ISLAMABAD: Saudi Arabia has proposed fresh measures for setting up a new refinery in the Hub area of Balochistan province, it was learnt on Wednesday. It has also asked for policy incentives for the life of the proposed refinery.
According to sources, Saudi Arabia has proposed these measures to ensure the viability of the project, and along with policy incentives, it has also proposed third-party investment in critical infrastructure to reduce capex. They said that Pakistan has suggested 10 years tax holiday for setting it up but no consensus has been reached so far and the Ministry of Energy (MoE) will soon revert on the incentives/measures proposed by Saudi Aramco. State-owned oil giant Pakistan State Oil (PSO) in coordination with the Petroleum Division has been preparing counter proposals/offers to address the concerns and requirements of the Saudi investors, added the sources.
It is pertinent to remember that a Memorandum of Understanding (MoU) was signed between the government of Pakistan and Saudi Arabia on February 17, 2019 for exploring investment opportunities in the refining and petrochemical sector. Soon after, a joint ministerial delegation visited Saudi Arabia during which a confidentiality agreement was signed between PSO and Saudi Aramco Aramco on April 23, 2019.
The project was stalled due to COVID-19 but in February this year, negotiation with Saudi Arabia kicked off again, and a meeting was held on February 16, 2022 between the then finance minister Shaukat Fayaz Ahmed with Khalid A. Al-Falih, Minister for Investment, KSA, Chairman Board of Investment (BoI) and Chief Executive Officer (CEO) National Companies Promotion Program, KSA. Resumption of work on the project was decided on.
Later, PSO and Aramco exchanged letters to discuss feasibility and a virtual meeting was held on July 25 between the representatives of PSO, Aramco and the ministry of Energy of both sides, to work on improving the economics of the project, a plan which was then communicated formally to PSO.
Inside sources say, the Saudi-side is insistent on long-term commitment and assurances for measures as proposed in their August 1, 2022 letter. However, no consensus has been reached so far but Pakistan’s Energy Ministry is supposed to respond soon with feedback.
A study that was conducted by HIS Markit and reviewed in August 2019 shows that gasoline and diesel demand in Pakistan will reach 17.1 and 17.8 MMT per year by 2050. Considering the local production of these products, that is 2.6 and 5.8 MMT per year, a strong potential exists for a new fuel refinery. Effects of electric vehicles on total fuel demand will be minimal.
A pre-feasibility study of a new refinery was also carried out by Advisian. This was to evaluate a refinery project with a capacity of 200-400 kbpd (Thousand Barrels Per Day). A gasoline-oriented refinery configuration was considered, one with a capacity of 320-385 kbpd of 100% Arab Light crude. The capital cost was estimated to be around $ 10.5 billion with the project’s post-tax IRR (internal rate of return) of 9.2-9.3 pc (using IPP prices). Moreover, out of two refinery locations, Hub was selected based on close proximity to the demand centre, shorter crude import distance and established local infrastructure – all of which will contribute to a significant reduction in capex.
Currently, there are five players operating in the oil refining sector in Pakistan; Pak-Arab Refinery Limited (PARCO), Attock Refinery Limited (ARL), National Refinery Limited (NRL), Pakistan Refinery Limited (PRL) and Cnergyico Pk Limited (CPL). All of the refineries are hydro-skimming refineries, except for PARCO which is a mild-conversion refinery.
Pakistan’s oil refining capacity is about 450,000 barrels per day (bpd), equivalent to 20 million tonnes per annum.
The product slate typically comprises of energy products such as Naphtha, Motor Gasoline (MS), High Speed Diesel (HSD), Furnace Oil (FO), Kerosene, Jet fuel (JP-1&JP-8), High-Octane Blending Component (HOBC), Liquefied Petroleum Gas (LPG), Light Diesel Oil (LDO) and non-energy products. Historically, local refineries have supplied about 60% of the country’s requirements of Diesel, 30% of Motor Gasoline and 100% of Jet fuel for defense. The rest is imported as refined products. Pakistan has been importing significant volumes of petrochemicals, worth more than $ 2 billion annually, as there is no primary petrochemical production facility in Pakistan.
If KSA proposed refinery in Hub that will be good signal to boost foreign investment and boom Pakistan Economy.
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