For the second time since the Iran war began, Pakistan is burning furnace oil to keep the evening peak covered without buying spot LNG. An official at the Independent System and Market Operator told Arab News on Friday that at least 800 MW is being generated from furnace oil between 5 pm and 1 am, out of 1,400 MW of available furnace oil capacity, "to limit the import of RLNG". Oil Companies Advisory Council data show furnace oil sales of 93,000 tonnes in September, against 11,078 tonnes a year earlier.
This is a sensible tactical choice. It is also being made month by month, in response to cargo cancellations, with costs arriving in consumers' bills two months later through the fuel charges adjustment. With QatarEnergy's force majeure on Pakistani deliveries now extended through November, the furnace oil fleet should stop being treated as an emergency fallback and start being treated as a defined winter reserve, with fuel stocks, dispatch rules and cost recovery agreed in advance.
Why the switch makes sense
The economics are closer than many assume. Shankar Talreja of Topline Securities told Arab News that generation cost on furnace oil has been over Rs40 per kWh, almost the same as RLNG over the last two months. The August fuel adjustment data confirm the point. According to figures presented at NEPRA's hearing on 29 September and reported by The Nation, imported LNG generation cost Rs45.92 per unit in August and furnace oil Rs45.25. When the two fuels cost the same per unit, the decisive factors are foreign exchange exposure and availability, and both favour furnace oil at the margin. Power Minister Awais Leghari said in mid-September that spot RLNG cargoes were costing $23 to $25 per MMBtu, levels he called "exceptionally high". Furnace oil can be sourced and stored in smaller lots, from more suppliers, without committing to a full LNG cargo on a volatile spot market.
The import data show how far the country has already leaned away from LNG. The Pakistan Bureau of Statistics, as reported by Arab News, recorded LNG imports of $364.1 million in July and August, down 28.3 per cent from $508 million a year earlier.
Why it is not a full substitute
The ISMO official was clear on the limits. Furnace oil "is not full replacement of RLNG because RLNG is needed to run large plants in load center, both to meet demand and system stability". Private Power and Infrastructure Board data cited in the same report show six furnace oil plants totalling 1,116 MW and 16 LNG-fired plants totalling 7,640 MW. Even with every furnace oil unit running, the oil fleet covers a fraction of the RLNG fleet's capability, and it is not located or configured to provide the voltage and inertia support that large RLNG units in the load centres give the grid. Talreja noted that furnace oil still accounted for less than two per cent of generation in July and August, against an average of ten per cent for RLNG. The August adjustment data put furnace oil at 2.15 per cent and LNG at 8.48 per cent.
That defines the real decision. Pakistan cannot run the grid without some RLNG. The question is how much LNG it needs for stability-critical units, and how much of the remainder can be met from oil, coal, hydro and demand management.
The supply outlook does not allow improvisation
The external picture has hardened this week. The National, citing people familiar with the matter, reported on 28 September that QatarEnergy had notified Pakistan and Bangladesh that LNG cancellations would run through November. Qatar's Ras Laffan facility, damaged in March, is operating at reduced capacity. On 2 October Yukio Kani, chairman and global chief executive of Japan's Jera, the world's largest LNG buyer, told Bloomberg Television: "We don't expect Qatar LNG coming back to the market soon." He said spot prices were double last year's level, and that low European storage and the EU's planned ban on Russian LNG from January suggest prices will rise further. Kpler data cited in the same report show Qatari and Emirati LNG transits through Hormuz still 80 per cent below February.
In that market, Pakistan will be competing with European utilities facing winter for any replacement cargo. A month-by-month approach, deciding at each cancellation whether to buy spot or burn oil, leaves the country exposed to the worst prices at the worst moments.
The cost is arriving through the FCA
Consumers are already paying for these choices, with a lag. The Central Power Purchasing Agency has asked NEPRA for a fuel charges adjustment of Rs1.73 per unit for August, worth about Rs29.5 billion, according to The Express Tribune and Business Recorder. NEPRA reserved its decision after the hearing. August generation was 14.464 billion units at an average fuel cost of Rs8.82 per unit, against a reference of Rs7.0998. Hydropower supplied 37.84 per cent, imported coal 15.59 per cent, local coal 10.86 per cent, LNG 8.48 per cent and local gas 7.04 per cent. A provisional adjustment of Rs10.6168 billion covering July and August has been set aside for RLNG-fired plants.
Two features of the mechanism matter for winter. The first is the lag: the cost of an October decision shows up in December bills, when it is too late to change. The second is opacity. The FCA reports the outcome of dispatch, not the alternatives considered. Consumers see a per-unit increase, not the comparison between a spot cargo, furnace oil or load management that produced it.
What a winter plan should contain
We would put four elements in a written winter fuel plan, agreed between the Power and Petroleum Divisions and published before November.
First, a firm RLNG floor for stability. ISMO should define the minimum RLNG dispatch needed to keep load-centre combined-cycle units available for voltage and stability, and the Petroleum Division should prioritise term or contracted volumes for that floor before any spot purchase is considered.
Second, a defined furnace oil reserve. With 1,400 MW of oil capacity available and 800 MW already running at peak, the remaining headroom should be backed by agreed fuel stocks at plant and refinery level, so that a further cancellation can be met within days rather than weeks. Refiners selling into a power market that wanted almost no furnace oil a year ago need visibility to plan output.
Third, a published spot-purchase trigger. The government should state the price and system conditions under which it will buy a spot cargo rather than extend furnace oil use or schedule load management. The Power Minister said in September that coordination with the Petroleum Division had made it possible to avoid purchasing expensive RLNG; turning that practice into a published rule would make it predictable for generators and transparent for consumers.
Fourth, a reporting line in the FCA. Each monthly petition should show the fuel switching decisions made and the estimated cost of the alternative not taken. NEPRA already scrutinises the adjustment line by line. Adding a counterfactual would let the regulator and consumers judge whether the hedge is working.
The bottom line
Furnace oil has given Pakistan a way to avoid the most expensive LNG on the market at almost the same per-unit cost, and the government deserves credit for using it. But a hedge that is decided cargo by cargo, paid for two months later and limited by grid stability is a stopgap. With Qatari supply out through November and Europe's winter about to bid up every alternative cargo, the country needs to write down the plan it has been improvising since August.