Could import up to 500.00 t of fuel oil in current fiscal year
Winter LNG imports to drop 10% year on year: Platts Analytics
Industrial recovery pushes demand for electricity to record levels
Pakistan is likely to import fuel oil after a three-year hiatus, as the country seeks to cushion the brunt of soaring LNG prices at a time when the national appetite for industrial fuels is rapidly increasing due to improving prices. prospects for economic growth, according to sources and analysts. .
Receive daily email alerts, subscriber notes and personalize your experience.
The country’s fuel consumption has declined dramatically over the past five years following government pressure to shut down oil-fired power plants. The product was more expensive than electricity produced using LNG and coal, draining foreign exchange reserves and increasing the cost of electricity.
Fuel oil consumption during the fiscal year ended June 30, 2017 was approximately 9.559 million tonnes.
Since then it has fallen sharply and in the most recent fiscal year ended June 30, 2021, it was around 2.987 million mt, although above the consumption level of 2.334 million mt for the fiscal year ended June 30, 2020. , the country having been forced to operate a few oil-fired power stations.
“We could see Pakistan importing up to 500,000 tonnes of fuel oil in the current fiscal year,” said Shahab Farooq, research director at Next Capital Securities.
Pakistan consumed 510,000 mt of fuel oil in August, up 63% year-on-year from the August 2020 level of 370,000 mt, according to data from the Consultative Council of Oil Companies. During the first two months of the current fiscal year which began on July 1, fuel oil consumption amounted to 870,000 mt against 550,000 mt during the same period last year.
The government has asked local refineries to increase production which was underutilized due to lower fuel oil withdrawals, analysts said.
Price sensitive market
Pakistan had significant one-time exposure to LNG and showed a tendency to cancel tenders for cargoes if the price is too high, said Jeffrey Moore, Asia LNG manager at S&P Global Platts.
“Given the expectation that Platts West India Marker will on average exceed $ 20.00 / MMBtu this winter, it is likely that Pakistan will look for alternatives, including fuel oil, to burn in its electric battery,” he said. he adds.
S&P Global Platts Analytics expects Pakistan’s LNG imports to fall nearly 10% from winter to winter, although declining domestic gas production will limit its ability to cut imports even further.
The cash differential of Singapore 380 CST high sulfur fuel oil over the value of quality swaps climbed to a 20-month high on September 13, helped by strong demand from the Southeast Asian power sector. South.
Rising demand for fuel oil from South Asia and the Middle East amid rising LNG prices was the main driver of the widening cash gap, sources said. Kuwait and Saudi Arabia purchased more than 380 CST HSFOs, while countries including Pakistan and Bangladesh switched to HSFO from LNG to meet power generation needs, trade and distribution sources said. knowing the subject.
Platts valued the FOB Singapore 380 CST HSFO cash differential at $ 15.58 / mt on September 13, the highest since January 6, 2020, when it was $ 20.36 / mt, and up 33 cents / mt from September 10.
“Recent oil data suggests that Pakistan may continue to generate additional electricity from oil-fired power plants,” said Saad Ali, head of research at InterMarket Securities, a brokerage based in Karachi.
Save energy consumption
Pakistan has set a new daily electricity consumption record of around 25 GW due to increased industrial production. Peak electricity demand was as low as 16 GW in 2014, according to data from the Energy Division of the Department of Energy.
The country’s industrial production in the fiscal year ended June 30 rose 14.85 percent year-on-year, according to data from Pakistan’s Bureau of Statistics. The previous year, industrial production contracted by 10.17% due to lockdowns linked to COVID-19.
As demand for electricity continues to grow in the future, there is a possibility that Pakistan will once again become a net importer of fuel oil, at least until new LNG terminals are put into operation, Ali added.
Abdullah Umer, research analyst at Ismail Iqbal Securities, said Pakistan’s hydropower production has been declining since October 2020, reinforcing the need to fill the void through oil-based power generation.
The diversion of LNG from the electricity sector to the domestic sector in winter is expected to further increase the demand for fuel oil, analysts say. Although refineries have the capacity to meet growing demand, operational constraints could force Pakistan to import fuel oil during the fiscal year, analysts said.
“Kiln oil consumption in August was the highest in many years, as LNG prices rose dramatically,” said Shahrukh Saleem, research analyst at AKD Securities.
“We assume that the largest switching volume in Southeast Asia could occur by October. The reason is that the electricity market has higher demand during the summer. Thus, the need for thermal fuels times, whether it’s LNG or oil, decreases over the winter, ”said Andre Lambine, senior energy analyst at Platts.