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ISLAMABAD: Pakistan’s refineries are maintaining domestic fuel supplies despite volatile crude prices and disrupted shipping routes, but uncertainty over changes to the petroleum pricing formula is complicating procurement and threatening investment in planned upgrades, industry officials say.
Usama Qureshi, vice chairperson of Cnergyico Pk Limited, said crude sourcing has become increasingly challenging amid extreme volatility and uncertainty surrounding international supply routes.
“Crude procurement decisions have to be taken well in advance and involve substantial financial commitments. When markets are extremely volatile and at the same time, there are rumours about further changes in the domestic pricing formula, it becomes very difficult for refineries to commit to cargoes,” he said.
Global diesel and crude markets have witnessed sharp price volatility amid the latest geopolitical escalation, while disruptions at the Strait of Hormuz and Bab el-Mandeb have made crude sourcing and movement of petroleum products increasingly challenging.
Pakistan has so far remained relatively better positioned in terms of supply availability, with the Petroleum Division and refineries managing to keep the supply chain intact despite difficult international conditions.
“There has to be policy consistency. A refinery cannot procure an expensive crude cargo today without reasonable visibility on how its cost will be recognised when the products are eventually sold in the domestic market,” Qureshi added.
The pricing issue also has longer-term implications for Pakistan’s refinery modernisation programme.The government has already notified the brownfield refinery upgrade policy, while the agreement required for its implementation has been sent to the Economic Coordination Committee (ECC) for approval. Any alteration in the pricing framework at this stage could change project economics, complicate financing and potentially delay or derail the planned multibillion-dollar upgrades.
Farhan Mahmood, head of research at Sherman Securities, said policy consistency is crucial as refineries prepared for large, long-term investments.“Any abrupt intervention in the pricing mechanism can change project economics and make financial closure more difficult,” Mahmood said.
He said successful upgrades will increase domestic production of petrol and high-speed diesel, reduce dependence on imported finished products and generate foreign-exchange savings over the longer term.
The government now faces a difficult balancing act. Consumers need protection from exceptionally high international petroleum prices, but weakening refinery cost recovery could create supply risks precisely when securing crude and finished petroleum products has become more difficult.
The timing is particularly sensitive because diesel demand is set to rise during the harvesting season. Any supply disruption can affect agriculture, transportation of crops, freight movement and ultimately food prices.
Asad Hasan, chief executive officer of National Refinery Limited (NRL), said the current crisis has demonstrated why domestic refining capacity should be treated as a strategic asset.“Refineries are managing expensive crude and increasingly challenging logistics while continuing to ensure availability of petroleum products in the domestic market,” Hasan said.He said unnecessary intervention in the refinery pricing formula at this stage could affect project economics and financing and ultimately jeopardise planned upgrades.
