Pak banks refuse to open LCs for importing Russian crude oil

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Pakistani refineries are in their short and long term agreements with ADNOC, Aramco and KPC for crude oil imports. -APP/file

ISLAMABAD: All Pakistani commercial banks have refused to open Letters of Credit (LC) for crude oil of Russian origin in the presence of economic sanctions by the US, UK and EU countries against Moscow for the war against Ukraine, stating the payment in US dollars terms is not possible against the import of Russian crude oil.

However, if the government manages to conclude a G2G agreement with Russia for the import of crude oil in ruble-based transactional mode, guaranteeing the absence of impact of sanctions on Pakistan, refineries can use crude oil up to 15-30%, respecting see its technical ability to manufacture finished products. On the other hand, refineries are in their short and long term agreements with ADNOC, Aramco and KPC for crude oil imports.

More importantly, the current transportation freight for import from Russian ports is estimated at $3-3.5 million compared to the current freight of $0.8-1.0 from Middle East ports and the sea voyage from the Black Sea would be around 16-26 days. compared to 4-5 days from the Middle East. This means that transport costs from Russian ports to Karachi amount to $8 per barrel, which is 8 to 12 times higher than in ports in the United Arab Emirates.

This is the essence of written responses from four refineries, namely PARCO, BYCO (Cnergyico Pk Limited), PRL and NRL to the government against letters written to them on June 27, seeking recommendations on five issues, including the technical adequacy of Russian crude. oil, quality and grades, transportation cost and freight charges, payment mechanism and existing contract terms.

According to the copy of the written responses available with The News, Pak-Arab Refinery (PARCO) indicates that a detailed technical analysis of the processing of Russian crude oil can be assessed on the basis of a mixture of crude oil of Russian qualities with the qualities current. PARCO aspires to request samples of Russian grades such as SOKO, ESPO and URALA, and Serbia Light, saying it can use Russian crude oil up to 15-30% taking into account its technical ability to manufacture the products finished. PARCO says that at most it can import one or two shipments of 70,000 MT to process in a month as most Russian crudes are heavier than its imported grades, therefore to manage the product mix those These can be processed by replacing Arabian Light Crude Oil.

BYCO Refinery (Cnergyico Pk Limited) has imported two shipments of Russian crude oil in the past, in its five recommendations and analysis, states that the travel time from Russian ports to Karachi ranges from 28 to 37 days and the cost of transport are 8 to 12 times higher compared to UAE ports. Since a very limited number of vessels show up at Russian ports due to the risk of sanctions, this may further increase shipping costs. Cnergyico also asked the Pakistani and Russian governments to decide on an efficient payment channel because under the current conditions, it will be difficult for commercial banks to open LCs due to the risk of sanctions. It also indicates that its crude purchases maintain a balance between spot and forward shipments for a given quarter based on market fundamentals. However, the BYCO refinery claims it can absorb some Russian crude oil.

More importantly, Russian crude oils vary from field to field and some of them are technically suitable given the configuration of each refinery. Pakistan Refinery Limited (PRL) claims to have graded three Russian crudes, including SOKOL, ESPO and URAL. SOKOL crude oil is the first preference in terms of quality ranking, ESPO the second and URAL comes in third in terms of preference. While the PRL indicates that SOKOL is essentially a light, sweet crude, it contains higher middle distillates and low fuel oil content. SOKOL would still be the first choice crude for PRL, compared to the other grades available.

He says the ESPO is a fairly sweet crude with a medium-light blend. However, its only drawback is the higher amount of fuel oil, and its disposal will always be a daunting task and the URAL, according to PRL, is a mixture of heavy, light and sour crudes. The sulfur content of the Urals ranges from 1.4% to 2.8%. A higher variation in the sulfur content of this crude will naturally be reflected in its product listing, making it difficult for the refiner to stipulate the sulfur specification of the product. This crude also contains higher volumes of fuel oil and will always pose product disposal challenges. Mentioning the transport and freight analysis for the import of crude oil from Russia compared to normal imports from the Middle East, the PRL indicates that it imports a large part of its crude oil from the Middle East region, where the freight varies between $1.0 and $1.5 per barrel. And the transportation cost from the Russian port of KOZMINO to Karachi is $8.0/barrel as quoted by the national carrier on an interim basis. The PRL also mentions that the duration of the sea voyage from KOZMINO port to Karachi is around 22 days. With regard to the existing Arab Gulf region recovery commitment with respect to futures contracts, the PRL reports that according to current futures contracts with ADNOC, ARAMCO and KPC, 1.2 million MT/ 9.0 million barrels per year must be raised. The PRL indicates that after fulfilling its current mandate of crude oil, contractual obligations can explore the possibility of processing an additional 300,000 to 400,000 MT per year.

The National Refinery Limited (NRL) in its one page response indicates that currently LCs are not confirmed by international banks due to country risk and commercial banks are not inclined to open LCs for l import of Russian crude oil in the presence of sanctions against Russia.

It also states that the normal sailing time from the Middle East is around 4 days, while the estimated travel time (one way) would be 20 days from Russia. Additionally, the route is likely to pass through war zones due to which the risk factors will increase significantly. The NRL has suggested the government create a workable payment mechanism.

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