Challenges of the Oil Refining Sector in Pakistan

by Aftab Husain Pakistan Refinery Limited

Pakistan Energy Conference Islamabad, April 10-12, 2011

Pakistan Refinery Limited

Energy InsecurityTsunami
Pakistan Refinery Limited

Implications of business as usual

Unless there is a political will and resolve to implement an integrated energy plan the country will continue to face crisis on the energy front
With nominal GDP growth projections of 2.5 4% the energy consumption by the year 2025 would be 138 MMTOE which translates to a Power Requirement of 39,000 MW Oil Requirement will be 34.5 MMTOE Gas Requirement 69 MMTOE

2025 Energy Mix Outlook Business as Usual

LPG, 2% Nuclear, 1% Renewable, 1% Coal, 9% Hydel, 12% Gas Import, 45%

The total energy import bill in 2025 at US$ 100/ bbl will be

Oil, 25% Gas Local , 5%

$ 62 billion
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Agenda
Pakistan: Brief Overview

Pakistan Energy Scenario

Oil: Global & Regional Pakistan Oil & Refining Landscape Challenges & Opportunities Questions & Answers

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Pakistan: Brief Overview

Population

187 million Growth rate 1.6% pa Per capita energy 0.29 MTOE

GDP

USD 170 billion (2010) Per Capita USD 1,044 Growth rate: 2.7%

Imports & Exports

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USD 33 billion USD 20 billion Oil Import USD 10.2 billion

Source: FBS Pakistan
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Pakistans Strategic Location

Land locked, energy rich Central Asia
Ur umqi

Kazakhstan
Toshkent

Frunze
#

Almaty
#

Uzbekistan
Samarkand

Kyrgyzstan
Kashi
#

Turkmenistan
Ashkhabad
#

Dus hanfe
#

Tajikistan China

Mashhad
#

Her at
#

Kabul
#

Islamabad
# #

Afghanistan
Yaz d
#

Jum mu & Kas hmir (Disput ed Territ ory)

Raw alpindi Faisalabad Lahore

# # #

Qandahar
#

Booming China/India East Asia

Amritsar

Iran

Zahedan
#

Pakistan
New D elhi Delhi
#

Nepal
Kathmandu Kanpur
#

Jaipur

Luc know
#

India
Hyderabad
# #

Energy surplus Abu Z aby # Middle East Masqat # United Arab Emirates Oman

Benar es
#

Patna
#

Karachi Ahmadabad
#

Calcutta Nagpur

Opportunity to become Asias trade, energy and transport corridor

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Pakistan Energy Mix (2010-11)

LPG 1% Coal 8% Hydel 10.3% Nuclear 0.7%

Gas 48%
Oil 32%

Gas Oil Hydel Coal LPG Nuclear

Source: PIP Pakistan Energy Outlook 2011

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Agenda

Oil: Global and Regional

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Global Crude Consumption & Refining Capacity

Crude Consumption

87.9 mbpd

Refining Capacity

90.6 mbpd
Source: IEA OMR 2011
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Pakistan Refinery Limited

Global Refining Capacities (Million bpd)

Region North America S. & Cent. America Europe & Eurasia Middle East Africa Asia Pacific Total World 2000 19.93 6.29 25.39 6.49 2.88 21.47 82.49 2005 20.69 6.419 24.99 7.28 3.22 22.95 85.58 2009 21.12 6.68 24.92 7.85 3.26 26.80 90.66

Major additions in Middle East, China & India

Source: BP Statistical Review 2009-10

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Regional Refining Capacity

China leads the region, followed by India

Source: IEA

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Agenda

Pakistan Oil & Refining Landscape

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Pakistan Product Consumption (Million MT, 2009-2010)

MS 10%
(2.0 M.Tons)

Others 7%
(1.3 M.Tons)

FO 46%
(9.0 M.Tons)

FO HSD MS Others

HSD 37%
(7.2 M.Tons)

Source: OCAC 2009-10

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FO Consumption Pattern (10 year)

10 9 8 7

Million MTs

5
4 3 2 1 0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Industrial Power

Source: PIP Pakistan Energy Outlook 2010

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FO: Reasons for Increased Consumption

Electricity Crisis:
Increased FO demand for additional thermal power generation

Natural Gas Shortfall:

