As the oil prices crash, the oil importing countries should be looking to maximise the advantage however long it lasts. Besides petroleum products, another key area where oil prices could play a vital role is the power generation. The equation is tricky. Furnace oil-based generation is likely to have made huge strides in the merit order, which will mean more FO based power generation for March and April.
On the NTDC merit order, one FO based power plant had leap frogged the most efficient low priced RLNG based power plant – which goes on to show the impact is going to be much faster on FO based pants. FO average fuel power generation cost for January 2020 was recorded at Rs13.77 per unit, whereas that for RLNG was at Rs10 per unit.
As per merit order details, FO based average fuel price for top five placed plants came down to Rs11.7 per unit for March 2020. The RLNG average fuel cost meanwhile had stayed almost the same at January’s level – at Rs10.1 per unit.
For April 2020, the impact of global crude oil prices would be more pronounced on power generation fuel cost. Expect the FO based power generation cost to come down drastically, to average even lower or close to that of RLNG. Yes, the RLNG based fuel cost will also come down, as RLNG import price is paired with that of Brent, but there is a catch. Pakistan has already cut down the April LNG shipments from five to three, citing demand slowdown.
The real challenge would revolve around keeping the demand going. April is usually when the power demand starts getting higher after the winters. With ample capacity to generate, meeting any level of peak demand would not be a problem.
If the ongoing lockdown extends beyond the current two weeks (which is highly likely), the demand is going to take some hit. Although the domestic sector demand may witness some increase, as the people have been made to stay back home, that of the commercial sector which accounts for 7 percent of total demand, is likely to be the most hit.
The extent of industrial activity under shutdown is not immense, but even the large export-oriented industries are facing a slowdown in demand, as cancellation of export orders hastened in March. It appears likely that 10-15 percent of power demand would be shaved off in March, and maybe even higher for April. The capacity payment portion meanwhile, would care less about the furl price component – and the unit saving could all be evaporated, due to significantly reduced demand.