POL import at hedged price

Contrary to modus operendi adopted by other countries of making forward contracts at the prevailing low price of crude oil in the international market, Petroleum Division has moved a summary to the Economic Coordination Committee of the Cabinet (ECC) to approve the purchase of additional quantities of crude oil and a number of petroleum product at a price of $8-15 per barrel higher than the currently crashed oil price. The summary, if approved, will allow hedging for 20 percent more quanta of crude oil, motor gasoline, high speed diesel as well as well as Liquefied Natural Gas (LNG).

This is yet another attempt by the bureaucracy of Petroleum Division to deprive the country and its people of the benefits of global oil market crash. The import of crude oil and other petroleum products on hedged price will increase fuel cost for transportation and thermal power generation of 12000 megawatt, the multiplier effect of which will work as double edged sword for the coronavirus hit economy of the country. According to a former Managing Director of Pakistan State Oil, the proposal of Petroleum Division would entail that full benefit of glut in the oil market would not accrue to the country and its people.

The rationale behind this belated move is questionable as the country does not have enough space currently available in onshore storage facilities to accommodate additional quantities of crude oil and refined petroleum products. It merits mention that a proposal for buying crude oil at the crashed price and its storage in the offshore storages was floated by the Ministry of Maritime Affairs, which was turned down by the government on the plea of high storage cost demanded by the National Shipping Corporation of Pakistan. It was the same Petroleum Division, which has informed the government that cost of storing oil in offshore storages was even higher than the price being offered for forward and future purchase contracts at this point of time. How can Petroleum Division reconcile its two divergent stances, one opposing the import of crude oil at low price to be stored in offshore storages and other justifying crude oil import at $8-15 higher the market price being offered for future contracts, when enough space is not available in onshore storages?

Over the past five decades, expansion in oil storages has never been a priority by successive governments. Oil and Gas exploration activities had been carried out in unelected governments during 1978-85 and 2000-02. Pakistan could have avoided petroleum crisis in 2015 had there been enough onshore storage facility in the country. Unfortunately, lesson has not been learnt from that crisis either by default or by design. Even in the present government, Petroleum Division is least bothered to conceive any programme of building storages for crude oil and petroleum products. The same attitude has been shown for setting up at least one crude oil refinery, preferably near to operational new oil fields. Attock Oil Refinery has closed down its second unit of 5000 barrel per day output. Earlier, first unit of the same capacity was shut down. It will certainly force exploration companies to cut production of crude oil from oilfields in Khyber Pukhtunkhwa. Previous PTI provincial government had made frantic efforts to persuade the PML-N government in the center to set up an oil refinery at Karak district of Khyber Pukhtunkhwa but to no avail.

The glut in international oil market may not prevail for long time. The production cut by OPEC countries and Russia may push up crude oil price. Likewise, recovery and subsequent upsurge in global economy will jack up price of petroleum products. There is a dire need of giving boost to oil exploration and production activities. The Council of Common Interest has already approved an incentive package for oil exploration and production companies in the high risk areas of Baluchistan and Khyber Pukhtunkhwa. Moreover, building onshore storage facilities needs to be focused.