OGRA pitches large-scale fuel storage to cushion price shocks

KARACHI: The Oil & Gas Regularity Authority (OGRA) has proposed the development of large-scale storage for petroleum products similar to India and China to absorb abrupt price hikes in international market.

The petroleum industry regulator presented a proposal to this effect in the meeting of Standing Committee on Cabinet. However, industry officials and analysts believe such a project is not only economically unfeasible, but also of no practical use.

Pakistan has been facing the brunt of high international crude oil prices, which touched their highest level since 2014, as the government had to pass on the incremental price of global prices to domestic consumers.

In order to absorb the abrupt increase in the petroleum products, the storage of these products is a solution to save the domestic consumers from the impact of global prices, according to OGRA officials.

On the other hand, Oil Companies Advisory Council (OCAC) said it was the government’s job to build such a large-scale storage.

“Oil marketing companies can’t do this as they are commercial entities and building large-scale storage for commercial purposes is not economically viable for the sector,” said Zahid Mir, Chairman OCAC, while talking to The News.

Mir said OMCs were required to maintain 21-day inventory as per the policy on commercial basis.

He ruled out any possibility on part of private sector to raise such a storage capacity on commercial basis.

“This is the responsibility of the government to raise the storage as per the strategic reserves.”

Referring to the USA, Mir said, “the USA releases the oil from these strategic reserves when prices register abrupt rise and fill these reserves when prices come down in the international market”.

OCAC chief also pointed out that only crude oil could be stored on massive scale in these reserves and for it the country must have the refining capacity to produce refined products.

Mir said unless Pakistan increased its refinery capacity, the exercise to build the large-scale storage for the crude products would be meaningless.

“This all now depends on government to build the large-scale strategic reserves for crude oil as well as bringing new refineries in the country, if it really wants to save the domestic consumers from the shocks of rising global prices of oil,” Mir added.

Terming the proposal as unviable, Arsalan Hanif at Arif Habib Limited, said a number of similar ideas were also pitched in the past, but could never be materialised.

“In order to save domestic consumers from high global prices of petroleum products, two types of plans are adopted. First, oil is stored at massive level or purchased on forward booking, which is also called oil hedging.”

He, however, pointed out that oil marketing companies operating on commercial basis would not be able to afford it.