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Long-term deals with oil marketing companies

Published on 3rd Mar, Edition 9, 2014

 

In 2014, global oil demand will be higher than formerly predict, after consumption in US rebounded to its strongest stage in 5-year. Economic adepts predicted that demand will boost by 1.2 million barrels a day to 92.4 million a day coming year, increasing its projection from November by 240,000 a day. USA fuel utilize increased over 20 million barrels a day in November for the first time since 2008. While the IEA increased its prediction for the crude volume OPEC will require to supplies while making room for the possible return of Iranian exports could be a problem for other producers in the group. Brent crude futures have slipped 1.4 percent in the last year, presently trading at about $110 a barrel in London amid constrained fuel utilization and diminishing concern that tension with Iran will escalate into a clash that disturbs Middle Eastern crude exports.

A reasonably lower gasoline prices and robust recovery in USA are assisting stoke demand in the world’s largest oil user. Refined products and stockpiles of crude were at 2.7 billion barrels in October 2013, or 19.7 million less than their 5-year average.

Adepts predict for supplies demanded next year from OPEC by around 200,000 barrels a day. That’s still almost 400,000 a day less than the group’s 12-member pumped in November 2013. OPEC’s output declined for a 4th month, by 160,000 barrels a day, to 29.7 million a day in November 2013, as a result of disruptions in Libya and smaller falls in Kuwait, UAE, Nigeria and Venezuela. Presently, Saudi Arabia gives more than 10,000 barrels of crude oil per day to Pakistan’s refineries. Yearly crude import bill is approximately $7.5 billion.

The Government of Pakistan has inquired Kuwait to permit it to defer payments for oil purchase from the present 60-day to 6-month in an effort to build the country’s foreign currency reserves. Yearly oil purchases from Kuwait cost approximately $2.5 billion. The existing agreement with Kuwait is going to end in the coming 6-month and dialogues are under way for a new one. Pakistani government has approached Saudi Arabia by diplomatic sources, inquiring it to extend the credit facility for oil supply from the existing 30-day to 1-year. The government has placed a plea before the Kuwaiti government for extending the oil credit facility to 6-month and its response will be known after additional dialogues.

The government is also inquiring for enhancement in the oil credit facility from different countries as well. The Finance Ministry of Pakistan took up the problem with UAE presently, asking them to extend the existing 30-day time. The last government had also attempted to persuade Saudi Arabia to raise the oil credit ceiling to 1-year, but Riyadh showed Pakistan the cold shoulder.

On the other hand, the government is also planning to hit a state-to-state agreement with Gulf countries to decline the cost of crude oil imports. The import of oil and products eats up around $15 billion yearly. In this connection, the Ministry is discussing the modalities of enhancing the credit facility with the agents of oil marketing companies (OMCs) and refineries.

There are around 13 companies involved in crude oil production. Among these companies, OGDCL of Pakistan has the largest share of around 57.0 percent as 38,284 barrels per day was produced in 2012. Pakistan Petroleum Limited (PPL), United Energy Pakistan (UEP) and MOL Hungarian Oil and Gas Company (MOL) shared approximately 10 percent each. There was refining capacity of 14 million tonnes and 7-oil refineries are operating in Pakistan, however Dhodak Refinery remained shutdown in 2012 because of depletion of wells.

Pakistan’s consumption of petroleum products stands at 22 million tonnes, of which about 13 million tonnes were imported in 2012. Oil refineries imported 9.0 million tonnes of crude oil per annum to meet their processing requirements.

The Government of Pakistan believed that the import bill will swell more in the wake of shut down of CNG stations in Punjab and lack of gas supply for running energy plants. Demand for petrol from vehicle owners surges following closure of CNG outlets while lack of gas for power plants raises the need for furnace oil.

In this situation, the Government of Pakistan sees pressure mounting on the already thin foreign exchange reserves.

Industry key players say private firms in the oil sector have already made commercial arrangements with other oil suppliers. And presently, the government is trying to enter into relatively long-term oil import agreements with friendly Muslim countries.

Petroleum Products

The total oil resource possible is 27 million barrels with production of 66,032 barrels per day. Because of massive local demand of oil, a great quantity of crude oil is imported yearly. 24,573 thousand barrels (67,140 barrels per day) of crude oil is extracted or produced locally while approximately double of it that is 47,104 thousand barrels was imported in 2012. Likewise 8,395 thousand tonnes of petroleum was produced locally while 11,507 thousand tonnes was imported. During FY2012 the import bill of petroleum group was US$ 15.2 billion. If to look it in quantity terms, it was 19.2 million metric tonnes adding 13.2 million metric tonnes of petroleum products and 6.0 million metric tonnes of petroleum crude. However, it recorded a pessimistic growth of 0.53 percent because of decline in quantity in July-March FY2013.

The key utilizers in the consumption of petroleum products were transport and power, which jointly have almost 90.0 percent share in total consumption in the last fiscal year.

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