The Ministry of Energy (Petroleum Division) has directed the country’s top refineries to furnish a detailed analysis with regard to the import of crude oil from Russia, as Islamabad looks towards cheaper alternatives to meet Pakistan’s growing energy needs.
The development comes after Business Recorder, in an exclusive story, reported that the incumbent government had started weighing the possibility of importing oil and gas from Russia.
In its letter dated June 27, 2022, a copy of which is available with Business Recorder, the energy ministry wrote to the managing directors of Pak-Arab Refinery Limited, National Refinery Limited, Pakistan Refinery Limited and Byco Petroleum Pakistan Limited, requesting them to furnish a detailed analysis with regard to the option of crude import from Russia along with recommendations by June 28.
The urgency indicates the government’s hurry towards cheaper alternatives at a time when Pakistan faces severe power outages and failed to secure a single consignment of LNG import after seeking four cargoes from international suppliers during the windows of July 3-4, 8-9, 25-26 and 30-31. In the tender, Pakistan LNG Ltd (PLL) received a single bid from Qatar Energy at $39.80/mmbtu in the July 30-31 window.
Pakistan is also facing a balance-of-payments’ crisis with its foreign exchange reserves falling to nearly $8 billion before the agreement with Chinese banks. Meanwhile, the bill for oil imports in the first eleven months of the fiscal year has shot up to $20 billion - a jump of over 99%, showed data released by the Pakistan Bureau of Statistics (PBS).
The country’s monthly fuel oil imports are also set to hit a four-year high in June, amid a heatwave that is driving demand.
In the current scenario, many experts have urged Pakistan to look for alternatives with cheaper Russian crude emerging as a cost-effective alternative. The main opposition party, the Pakistan Tehreek-e-Insaf (PTI), has also said that their administration was ready to purchase oil at 30% cheaper rates from Russia, and raised concerns as to why the incumbent government was not following suit.
In the letter, the ministry of energy said that the refineries, in their analysis, should cover the following, but not limited to:
- Technical suitability of crude grades in view of each refinery configuration and yield (Vol %).
- Quantity and the grade of the subject crude to be required by the refinery;
- Transportation/Freight analysis for import from Russia in comparison with normal imports from the Middle East based on cost and benefit analysis;
- Payment Methodology; and
- Existing commitment of upliftment from Arab Gulf region with respect to term contracts.
However, analysts say that while possible, there could be political repercussions for Pakistan.
“Theoretically speaking, importing crude from Russia is possible, as refineries in Pakistan have the technical expertise to refine Russian crude,” Tahir Abbas, Head of Research at Arif Habib Limited (AHL), told Business Recorder.
“However, the expected political repercussion is whole other factor,” he said.
According to Bloomberg, Russia as of May 31 was selling its crude at a 30% discount to the global benchmark, which remains well above $115 per barrel.
“Purchasing Russian crude would result in a saving of $500 million on an annual basis for Pakistan,” added Abbas.
Last month, Finance Minister Miftah Ismail said in an interview that sanctions on Moscow mean it will be “difficult for him” to imagine buying oil from Russia.
“The previous government wrote a letter to Russia — that letter was not responded to. Russia has also not offered us any oil, and it is now under sanctions. So its very difficult for me to imagine buying Russian oil,” said Ismail in response to a question during an interview with CNN’s Becky Anderson.
“If Russia were to offer us oil, at a cheaper rate and if there were no sanctions on Pakistan buying Russian oil, then sure — we’d consider that. But at this point, it will not be possible for banks in Pakistan to open LCs (letters of credit) or to arrange (finances) to buy Russian oil — nor has Russian Federation offered to sell us any oil,” he said.
This story was originally published in Business Recorder on June 29, 2022.