A flight for diesel?

Unlike petrol, diesel consumption and sales have not been staggering, but the retail fuel has seen reasonable growth over the years. Total high speed diesel sales for the oil marketing companies as released by the Oil Companies Advisory Council stood at 8.4 million tons, up by 8.6 percent year-on-year in FY17. Around 40 percent of total sales of HSD come from imports, while the remaining is contributed by the domestic refinery output. The figure shows both these components of sales.

A common theme in the last four years for HSD sales and particularly imports like other fuels has been the low international crude oil prices defining a big chunk of increased flows. And more recently, HSD and petrol volumetric growth has come from strong transport sector activity, and a hefty increase in imports of buses and heavy commercial vehicles amid CPEC and auto sector pickup. Diesel is also partly used in the power sector when other cheaper resources like natural gas are unavailable.

It seems now that diesel sales in the country might be getting ready for another boost. The government is reportedly planning to introduce high grade diesel after petrol. Recall that government replaced RON 87 with RON 92 grade of high quality petrol. Pakistan is currently using a lower quality diesel, and the better quality HSD – Euro 3, 4, 5 alternatives - will help increase efficiency.

However, there might be some backlash; remember that the policy shift towards high quality petrol forced local refineries struggle to upgrade their existing set-ups to comply with new product standards, and since they didn’t have the capacity to meet the demand, import of petrol increased.

HSD imports too could see uplift until such time that the local refineries have the capacity and ability to cater to the increased demand. Keep in mind that this might take some time as the refineries have been working on up-gradation projects after the government had asked them to upgrade their technology to produce the Euro 2 standard diesel. Most of them have still not achieved that level yet. Moving onto Euro 3, 4, or 5 seems impossible as of now.