Analysis: Pakistani imports of Russian crude face port, refinery and currency restrictions

KARACHI, Pakistan, July 31 (Reuters) – Pakistan is unlikely to meet the target of having Russian crude account for two-thirds of its oil imports, despite attractive prices, hampered by a shortage of foreign exchange and caps on its refineries and ports. say officials and analysts.

The cash-strapped South Asian nation became Russia’s latest customer buying discounted crude that has been banned from European markets because of Russia’s war on Ukraine. Its first shipment arrived in June and a the second is now under negotiation.

It is targeting 100,000 bpd of imports from Russia, up from the total 154,000 bpd of crude it imported in 2022, in the hope that it will reduce its import bill, address a currency crisis and rein in record inflation.

However, the benefits are being offset by higher shipping costs and lower quality refined products compared to fuels produced from crude oil from major suppliers in Pakistan, Saudi Arabia and the United Arab Emirates.

Pakistan will have to increase imports of gasoline and diesel to make up for lower production of these fuels from Russian crude oil, prompting more dollar outflows and straining its crisis-hit economy, Shahbaz Ashraf, FRIM’s chief investment officer, said with headquarters in Pakistan. companies

While Islamabad and Moscow have not disclosed details of prices and the extent of the discounts, the shortage of the Chinese yuan to pay for Russian crude poses another hurdle, as it needs the yuan to trade with China, its main trading partner.

Pakistan paid for its first shipment of Russian crude in chinese yuan. However, Aadil Nakhoda, an assistant professor at the Karachi Institute of Business Administration, said the country would be better off using a barter deal with Russia than paying with yuan, which traders say is in short supply.

“How will you pay other lenders and finance trade with China if you use low yuan reserves to pay for Russian oil?” Najoda said.

PORT AND REFINERY RESTRICTIONS

Adding to the challenges, the transportation costs of Russian crude are higher than those in the Middle East, not only because of the greater distance traveled, but because Pakistani ports cannot handle the large ships leaving Russia.

Ural crude had to be transferred from a supertanker to smaller ships in Oman before heading to Pakistan, government officials said, unlike direct shipments from the Middle East.

Even with that added cost, it was worth importing Russian oil, said Viktor Katona, senior crude analyst at Kpler, as light crude from Saudi Arabia is $10 to $11 a barrel more expensive to Pakistani refiners than Urals. , while lightening operations add around $2 to $3 per barrel.

“Pakistani buyers would still be much better off,” he said.

However, the quality of the Urals is an impediment, as Pakistani refiners cannot get as much gasoline and diesel from Ural crude as they can from crudes from Saudi Arabia and the United Arab Emirates.

It will take Pakistan Refinery Ltd (PRL) at least two months to fully process its first shipment of 100,000 metric tons (730,000 barrels) of Ural crude as it must be blended with Middle Eastern crude to offset high fuel oil production. oil of Russian Petroleum, Zahid Mir, chief executive of the state-run refinery, told Reuters.

“Our optimal processing solution is to blend Urals with imported Middle Eastern crude without exceeding 50% Ural in the blend,” Mir said.

Residual fuel produced from Ural crude must be blended with diesel and kerosene to meet local use specifications, while the rest is exported, but the deal was still commercially viable for Pakistan, Mir said.

PRL has no plans to modernize its refinery to process fuel oil into higher quality fuels, he added.

Kpler’s Katona expects Pakistan’s liquidity problems and technical challenges to affect its appetite for Russian crude.

“Russian imports to Pakistan will not become anything bigger than one shipment per month,” he said.

Reporting by Ariba Shahid in Karachi, Sudarshan Varadhan in Singapore, additional reporting by Charlotte Greenfield; Edited by Florence Tan and Sonali Paul

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