Daily Times

Global Oil Gap

A global oil supply gap is likelyat the end of the year 2021 increasing to 3 million barrels per day (b/d) by 2030, 9 million b/d by 2035 and a whooping 15 million b/d by the year 2040. The present day pace of commercial volumes does not inspire as to how this gap is to be met particularly as expenditure on oil exploration world wide has shrunk from USD60 billion annually since 2014 to USD 25 billion today. Peak production of a fresh oil discovery is achieved after 10 years.

The heartening news is that exploration is performing better now than it was when oil prices were above USD 100 per barrel on account of stringent financial controls. Quadrant’s Dorado discovery in Australia is the biggest oil discovery this centuryand Alaska is the new frontier where international players are venturing.

Configuration of Refineries in Pakistan

Pakistan has hydro skimming refineriesproducing a surplus of fuel with a relatively unattractive price and demand.The crisis unfolding isto lift the furnace oil (FO) on urgent basis as the refineries have surplus especially in winter and as per the merit criteria of National Transmission & Distribution CompanyFO is ranked the lowest.Modernization of the refineries to deep conversion by installing hydro crackers to convert the FO into other products is the desirable goal.Installing a catalytic cracking or hydrocracking unit , reducing the sulphur content, would convert residual fuel oil into gasoline and diesel and also meet international fuel specifications.

Traditionally FO has been utilized for power generation in Pakistan and nowadays it has become economically viable to produce power with imported Re liquefied Natural gas, coal and to some extent with renewable energy. In the eventuality of stoppage of local FO productionother fuels such as diesel and Mogas (petrol) will cease to be produced from theses refineries. Connected issues being refineries use local and imported crude for making petroleum products and in case of refineries’ shutdown, there is no usage of local crude oil produced by domestic Exploration & Production companies (local crude cannot be exported due to high sulphur contentand sold to hydro crackers as feedstock)and associated fields will stop producing gas in a scenario where oil is not extracted from a field. Refineries are confronted with myriad challenges as their outputsof gasoline, kerosene, diesel and residual fuel oil need to be in sync with demand to avoid scarcity or over supply of certain fuels thereby creating risky refinery margins. . A solution is to import refined petroleum products financed through scarce foreign exchange, however port handling capacities of Karachi Port and Port Qasim are not upto the desired level of strategic oil storage and any delay in supply may led to a severe shortage.

Efficiency of Power Generation Plants

Power generation costs comparison between an efficient FO plants’ actual cost this year came at Rs13.96/unit versus Rs9.40 and Rs5.69 for Re liquefied Natural gas and coal based plants respectively. Even older generation plants having dual operation option prefer to run on gas. The core of energy crisis is the circular debt accumulated over the years, currently estimated at Rs1,300 billion calling for enhancing energy security by revising the energy mix through optimizing hydropower the cheapest electricity globally.Currently Pakistan generates 32,350 GWh on grid hydropower whereas its potential is 240,000GWh. The share of hydropower in the overall energy mix declined from 65 % in 1960 to 25 %. The public sector operates 18 small to large hydropower stations with cumulative installed capacity of 6,880MW. The 969MW Neelum-Jhelum project is on line to attain commercial operations and we can include the projected mega public sector units such as 4,500MW Diamer-Basha, 800MW Mohmand, 2,160MW Dasu-I, and Tarbela 5th extension of 1,140MW ofaffordable electricity generation. Cross cutting hydro power technology has revolutionized hydropower throughprotection of turbines from hydro abrasive erosion due to high sand content in rivers and designing turbinestoreplace its runner blades and guide vanes without shutting the unit.

Petrochemical to be the Game changer

Refineries without catalytic cracking produce residual fuel oil which they sell at a discount at times adversely affecting refinery margins compared to the yield of Brent crudes. Without facilities to crack residual fuel oil Arabian Medium yields about 35 % gasolinewhereasBrentyields 58 % gasoline and diesel.Petroleum based products are raw material to create synthetic products such as rubber and plasticessential in export oriented industries besides serving the requirements of local vendors and creating a huge cottage industry in parallel thus indigenizing the production of petrochemicals as derivatives of crude oil being the need of the hour. In 2017 Pakistan imported almost USD 2.3 billion worth of plastic polymers comprising mainly of polyethylene and polypropylene and importingpetroleum products costUSD 10.5 billion. Pakistan’s crude oil processing capacity is about 10.5 million tons and processes 30 million barrels of local and about 65 million barrels of imported crude oil annually. As the bulk of Pakistan’s imported oil of around 14.5 million ton is unrefined the profit incentive for establishment of a petrochemical refinery complex exists. Naphtha condensates from local crude are being exported. When a refinery operates it produces the whole range of products from LPG, petrol, kerosene, diesel, Jet Fuels (JP-1 and JP-8) and residual furnace oil and forcing refineries to reduce throughput to the bare minimum reduces this range.On average a barrel of crude oil produces 43% petrol, 23% diesel, 9% kerosene, 5% coke, etc. and only 1% of other products including naphtha. Pakistan’s lone polymer plant established 20 years ago is struggling against lowered tariff while in China and neighboring countries the polymer producing capacities have increased greatly. Only capital investment is required which is easier said then done.

The author Razeen Ahmed researches in the areas of finance and energy. Nadir Mumtazreviewed the article

Published in Daily Times, January 6^th 2019