Refineries asked to ensure minimum production of FO

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SOURCEBusiness Recorder
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The Cabinet Committee on Energy (CCoE) has directed oil refineries to ensure minimum production of furnace oil (FO) as by-product of crude oil processing and constituted a Task Force to prepare Standard Operating Procedures (SOPs) for re-gasification at both LNG terminals, well-informed sources told Business Recorder.

The decision was taken at one of the recent meetings of the CCoE convened to discuss issues of power sector and petroleum sector including six months power and gas projections. Power Division briefed the meeting about the position of power availability in the country during next six months. It was stated that total installed capacity of power plants is 33,837MW. However, available generation from these plants is much less than their installed capacity. It was explained that full generation from power plants for the whole year is not possible due to different issues/technical reasons.

The installed capacity of hydel power plants is 9,733 MW. However, in winter, less hydel power is generated due to non-availability of sufficient water. Similarly, solar and wind power generation always fluctuate and sometimes power plants remain shutdown due to technical reasons. Talking about average demand for next six months, it was stated that demand would be higher than the available generation; therefore, shortage in demand would be managed through load management in the high-loss areas and running some plants on costly fuels, i.e., furnace oil/ RNLG during peak season. It was pointed out that some new power plants would achieve their Commercial Operation Date (COD) in 2019 which would also add generation to the national grid. This would facilitate power sector to reduce load shedding in summer, 2019.

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Power Division apprised the meeting about tentative RLNG and furnace oil requirements for the power plants with reference to their dispatch during six months that began from December, 2018. It was pointed out that cost of renewable energy has been reduced substantially due to decrease in prices of their equipment. The fixed cost of renewable power plants is higher like hydel power plants, however, fixed cost of these plants would recover after seven or eight years which implies renewable plants are more beneficial as compared to other plants due to low generation cost. Two new nuclear power plants – K3 and K4 – are being established in Karachi. They would generate around 2200 MW. Their generation cost per unit is quite high due to high tariffs.

The meeting was informed that installed capacity of Neelum Jehlum Hydropower plant was 969 MW. However, it would produce around 756-800 MW electricity. The original cost of the project was 84 billion but it was completed at a cost of Rs 506 billion. Its generation cost per unit would be Rs 13.

Power Division updated the meeting about the position in respect of storage capacity of furnace oil, its stock and ullage available in the country. It was stated that total storage capacity of furnace oil in the country is 1,768,312 MT. Total stock of furnace oil available with these power plants is 718,857 MT, whereas 59.87 per cent space/ ullage of storage capacity is still available. It was further stated that Attock Refinery and Byco stopped further production of furnace oil and other refineries are working at capacity of 65 per cent. In case power plants do not lift furnace oil, these refineries will halt.

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Petroleum Division informed the meeting about the implications of refineries shutdown, which were: (i) disruption of entire petroleum products supply chain; (ii) storage of refined products especially jet fuel to defence/aviation sector; (iii) refineries have reduced off-take of local crude/ condensate due to reduction of throughput; (iv) E&P companies have reduced their crude/ condensate production, leading to shortage of gas; (v) NLC has informed that around 100 tank lorries are parked at refineries gate for decantation, which is a serious security concern and warrants immediate solution; and (vi) import bill will increase.

In order to resolve the issue of off-take of furnace oil from refineries, Petroleum Division proposed that Power Division may run furnace oil-based power plants to utilize 10,000 MT/day and default amount of Rs 38 billion may be released to PSO under seven days credit arrangement as agreed during the meeting of February 7,2015.

Petroleum Division further proposed that: (i) export of surplus furnace oil and oil refineries; (ii) modifying infrastructure require 3-6 months; (iii) refineries must update to reduce furnace oil production; (iv) refineries need to build additional storage facility; (v) to acquire” rental storage” from power plants; (vi) PSO must uplift local furnace oil from refineries to meet power sector demand; (vii) Power Division to run efficient power plants to displace furnace oil to account for refineries” production i.e. more than 10,000 MT/ per day for three months; (viii) after three months, refineries may explore suitable option for disposal of surplus furnace oil; and (v) Power Division/ CPPA may direct power plants to maintain furnace oil stocks as per their PPA with CPPA-G.

Power Division revealed that local refineries are producing 10,000 MT/day furnace oil. Their stock can be lifted in a month. A plan has been communicated to Petroleum Division for lifting of 290,000 MT in next 90 days from local refineries. It was pointed out that if liquidity is improved, private power plants can also lift furnace oil equivalent to another month of local production. After this storage capacity and utilization, no furnace oil would be lifted and consequently import of furnace oil would not be required.

It was stated that FO is a costly fuel and there is substantial difference in the cost of power generation of RLNG and FO-based power plants. It was suggested that excess FO should be exported. It was pointed out that infrastructure required for export of FO is not readily available at the port. Considerable time would be required for provision of requisite infrastructure. Moreover, refineries situated in the vicinity of ports are in better position to export.

Petroleum Division apprised that RLNG demand on SNGPL system would be 725 MMCFD, 958 MMCFD & 900 MMCFD for December, 2018, January 2019, February, 2019 respectively whereas RLNG demand on SSGCL system would be 101.60 MMCFD each, for December, 2018, January 2019, February, 2019. Petroleum Division presented RLNG supplies position at LNG Terminals-1 & 2 during three months starting from December, 2018.

It was stated that in order to meet winter demand of RLNG, SNGPL requires one additional LNG cargo during January, 2019 and two additional LNG cargos during February, 2019 from PLL. It was pointed out that PLL can only deliver additional cargoes subject to confirmation and signing of back-to-back agreements on “Take or Pay” basis (GSPA between PLL & SNGPL and Between SNGPL & power Plants).

The ECC agreed that a task force may be constituted under the chairmanship of secretary, Petroleum Division to devise mechanism for export of excess furnace oil in the country, in consultation with all stakeholders. The Task Force will finalize its recommendations within a period of two months and submit to the CCoE for consideration. The Energy Task Force will prepare Standard Operating Procedures (SOPs) for re-gasification of Terminal-1 (Elengy/Engro-1) and Terminal-2 Pak Gas Fort consortium (PGFC-II). Such SOPs after approval by the Cabinet Committee on Energy (CCoE) will be submitted to the Federal Cabinet.

After a detailed discussion, the CCoE noted the position regarding uplifting of furnace oil from oil refineries and firm demand of Power Division on LNG requirement for next four months and decided to impose ban on import of furnace oil with immediate effect except for K-Electric.

The CCoE also constituted a Special Task Force under the chairmanship of Secretary, Petroleum Division to devise a mechanism for export of excess furnace oil in the country, within a period of two months and submit it to the CCoE for consideration. It was also decided that in future, all refineries will ensure that furnace oil production is minimal byproduct of crude oil processing.

The Energy Task Force will prepare Standard Operating Procedures (SOPs) for re-gasification of Terminal-1 (Elengy /Engro-1) and Terminal-2 Pak Gas Fort Consortium (PGFC-II). These SOPs after approval by the Cabinet Committee on Energy (CCoE), will be submitted to the Federal Cabinet.

(This news/article originally appeared in Business Recorder on December 31st, 2018)

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