AIRLINK 79.41 Increased By ▲ 1.02 (1.3%)
BOP 5.33 Decreased By ▼ -0.01 (-0.19%)
CNERGY 4.38 Increased By ▲ 0.05 (1.15%)
DFML 33.19 Increased By ▲ 2.32 (7.52%)
DGKC 76.87 Decreased By ▼ -1.64 (-2.09%)
FCCL 20.53 Decreased By ▼ -0.05 (-0.24%)
FFBL 31.40 Decreased By ▼ -0.90 (-2.79%)
FFL 9.85 Decreased By ▼ -0.37 (-3.62%)
GGL 10.25 Decreased By ▼ -0.04 (-0.39%)
HBL 117.93 Decreased By ▼ -0.57 (-0.48%)
HUBC 134.10 Decreased By ▼ -1.00 (-0.74%)
HUMNL 7.00 Increased By ▲ 0.13 (1.89%)
KEL 4.67 Increased By ▲ 0.50 (11.99%)
KOSM 4.74 Increased By ▲ 0.01 (0.21%)
MLCF 37.44 Decreased By ▼ -1.23 (-3.18%)
OGDC 136.70 Increased By ▲ 1.85 (1.37%)
PAEL 23.15 Decreased By ▼ -0.25 (-1.07%)
PIAA 26.55 Decreased By ▼ -0.09 (-0.34%)
PIBTL 7.00 Decreased By ▼ -0.02 (-0.28%)
PPL 113.75 Increased By ▲ 0.30 (0.26%)
PRL 27.52 Decreased By ▼ -0.21 (-0.76%)
PTC 14.75 Increased By ▲ 0.15 (1.03%)
SEARL 57.20 Increased By ▲ 0.70 (1.24%)
SNGP 67.50 Increased By ▲ 1.20 (1.81%)
SSGC 11.09 Increased By ▲ 0.15 (1.37%)
TELE 9.23 Increased By ▲ 0.08 (0.87%)
TPLP 11.56 Decreased By ▼ -0.11 (-0.94%)
TRG 72.10 Increased By ▲ 0.67 (0.94%)
UNITY 24.82 Increased By ▲ 0.31 (1.26%)
WTL 1.40 Increased By ▲ 0.07 (5.26%)
BR100 7,506 Increased By 12.9 (0.17%)
BR30 24,683 Increased By 124.5 (0.51%)
KSE100 72,043 Decreased By -8.6 (-0.01%)
KSE30 23,749 Decreased By -58.8 (-0.25%)

Petroleum products, including crude oil, have the highest share in Pakistan’s external trade. Approximately 20% of petroleum needs are fulfilled by production from domestic oil exploration, whereas 35% is produced locally from imported crude oil.

The domestic refineries produce 55% of the requirement or 11 million tons against total demand of 20 million tons. The remaining quantity of petroleum is being imported.

                             Million tons
Production from domestic crude          4
Production from imported crude          7
Imports of petroleum                    9
Total consumption FY23                 20

There are 5 refineries working with a nameplate capacity sufficient to meet domestic demands, but bottlenecks arising due to old technology in use, among other reasons, limited their production capacity. The largest refinery (Cynergico) with the nameplate capacity to produce 7.1 million tons operated at 12% of its capacity, while others (except for PARCO) operated in a range between 53% and 78% of their capacity in FY23. The level of investment in refineries is very low, with only two new refineries becoming operational in the last 40 years.

Refining is only the starting point in producing a long chain of products and raw materials, derived from crude oil, for use in many facilities in chemicals, construction, plastics, textiles and other industries.

The demand for petroleum is increasing at a CAGR of 5% per anum. Production and logistic limitationshave restricted the ratio of production of domestic petroleum to imported petroleum to 55: 45. This ratio will only worsen till the time new investments result in additional production, which might take up to 6 years.

Besides the basic petroleum products, investments in processing of more advanced products derived as by-product of crude oil or derived from processing of by-products of crude oil (such as naphtha) are significantly low. The facilities having this capability are often called the petrochemical industry. They transform raw materials into high value products used as input material for other industries.

Petrochemical industry does not exist in Pakistan, and therefore the feedstock produced by refineries is exported, causing a break down in the chain of products from crude oil.

The raw materials produced at the petrochemical facilities abroad are then imported back into Pakistan for further processing by certain industries. Few examples for such imports are the Paraxylene imported by Lotte Chemical Pakistan Limited for production of Purified Terephthalic Acid (PTA). PTA is used in the production of PET, polyester, films resin, staple fiber, filament yarn etc. Similarly, Engro Polymer and Chemicals Limited imports ethylene for production of PVC.

Besides limited operational capacity of refineries, there are missing links in the petroleum processing chain, starting with the capability of refineries to produce appropriate feedstock and extending to the capability in the industry to crack the by-products further into petrochemicals for use in the industry. The ability to produce cleaner fuels in compliance with Euro V specifications is yet another challenge.

To promote investment into the sector, the ministry of energy issued two oil refining policies. One for expansion and upgradation of existing refineries and the other for setting up of new refineries.

The minimum conditions for the existing refineries to avail the benefits under the policy were to be able to meet Euro V specifications, and to maximize the production of motor gasoline and diesel by minimizing production of high sulphur furnace oil.

Although policy was approved in CY23, taxation and certain other matters arising in implementation became discussion matters between the industry and the government. The industry was pursuing the relevant ministry for amendments to be made in the policy, which were recently approved by the caretaker government.

All of the existing refineries have shown their interest in upgrade, but none except Pakistan Refinery Limited has expressed interest in expansion. These investments, however, will not convert all the existing refineries into deep conversion refineries. Refineries are only targeting a reduction in proportion of high sulphur furnace oil production and Euro V compliant motor gasoline and diesel.The industry expects investment of 5 – 6 billion USD in these upgrades. Even with this investment, the need for deep conversion refinery and petrochemical industry will still exist to ensure that the country can produce sufficient petroleum products domestically, besides developing products along the entire value chain from crude oil. The government is therefore hoping to attract investment under policy for greenfield projects mostly from foreign investors, in collaboration with the domestic investors.

Completing the entire petroleum chain isimportant for the development of new industries relying on petrochemical products, for making raw materials domestically, for other industries. This will open new opportunities for industries along the chain, providing employment and saving precious foreign currency.

Due to higher margins of domestic refineries in last few years,based on margins in the international market, refineries have improved their financial position despite higher cost on opening of letter of credit amid weak foreign currency reserves of the country.

Considering all this,while it will take considerable time for investments to materialize, it is important that a policy framework now exists, which will result in development of new opportunities.

Copyright Business Recorder, 2024

Faisal Hafeez

The writer is CEO at Kifayah Investment Management Limited


Comments are closed.