Islamabad — Pakistan's fuel oil exports are expected to drop during the peak summer season of May-July, as increased household and industrial consumption drives up domestic power sector's reliance on the fuel, market analysts told S&P Global Platts.
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Register NowAbdullah Umer, a research analyst at Karachi-based brokerage Ismail Iqbal Securities, said that among domestic electricity producers -- commonly known as Independent Power Producers, or IPPs -- fuel oil demand witnessed a 36% growth in the 2020-2021 fiscal year, while fuel oil-based power generation rose 17% over the same period.
IPPs account for about 80% of the country's fuel oil consumption, with the remaining 20% coming from captive power plants installed at domestic heavy industries, local refinery sources said.
"Gas shortage remains the primary reason behind government increased reliance on fuel oil based generation in this year", said Umer, adding: "We believe that fuel oil demand in the summer season would largely remain intact despite witnessing a major drop in gas demand from the domestic sector."
According to latest data from the Oil Companies Advisory Council, fuel oil sales in February 2021 totalled 176,000 mt, 22% higher on the year, while sales in the eight months until Feb. 28, 2021 rose 36% to 2.09 million mt.
State-owned Pakistan State Oil has already issued three buy tenders, seeking two cargoes of 65,000 mt each of 180 CST high sulfur fuel oil and one 55,000 mt cargo 1% sulfur fuel oil, all delivering over May. This is the first set of tenders since it canceled tenders for January-delivery cargo, in anticipation of a pickup in demand over the period, Platts reported earlier.
Exports feel the heat
With summers approaching, the power industry's reliance on fuel has also increased in the current fiscal year, leading to a reduction in fuel oil exports from the country.
Fuel oil exports totaled about 20,000 mt from Southern refineries like BYCO, Pakistan Refinery Ltd. and National Refinery Ltd., Umer said citing refinery output data.
The increased demand for fuel oil over the summer months reverses the government's previous objective of reducing its dependence on it for electricity generation as it has been a costly affair, said Yousuf Saeed, head of research at Darson Securities.
However, reduced load-shedding incidents and blackouts in Karachi last year has now assumed primacy, Saeed added.
"As per our channel checks, little to no fuel oil is being exported currently, as dwindling output from domestic gas fields forces power companies to look for cheap alternatives," said Shahrukh Saleem, an analyst at AKD Securities.
Moving forward, analysts expect power demand to increase, although the use of fuel oil as a feedstock for power generation will likely remain dependent on the availability and price of LNG.
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Pakistan's fuel oil exports to fall as peak summer season approaches: analysts - S&P Global
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