On Sunday, the first shipment of discounted Russian crude oil secured under a new agreement between Islamabad and Moscow landed in Karachi, beginning a new chapter in the two nations’ cooperative commercial relations.
The shipment traveled from Russia to Pakistan via Oman more than a month ago. According to officials, the oil discharge would start on Monday (today), and the Pakistan Refinery Limited (PRL) will refine the oil.
The 100,000 metric tonnes of oil were divided in two at Oman because the Karachi port could not accommodate the larger ships throughout the lengthy voyage. The two smaller ships left Oman for Karachi with 50,000 metric tonnes of oil apiece.
The delivery of the shipment, said to Prime Minister Shehbaz Sharif, characterised Sunday as “a transformative day” and he added, “I have fulfilled another of my promises to the nation.”
“We are taking small steps towards wealth, economic expansion, and energy affordability and security. This is the first oil shipment from Russia to Pakistan in history, and it marks the start of a new partnership between Pakistan and the Russian Federation, he tweeted.
In a follow-up tweet, Prime Minister Shehbaz thanked everyone who continued to support this national effort and helped turn the promise of Russian oil import into a reality.
This Russian oil shipment would not be included in the nation’s oil price system, insiders claim. According to the sources, this indicated that the PRL would profit or lose money on the Russian oil.
The sources added that a report would be provided to the federal government for future choices about the long-term commercial oil deals that the shipment was a test case to check the quality of the crude oil and the ratio of refined products.
The first Russian crude oil cargo was ordered by Pakistan at a discounted price of up to $18 a barrel. According to the sources, Islamabad adopted the Platts crude oil rates, which entailed Platts minus a $16–18 per barrel discount.
According to the sources, Pakistan would analyse the refined petroleum products’ economics based on the discounts. They also mentioned that Pakistan had gotten Russian oil specifications that weren’t very excellent.
Additionally, the Russian oil’s freight was excessively costly. Sources claim that Russia had discounted prices of $16 to $18 to match the grade and shipping costs of the Arabian light oil that Pakistani refineries were currently processing.
The percentage of refined petroleum products from Russian oil was also different, in addition to the quality and freight, which would disrupt the current economics of the petroleum products being produced from the Arabian oil.
When compared to Russian crude oil, which is said to create 32% HSD and 50% boiler oil, Arabian crude oil produces 45% high speed diesel (HSD) and 25% boiler oil. “If we take such a ratio, Pakistan requires a higher discount from Russia,” the insider claimed.
“Since the nation’s power plants switched to using LNG [liquefied petroleum gas] as fuel, Pakistani refineries have already experienced issues using furnace oil. The huge volume of furnace oil is a challenge for the refineries as well.
Under the Pakistan Muslim League-Nawaz (PML-N) administration that was in power at the time, Pakistan began importing LNG for the first time in 2015. However, the government at the time had not taken all necessary precautions with regard to the use of furnace oil.
After the power industry declined to raise the furnace oil, Pakistani refineries experienced repeated partial shutdowns and problems ever since. Some refineries have turned to selling the boiler oil overseas for less money.
The Pak-Arab Refinery Limited (Parco) and the PRL have previously exported furnace oil at a loss of about Rs30,000 per tonne, according to the sources. As a result, they continued, the refineries’ margins increased this year to aid in their survival.
Another source claimed that if the current scenario persisted and refineries encountered problems with low furnace oil demand, they would be forced to export, which would reduce their earnings. Therefore, if Russian oil contains a lot of boiler oil, refineries may have problems processing it.
The source added that the economics of the Russian crude oil, which took about a month to reach Pakistan, would also be affected by the high freight costs, noting that the oil from Gulf nations just required three days to get there.
Russia has offered to pay Pakistan in three different currencies: the Russian ruble, the Chinese yuan, and the UAE dirham. However, the two nations have decided to pay for the oil cargo from Russia in Russian rubles.
Due to a lack of dollars in the country and a dispute between the US and Russia over the Ukraine problem, Pakistan opened Letter of Credits (LCs) in the Bank of China to complete the payment.