RISE IN DEMAND AND FALL IN REFINING CAPACITY TRIGGERING HIGH OIL PRICES
Kalim A. Siddiqui, PSO's Executive Director Customer Service, says streamlining the refining capacity is vital to bridge the gap between demand and supply
By AMANULLAH BASHAR
Nov 21 - 27, 2005
The crude oil production is sufficiently matching to the world oil demand, rather it is half a million barrel surplus, owing to inadequate refining capacity which is in fact the grey area triggering high the oil prices. This was pointed out by Kalim A. Siddiqui, PSO's Executive Director Customer Services in an interview.
In this backdrop, the world oil producers are required to enhance refining capacity to bridge the widening gap between demands and supply.
Kalim A. Siddiqui, PSO's Executive Director Customer Service, has a deep insight and a discernible eye on the happenings in the oil regime and their fallout on the developing economies, especially in this region.
The rocketing oil prices usually wipe off the economic gains causing serious concern for the developing countries.
Kalim, while discussing the high oil prices, was of the view that actually it is the demand, which generally determines the prices. Looking at the demand and supply situation, he identified that streamlining the refining capacity to enhance finished oil production is vital to bridge the gap between demand and supply.
Look at the global economic scenario, GDP growth and economic development is taking place rapidly in China, India and Brazil, Chilly and of course Pakistan too was not lagging behind.
Pakistan's GDP growth was registered at over 8 percent last year and almost similar level is likely to be achieved this year too. As a principal, GDP growth directly influences consumption of petroleum products and other energy resources hence it is increasing energy consumption almost everywhere in the world.
On the supply side, the world oil production was estimated at over 84 million barrels per day, while the crude oil production is also quite sufficient to match the demand that means there is no deficit in supply and demand of crude oil. The problem exists only on the refining side, which is creating a shortfall in the supply of finished products. As against the demand of 84 million barrels a day, the world refining capacity comes to 82.2 million barrels and it is the deficit in refining capacity which is causing price spiral the world over.
Analyzing the oil regime economics, Kalim also pointed out other eventualities which play their role in enhancing the price level such as natural calamity in the form of hurricanes in the United States where these sea storm-related factors contributed in shooting up the oil prices. There was a time when price shot up even to $70-71 a barrel.
Weather also plays its role in enhancing the demand. Look at the ensuing winter, which always almost doubles the oil consumption and ultimately affects the price level of the petroleum products.
Coming back to his early assessment, Kalim observed that it all depends when and how much the refining capacity of the world is enhanced.
He advocated strongly for more refineries in addition to those already in the pipeline, as by the time these refineries come into production it will continue to affect oil prices.
In the context of Pakistan we need more refineries. At present, Pakistan is facing a deficit of 100,000 to 150,000 barrels a day in refining fuel oil and diesel. The situation calls for immediate increase in refining capacity especially in the years to come.
Refinery capacity: Counting on his finger tips he said that currently Pakistan Refinery has a capacity of 40,000 barrels a day, National Refinery 60,000, Parco 100,000 and the Attock Refinery 35,000 barrels, while newly born Bosicar also contributes some 15 or plus making the total volume at around 270,000 barrels capacity.
Somehow, the higher oil prices are a discouraging factor both for the normal consumers as well as the industrial consumers as it enhances the cost of production. In fact the price factor adversely affects the rate of consumption which is declining in Pakistan. Besides prices, shifting over to natural gas was however another factor behind the fall in oil consumption.
Outlining the overall economics of the energy regime, Kalim said that actually Pakistan is fortunate, as the nature is kind enough to bless the motherland with precious natural gas, which can be described as a savior to our energy consumption. Currently, natural gas contributes 42 percent in the energy mix, while the share of petroleum products is only 30 percent, and 12 percent coal and the hydel resources. Out of 30 percent POL consumption of the total energy mix, 25 percent is net through local crude oil. We are comparatively importing a very small quantity of crude only because of availability of alternative options. Had we not lucky enough to have gas resources, the import bill of oil would have been much higher than the present one.
Over the question of cross border gas pipeline line project, he was in agreement that time is running short. It is the time to take the cross border pipeline project seriously in view of the growing demand for gas as the shortfall may become crucial soon after 2008, he said, adding, if the supply was not supplemented we would be in crisis.
As a responsible and respectable corporate entity, PSO has attained a leading position in the oil regime of the country. It is the largest oil company in the public sector and moving towards privatization.
"Today we are leaders in the industry for the last 5 years, on the back of tireless efforts by the top professionals at all tiers of the organization who were inducted into PSO to produce results and to bring PSO on the top," he remarked.
His attention was drawn towards the hefty profits being earned by the oil marketing companies, especially by PSO despite being a public sector organization. Before he comes out with his remarks, Kalim took a brief pause and probably after calculating investment and return figures, he observed confidently that we are a commercially operating concern; we have to remain commercially viable to remain in the market especially in the face of multinational companies operating with their enormous resources.
Regarding rate of return on the investments made in PSO, he said that total volume of business was estimated at Rs 254 billion, which is equal to $4.23 billion.
Out of that the before tax revenue was estimated at Rs 9.2 billion while after tax profit was Rs 5.4 billion. "See the level of investment and the size of the profit earned after such a huge investment. Actually, we are not making exorbitant profits. We have to compete with the multinational companies for that you will have to be commercially viable," he observed with a sense of satisfaction.