pakistan refining industry an overview - pacra · pakistan refining industry an overview september...

Pakistan Refining Industry An Overview

September 2015

Global Oil Dynamics Global Refinery Domestic Oil

Dynamics Domestic Refineries Business Risk Outlook

World Crude Oil Reserves



•Stagnancy in Reserves •Largest Region Contributes – 48%

World Crude Oil Production

2011 2012 2013 2014World Production (mln tonnes) 4,008 4,116 4,127 4,221 YoY 3.0% 2.7% 0.2% 2.3%



•Increase in US Production Level – 10% •Maintain level of Middle East Region

World Crude Oil Consumption

2009 2011 2012 2013 2014World Consumption (mln tonnes) 3,925 4,085 4,133 4,179 4,211 Change -3% 1.1% 1.2% 1.1% 0.8%



•Limited growth in major consumption region •China Factor •Slower recovery in European economies

Global Crude Oil Trade In mln tons

Imports Exports Net Imports Exports NetAsia Pacific 922 36 (886) 980 48 (931) Europe 464 19 (445) 447 12 (435) US 384 6 (379) 365 17 (349) Former Soviet Union 0 300 300 0 295 295 Middle East 11 855 845 11 850 839 Rest of the World 97 662 565 73 655 582 Global 1,878 1,878 - 1,876 1,876 -

2014CrudeRegion

2013



Shale Oil & Shale Gas –Technically Recoverable Reserves Country Billion

Barrels Russia 75 USA 58 China 32 Argentina 27 Libya 26 Australia 18 Venezuela 13 Mexico 13 Pakistan 9 Canada 9 Others 65 World Total 345 Country Trillion

Cubic Feet China 1,115 Argentina 802 Algeria 707 USA 665 Canada 573 Mexico 545 Austraila 437 South Africa 390 Russia 285 Brazil 245 Others 1,535 World Total 7,299

Shale Oil

Shale Gas



Global Refining Capacities

2011 2012 2013 2014Global Refining Capacities (mln tonnes) 4,558 4,638 4,741 4,806 YoY 0.8% 1.8% 2.2% 1.4%



Regional Capacity Utilization



•Opposite Stance by US refining sector

In mln tons

Global Refined Products Trade

Imports Exports Net Imports Exports NetAsia Pacific 400 283 (117) 394 264 (129) Europe 159 97 (62) 174 99 (75) US 99 151 52 90 180 90 Middle East 41 116 75 6 144 138 Former Soviet Union 6 145 138 43 129 85 Rest of the World 192 106 (86) 205 96 (109) Global 897 897 - 912 912 -

Region Refined Products2013 2014



Domestic Oil Dynamics



Recoverable Reserves



60% 58% 58%

15% 14% 14%

8% 10% 10%

8% 8% 8%

7% 9% 9%2% 1% 1%

-

80

160

240

320

400

0%

20%

40%

60%

80%

100%

2012 2013 2014

mln

bar

rels

%

age

OGDCL MOL PPL POL UEPL Others Total

Crude Production

57% 54% 50%

12% 14% 20%

10% 9% 7%

4%3% 2%

10% 15% 16%

6% 5% 5%

-

7

14

21

28

35

0%

20%

40%

60%

80%

100%

2012 2013 2014

mln

barr

els

% a

ge

OGDCL MOL PPL POL UEPL Others Total

2012 2013 2014Total (mln barrels) 24.5 27.8 31.6



Domestic Refineries



Industry Structure



Oligopoly: Fewer Large Players Dominates the Market Largely same products Higher barriers to enter the market

Industry Lifecycle Capacity Expansions Profitability growing but volatile Stage of Refinery – Hydroskimming

Industry Competiveness: Threats to Entry – As such no threats to entry, as huge CAPEX is require to setup a refinery. Substitution Effect – Overall there is no substitute of oil products, however specific Product wise substitution exist (e.g, CNG/LNG for PMG/FO). Competitive Rivalry – No competitive Rivalry exist as prices of products are linked with international crude prices.

Industry Competitiveness High Supplier Power

Limited availability of input material (crude oil) owing to scare nature Sizeable import of increasing dependence on international upstream oil industry

High Buyer Power

Few large buyers Low distinction among refined products Easy access to imported refined products



Product Slate

Product PARCO NRL

ARL PRL

HSD 40% 37% 32% 30%

Motor Gasoline

20% 7% 19% 10%

Furnace Oil 25% 22% 24% 30%

Naptha - 11% 13% 11%

HOBC 0.3% - - -

LPG 3% - - 2%

Lube Oil - 9% - -

Kerosene 2% - 2.5% -

Asphalt - 5% 2.5% -

Others 9.7% 9% 7% 17%

Total 100% 100% 100% 100%



Product Mix



36% 37% 39%

25% 26% 26%

14% 14% 14%

8% 7% 7%8% 7% 7%5% 4% 4%4% 4% 3%

0%

20%

40%

60%

80%

100%

2012 2013 2014

Perc

enta

ge

HSD FO Motor Spirit Aviation Fuel Naphta Non Energy Products Other Energy Products

