LAHORE - Government-operated power plants reduced their Furnace Oil consumption as PSO, the major Furnace Oil supplier, showed its reluctancy to provide commodity on credit, industry sources said.

They said that actual consumption during November remained a massive 51 per cent and 68 per cent lower than the estimated demand for Gencos and Kapco, respectively. Consequently, PSO’s market share dropped to 67 per cent in Nov 2012 from a staggering 82 per cent same month last year.

Experts believe, Furnace Oil demand will pick up in winter with low availability of gas and declining hydel-based power. In addition, with elections around the corner, the government will push OMCs to increase Furnace Oil supply to power sector in order to improve power generation for masses.

Statistics disclosed that overall oil consumption during November 2012 fell by 9 per cent annually to 1.5 million tons from 1.7 million tons in same period of last year, as Oil Marketing Companies are now reluctant to supply furnace oil amid product’s major share in circular debt, resulting into delay in payment.

Similarly, slowdown in transportation activities in the country and increased use of CNG in public transport took its toll on the High Speed Diesel volumes, market and industry sources said.

Latest data revealed that Petrol (MS) demand, on the other hand, stayed robust, up 7 per cent annually to 0.3 million tons as substitution effect of scarce CNG played its role in refreshing MS demand. Oil consumption decline was seen mainly on account of 14 per cent YoY and 9 per cent YoY drop in HSD and FO consumption during Nov 2012.

Steep decline in oil consumption during Nov resulted in a 5 per cent cut in 5MFY13 oil consumption to 8 million tons. The dip largely emanated from a 6 per cent YoY drop in both HSD and FO sales. In addition, a 30 per cent YoY decline in JP sales further pushed the total consumption downwards. Though a 13 per cent YoY improvement in MS volumes provided some support to overall oil consumption, it was however not enough to absorb the fall in other products; resulting a decline in total oil consumption volume.

Declining CNG availability along with restriction of importing CNG kits and cylinders has created a strong substitution effect for MS, which is evident from a 7 per cent YoY growth in Nov. The impact is more visible from a cumulative 13 per cent YoY growth to 1.3 million tons during 5MFY12.

Experts believe this momentum will continue going forward as the government tries to put in efforts to discourage the use of natural gas as the primary transportation fuel which, in turn, will boost MS volumes further before LPG, or any other substitute, gains market penetration. They expect industry will post a 15 per cent YoY volumetric growth in MS to 3.1 million tons in FY13.