Pakistan's oil consumption likely to rise in FY25 on economic recovery hopes

Pakistan's oil consumption is likely to rise in financial year 2024-25 (FY25) as the government expects economic activities to revive on account of the falling interest rate, exchange rate stability and a loan approval from the International Monetary Fund (IMF).

The country's oil consumption fell by 8% to 15.25 million metric ton in FY24 compared to 16.61 million metric ton utilized in the previous fiscal year, according to the Oil Companies Advisory Council (OCAC), an organization compiling data on oil consumption and import and export of petroleum products.

Nukta talked to four analysts on fuel consumption, with all sharing the opinion that growth would be between 4-5%, arriving around 16 million metric ton by the end of the current fiscal year.

The country's fiscal year runs from July to June.

“With the increasing adoption of solar energy, particularly for powering tube wells and electric bikes, the demand for traditional energy sources is expected to continue its downward trend,” Abdul Azeem, head of research Al Habib Capital Securities, said. This decline is exacerbated by the stagnation in economic growth, which further dampens energy consumption, he added.

Petrol consumption fell by 4% to 7.14 million metric ton in FY24, diesel declined by 2% to 6.26 million metric ton and furnace oil by 49% to 1.04 million metric ton, OCAC data showed.

The country's consumption might go up on the expectation that the economy will pick up in the current fiscal year as the government has set a Gross Domestic Product or GDP growth target of 3.6% compared to 2.4% a year ago. Moreover, the State Bank of Pakistan, the central bank in its three monetary policy announcements, has reduced the benchmark interest rate by 450 basis points to 17.5%, which will help generate more economic activities compared to previous year, said an industry expert.

Pakistan saw a tight monetary policy stance for a period of four years during which the interest rate reached an all-time high of 22%. However, since June, the stance has been easing following a fall in the country's inflation rate.

In May 2023, the country witnessed the highest inflation rate at 38% while in August this year, it was recorded at 9.6%, according to government data.

LSM-led growth

"We project a modest recovery of 4-5% in sales of petroleum products for FY25", said Muhammad Awais Ashraf, research director at AKD Securities.

This growth is expected to be driven by an increase in large-scale manufacturing (LSM) and the transport sector, with additional support from improved agricultural activity.

However, challenges such as an increase in tax on petroleum products along with rising crude oil prices due to volatile geopolitical situations and global monetary easing may adversely impact oil volumes, Awais said.

Pakistan plans to raise the petroleum tax known as petroleum development levy to PKR 70 ($0.25) per liter in the current fiscal year, up by PKR 10 per liter.

Pakistan's economy is likely to ramp up in FY25 once the IMF's Executive Board approve a loan program worth $7 billion in its meeting on September 25.

Zayan Babar, research analyst at Optimus Securities, said growth in FY25 might be around 5% on slightly better economic activity and expected rise in auto sales volumes.

However, the first month of the new financial year showed that there is no resurgence in economic activity.

The sales of furnace oil remain at their lowest as the government has been discouraging usage of furnace oil-fired electricity generation plants. Instead, the government is banking on hydel, coal, nuclear and RLNG fired plants to generate electricity.

Power generation from RFO plants fell 99% to 62 Gwh in August this year from 649 Gwh during the same month last year, according to data from the National Electric Power Regulatory Authority. In FY24, generation from furnace oil-fired power plants stood around 2,428 Gwh compared to 5,004 Gwh a year ago, showing a fall of 51%.

Refinery capacity

Refineries currently have a capacity to process 10,702 metric ton per day of petrol, 21,237 metric ton per day of diesel and 15,417 metric ton per day of furnace oil, according to a report from brokerage house Arif Habib Ltd.

After the completion of planned upgradation and expansion projects, the capacity to refine petrol is anticipated to be 21,251 metric ton per day, showing an increase of 99%.

Similarly, the throughput of diesel would increase by 47% to 31,288 metric ton per day and furnace oil capacity would decline by 78% to 3,414 metric ton per day.

Pakistan refineries have chalked out a five-year plan, with an investment outlay of $4-5 billion to convert units, opting for Euro-V, eliminating throughput of furnace oil.

Pakistan petrol imports in FY24 fell 9% to 4.752 million metric ton and diesel imports fell 27% to 1.716 million metric ton, according to OCAC data.