Pakistan's PARCO defers fuel oil export on uptick in domestic power generation demand

Pak Arab Refinery Limited -- Pakistan's second-largest refinery -- has deferred exporting a 50,000-mt fuel oil cargo, which was earlier planned to load by the end of January, as demand from domestic power generation companies rose due to a drop in electricity production from gas and hydel power units, industry sources said.

This comes after Pakistan Refinery Ltd deferred its fuel oil exports for a 30,000-mt January-loading cargo due to similar reasons.

Fuel oil demand has surged in recent weeks as hydel power generation plants took a hit as heavy snowfall in the northern parts of the country squeezed water flows in the Indus River, which is the primary source of water supply into the reservoirs used for generating electricity, industry sources said.

PARCO did not comment at the time of writing, while there was no official confirmation from Attock Refinery and Cynergico -- the two refineries of prominence in Pakistan -- about the postponement or shipment of the fuel oil exports in January, industry sources said.

"In January 2024, the fuel oil demand has got a little higher as lower winter temperatures in most of the cities sharply reduced the gas flows, curtailing power output from gas-fired plants," said Abdul Azeem, head of research at Karachi-based firm Spectrum Securities.

"Even residential consumers are facing load shedding of 10-12 hours on a daily basis. Moreover, lower fuel oil prices, alongside lesser hydel power also generated higher fuel oil demand."

Pakistan, which typically has been a net importer of fuel oil, became a regular exporter of residual fuel in recent months as the country is prioritizing the usage of alternate fuels, such as gas and coal for power generation.

Pakistan's fuel oil exports rose to an all-time high in December 2023, when the South Asian country exported 135,551 mt of fuel oil, about 37% higher from 98,830 mt in November, according to data released Jan. 18 by Pakistan's Oil Companies Advisory Council, which compiles data related to fuel consumption, imports and exports.

In December 2023, fuel oil-fired electricity generation plants produced around 168 GWh of electricity, compared with 39 GWh produced in December 2022, while not a single unit was produced from fuel oil-run units in November 2023, showed data from National Electric Power Regulatory Authority, a government-run authority which determines electricity pricing and the usage of electricity in key sectors.

The electricity production from gas-fired plants in December 2023 fell to 826 GWh from 1,274 GWh produced in December 2022, the government data showed.

In August 2023, the Pakistan government introduced a policy that calls on local refineries to completely halt production of fuel oil and opt for Euro-V motor gasoline and diesel production, a process which is estimated to take approximately four to five years to complete. Pakistan refineries have chalked out a five-year plan, with an investment outlay of $4 billion-$5 billion, to convert the units, opting for Euro-V, eliminating throughput of fuel oil.

Asia's supply of 180 CST high sulfur fuel oil is set to rise in 2024 amid structural changes in South Asian demand as the region pushes for cheaper or cleaner alternative fuels in power generation, possibly setting the stage for a sustained narrowing in the viscosity spread.

Platts assessed the Singapore 180 CST HSFO cash differential to the Mean of Platts Singapore 180 CST HSFO assessment at a discount of $1/mt Feb. 1, the lowest level since Dec. 19, when it as assessed at a discount of $1.33/mt, S&P Global Commodity Insights data showed.

The world's largest bunkering hub of Singapore has imported 45,981 mt fuel oil from Pakistan in the week ended Jan. 31, for the first time in nine weeks, according to latest Enterprise Singapore data.

The Asian HSFO market in general is expected to be sluggish in 2024 as more-than-adequate supplies and a steady decline in utility demand offsets incremental consumption by new scrubber-installed ships coming out of yards, S&P Global reported earlier.