NEED TO LAY GREATER ATTENTION ON REFINING SECTOR

In order to go for energy independence, Pakistan must move towards increasing local refining output.

KHALIL AHMED
Senior Correspondent

Jan 22 - 28, 2007

Currently, a bleak outlook of shrinking exports is portrayed by the opinion leaders on the economic front on the back of a widening current account deficit which is all coupled with long drawn out power cuts and load-shedding in winter. In order to go for energy independence, Pakistan must move towards increasing local refining output. To date, the refining output for a country of our size remains dismally low.

In order to plan and sustain this future growth as well as curtailing our habit in spending foreign exchange for petroleum products, the government must encourage huge investment in the refining sector. Besides adding value locally rather than paying foreign exchange, it has the possibility to earn from exports of refined product. India also imports energy from foreign countries but the country chalked out a plan to find export opportunities for its refined product to earn foreign exchange. A couple of years ago India planned to invest Rs350 billion for setting up new refineries to become an POL export hub and the country also decided to build refineries in Africa and Latin America. India also came up with the idea of spending Rs107.63 billion in expansion and modernization of the refineries.

The refining sector of Pakistan includes a few big names such as Pak-Arab Refinery Limited (PARCO) incorporated in Pakistan in May 1974, National Refinery Limited (NRL) incorporated in Karachi in 1963, Pakistan Refinery Limited (PRL) serving the nation since 1962, Attock Refinery Ltd (ARL) serving for decades and Bosicor Refinery established in January 1995.

Recently some excellent developments have taken place in the refining sector. According to a source the current refining capacity of the country is over 13 million tons per annum. It is being estimated that the total demand of the petroleum products is likely to reach 18 million tons by FY10. According to a source, "total demand for oil, which accounts for 31 per cent of the country's energy needs, will grow to 32.51 million tons by 2015 and 66.84 million tons by 2030. The demand of oil is increasing globally. A source quotes: "It is expected that the world oil demand which stood at 82 million barrels per day in 2004 is expected to grow steadily to a figure of 89 million barrels of oil per day by 2008. Strong oil demand from China, US and emerging economies like India has resulted in refineries operating at around 90% utilization levels globally coupled with higher refining mains."

Of course, it is the need of the hour to attract investment to avert the impending problems. Realising the need in this sector, the government offers attractive incentives to investors for off-shore and on-shore oil and gas exploration. Since the government has deregulated the petroleum sector, foreign firms have expressed their interest to invest heavily. Last year Kuwait's Noor Financial Investment Company signed an MoU regarding the establishment of a $1.5 billion refinery at Port Qasim in Karachi. During the current month, Chairman Iran Foreign Investment Company Darvishzadeh expressed that his company intend to set up a refinery, and naphtha cracker plant in Pakistan. The year 2006 ended with a welcoming news of the $3 billion to $4 billion UAE investment for setting up an oil refinery near Karachi. A consortium of official Abu Dhabi International Petroleum Investment Company (IPIC) is investing for the establishment of a coastal oil refinery for export purposes at Khalifa point near Hub in Balochistan at a cost of USD 5 billion.

Sources quote that the construction work on the oil refinery would be started in July-August 2007 and likely to be commissioned by the year 2010-11. The government has also decided to set up oil refineries in Gwadar to help make it a regional trade hub. There is no denying that cost-effective fuel is essential for sustaining the country's economic growth. Looking at the oil-rich Saudi Arabia and Kuwait, one comes to know that the countries have huge oil refineries. Kuwait's oil refinery in Shuaiba has the capacity of 200,000 barrels per day (bpd) and Saudi Arabia's national oil company, Saudi Aramco, is planning a 400,000 barrels-a-day refinery.

The profits of oil refineries were under pressure at the global level during 2002 but due to skyrocketing oil prices, oil refineries achieved record profits. During 2005, it was widely believed that the soaring oil prices were due to Katrina, Rita and the US-led war on terror, however, some analysts do say that the limited US refining capacity was the real problem. It is said that profits of oil refineries are directly related to oil prices and their ability to pass on crude oil price increases to Oil Marketing Companies (OMCs).

Well, since the oil prices have plummeted from their peak $78 per barrel to around $50 per barrel, it may be perceived that it would be a kind of threat to refinery profits. According to a local newspaper, "The overall earnings of oil refineries listed on the stock exchanges declined to Rs2,882 million for the nine months of financial year 2006, as against Rs5,011 million in the corresponding period of the previous year - depicting a drop of 43 per cent on year-on-year basis. The fall in earnings has been attributed to depleting gross margins. The loss of the oil refineries can be averted by increasing the capacity utilization. One can recall that during the last quarter of 2003, the refineries were running at 60 per cent of their capacity and it was being predicted that local refineries would face losses on account of reduced capacity utilization.

Pakistan not only needs to set up new refineries but also modernize the existing ones. It has already been emphasised by the concerned authorities that there is the need to improve the quality of petroleum products in line with the international standards to reduce environmental pollution. Further de-sulphurisation units would help produce low sulphur HSD. The government has given target to the refineries to produce Euro-II standard high speed diesel (HSD) by the year 2008 and it has been stressed that the refineries should be equipped with modern facilities. Everywhere in the world there is more emphasis on modernization of the refineries. It has been witnessed that many European countries want cleaner petroleum, which requires complex refining techniques. And for these complex refining techniques, new hi-tech refineries would have to be set up.

NATURAL GAS - CONSUMPTION (CUM)

COUNTRY

2006

2005

2004

Bangladesh

11,900,000,000

9,900,000,000

9,900,000,000

China

33,440,000,000

29,180,000,000

27,400,000,000

India

27,100,000,000

22,750,000,000

22,750,000,000

Pakistan

23,800,000,000

23,400,000,000

23,400,000,000

NATURAL GAS - PRODUCTION (CUM)

COUNTRY

2006

2005

2004

Bangladesh

11,900,000,000

9,900,000,000

9,900,000,000

China

35,020,000,000

35,000,000,000

30,300,000,000

India

27,100,000,000

22,750,000,000

22,750,000,000

Pakistan

23,800,000,000

23,400,000,000

23,400,000,000

NATURAL GAS - PROVED RESERVES (CUM)

COUNTRY

2006

2005

2004

Bangladesh

300,200,000,000

150,300,000,000

150,300,000,000

China

2,530,000,000,000

2,230,000,000,000

1,290,000,000,000

India

853,500,000,000

542,400,000,000

542,400,000,000

Pakistan

759,700,000,000

695,600,000,000

695,600,000,000

Source: CIA World Fact Book

 


OIL CONSUMPTION (BBL / DAY)

COUNTRY

2006

2005

2004

Bangladesh

84,000

71,000

71,000

China

6,391,000

4,956,000

4,570,000

India

2,320,000

2,130,000

2,130,000

Pakistan

365,000

365,000

365,000

OIL - PRODUCTION (BBL / DAY)

COUNTRY

2006

2005

2004

Bangladesh

6,825

3,581

3,581

China

3,504,000

3,392,000

3,300,000

India

785,000

780,000

732,400

Pakistan

63,000

61,000

62,870

OIL - PROVED RESERVES (BBL)

COUNTRY

2006

2005

2004

Bangladesh

28,450,000

28,450,000

28,450,000

China

18,260,000,000

17,740,000,000

26,750,000,000

India

5,700,000,000

5,700,000,000

4,330,000,000

Pakistan

341,800,000

325,500,000

297,100,000

Source: CIA World Fact Book