Refineries weigh JV to convert FO into HSD, naptha

KARACHI: Country’s refining sector is carrying out a feasibility study for a capital-intensive joint venture (JV) project to convert furnace oil (FO) into high speed diesel (HSD) and naphtha, given the dwindling demand for the heavy fuel oil in the country.

“The project is in pre-feasibility stage and its feasibility study would be completed in one year,” a high official of one of the refineries confirmed to The News International on Friday.

Sharing highlights of National Refinery Limited’s (NRL) analyst briefing, Farhan Mahmood at Sherman Securities said the project was not feasible for a single refinery; hence a JV was currently being discussed by all the sector players. According to the refinery’s top official, furnace oil consumption has seen a significantly reduction lately because of increased utilisation of LNG and coal in power generation.

He said the project would also be helpful for the country in term of less import of petrol due to its more production after the project was commissioned.

“Due to low demand of furnace oil, overall refining capacity utilisation in Pakistan has decreased gradually,” he added.

The refinery official pointed out that based on projected increased demand for diesel and mogas (motor gasoline) and decreased demand for furnace oil in the coming years, there would be serious burden on import infrastructure, refineries sustainability, and country's foreign exchange reserves, if undertakings like residue upgrades, modernisation of existing refineries, commissioning of new refineries, etc were not initiated. “Considering low demand of furnace oil in both local and international market, it is inevitable to upgrade it into valuable and in-demand fuel products,” he said.

He went on to say refineries were asked for coming up with the feasibility for establishing a common facility to upgrade residue from all local refineries at a suitable location, keeping in view the feed sources and products market and at the same time, meeting future fuels quality standards and ensuring refineries sustainable operations at maximum capacity by minimising furnace oil production. NRL management in its briefing to the analysts announced its plans to upgrade MS (motor spirit) to Euro-V standards under the new refining policy at a cost of $200-500 million. Officials said the refinery was already supplying Euro-V HSD to oil marketing companies (OMCs).

Even though the management claimed the project could only be materialised if a suitable pricing mechanism was agreed with the government, Sherman Securities’ Farhan Mahmood, however, said, “NRL may easily finance the project with or without proposed incentives, provided GRMs (gross refining margins) on fuel businesses remain above $7/barrel and capacity utilisation over 80 percent". Currently, industry GRM is around $10 per bbl, which is three year high due to better MS and HSD spreads.