Supply Demand Mix – Fuels

56%48%

43%37%

50%56% 54%

59%

75% 77%

67% 68%

44%52%

57%63%

50%44% 46%

41%

25% 23%

33% 32%

-

2

4

6

8

10

0%

20%

40%

60%

80%

100%

2011 2012 2013 2014 2011 2012 2013 2014 2011 2012 2013 2014

HSD Motor Spirit Furnace Oil

mln

tonn

es

% a

ge

Imports Local Consumption



Pricing Mechanism/Disclosure



HSD PMG HSD PMGRetail Retail Retail Retail

Ex Refinery Price 78.72 72.55 42.55 40.01 Petroleum Levy 8.00 10.00 7.84 9.92 Inland Freight Equalization Margin 1.72 3.52 1.24 3.41 Dealer Commission 2.30 2.78 2.60 3.08 Distribution Margin 1.86 2.23 2.35 2.35 Ex Depot Price 92.60 91.08 56.58 58.77 Sales Tax 15.74 15.48 25.46 14.95 Maximum Ex Depot Price 108.34 106.56 82.04 73.72

Sales Tax 17% 17% 46% 27%

Sep-15Oct-14

Particulars (Rs/ Litre)

Impact of Deemed Duty on HSD



Sale of HSD (Thousand Tonnes) 6,889 2,582 4,307

Conversion to Liters (Mln Liters) 8,232 3,085 5,147

Average Ex-Refinery Price (PKR/Liter) 78.87 78.87 78.87

Total Revenue (PKR Mln) 543,334 203,627 339,707

Deemed Duty on HSD - 7.5% (PKR Mln) 40,750 15,272 25,478

Profitability (PKR Mln) 13,038

Profitability excluding deemed duty (PKR Mln) (12,440)

Refining Sector

Government of Pakistan (Imports)

Country's CollectionFY14

Business Risk - Refining Capacity & Utilization



*BYCO’s capacity will be enhanced by 5.4mln tpa after commissioning of its new refinery expected during FY16.

Capactity Utilization Capactity Utilization Capactity UtilizationByco Petroleum* 1.8 10.8% 1.8 12.5% 1.8 70.0% - Pak Arab Refinery 4.5 91.6% 4.5 102.0% 4.5 102.0% - National Refinery 2.7 78.8% 2.7 85.0% 2.7 81.4% - Pakistan Refinery 2.1 74.1% 2.1 78.0% 2.1 77.0% - Attock Refinery 2.0 100.0% 2.0 100.0% 2.0 102.0% 0.5ENAR Petrotech 0.3 56.0% 0.3 95.0% 0.3 - Dhodak Refinery - - - - - - -

Total 13.4 69% 13.4 79% 13.4 87% 0.5

11.6 92% 11.6 91%

Expansion

Without Byco

Refinery 2013 2014 2015

WTI Crude and US Gasoline Comparison



Iran Nuclear Deal

0

20

40

60

80

100

120

140

Jun‐13 Sep‐13 Dec‐13 Mar‐14 Jun‐14 Sep‐14 Dec‐14 Mar‐15 Jun‐15

USD

$/bb

l

RBOB

CL

*RBOB: Reformulated Blendstock for Oxygenate Blending (gasoline) *CL: WTI Crude Oil

0

15

30

45

60

75

90

105

120

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15

USD/

bbl

WTI Brent

Crude Oil Prices - USD/bbl



95.0096.0097.0098.0099.00

100.00101.00102.00103.00104.00

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15

Exchange Rate

Exchange Rate

Key Challenges Volatility in margins an outcome of fluctuating crude oil prices and simpler technology Unfavorable changes in pricing regime – removal of deemed duty Prevailing Inter-Corporate Debt – impacting throughput levels Exchange rate depreciation



Bibliography

1. Pakistan Energy Year Book : 2013-2014 2. Attock Petroleum Limited: www.apl.com.pk | Petroleum Product Prices 3. Attock Refinery Limited –Annual & Quarterly Financial Statements –Sep14, Dec14, Mar15, Jun15 4. BP Statistical Review of World Energy 2014: bp.com 5. US Energy Information Administration 6. Bain & Company: www.bain.com | Global Refining 7. zedatawatch: A Brief History of Oil Prices and Middle East Tensions: Fear of a Black Gold Shortage 8. Oil Price History and Analysis: http://www.wtrg.com/prices.htm 9. The Economist: http://www.economist.com/node/18285768 10. Kline & Company 11. Ernst & Young - The international dynamics of shale 12. Ernst & Young -Shale gas in Europe: Revolution or evolution? 13. KPMG -Shale Development: Global Update 14. PricewaterhouseCoopers Shale Oil, the next energy resolution 15. Deloitte University Press- US shale: A game of choices

DISCLAIMER PACRA has used due care in preparation of this document. Our information has been obtained from sources we consider to be reliable but its accuracy or completeness is not guaranteed. The information in this document may be copied or otherwise reproduced, in whole or in part, provided the source is duly acknowledged. The presentation should not be relied upon as professional advice.

Analysts

Rai Umar Zafar Manager Ratings +92 42 3586 9504 [email protected]

Shoaib Afzal Financial Analyst +92 42 3586 9504 [email protected]

Usama Liaquat Financial Analyst +92 42 3586 9504 [email protected]

pakistan refining industry an overview - pacra · pakistan refining industry an overview september...

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