Government’s directives to upgrade add to the refineries’ woes |

Government’s directives to upgrade add to the refineries’ woes

KARACHI: The government has announced a ban on the import of Furnace Oil (FO) and also instructed refineries to utilize deemed duty granted to them on sale of High Speed Diesel (HSD) to upgrade their plants. Government has warned that if the deemed duty is not used to modernize the plants; the collected funds would be utilized in the new Mehmood Kot oil refinery. “In this situation, even installing a hydrocracking unit – which allows conversion of FO into Motor Gasoline (MOGAS) and other petroleum products – would not be feasible without government support. Moreover, exporting FO would most likely not result in a favorable pricing scenario,” an analyst at JS Global Capital said. Oil refineries have already expressed fears of shutdown as slow offtakes of furnace oil following the government’s shift to gas-based power production left them with the key product surfeit, which could make their entire supply chain to break down. The Oil Companies Advisory Council (OCAC) had warned that all the major refineries already slowed down and were generally operating at their lowest levels and heading towards imminent shutdown if consumption by power plants was not enhanced on urgent basis. Successive governments are relaying on re-gasified liquefied natural gas (RLNG) to slash oil import bill that accounts for around 20 percent of the country’s annual imports of $61 billion. Furnace oil cost is higher than imported LNG. Nearly all oil refiners had installed isomerization plants around two years ago. To provide some background, isomerization plants convert low sulfur naphtha (LSR) to 80-82 grade Research Octane Number (RON) Motor Gasoline (MOGAS) fuel. Due to the mandatory requirement of minimum RON 92, the refiners were adding manganese (Mg) to boost the octane levels. However, automakers, particularly Honda Atlas Cars (HCAR) complained about choking and engine knocking issues in their cars due to the high manganese content used in the MOGAS products. This led to the Ministry of Energy imposing ceilings of 40mg per liter, which was further reduced to 24mg per liter effective November 1, 2018. From April 1, 2019, oil refiners will have to eliminate manganese from their products. “We believe this requirement will severely limit the refiners’ ability to convert Naphtha to MOGAS of specified RON, leaving them no option but to export it,” a JS global Capital report said. However, Byco Petroleum (BYCO) is the only refinery to have installed a Catalytic Reformer, which converts heavy naphtha (HSF) into RON 92 petrol without the use of any additives. For other refineries, exporting thicker petroleum products (Napthta and FO) would be unfeasible given an already weak demand supply dynamics of naphtha in the international markets and significantly higher transportation expenses to the seaports.
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