The phase-out plan of furnace oil stands as a big challenge for the downstream oil and gas refining sector that has been unable to complement the rise in petroleum consumption in the past few years with adequate increase in capacity and still largely lags behind in setting up Diesel Hydro Desulphurisation (DHDS) units. While the sector’s sluggish refining capacity has been keeping import bill high, doing away with furnace oil has highlighted the age old technology that these refineries run on.
The local refineries need to be upgraded fast to come out of the furnace oil crisis that left even the big refineries ailing. Pakistan has hydro skimming refineries producing surplus fuel like furnace oil that is fast losing its charm in the domestic as well as global economy.
The issue of replacing furnace oil in the country and government’s requirement of upgrading the petrol and diesel quality is further complicated Marpol Convention 2020, where the International Maritime Organisation (IMO) has introduced stringent requirements for the maximum allowable sulphur content in fuel oil.
In such a situation, the local refineries are left with no option but to modernise the existing refining technology; upgrading to deep conversion refineries by installing hydro-cracking units is something that is required and is also now being encouraged by the government.
Pakistan Refinery Limited (PRL) is the first local refinery to stand up to the challenge; According to a notice sent to Pakistan Stock Exchange (PSX), the company has announced its plans to invest $1 billion in converting its refining facility into a deep conversion refinery along with achieving compliance with the government’s requirement of producing Euro
II standard diesel. Deep conversion refineries are equipped with cracking facilities that convert FO into petrol and high-speed diesel, thus minimizing the production of FO – just what the country needs at the moment.
While this would be the first deep conversion refinery in the country, the sector has also attracted foreign interest. Local refineries might be gearing up for international competition that has shown keen interest in setting up state of the art refineries in the country. Apart from the upcoming mega refinery plans from Saudi Aramco in Gwadar, UAE has also shown interest in installing a deep conversion refinery at Khalifa Point in Balochistan
Recall that the previous government had given an exemption to the refineries from all duties, taxes, surcharges and levies on import besides a 20-year income tax holiday for setting up new deep conversion refineries or converting existing plants where refining capacity has been expanded by installing deep conversion units with capacity of at least 100,000 barrels per day setup between July 2018 and June 2023. There has been no change in the incentives under the PTI government.While it might seem that the downstream refining sector is heating up, it would be too early to celebrate the fizzling out of the furnace oil crisis along with decrease in imports. Not only have the local refineries stalled their expansion and up gradation plans many times (case in point: DHDS and isomeristion plants), but international players too have bailed out on their plans.
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