Pakistan’s rapidly improving power generation fuel mix is having a good impact on petroleum consumption mix. In July 2018, Pakistan’s furnace oil (FO) sales were recorded at 0.35 million tons, the second lowest monthly number in more than 11 years. This is at the back of a sizeable 24 percent year-on-year decline in FO sales in FY18.
The share of FO based power generation has come down from one-third to nearly 19 percent and declining. The advent of power plants based on LNG, and indigenous fuel, more of which are slated to come online in the next 12 months has ensured Pakistan’s reliance on FO will continue to go down. That said, the shift from FO based power generation has to be a calculated one, ensuring it does not completely put the refineries in a tough spot.
That said, FO based electricity generation is here to stay in the near term, especially given the dwindling water reservoirs. Pakistan’s hydel power generation has been patchy in the last 12 months, which will keep bringing back FO based generation to the equation. Moreover, a few RLNG and coal power plants are yet to start operating at full steam, which suggests the monthly FO sales number would be higher than the one in July, in the coming few months.
On the other hand, petrol (MS) and diesel (HDS) sales remained strong – showing little signs of receding, despite a visible price increase. MS sales, having recorded a 10 percent year-on-year increase in FY18, have continued to remain strong, despite a massive price increase in the last five months or so, at 50-month high. The MS sales for July 2018 at 0.61 million tons is in line with the 12-month trailing average of 0.61 million tons. This is testament to the notion that the demand is organic, and whilst there may have been a check on fuel/vehicle, the growth of consumer economy and automobile sector will keep the demand up.
HSD sales grew modestly recording 6 percent year-on-year growth in FY18. The July 2018 sales at 0.61 million tons suggests some slowing down, as the price increase has been significantly greater than that in MS, but it is too early to suggest whether it is a trend yet .
The robust automobile demand has stayed on track, the power generation mix may well be altering, but it will take some time before FO is completely wiped out.
All of this suggests the petroleum sales will continue to remain strong, despite increased price, and this could cause a headache or two for the upcoming government, as they take on the battle of a massive trade deficit.
