ISLAMABAD: Petroleum ministry opposes furnace oil-based power projects


The Ministry of Petroleum and Natural Resources has opposed setting up of new thermal power projects based on furnace oil due to uncertain product supply in future and limited availability of foreign exchange resources, well-placed sources in the Planning Commission told Business Recorder here on Thursday.

With the present number of thermal power stations, the import bill of furnace oil will jump by 237 percent to $18.641 billion in four years ie 2008-12 as compared to $4.334 billion from 2004 to 2007, sources said. In 2004-05, country’s total furnace oil consumption was 4,592,300 tonnes of which 1,455,000 tonnes was imported at a cost of $291 million while in 2005-06 consumption increased to 5,112,300 tonnes of which 1,905,000 tonnes was imported.

The import bill was said to be $643 million. In 2006-07, the total furnace oil consumption was 7,473,800 tonnes of which 4,309,000 tonnes had been imported whose bill was $1.458 billion whereas in 2007-08 furnace oil import bill increased to $2.114 billion as import stood at 4,276,000 tonnes against the consumption of 7,596,400 tonnes.

Sources said, based on Wapda’s furnace oil requirements for the period 2008-12, the Oil Companies Advisory Committee (OCAC) had worked out deficit/import projections with two different scenarios ie with existing refineries and with new refineries coming in as Indus Refinery and Trans Asia Refinery.

According to import projections along with foreign exchange impact based on actual average import prices of furnace oil during July 2008, Pakistan will import 5,729,000 tonnes of furnace oil at a cost of $4.268 billion with existing refineries in 2008-09 whereas the bill will remain the same as no new refinery is expected to be operational during this year.

In 2009-10, furnace oil import bill with existing refining capacity will touch $6.050 billion with import of 8,1333,400 tonnes. However, import bill will decline to $4,172 billion with new refineries and the country will import 5,599,700 tonnes of furnace oil.

Likewise the import bill will reach $7.424 billion in 2010-11 when Pakistan will import 9,965,400 tonnes of furnace with existing refineries, but with new refining capacity import bill will be 5,013 billion with import of 6,728,800 tonnes.

In 2011-12, Pakistan will have to import 10,624,700 tonnes of furnace oil with existing refineries at a price of $7,915 billion, however, with new refineries furnace oil import will be around 6,963,100 tonnes at a cost of $5.188 billion. The ministry is of the view that if new refineries do not come on board as per schedule, the country may face many problems.

According to the ministry, the next 10 years would witness a radical shift in the supply-demand for furnace oil because of two reasons. First, additional conversion capacity is coming up in the Middle East to maximise value addition to High Speed Diesel (HSD) using furnace oil as feedback. This has been a sea change in a refinery’s profitability and is the route most refineries in the international as well as local market are taking.

Therefore, over the next five years, new cocking, hydro-cracking and FCC capacity will largely eliminate today’s overhang of furnace oil. And second with most Middle East countries shifting to HSD as reference for power generation as against the traditional furnace oil due to environmental and related concerns, conversion of furnace oil to HSD will gather more impetus. Local refineries are also investing to minimise furnace oil by veering towards higher value light products. These facts are going to constrain furnace oil supply for the country.

The ministry has advised the importers to check furnace oil availability in the region along with quality as most of the upcoming refineries in the country and AG market are investing in converting fuel oil into higher value lighter products.

It is of the view that given the persistent increase in furnace oil price, limited availability of foreign exchange resources, infrastructure impediments and uncertain product supply security, it is not advisable to plan or build future power plants on furnace oil and instead reliance be made on optimal utilisation of Thar coal reserves and harnessing the hydel potential for future energy generation.

Source: Business Recorder, 12/9/2008


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