Petroleum division keeps impending oil crisis at bay

KARACHI: Ministry of energy managed to prevent an impending oil shortage sparked by lockdown after it allowed import of 83,000 tons of diesel cargoes during the last week of April, people familiar with the matter said on Wednesday.

Sources said the government took a timely decision to allow import of two diesel cargos with berthing on May 1, considering a robust demand forecast from oil marketing companies (OMCs), citing the anticipated price decrease, non-availability of smuggled diesel due to lockdown and the onset of the harvesting season.

“Had this volume not been allowed to be imported, the country would have faced a serious dry-out situation, impacting not just the public for transport but also the country’s agricultural produce due to the start of the harvesting season,” an official said, requesting anonymity.

OMCs, under the licence terms granted by the Oil and Gas Regulatory Authority, are required to communicate their 3-month demand to the petroleum division of the ministry of energy during a product review meetings where production of local refineries is considered and any deficit is allowed to be imported.

The government imposed an abrupt ban on imports as demand fell sharply due to the COVID-19 lockdown and there was a fear of refinery shutdowns due to the glut.

Industry officials said the cancellation of imports after initial approval wreaked havoc with the supply chain planning, profitability and international reputation of OMCs – employing more than 200,000 people – vis-à-vis their suppliers as heavy demurrage costs were incurred due to vessels awaiting import permissions.

Sources said refineries usually provide their surplus products to other OMCs in lean periods, while in peak periods this is diverted back to their own OMCs. As a result, OMCs not backed by refineries bear the brunt of these diversions and scramble for imports, taking price and foreign exchange risks.

Pakistan State Oil sold more than 50 percent of the recently imported diesel and almost 25 percent by other OMCs that were allowed by the government to import cargos.

Sources said ample stocks were made available in the country because of import permission to the OMCs.

Although swings in the supply chain are a regular feature in the oil market, the current situation was highly unusual due to COVID-19, they said.

Industry officials said import permissions should not have been cancelled at the first place. Ministry of energy needs to reinforce the sanctity of its processes and ensure that any imports are duly allowed to avoid demand and supply mismatches.

“This will not only make sure that the country maintains its strategic reserves, which fell low due to the recent shortages, but also potentially avails benefit of low oil prices – that has sadly been missed this time,” said an official.