The winds of change have begun to blow. Not only has the power generation picked up recently, its composition has altered as well. For over 20 years, the country’s energy mix has been stubborn, dictated by thermal power where depleting natural gas reserves had given most space to the expensive fuel like furnace oil. But the situation took a turn when the power mix started changing as the country started increasing the share of other fuels like coal, imported RLNG and renewables.
Power generation for November 2017 according to a research note by Elixir Securities grew by 2.8 percent year-on-year with generation from select furnace oil plants slipping significantly by around 47 percent. This is likely a result of the government halting furnace oil power plants from generation in October. Not only did the energy mix witness a fall in furnace oil component; it also saw an increase in power generation via RLNG and coal fired power plants in November 2017.
This improvement in the energy mix however, has to be taken with a pinch of salt. Unfortunately, these changes have left the local refineries and the oil marketing companies in a pickle. Where the OMCs are seeing a furnace oil supply glut due to the cut in furnace oil consumption by the power sector, the refineries are in no better shape. Their operational difficulties had heightened to a point where most of them had declared a complete closure if the matter of furnace oil upliftment was not taken seriously by the authorities.
Some of the FO plants are back in action now after the authorities asked power plants to increase their purchases of local furnace oil from the refineries by mid-December to prevent shortage of petroleum products and refinery closure. However, there is a need for a long terms strategy to deal with the issue.
Moving towards clean energy is excellent, especially when the country is vulnerable to climate changes, but not at the cost of a supply crisis and the downstream sector incurring huge losses. According to news reports, some refineries have started contemplating furnace oil exports.
However, the downstream sector should be mindful that this will not be an easy task; not only will it be costly to move the stocks, it will be difficult to find buyers in the international market that is well aware of the need to move towards clean energy. Our neighbour, India has recently decided to phase out imports of fuel oil (dirty oil) from the U.S.
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