PSO curbs fuel oil imports as power generation requirements ease

July 6, 2018

The logo of Pakistan State Oil is seen at a petrol station in Peshawar, Pakistan October 2, 2017. PHOTO: REUTERS

Pakistan State Oil (PSO) has reduced its fuel oil imports for power generation as monsoon rains have lowered the demand for electricity for cooling, contributing to a decline in fuel oil premiums from the multi-year highs reached last week.

Since May, PSO has sought to import as much as 695,000 tonnes of fuel oil per month. The increased demand pushed fuel oil premiums higher since it occurred at the same time supplies typically become tighter during the Northern Hemisphere summer when fuel oil consumption for power generation rises, particularly in the Middle East.

PSO has not awarded tenders seeking fuel oil for late-June, early-, and mid-July delivery after receiving offers from suppliers, said four trade sources. The company last imported fuel oil for delivery from June 11 to 20, the sources said.

PSO still has outstanding tenders for imports for delivery from the end of July to September, according to the tender documents.

PSO did not respond to a request from Reuters for comment.

“The country has enough stock and they have local (fuel oil) production … and monsoon has already started with some places getting a lot of rain so temperature has cooled down,” said one of the sources, a trader at a company that typically supplies PSO with fuel oil.

The trader declined to be identified as he is not authorised to speak to the media.

Increased monsoon rainfall in the country has also helped boost hydroelectric power generation, lowering the demand for fuel oil for electricity, the trade sources said.

Pakistan this week saw its heaviest rains in 38 years.

Pakistan’s lower fuel oil demand may have contributed to weakness in Asia’s fuel oil market this week, the four trade sources said. Premiums have retreated from recent multi-year highs reached in the previous week amid shortages of supply and strong demand.

“I personally wouldn’t expect they import anything during this year … a cargo or two might surprise but not more than that,” the trader said.

The lower fuel oil imports are occurring as Pakistan LNG, cancelled a tender seeking six cargoes of liquefied natural gas (LNG) for delivery in July and August, two industry sources said on Wednesday. The country’s LNG imports are mainly used for power generation.

PSO in December halted fuel oil imports as Pakistan ramped up its LNG consumption for its power sector.

But strong seasonal demand for electricity in the summer months and technical issues at some of its newest gas-fired power plants renewed the country’s appetite for fuel oil.