Major cause for increased FO consumption in the power sector

More FO based power plants expected in coming years

Circular Debt & Negative Refining Margins

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Pakistan Crude and Refining Balance (bpd) Local Crude Production

65,000
285,000

Refining Capacity

Crude Oil Deficit

PARCO NRL
PRL

220,000
100,000

65,000
50,000

ARL
Byco

40,000
30,000

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Pakistans Supply & Demand Forecast

40.0 35.0 30.0 25.0 20.0 15.0 10.0
Local Supply

Demand

(Million TOEs)

Import

5.0 0.0

2010-11

2013-14
JP1-JP8

2016-17
SKO

2019-20
LDO

2022-23
Demand

2025-26

MS-HOBC

Local Supply

Source: PIP Pakistan Energy Outlook 2010-11

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Refining Margins
Margin or Misery!!

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Factors Influencing Oil Prices/Margins Fundamentals

- Supply & demand - Product & crude inventories

Geo-political situation
Economy of major consuming countries Currency impact of dollar on price Commercial & non commercial actors Speculators for short term gain
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Hydroskimming Margins
1.00 0.50 0.00 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 (0.50) (1.00) (1.50) (2.00)

$/bbl

(2.50)

Source: PLATTS

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Spread: Arab Light Crude Vs HSFO

100.0 90.0

80.0
70.0 60.0

$/bbl 50.0
40.0
30.0 20.0 10.0

Arab Light HSFO

0.0 2004-05

2005-06

2006-07

2007-08

2008-09

2009-10 Source: PLATTS

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Historical Refining Margins

4.00 3.00

2.00

Hydroskimming
1.00

Hydrocracking
$/bbl
0.00

2002
(1.00)

2003

2004

2005

2006

2007

2008

2009

(2.00)

(3.00)

Source: IEA 2010

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Refinery Margin: Hydroskimming Vs Conversion

Product
Full Range Naphtha

Hydroskimming Yields

Conversion Yields

15%

20%

Kero/Jet
HSD FO Margins $/bbl

20%
25% 40% (0.237)

20%
35% 25% 3.097

Numerous pre-owned conversion units on sale low capex solution

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Agenda

Challenges & Opportunities

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Challenges Under Utilization:

Refineries operating at 71% of designed capacity Heavy dependence on petroleum product imports

Refinery Sustainability:
Circular debt issue Hydroskimming Configuration Limitation to meet Euro II product specifications With low profitability, unable to raise finances

Policy Framework & Decision Making:

Political will for hard decisions Pricing Mechanism Refining Policy
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Challenges (contd) :Pricing Developments

Incidentals from the product price build up removed whereas refineries pay on crude imports and a premium on freight Kero and LDO pricing formula tempered No PDC

Distorted Motor Gasoline pricing mechanism Vs import price

Jet fuel import price is higher than local Additional FE expenditure - $32 million and refineries sustained revenue loss of about Rs.2.8 billion on MS production in 2009-10 High oil prices to continue tariff on HSD under threat???

No tariff protection--- No refineries

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Challenge: Refinery Configuration

Refinery
PARCO NRL PRL

Configuration
CCR/ Diesel Max/ Visbreaker Hydroskimming/Lubes Hydroskimming

ARL
BPPL

Hydroskimming
Hydroskimming

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Realization of Planned Projects

Project Barrels per Stream Day (BPSD)
250,000 115,000

Million MT/ yr
11 5

KCR Byco (new project)

Indus
Trans Asia

100,000
100,000

4.5
4.5

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Refining Vision
Refineries having the technology and capacity to produce environmental friendly products, meet domestic demand and enable exports
High Tech/Deep conversion/Integrated refineries

Serve as Strategic Asset meet country demand & enable exports

Meet regional and global product specifications

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Way Forward
Government support incentive in refining pricing formula under a defined timeline Environmental Projects such as Hydro-Desulfurization projects must be supported Level playing field and deregulation of petroleum product pricing regime Investors encouraged to set up Deep Conversion grassroots refineries and integration with Petrochemical complexes In future, only refineries having secondary conversion facilities to be allowed Set-up plants for export Naphtha conversion into MS and chemicals

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End

No Subsidies & Protection Compete & Survive

Thank You!!!
Q&A

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