23 May 2024 | 07:36 UTC

Pakistan's fuel oil exports surge to record high on muted domestic demand

Highlights

April sees no electricity generated from fuel oil-fired power plants

Asia's 180 CST HSFO cash premium at highest in over eight months

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Pakistan's fuel oil exports in the first 10 months of the current fiscal year touched a record high as domestic sales slumped to a new low during April, when not a single unit of electricity was generated from fuel oil-fired power plants, showed official government data released May 21.

The country's high sulfur fuel oil exports in the 10 months ended April 30 reached 613,042 mt, while outflows of low sulfur fuel oil stood at 40,661 mt, according to data from Oil Companies Advisory Council (OCAC) which compiles data of consumption, exports and imports of petroleum products.

In the preceding fiscal year ended June 30, 2023, Pakistan exported around 276,979 mt of HSFO, but there were no LSFO shipments, the OCAC data showed. The country's financial year runs from July to June.

Domestic fuel oil sales in April were around 30,000 mt, down about 57% on the year, while the overall sales in the 10 months of the current fiscal year dropped by 53.5% to 0.87 million mt against 1.87 million mt during the same period in the previous year, the OCAC data showed.

The demand from fuel oil-fired power plants has plunged sharply as the government's focus is now mostly on generating electricity through LNG, hydel, nuclear, coal and indigenous gas, said Muhammed Awais, head of research at Akseer Research, a Karachi-based broking firm.

In April, there was no electricity generated from the fuel oil-fired power plants, compared with 223 GWh generated in the corresponding month a year earlier, data from the National Electric Regulatory Authority showed. For the 10 months ended April 30, electricity generation from fuel oil declined by 48% on the year to 2,103 GWh, the data showed.

Lower economic activity and high electricity tariffs have subdued the overall demand and electricity consumption in the country, Awais said.

Pakistan's total power output stood at 8,639 GWh in April, down 13.7% from 10,010 GWh in April 2023, 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 that 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 the throughput of fuel oil.

Strong Asian HSFO fundamentals

The Asian high sulfur fuel oil market has strengthened in recent weeks, buoyed by tighter supplies and relatively healthy downstream bunker demand, market sources said.

The Platts-assessed Singapore 380 CST fuel oil derivatives front-month time spread -- an indication of near-term market fundamentals -- surged $8.55/mt, or 244.29%, on the month to $12.05/mt at the Asian close May 21, S&P Global Commodity Insights data showed.

The spread was last on the same level on Sept. 29, 2023 and higher on Sept. 28, 2023 at $14.25/mt.

Expectations of a seasonal uptick in utility demand from fuel oil-fired power plants in South Asia during the summer months were also supporting the HSFO market sentiment, according to sources.

Platts assessed the Singapore 380 CST HSFO cargo's cash differential to the MOPS 380 CST HSFO assessment $1/mt higher on the day at a premium of $10.43/mt on May 21, the highest since Sept. 13, when it was assessed at a premium of $11.21/mt, Commodity Insights data showed. The benchmark HSFO cash premium has surged 33.2% in the last two weeks, the data showed.

The 180 CST HSFO cash premium over the MOPS 180 CST HSFO assessment, which has soared about 180% so far in May, was assessed at $10.52/mt on May 21, its highest level since Sept. 13, when it was assessed at a premium of $12/mt, Commodity Insights data showed.

Meanwhile, the front-month Singapore 380 CST HSFO crack against prompt-month Brent crude was assessed at minus $3.83/b on May 21, compared with minus $5.48/mt in the preceding session, Commodity Insights data showed. The refining margin has jumped 43.3% so far in May, and is currently at its strongest since Aug. 23, when it was assessed at minus $3.10/b, the data showed.