The power generation mix has been made to shift away from furnace oil as coal and RLNG sources were added to the mix over the last few years. The share of furnace oil in power generation fell from 7.4 percent in FY19 to 3.4 percent in FY20; and the same fell from 5 percent in CY19 to 4 percent in CY20. However, the use of furnace oil by the power sector has again picked up and FY21 so far has seen significant increase in the use of fuel. This is also apparent from the growth in furnace oil sales by the oil marketing companies, which is primarily to the power generation sector.
Furnace oil monthly volumes touched their bottom in March and April 2020 last year, after which they have been rising steadily. The increase is primarily due to increase in demand from the power sector. It is also partly because refineries continue to produce it. And then it is the ongoing gas shortage and the RLNG crisis that has brought it back into the mix. In 7MFY21, furnace oil sales have increased by 38 percent year-on-year. in January 2021, furnace oil sales increased by 35 percent year-on-year, and by 21 percent month-on-month. Higher demand from the power sector despite winters has been due to the shortage of gas. And then the growth in the fuels volumetric sales by the OMCs is also partially being attributed to overall pick-up in economic activity following improvements in COVID-19 situation.
Furnace oil consumption could continue to pick pace as summers approach. Analysts at S&P Global Platts have also highlighted this shift to furnace oil: “A sharp squeeze in domestic gas availability and the surge in LNG prices that has pushed up the cost of gas-based power generation have prompted Pakistan to turn to oil for power, a trend that could result in robust fuel oil consumption in coming months.” They have also estimated that furnace oil consumption could increase by 20 percent year-on-year in FY21 as the gas supply situation was expected to tighten further and industrial sector's demand to go up. On the price side as well, the coming months could see higher FO imports due to higher cost of RLNG relative to fuel oil.
Other key fuels – diesel and petrol witnessed 13 and 7 percent year-on-year growth in 7MFY21. Sales of the two fuels – diesel and petrol – grew by 14 and 4 percent in January 2021, year-on-year respectively – though the growth was negative month-on-month due to winter months. According to a research note by AKD Securities, one major reason for uptick in diesel (HSD) volumes apart from improved economic activity could be increased use in power generation coupled with the ongoing crackdown against smuggled product which predominantly has been HSD.