Furnace Oil Is Pakistan's Hedge Against Spot LNG. It Needs to Become a Plan.

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.

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. 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 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.

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". 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. 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 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. The first is the lag: the cost of an October decision shows up in December bills, when it is too late to change. We would put four elements in a written winter fuel plan, agreed between the Power and Petroleum Divisions and published before November.

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.