Pakistan

Oil refineries fear closure in February as demand wanes

Oil refineries

Oil refineries concerned over the low demand projected by the power sector and as things are there will be a high risk of closure of refineries in February.

According to informed sources, refineries have reported to the government that the oil industry was currently holding about 400,000 tonnes of furnace oil with as much as 300,000 tonnes of stocks lying unutilised at various power plants.

A meeting was held under the Chairmanship of the Federal Minister for Energy, Hammad Azhar to discuss the fuel supply to power plants, the ullage issues of refineries, and the difficult situation of furnace oil last week. Subsequently, the DG of oil wrote a letter, requesting the refineries to consider the reduction of the price of furnace oil to match the merit order.

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Pakistan Refinery Limited in response said that its Ex-refinery price of furnace oil for the first two weeks of January 2022 was Rs 86,000 per ton as compared to an import parity price of Rs 92,434 per ton and monthly average FOB price of reference crude of about Rs 101,000 per ton.

It said, “The above comparison clearly shows refineries’ loss and any further reduction in the price of furnace oil will further compound sustainability challenges. The proposed refinery policy if approved will comprehensively address refineries’ challenges and will also support the government’s endeavors of consumption of environment-friendly fuels.”

The National Refinery Limited said that it was difficult to further decrease the prices of furnace oil as it will further deteriorate the companies’ financial position and ultimately lead to suspension of operation.

It said in a letter, “It is therefore requested that an economically viable and appropriate way forward shall be arrived at after discussion with the industry so that furnace oil offtake can be ensured on a regular basis.”  

Attock Refinery Limited said in a letter that considering any further discount in furnace oil pricing would aggravate the existing situation and the suggestion to reduce the price of furnace oil is not viable financially.

It said in a letter that the business environment for the last few years has been challenging for the oil sector in general therefore the proposal will adversely affect refineries’ economic operations.

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