Pak-Arab Refinery Ltd Invites Bids
In an effort to adapt to changing market dynamics and preferences, Pak-Arab Refinery Limited (PARCO) has announced its intention to sell 50,000 tons of surplus fuel oil. With Pakistan witnessing a growing shift towards coal for power generation, PARCO aims to export the excess distillate, taking advantage of rising global demand. This article delves into the details of PARCO’s sales tender, the reasons behind the surplus, and the impact on both local and international markets.
PARCO’s Sales Tender
PARCO has initiated a sales tender, offering 50,000 tons of high-sulfur fuel oil (HSFO) for export. The fuel oil, with a maximum sulfur ratio of 3.5 percent, will be available for loading at Karachi port between July 15 and 17. This move reflects PARCO’s proactive approach to manage its surplus inventory and explore global market opportunities.
Reasons for Surplus
One of the primary reasons behind the surplus of fuel oil in Pakistan is the country’s increasing preference for coal in power generation. During the second quarter of this year, fuel oil imports declined as companies opted for coal due to its lower cost and widespread availability. This shift in energy sources has resulted in excess fuel oil production, compelling PARCO to seek alternative markets.
Decreased Fuel Oil Imports
The reduction in fuel oil imports in Pakistan is directly linked to the rising consumption of coal. As power generation companies capitalize on the lower cost and abundant supply of coal, the demand for fuel oil has waned. The second quarter of this year witnessed a noticeable decline in fuel oil imports, reflecting the changing energy landscape in the country.
Recent Fuel Oil Exports
To manage the surplus, Pakistan exported 90,000 tons of fuel oil in May 2023. The poor local demand over the past few months prompted the decision to explore international markets. From March to May 2023, fuel oil exports totaled 250,000 tons, and more exports are planned in the near future due to stagnant local consumption. The national daily reported that despite ample stockpiles, there has been no substantial increase in fuel oil consumption.
Current Stockpiles in Pakistan
At present, over 510,000 tons of fuel oil are stored in Pakistan by various entities, including oil marketing companies (OMCs), power stations, and local refineries. This surplus indicates the magnitude of the challenge faced by the industry and underscores the need for alternative solutions. The storage of excess fuel oil imposes financial burdens on companies, making export an attractive option to maintain seamless operations.
Price Disparity and Export Decisions
Both local and international prices of fuel oil have exhibited significant disparities. With a difference of Rs. 35,000 per ton, refineries have chosen to export their stockpiles to optimize their operations. By selling the surplus fuel oil, these refineries mitigate potential losses and ensure their continued functioning. The decision to export aligns with the prevailing market conditions and the current lack of recovery in local consumption.
PARCO’s Strategic Move
Among the local refineries, PARCO and PRL possess the largest shares of fuel oilstorage. Recognizing the challenges posed by surplus fuel oil and the limited prospects of local consumption recovery, PARCO has made a strategic decision to export its excess stock. This proactive move allows PARCO to streamline its operations, reduce financial burdens, and explore international markets to capitalize on rising global demand.
In conclusion, Pak-Arab Refinery Ltd (PARCO) has taken a proactive approach to address the surplus fuel oil situation in Pakistan. By initiating a sales tender for 50,000 tons of high-sulfur fuel oil, PARCO aims to tap into the global market and optimize its operations. The shift towards coal for power generation has led to a decrease in fuel oil imports and an accumulation of stockpiles in the country. Exporting the surplus ensures the seamless functioning of refineries and mitigates potential losses. This strategic move by PARCO aligns with the prevailing market dynamics and positions the company to leverage international demand.