KARACHI: Pakistan is increasingly turning to furnace oil to generate electricity during peak evening hours as disruptions to liquefied natural gas (LNG) supplies from Qatar force the country to choose between alternative fuels, costly spot cargoes and power cuts, officials and analysts said on Friday.

QatarEnergy has suspended contracted LNG deliveries to Pakistan and other customers because of disruptions to shipping through the Strait of Hormuz amid the war in Iran. The supply squeeze has driven up Asian spot LNG prices, making replacement cargoes particularly costly for import-dependent Pakistan.

Pakistan is currently generating at least 800 megawatts of electricity from furnace oil during peak demand between 5 p.m. and 1 a.m., according to an official at the state-run Independent System and Market Operator, which manages the country’s power system and electricity market.

“Current FO capacity is 1,400 MW and on average 800 MW is being taken by FO to limit the import of RLNG,” the official told Arab News on Friday, referring to furnace oil and regasified liquefied natural gas. He spoke on condition of anonymity.

“Furnace oil is used only for peak hours,” he added.

Since the Iran war began in February, the government has turned to furnace oil-based power generation twice, first in August and again in September, as it sought to avoid buying expensive replacement LNG cargoes on the spot market.

Power Minister Awais Ahmad Khan Leghari said last month that disruptions to RLNG supplies had pushed spot cargo prices to $23-$25 per million British thermal units, a standard measure for gas prices, levels he described as “exceptionally high.”

“The Power Division remained in close coordination with the Petroleum Division ..., making it possible to avoid purchasing expensive RLNG,” the state-run Press Information Department quoted him as saying on Sept. 15.

The government instead increased the use of domestic energy resources and managed electricity demand to reduce its need for costly imported gas.

The impact of the LNG disruption is also visible in Pakistan’s import data.

According to the Pakistan Bureau of Statistics, the country’s LNG imports declined 28.3 percent to $364.1 million in July and August from $508 million a year earlier. In August alone, imports fell more than 32 percent to $187.5 million from $277 million in the same month last year.

LIMITED SUBSTITUTE

But furnace oil can meet only part of the shortfall because some of Pakistan’s larger power plants rely on RLNG and are important for maintaining stability in the electricity grid.

“FO is not full replacement of RLNG because RLNG is needed to run large plants in load center, both to meet demand and system stability,” the Independent System and Market Operator official said.

Pakistan has 90 power plants with a combined installed capacity of 20,769 megawatts, according to June data compiled by the Private Power and Infrastructure Board, a government body that facilitates private investment in the power sector.

They include six furnace oil-fired plants with a combined capacity of 1,116 megawatts and 16 LNG-fired plants with a combined capacity of 7,640 megawatts. The remainder includes hydropower, coal, nuclear, solar, wind and bagasse-based generation.

“Furnace oil [based] small DG [diesel generator] sets could not fulfil the demand,” the official added.

Shankar Talreja, director of research at Karachi-based brokerage Topline Securities, said the relative cost of LNG-fired generation was the greater concern for Pakistan.

“The power generation cost on FO is over Rs40 per kwh [kilowatt-hour], almost same as RLNG for last two months,” he told Arab News.

Furnace oil use had consequently increased, Talreja said, although it still accounted for less than two percent of power generation in July and August compared with an average of 10 percent for regasified LNG.

“That suggests, running of RLNG [using spot cargoes] is more concerning for overall energy cost of the country,” he said.

Talreja said the government was therefore using furnace oil according to electricity demand.

“The government is using it [furnace oil] based on demand.”

FURNACE OIL SALES SURGE

The increased reliance on furnace oil for electricity generation has also produced a sharp rise in domestic sales of the fuel, another indication of how LNG shortages are changing Pakistan’s power generation mix.

Oil Companies Advisory Council data show oil marketing companies, including Cnergyico Pk, Attock Petroleum, Pak Arab Refinery Company and Pakistan State Oil, sold 93,000 tons of furnace oil in September, up 740 percent from 11,078 tons a year earlier.

“FO sales are up 7.0x ... mainly due to LNG shortages which increased FO consumption in power generation,” Topline Securities analyst Salman Iqbal said in a note to clients on Friday.