs (oil marketing companies) throughout the country.”

The Oil Companies Advisory Council (OCAC) further warned that all the major refineries have already slowed down and are generally operating at their lowest levels and “heading towards imminent shutdown if consumption by power plants are not enhanced on urgent basis”.

Successive governments are relaying on regasified liquefied natural gas (RLNG) to slash oil import bill that accounts for around 20 percent of the country’s annual imports of $61 billion. Furnace oil cost is higher than imported LNG.

OCAC said smooth running of all refineries is vital for national logistics and country’s security.

“The ministry of energy (petroleum and power) needs to take a holistic view of whole situation before the supply chain of petroleum products especially motor gasoline and jet fuel breaks down,” it added.

Slowdown in furnace fuel oil consumption in electricity generation has adversely affected all the major refineries including Pak Arab Refinery (Parco), Pakistan Refinery Limited (PRL), National Refinery Limited (NRL) and Attock Refinery Limited (ARL) by reducing their throughput.

Parco, a joint venture between the governments of Pakistan and Abu Dhabi, is already facing one of the lowest production levels.

The refinery is operating at 65 percent, “which is technically its lowest operating level and is heading for a shutdown if immediate upliftment of furnace oil is not done by OMCs,” Parco’s Managing Director Tariq Rizavi said in a separate letter to director general (oil) of energy ministry.

Parco produces around 160,000mt of diesel, 75,000mt of motor gasoline, 30,000mt of jet fuel oil for Pakistan International Airlines and Pakistan Air Force (PAF), 8,000mt of JP-8 and 12,000mt of liquefied petroleum gas on a monthly basis at 100 percent thruput.

“Parco refinery closure at this stage will have serious ramifications. It will break the product supply chain, resulting in serious shortage of production in the country, with immediate dryouts of motor gasoline, JP-1, JP-8 supplies to PAF and disruption in local crude disposal,” Rizavi said.

PRL is also operating at bare minimum capacity. The refinery produces 1,500mt of furnace oil per day and its furnace oil availability hovers around 45,000mt per month, while it has a leftover inventory of 15,000mt.

For November, NRL declared an availability of 45,000mt of furnace fuel oil.

“As against due pro-rated upliftment of 30,000mt actual upliftment has only been 9,000mt, resulting in gross stock level of about 28,000mt,” Jamil Ahmed Khan, chief executive officer of NRL said in a letter to the energy ministry.

“(Therefore), NRL has been constrained to operate at minimum feed level floating around 70 percent. In case the upliftment pattern of furnace fuel oil continues as up to now, NRL will be forced to shut down.”

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