November 12, 2021 (MLN): National Refinery Pakistan Limited (NRL) is considering the installation of a Continuous Catalytic Converter (CCR) plant to produce Euro V Motor gasoline while reducing the production of NAPTHA to zero. However, the approval of the same is subject to the outcomes of the refinery policy as the project would be unfeasible without tariff protection, the company’s management said during a corporate briefing session held today.
The project is estimated to cost around $200-250mn and would take at least 4-5 years for commencement of operations after the approval is received.
To highlight, from January 2021, the company started producing Euro V HSD and was consequently entitled to the Euro V product price while avoiding government-imposed penalties in that category.
While commenting on the ongoing projects, the management updated that presently a highly capital-intensive joint project of conversion of Furnace Oil into HSD and Naphtha is under consideration where all five refineries are participating and a feasibility study is being conducted by “Advisian”, a UK based firm, which is likely to be completed by December 2021.
With regards to the lube segment, management informed that its margins have improved during the year on the back of higher international product prices resulting from global supply constraints as most international refineries were either shut or on maintenance, while economic activity resumed. As per management estimates, NRL currently has 80% share in Lubes market.
During the year, NRL successfully completed Lube-I refinery revamp activity which has resulted in increased crude oil processing capacity of the refinery to 70,000 barrels/day from 65,050 barrels/day, management highlighted.
Responding to a question regarding expansion in the Lube Segment, management said that no plans for expansions in the Lube segment are currently under consideration since the world is moving towards Group II and Group III Base Oils, moving towards which could require an investment worth $1 billion which in itself is a cost-intensive venture.
Since lube and fuel refineries are integrated, the usage of lighter crude when compared to other refineries is not feasible, it added.
Shedding light on the company’s operational performance, the management informed that the gross refinery margins during FY21 recorded at $6.9/barrel against $-0.17/barrel in the same period last year. While capacity utilization for Fuel refinery jumped to 65% compared to 59% last year. Similarly, Capacity Utilization for Lube refinery increased to 79% in FY21 from 68% in FY20.
Gross Refinery margins in Q1FY22 were slightly better than last year with Lube GRM at $23/barrel in Q1 and Fuel GRM at $2.15/barrel. Utilization levels are however dependent on the offtake levels of Furnace oil, which in turn are dependent on LNG prices, management said.
On the financial front, after two consecutive years of losses, NRL entered into a profitable zone in FY21. As per management, this was owing to the upward price trend and the change in pricing formula coupled with fortnightly pricing which helped reduce fuel refinery losses amidst thin margins.
Going forward, management believes that manufacturing cost is likely to increase given the increase in utility cost as well as the devaluation of PKR. With refineries all over the world starting up again and increasing the supply of base oil, margins could decrease going forward. Moreover, the cost of furnace oil is also on the rise and as such some profit compression can be expected.
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