Fuel mix: As CNG gets rationed, petrol sales jump 36% in October

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The government’s bungling giveth, and the government’s bungling taketh away. After being squeezed relentlessly by the government’s inability to resolve the financial mess at the core of the energy crisis, the country’s oil marketing companies saw at least one ray of hope break through the dark clouds covering the industry: sales of petrol skyrocketed during October, as motorists who previously relied on compressed natural gas (CNG) to fuel their vehicles were forced by government rationing to switch to the more expensive liquid fuel.

According to a research report released on Friday by BMA Capital, an investment bank, sales of petrol in October stood at 267,000 tons, up 36% compared to the same period last year.

“CNG rationing, which increased sharply after the Supreme Court’s decision in the last week of October [that resulted in a 33% cut in CNG prices], led sales of motor spirit (petrol) to increase substantially in October, maintaining the upward momentum from the last couple of months,” wrote Furqan Punjani, an energy research analyst at BMA, in a note issued to clients. For the first four months of the fiscal year, petrol sales volumes jumped 15% to just over 1.05 million tons.

By contrast, diesel sales have continued to decline. Volumetric sales of diesel were down 11% in October compared to the same month last year, and down by 3% during the first four months of fiscal 2013, compared to the same period in fiscal 2012.

The diverging fates of petrol and diesel sales – during a period in which CNG has been relatively scarce in supply – suggests that the vast majority of CNG is used by cars, not public buses. The fact that a majority of CNG users are upper-middle class car-owners, not public transporters, offers empirical evidence to economic analysts who have argued that the price of gas in Pakistan is kept by the government as a means of delivering a highly inefficient subsidy which benefits the upper-middle class and the rich at the expense of providing gas to power plants, which would be able to provide cheap electricity to the entire economy.

The government increased CNG rationing in response to the Supreme Court ruling in late October, trying to limit the consumption of natural gas. Pakistan’s natural gas production is around 4,372 million cubic feet per day (mmcfd) and is currently able to meet less than 73% of total estimated demand, according an analysis conducted by the petroleum ministry. Gas production, on current trends, is projected to decline by nearly 50% by 2021.

Yet, despite declining gas production, the government continues to sell domestic gas at rates far below their replacement costs, and well below international price levels. Many populists argue that international gas price benchmarks are not relevant for the Pakistani market, ignoring the fact that the only viable plans currently available to Pakistan involve importing gas, whether it be liquefied natural gas from Qatar or pipeline gas from Turkmenistan or Iran.

Domestic consumers pay around $2 per million British thermal units (mmbtu). Fertiliser manufacturers pay between $0.75 and $1.20 per mmbtu. Power producers and CNG stations pay slightly higher, but nowhere near the global prices of LNG, which are hovering in the $18 per mmbtu range. Even gas from Iran, which is the cheapest import option available to Pakistan, will cost around $11 per mmbtu.

As gas rationing continues during the winter months, with demand from domestic consumers in the north of the country set to rise for home-heating purposes, BMA Capital expects the increase in petrol sales to continue for the remainder of the fiscal year ending June 30, 2013.

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