KARACHI: Pakistan’s furnace oil export has gradually gained pace, confirmed industrial stakeholders earlier this week, with record number of shipments carrying fuel oil leaving the country in recent months as refineries sought to sell their stocks to offset drastic domestic demand cuts.
The country, which has traditionally remained dependent on furnace oil imports has shipped about 150,000 tons during March and April, while shipments containing around 100,000 tons of it are processed for export deliveries within the ongoing month, according to people familiar with the situation.
Pakistani refineries that produce around 5,000 to 6,000 tons of furnace oil per day have currently 200,000 tons of it in excess.
The major domestic consumers of furnace oil are power plants, though the current economic crisis, soaring inflation, and massive currency devaluation against the US dollar have pushed the electricity demand toward the lower side, causing local demand for furnace oil to fall below 10 percent.
Currently, out of five oil refineries, the Pak-Arab Refinery (PARCO) and Pakistan Refinery (PRL) are two major exporters of the oil from Pakistan, while others convert it into bitumen or lube.
PARCO has shipped two cargoes of 50,000 tons each and they are preparing to ship another cargo of 50,000 tons within the next couple of days, an official of the petroleum sector said on Wednesday declining to be identified. PRL officials said they were also facing a similar situation.
“We have already exported 50,000 tons of furnace oil and are planning to export another 40,000 tons in May,” the CEO of PRL Zahid Mir told Arab News. “Out of the total furnace oil production, about five to ten percent is domestically consumed while 90 percent remains unsold which is being exported.”
The PRL chief said there was hardly any requirement from the country’s power producers after November 2022, leaving refineries to look for export markets.
“We are exporting or planning to export almost 90 percent of our production,” Mir said. “The exports of furnace oil are being made at discounted prices. At present, it is being exported at around $25 below the import price of crude oil.”
He said the exports of furnace oil were being made at losses to clear the excess stock which risked the operations of the refineries if the situation continued to persist for an extended period.
“When we are exporting oil, we are doing it at a substantial loss and if we continue to make losses for an extended period of time, the operations of the refinery will not be commercially viable,” he added.
However, the PRL chief said the exports have squeezed the profit margins of the refineries as compared to domestic sales.
“Overall, the [profit] margin of the refineries becomes negative after exports and if we sell it in the local market, we do it at import parity, which minimizes our losses to a large extent,” he said.
He warned if the refineries continued to incur losses, the risk of a shutdown would increase, leading to the import of gasoline and diesel.
“Recent price cuts of petrol and diesel have also put a dent in refineries’ profit margins and has distorted our economics, so we try to produce minimum, and by doing this, the throughput also reduces and the diesel and petrol production declines.”
Keeping in view the subdued demand since November 2022, Pakistani oil refiners feared that the demand for furnace oil will completely fade out in the next one or two years.