First it was labelled only as a temporary absence from the market, and now the non-availability of High Octane Blending Component (HOBC) is acutely becoming a long term phenomenon. The scarcity of this performance boosting fuel is being felt across major cities for over six months now. Initially, the shortage was witnessed in Karachi, but now fuel pumps in Lahore and Islamabad are also running dry.
HOBC is a high-octane blended fuel that has been used by luxury and imported cars for long. Compared to ordinary petrol (motor gasoline), HOBC’s main use is improved mileage and better engine performance. And hence, the market for the fuel has been is limited.
Over the last six to seven months, HOBC’s has had limited availability, and the shortage has become pronounced with time. What’s behind this paucity? The answer lies in the existing capacity and the prices.
HOBC is a specialised fuel, which is only being produced by one refinery in the country – Pak Arab Refinery Company. PARCO has a capacity to supply around 3500 metric tons of HOBC every month. And when international crude oil prices started coming down last year, the monthly production of the fuel started falling short of demand. In other words, fall petroleum prices in the country increased the demand of the same including that of HOBC – much more than what PARCO could cater to.
Petroleum prices have not been this low in over a decade, and experts believe that the contracting differential between HOBC and ordinary unleaded petrol is the main cause of the shortage of HOBC. Historically, the local consumption has been fulfilled with the indigenous supply, but recently, back of the envelope calculations suggest that the demand has been hovering somewhere between 4000-5000 metric tons per month amid a limited supply of 3500 metric tons - a demand supply gap of 1000 metric tons on average.
The price differential as of today’s prices stands between Rs5-6 (HOBC retail price: Rs70.35; petrol retail price: Rs64.27), whereas historically this difference has been much greater. Also, it is not just the declining price differential; overall petroleum prices have halved over the last one year, making HOBC more affordable. Interestingly, lower prices instigated even the bike owners to use the high-efficiency fuel.
Imports are oft the solution when local supply falls short of demand. Oil marketing companies can easily mitigate this shortage like they do with ordinary petrol. In fact, the OMCs showed willingness last year for an import plan in view of the demand and profit potential, but they were directed by the Ministry of Petroleum to resort to OGRA for HOBC import and price approval.
Here the mis-coordination between government departments is vivid as the Minister of Petroleum Shahid Khaqan Abbasi has denied any such intrusion by the ministry by saying that HOBC is a deregulated product, and that OMCs can import without the ministry’s approval.
The debate is incomplete without a recent word from the OMCs, but with no response one can only wait and watch how things unravel.