BR Research

Refineries in for unprecedented jolt

One by one the refineries in the country are shutting down or sounding alarms bells of a possible closure soon. In l
Published April 2, 2020

One by one the refineries in the country are shutting down or sounding alarms bells of a possible closure soon. In less than a week, National Refinery Limited (NRL) has stopped operations due to slump in oil demand in the country due to COVID-19 outbreak and the lockdown; and Byco Petroleum has put its refining complex on cold circulation due to lack of demand for petroleum products. And while the government is mulling to shut down all but two refineries - Attock Refinery Limited (ARL) and Pak-Arab Refinery Limited (Parco - in the wake of the ongoing crisis, ARL has raised the red flag.

The government had earlier asked the oil sector to cancel the import of crude oil and petroleum products from April and revert to local crude oil. ARL operates on local crude oil and the refinery’s closure would result in a contagion effect in the E&P sector where many fields might also be forced to stop oil and gas production.

Currently there are six refineries operating in the country: Byco Petroleum's two refineries, Pakistan Refinery, National Refinery, Parco, and Attock Refinery, whose combined capacity is about 420,000 bpd.  ARL would be the third refinery to shut down, which would mean more than 65 percent of the country’s refining capacity would be out of operation.

Lockdown across the country to control the upsurge in COVID-19 cases has resulted in a plunge in the demand for oil in all segments: power sector demand has fallen as educational institutes, industries and business are closed (Read: Power demand to take a hit); Aviation sector demand for jet fuel has come to a halt as the flight operations both domestic and international have been suspended for two weeks (with high  chances of further extension in the suspension), and transport sector demand has also come to its knees with falling consumption of petrol, diesel as well as CNG. March oil sales numbers in a couple of days will be a clear indication of weaker demand and refineries’ decision to close down.

The situation in the country is not unique. Globally, demand for oil and petroleum products has dropped like a stone due to coronavirus pandemic. According to a Goldman Sachs analysts, demand is likely to nose dive by 18.7 million barrels per day (bpd) globally in April 2020, against a 10.5 million bpd drop in March; whereas the total annual consumption is expected to drop by 4.25 million bpd from 2019.

Refineries are either shutting down or facing extremely low run rates where they cannot operate at really low levels. Sinopec, China’s oil giant sees negative growth in the consumption of petroleum products in 2020 due to the impact of the first two quarters; it has reduced its capital spending plan for 2020 and is expected to lower run rates this year because of the coronavirus outbreak. South Korea run rates fell to the lowest in February since 2014. Japan is considering more cuts, while refineries in India and Europe are facing shutdown.  Brimming with supplies but no demand, refineries are stripped for cash, out of storage, and are likely to remain in this state for at least the quarter.

Comments

Comments are closed.