PRL closes refinery due to low demand for heating oil and oversupply

ISLAMABAD: Pakistan Refinery Limited (PRL) on Thursday closed its operations due to declining demand for fuel oil in the country and abundant stocks.

“… due to operational constraints and lows, PRL has temporarily closed its refinery from today (Dec. 16) until the situation improves,” the refinery said in a filing at the Pakistan Stock Exchange.

PRL is the first victim of an unprecedented drop in demand from independent power producers (IPP) for heating oil (FO).

Industry officials have said National Refinery Limited (NRL) also plans to shut down operations from December 23, 2021, for the same reasons.

“The Byco and PARCO refineries are transporting heating oil to the warehouse and exploring the possibility of exporting it,” said an industry official.

Despite a directive from the petroleum division to the electricity division to push independent power plants to lift fuel oil a week ago, the situation remains unchanged so far.

The general direction (petroleum) of the petroleum division, in a letter dated December 9, 2021, had asked the electrical division to order the power plants to immediately transport the fuel oil via the PSO / OMC for the constitution of stocks and the supply of payments / LC (letters of credit) to PSO.

According to the letter, the last fuel position meeting chaired by the Minister of Energy had decided that power plants would lift fuel oil for stockpiling and for consumption if required.

Earlier, the Oil Companies Advisory Council (OCAC), in a letter written to DG (petroleum), warned that refineries would start shutting down operations due to falling sales of FO.

Due to limited storage, refineries are forced to cut back and in some cases almost stop processing crude, which would affect the availability of petroleum products, ultimately disrupting an already fragile supply chain.

On hand when refineries push for the phasing out of heating oil to avoid financial loss, the Oil and Gas Regulatory Authority (OGRA) in its latest oil price review notification has narrowed the cracks slightly / refinery spread on gasoline (MS) and diesel (HSD) $ 1 to $ 2 per barrel versus crude on a bi-monthly basis, while keeping the spread on heating oil largely unchanged. These three products contribute significantly to the fuel revenues of local refineries.

Over the next 16 days, refineries will benefit from a spread of around $ 6 / bbl on MS and $ 12 / bbl on HSD, compared to around $ 7 / bbl and $ 14 / bbl respectively in the previous fortnight. according to a research report from Sherman Securities.

The report says that due to slowing demand for premium distillates (MS and HSD) amid the re-emergence of the Omicron variant, the prices of refined products in international markets have fallen more than the price of crude oil.

Currently, MS and HSD prices for local refineries are set at $ 81 / barrel against $ 88 / barrel last fortnight and $ 87 / barrel versus $ 94 / barrel during last fortnight while the average price of crude is about $ 75 / bbl, down from $ 80 / bbl.

The average refinery cracks / spreads on MS and HSD during fiscal year 2QFY22 were $ 9 / bbl and $ 14 / bbl, respectively, compared to $ 5 / bbl and $ 9 / bbl on the respective products. in the 1st quarter of QFY22. However, the average spread on heating oil remained stable at around $ 12 / bbl.

Steve R. Hansen