Overabundance of OF is expected to subside as PPIs reserve most of the available stock
LAHORE: Oil refiners reeling from overflowing furnace oil (FO) stocks due to lackluster demand finally breathe a sigh of relief as independent power producers (IPPs) place firm orders for quantities huge for the next few weeks.
“Oil refineries have received firm orders for 250,000 tonnes of fuel oil from the IPPs for the month of January alone,” said a senior official at the Energy Ministry.
“This move will certainly help reduce the glut of OF that has affected the operation of almost all refineries in the country for the past two weeks, mainly due to lack of storage.”
It is estimated that most of the available OF will be used by power producers during the low seasonal production of hydropower plants and that exports will also lead to the elimination of a significant part of existing stocks.
“But, the trend of power generation with FO can last until mid-February as the annual closure of the canal will end in a few weeks. Nevertheless, the absorption of 250,000 tonnes is a significant volume, which will essentially break the cycle of excess inventory, ”said another official.
“It may even help consume all the excess FO stock, ending unwarranted refinery collusion.”
Refiners were forced to cut production due to difficulties in selling OF, as demand for the fuel could not increase according to projections. As a result, Pakistan Refinery Limited (PRL) and Attock Refinery closed their operations due to declining demand for fuel oil in the country and abundant stocks in mid-December, while National Refinery Limited (NRL) , Byco and PARCO also faced a challenge of similar size.
Despite a directive from the petroleum division to the electrical division to push independent power plants to increase fuel oil, the situation remains unchanged for most of December. The Department of Energy, as a back-up arrangement, ensured the availability of more OF in anticipation of increased demand for electricity during the peak winter months.
“However, due to several factors, the demand for electricity could not increase as expected,” the official said.
Previously, the Oil Companies Advisory Council (OCAC), in a letter written to DG (petroleum), warned that refineries would start shutting down operations due to the drop in sales of FO. Due to limited storage, refineries are forced to cut back and in some cases almost stop processing crude, which would affect the availability of petroleum products, ultimately disrupting an already fragile supply chain.
The closure of refineries could disrupt the entire petroleum product fuel supply chain due to the spillover effect, negatively affecting the availability of other products in the downstream sector. Fortunately, such an eventuality was avoided with the lifting of POs by PPIs.
Meanwhile, industry insiders were of the opinion that the glut situation could have been avoided if the large storage capacity of various types of fuels had been in place. They added that the government should also rethink the FO public service, in particular its affordability, in the energy mix. Otherwise, such a recurrence of glut always strains the viability of the entire energy chain at critical points, threatening the country’s energy security. —Munawar Hassan