We are in the season of low energy demand – air-conditioning demand is falling in power sector while heating need is not yet on surface to consume higher gas. The hydel generation is at its peak as not only new generation capacity is being added, but water availability is excellent as well. There are issues coming in the form of packing of gas pipelines as excess supply is there while demand is low.
And winters are coming, furnace oil (FO) crisis is looming –fast becoming an annual unfortunate event. The power sector complexities are increasing despite reduction in circular debt speed due to higher tariffs, and higher tariff subsidy for lower income group domestic consumers.
Last month or two, the FO consumption was high and there was even a time of getting shortage. There were grid related issues in Lahore and Multan regions, and the consumption had to shift to local inefficient power plants on FO which were low in merit order – even the notorious Muzzafarghar Genco had to be run. There is no trophy for energy managers as that has added cost to power production.
In October, there is a problem of gas supply glut, as the heating demand is not there, and high merit order power plants on coal and hydel are meeting the power demand. But we have to keep on importing RLNG, no thanks to take or pay policy where the gas is to be imported otherwise demurrages charges are to be paid. (read “Gas sector- planning all over the place", and “Energy mess to get messier")
Firm demand of RLNG from power sector in Oct-19 was estimated 550MMCFD but actual consumption is coming at 278-425 MMCFD for the first few days of October. This has resulted in system packing at highest level of 5,070 MMCFD. Red flag has been raised, if the situation continues, the supply form indigenous sources will be adversely affected. Another emergency situation is emerging, and it is becoming a norm in energy chain nowadays.
There was less production from local gas sources as imported RLNG has to be accommodated. And this may continue, and the brunt has to fall on lower oil production from the same fields – higher pressure of import on RLNG and crude oil – not good for a country where demand compression is done to lower import bill, and jobs are lost in the process. But energy sector inefficiencies and lack of coordination of energy ministry divisions is straining the import bill.
Anyhow, the demand of gas will increase in coming months as heating requirement in north goes up. But at the same time, the power sector consumption will be lowest, and the FO crisis may surface again. The crisis is delayed this year due to higher consumption in Sep-19. Now the FO demand is being met by KE plants in South and North is storing the FO – refineries are not operating at full capacity as Attock Refinery is operating at 80 percent.
When the storage to fill completely amid power demand to fall in South, the FO supply glut may force refineries to close down as our refineries are based on age-old technology of hydro-skimming and all the products are to be halted if FO production stops. The issue created crisis in the past two years and successive governments are yet to come up with any viable solution.
The long term solution of converting existing refiners to deep conversion would take 4-5 years. Till the time, there has to have a mechanism of exporting surplus FO, since FO demand is low globally, the local refineries demand subsidy for exports (read “Furnace oil –embrace it, don't destroy it", “No end to Furnace oil love affair", “Dumping Furnace oil", “Curtailing furnace oil", and “FO story – get it cracking").
Unfortunately, the issue is still alive. It had been argued that this issue could not have surfaced, had there been proper planning. Two years into the crisis, still clueless on FO surplus come winters.