According to S&P Global, Pakistan’s eagerness to adopt cleaner motor fuels by 2021 is likely to extend support to the Asian gasoline and gas oil market in the medium-term.
In June, Pakistan had imposed a ban, which came into effect on 1 August, on gasoline imports of less than Euro 5 standard. Gasoline imported from China will fulfill Pakistan’s demand from now onwards.
Gas oil imports of less than the Euro 5 standard will be banned from 1 January 2021 after the expiration of the agreement with Kuwait Petroleum Corporation for the import of Euro IV standard gas oil.
Before the June ban, Pakistan had been importing motor fuel of non-oxygenated grade Euro 2 standard having a maximum sulfur content of 500 ppm.
After switching to Euro 5, the sulfur content in imported gasoline and gas oil will decrease to a maximum of 10 ppm.
Addressing Pakistan’s Supply Crisis
Switching to Euro 5 fuel will certainly trigger demand and extra imports will fulfill supply gaps amid limited domestic production.
Since June, Pakistan has struggled to address its gasoline demand which reflects low refinery run rates and a rapid increase in driving activity.
S&P Global has quoted the Ministry of Energy (Petroleum Division) which asserts that it was due to the artificial shortage created by Oil Market Companies (OMCs) and their dealers for profit maximization.
Moreover, Pakistan’s aging refineries will continue to produce fuel on their current grades for some time before reconciling production to manufacture cleaner fuels.
Pakistan will have to depend a lot more on imports if it is to move completely to clean fuel, the report added, while highlighting the gap between the country’s fuel targets and refining capacities.
Between July 2019 and May 2020, Pakistan’s production of gasoline and gas oil stood at 26.58% and 59.4% of domestic consumption respectively.
Increase in China’s Stagnant Exports
China had exported 760,000 million tons of gasoline and 1.04 million tons of gas oil in June.
However, heavy floods after torrential rainfalls caused China’s oil demand to nosedive. The matter exacerbated due to the closure of outdoor construction activities.
Chinese traders have expressed confidence that Pakistan’s demand for gasoline and gas oil will help to draw some cargoes away from Asia.
According to an estimate, China is expected to export up to 1.5 million tons of gasoline and 1.9 million tons of gas oil in August thanks to increased demand from Pakistan.