National Refinery shuts down operations as FO stocks pile up

KARACHI: National Refinery Limited (NRL), reeling from months of lackluster fuel oil demand and an abundance of inventory, has temporarily shut down its operations, The News learnt on Monday.

Furnace oil stocks have been piling up at refineries, with the situation getting further aggravated due to lack of buying from independent power producers (IPP). This has led to the temporary shutdown of three refineries so far.

Pakistan Refinery Limited (PRL) and Cnergyico Pak Limited (formerly Byco) have already closed their operations on high fuel oil inventories.

On December 16, 2021, PRL shut down its operations temporarily due to the dwindling demand for fuel oil. It was followed by Cnergyico two days later, and then NRL too went ahead with halting its refinery operations.

Federal Energy Minister Hammad Azhar reportedly said that the IPPs were holding lower stocks of furnace oil; however, they were still not buying the fuel from the refineries.

“Presently 5,000 tonnes FO is being utilised daily, whereas the country has around 200,000 tonnes of the stock, which would take a long time to utilise; compelling the refineries to stop the operations to ward off the production losses,” a top executive of a refinery said.

Sources attributed the prevailing crisis in the refining sector to ill-planning of the government, which imported the furnace oil despite sufficient stock produced in the local refineries.

Sources said the government had to do more than just mere lip service to help the refineries in this crisis. They accused the government of only taking half-hearted measures. Just ordering the Power Division to ask IPPS to lift the fuel oil from local refineries was not enough, sources added.

The directorate general (Oil) of Petroleum Division, in a letter dated December 9, 2021 had requested the Power Division to direct the power plants to lift furnace oil through PSO/OMCs immediately for stock build-up and provision of payments/LCs (letters of credit) to PSO.

According to the letter, last fuel position meeting chaired by the energy minister had decided that power plants would lift furnace oil for stock buildup and for consumption in case of exigencies.

Earlier, the Oil Companies Advisory Council (OCAC) in a letter written to DG (oil), had warned that refineries would start shutting down their operations due to the slump in furnace oil sales.

Because of limited storage, refineries have been forced to reduce and in some cases, almost shut down crude processing, which would affect the availability of the petroleum products, eventually disturbing an already fragile supply chain.

With three refineries currently shut down, PARCO has transported its furnace oil to Port Qasim to export the fuel; however, the current prevalent price in the international market is low, which makes the prospect of export financially unattractive.