KARACHI: The refining gross margin of Byco Petroleum – a vertically integrated energy company with its own floating jetty, its own refinery and its oil marketing arm – is expected to double from $ 3 per barrel to $ 6 once the process is completed. Ongoing upgrade completed by 2025, according to company chairman Mohammad Wasi Khan.

Speaking to a group of reporters at the company’s headquarters on Friday, Khan said Byco was adding up to 14 factories to its processing facilities, which will turn 90% of the refinery’s output into value-added products and at high margin.

With a capacity of 155,000 barrels per day, Byco is the largest of the five refineries operating in Pakistan. However, it is currently operating at 35-40 percent of its capacity as demand for its main output – heating oil – has declined dramatically in recent years. Capacity utilization levels are low at all refineries for the same reason.

Plans to add 14 additional factories to produce high-end products

The annual demand for heating oil now hovers around 2 to 2.5 million tonnes, compared to 9 million tonnes before 2017, when the country changed its fuel mix for electricity production in favor of liquefied natural gas ( LNG) imported. The state-owned electricity buyer has stopped shipping oil-based power plants, leaving refineries with a product line that has few buyers.

The share of heating oil in electricity production in 2020-21 remained at 4.8pc against 3.4pc in 2019-20.

The extent of crude oil refining determines whether the output consists of heavier hydrocarbons (kiln oil) which have a lower profit margin or lighter hydrocarbons (gasoline, diesel, etc.) which are sold to consumers. higher prices in the market.

“Byco is currently the only refinery actively implementing its heating oil upgrade project. We are setting up a Fluid Catalytic Cracking (FCC) plant, which is a secondary unit that produces additional gasoline, ”he said, adding that fuel oil will only account for 11% of Byco’s total production. in 2025. The share of gasoline will increase. at 30pc and that of diesel will be 50pc. Other products like jet fuel and kerosene will make up the rest of the product line, he said.

The government encourages all refineries to start producing Euro V and VI fuels. “We are adding 10 to 12 treatment plants in addition to the FCC and hydro diesel desulfurization units. This will solve the problem of heating oil (excess production), ”he said, adding that the total cost of the upgrade will be $ 800 million.

Khan expects oil-fired power plants to be completely phased out soon. The refinery will likely be operating at full capacity by 2025, providing locally refined substitutes for imported gasoline and diesel, he said.

But what if history repeats itself and gasoline and diesel are largely replaced by cleaner fuels in the years to come? After all, it wasn’t until 2012 that Byco installed its second 120,000-barrels-per-day refinery, a capacity that was largely unused as a result of declining demand for heating oil. “Pakistan is one of those countries where electric vehicles have not entered the market. It will take some time, ”he said.

Mr Khan added that diesel is not going anywhere and neither is kerosene. “A refinery should be able to start manufacturing petrochemicals if its demand for gasoline declines. Byco does exactly that. Our modernized factories will have this provision. We will be able to convert them into petrochemical raw materials, ”he said.

The company made a net profit of Rs 1.2 billion in the quarter ending March 31, compared to a net loss of Rs 2.8 billion a year ago. Its capacity utilization in the most recent fiscal year was only 30.8 percent.

Mr. Khan declined to comment on the upcoming refining policy. Regarding the 2021-2022 budget, he said imposing a sales tax on the import of crude oil would create cash flow problems for refineries. “We’ll adjust it at a later stage, but it will affect our credit cycle,” he said, noting that sales tax should ideally be imposed on raw materials in undocumented industries – which doesn’t is not true in the case of refineries.

He did not comment on market reports that Byco was planning to increase its overall refining capacity in parallel with the system upgrade.

He also refused to confirm or deny that his company was on the verge of acquiring Puma Energy, an oil marketing company with 542 retail pumps and a 2 pc market share.

Byco’s share price was 10.64 rupees on July 16, up 19% from the previous day.

Posted in Dawn, July 18, 2021