Sharp drop in LNG demand hurts PSO financially

• Power sector, PSO should "urgently" reach agreement.
• Locally refined products meet only Euro-2 standards: MD.
• Without upgrading, refineries have no future, says OGRA chief.

ISLAMABAD: Financial problems for the Pakistan State Oil (PSO) have multiplied after facing operational hurdles in its supply chain as demand for liquefied natural gas (LNG) plummets in the country, The News reported on Friday.

PSO, which has a long-term contract with Qatar for the purchase of LNG, is currently facing an overstock issue — not because of a rise in imports, but rather because the power industry has drastically decreased consumption of LNG.

"Earlier, the power sector was off-taking two LNG cargoes a month, but now the demand has plummeted," PSO Managing Director (MD) Syed Taha apprised the National Assembly’s Standing Committee on Energy (Power Division) in a meeting presided by MNA Syed Mustafa Mehmood here on Thursday.

"We have a supply agreement with Qatar, but the power sector, which initially consumed 600 million cubic feet of LNG, has significantly reduced that quantity," the MD said, adding that this situation created operational challenges for the state-run petroleum corporation.

MNA Syed Naveed Qamar said the prevailing situation was unsustainable, therefore, the power sector and PSO should urgently reach an agreement to address the inconsistency.

The matter of substandard fuel in the country also came under discussion at the meeting with the NA body. Representatives of the Oil and Gas Regulatory Authority (Ogra), PSO, and Hydrocarbon Development Institute of Pakistan (HDIP) briefed the committee on fuel benchmarks.

“Fuel and diesel standards are set by the DG Oil Office,” explained Director General (DG) (Oil) Imran Ahmad, adding that the oil regulatory authority ensures compliance with these standards.

“Imported fuel in Pakistan is Euro-4 and Euro-5 compliant, while the locally refined products meet only Euro-2 standards at the minimum,” stated the director general.

However, MNA Qamar queried if the local refineries had upgraded their facilities after receiving the financial incentives from the government. “The refineries have been benefiting from a 3% guaranteed return and a 7.5% deemed duty,” Ahmad noted.

Ogra Chairman Masroor Khan acknowledged this, saying: “It’s true that the refineries received financial incentives, but what have they done to upgrade their products?”

He informed the committee that the five local refineries had until October 22 to sign an ‘upgrade agreement’ to take their operations to international standards. He further said: “Earlier, these refineries were ready to upgrade but were reluctant after the Budget 2024-25 was announced with taxes increased.” He noted that discussions with the refineries had resumed.

He emphasised that the future of local refineries depended on their ability to upgrade. “Without upgrading, these refineries have no future,” he said, adding that the refineries must meet the Euro-5 fuel standards. “We cannot allow the public to suffer due to the refineries’ failure to improve,” echoed the committee chairman Mustafa Mehmood.

He accused the local refineries of producing substandard fuel that was contributing to cancer and asthma. “These refineries are not even meeting the Euro-2 fuel standard,” he said.

However, at the same time, he asked why the government not increased their refining margins to encourage them to upgrade. He further asked, “Why don’t we leave these refineries to compete in a free market?”

Petroleum Secretary Momin Agha emphasised that the country still required national refining capacity strategically. They reasonably produce good quality of fuel. Locally, they produce 45 to 50 % diesel and petrol and jet fuel. They also export $150 to $200 million worth of fuel each year.

The chairman also highlighted that the local refineries had failed to reduce the manganese levels in petrol and sulfur content in diesel, both of which posed serious health risks to the population.

The committee members raised the issue of deregulating the petroleum products. The Ogra chairman said deregulation was possible and was under consideration but it would require a careful consideration by the government. “Deregulation could lead to price variations in different regions,” he noted, calling the matter “complex and requiring a thorough deliberation”.

Earlier, the chairman committee expressed anger over the absence of heads of E&P companies, including ODGCL, PPL and Mari from the meeting. Petroleum Secretary Momin Agha confirmed that the officials were attending a crucial meeting in London. Mahmood remarked, “The committee should have been informed. We could have rescheduled the meeting.”

He also questioned the absence of Petroleum Minister Musadik Malik, to which the secretary responded that the minister was attending the Russian Energy Week. “We will issue summons if future foreign trips are made without notifying the committee,” Mahmood warned, stressing that overseas travel was typically planned well in advance.