Refineries howling on furnace oil high

On one hand, the Prime Minister Shahid Khaqan Abbasi is promising more oil refineries to be set up to meet the growing energy demand; while on the other hand, his decisions have sparked another crisis that the column highlighted in yesterday’s column: the local refineries threatening the government for imminent closure.

What’s behind this outburst by the refineries is the directives of the government where all furnace oil or diesel based power plants having an aggregate capacity of over 4000MW have been shut down. This has left the refineries to run at lower capacities (around 70-75 percent) with their furnace oil stocks sitting high and idle as demand from the power sector has nosedived. And all this has been done to support the LNG uplift by the power sector - an alternate fuel for power generation.

While it’s plausible that the government’s intentions behind the change in policy has been to curtail the high cost of power generation as furnace oil is an expensive fuel to burn in power plants, one cannot ignore the current Prime Minister’s preference for LNG that comes from the controversial LNG import deal he as the former minister for Petroleum and Natural Resources negotiated with Qatar.

What will be the cost savings as a result of this decision are yet to be seen? However, there are looming issues that also need attention. In case the government continues with its decision to abruptly replace furnace oil with imported LNG, chances of a countrywide shortage of petroleum products is imminent as warned by the refineries. Refining of crude oil is a chain process that results in a number of products at different stages. Refineries cannot stop furnace oil production and continue with the refining of other petroleum products like HSD, motor gasoline, jet fuel etc.

And amid rising consumption, a shortage of petroleum products is uncalled for. For the transportation sector to keep functioning the government will be left with no choice but to import these fuels, which will put further pressure on the already mounting current account deficit.

While the column has never proposed the preference of furnace oil over cheaper fuel for power generation, it does suggest that the government to take such decisions with all stakeholders on board and with all aspects and consequences delineated.