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December 5, 2018

Petroleum ministry convenes meeting today to discuss low furnace oil sales


December 5, 2018

ISLAMABAD: Ministry of Petroleum convened a meeting today (Wednesday) to resolve issues related to low offtakes of furnace oil from refineries with the fuel sales sharply falling around 70 percent in the first five months of the current fiscal year of 2018/19.

The energy ministry said the meeting is tentatively scheduled on Wednesday.

“The minister for petroleum has decided that a meeting of the Cabinet Committee on Energy may be scheduled on Wednesday,” to discuss upliftment of furnace oil from oil refineries, the ministry said in a statement.

Furnace oil sales continued to exhibit significant decline and fell 68 percent to 1.229 million tons in the July-November period, while its monthly sales were also down 70 percent year-on-year and 52 percent month-on-month in November, as power generation mix shifted to other fuel sources, including coal and regasified liquefied natural gas.

“Going forward, high base-effect pertaining to FO (furnace oil) volumes will remain the predominant factor behind lower POL (petroleum, oil and lubricant) volumetric growth in the country,” analyst Muhammad Nabeel at Pearl Securities said.

Oil refineries proposed the government that a minimum of 10,000 metric tons/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.

They feared shutdown as slow offtakes of furnace fuel oil left them with surplus and that could make their entire supply chain to break down.

The other issues to be discussed at the cabinet meeting include demand from power division on liquefied natural gas requirement from Sui Northern Gas Pipelines Limited for the next four months and liquefied petroleum gas prices after reduction of general sales tax and regulatory duty on imports.

Brokerage Topline Securities said overall oil sales slipped to the more than decade low level by posting 33 percent decline to 7.7 million tons in 5MFY2019.

High speed diesel sales declined 21 percent and motor spirit sales fell two percent in the July-November period.

In November, oil sales were recorded around 11 years low at 1.3 million tons, down 32 percent year-on-year.

Excluding furnace oil, oil sales plunged 22 percent in November over the same month a year earlier.

“Steep decline in FO was on back of slower offtake from domestic refineries,” analyst Shankar Talreja at Topline Securities said.

In November, motor spirit and high speed diesel witnessed decline of five percent and 31 percent year-on-year, respectively.

Leading oil marketing company Pakistan State Oil recorded the highest 50 percent decrease in oil sales in the July-November, followed by Hascol (down 22 percent), Shell (falling 13 percent) and Attock Petroleum Limited (decreasing 11 percent).

“With international oil prices exhibiting a significant decline from $85/barrel peak and the government already having reduced oil prices for December, any further reduction in retail fuel prices will widen pricing differential with compressed natural gas and provide some support to POL demand,” Nabeel of Pearl Securities added.

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