Pakistan ponders Russian crude imports, seeks input from refiners

The Pakistani government has asked its refineries to provide feedback on importing attractively-priced Russian crude in an effort to soften the blow from a ballooning import bill, joining a list of Asian countries which are keeping their options open to buy from the non-OPEC supplier.

The government has written a letter to Pak Arab Refinery, National Refinery, Pakistan Refinery, and Cnergyico, formerly Byco Refinery, to submit their detailed reports on whether the refiners can import crude oil from Russia, according to a government document seen by S&P Global Commodity Insights.

As global crude oil prices have skyrocketed, the value of Pakistan's crude oil imports in the first 11 months of fiscal year 2021-22 (July-June) jumped to $4.76 billion for import volumes of 8.16 million mt, compared with $2.72 billion for import volumes of nearly 8 million mt in the same period during the previous fiscal year, according to data from the Pakistan Bureau of Statistics.

"Local refineries can process Russian crude, except Attock refinery, which is using local crude," said Tahir Abbas, head of research at the Karachi-based brokerage house Arif Habib Ltd.

Additionally, refineries can blend 25%-30% Russian crude in their total crude feedstock mix, he added.

A 30% blend of Russian crude with other crudes and a 30% discount on import costs of Russian crude together can result in annual savings of around $450-$500 million in the country's total import bill, Abbas said.

Farhan Mehmood, head of research at Sherman Securities, said importing crude from Russia would help to ease the pressure on the country's foreign exchange reserves.

Pakistan in the fiscal year ended June 30, 2021 had imported 8.8 million mt of crude oil amounting to $3.1 billion, Pakistan Bureau of Statistics data showed.

Yawar-uz-Zaman, head of research at Pearl Securities, said currently Pakistan imports Arab light that has a sulfur content of 1.77. Since Russian Urals has about 1.48 sulfur content, local refineries should be able to process Russian oil.

"However, more clarity is needed on this considering all refineries lack efficiency. They have raised the issue of upgradation of plant and machinery with the government", he said.

Cost savings

Pakistan currently has a total refining capacity of around 417,000 b/d, meaning it can meet less than 40% of the fuel requirements for its population of nearly 230 million people, industry sources and market analysts said.

With the Pakistani rupee trading at its record-low levels and the country's dollar reserves running dry, diesel and gasoline imports could falter over the coming trading cycles and the best option for now is to at least maximize domestic refinery runs by processing the most cheapest feedstocks available in the international market, according to a plant operation and product slate manager at Pak Arab refinery, or PARCO.

As South Korean and Japanese refiners refuse to purchase Far East Russian crudes, including ESPO Blend, Sokol and Sakhalin Blend, a few Pakistani traders have been making enquiries about the availability of the light and medium sweet Russian grades and their discounts, a crude and condensate trader at a western trading house based in Singapore told S&P Global.

However, Far East Russian grades are too light to fit the general Pakistani refinery systems. Hence medium sour Russian Urals would be among the most suitable and cheapest feedstock options, the source at PARCO added.

In theory, Urals could cost at least 30/b less than Middle Eastern crudes for Pakistani refiners, industry and market sources said.

Saudi Aramco had set the official selling price for its flagship medium sour crude loaded in June and bound for Asia at a premium of $4.4/b to the Platts Dubai/DME Oman average. In comparison, S&P Global assessed Urals Mediterranean, or CIF August basis, at an average outright price of $84.43/b in June, equating to a discount of $28.66 to the Dubai/Oman average for the month.

"In the best-case scenario, if we would switch 100% of our energy requirements to Russia, attaining a 30% discount on our total petroleum import bill, this would have resulted in a saving of $6 billion per annum," said Yawar of Pearl Securities.