Oil Marketing Companies

(OMCs)
Sector Study

November 2022
©The Pakistan Credit Rating Agency Limited
Table
OMC |ofGlobal
Contents
Market

Contents Page No. Contents Page No. Contents Page No.

Global | Energy Mix 1 Local | Industry Snapshot 13 Local | Fuel Retail Prices 23
Global |Economic Outlook 2 Demand | Product-wise POL
14 Business Risk 24
Global | Energy Consumption Consumption
3
Demand| Sector-wise POL Financial Risk 25
Market Segments 4 15
Consumption Working Capital
Value Chain 5 26
Demand | Power Generation Mix 16 Management
Global | Crude Oil Reserves Position 6 Supply| Crude Oil & POL Ratings 27
17
Global | Crude Oil & Production & Supply | Crude Oil & POL 18 SWOT Analysis 28
Consumption 7
Domestic OMCs | Market share 19 Outlook 29
POL Crack Spreads 8
Country-wide Retail Outlets 20 Bibliography 30
Oil Stock Analysis 9
Price per Liter Breakdown | MS &
Global | Crude & Products Trade 10 21
HSD
POL Product Mix | Consumption 11 Pricing Mechanism| How it Works 22
Global | Top 10 Oil Marketing
12
Companies
Oil Marketing Companies
Global | Energy Mix
• The global energy mix is historically dominated by fossil fuels, with oil
Global | Energy Mix
taking the lead among all fuels followed by coal and gas. Despite the
100%
growing demand for renewables and environment friendly energy, 4% 4% 5% 6% 7%
renewables still hold a very nominal portion in the global energy mix. 90%
7% 6% 6% 7% 7%
4% 4% 4% 4% 4%
• In CY21, the world consumed energy of ~97bln barrels of oil equivalent 80%
(CY20: ~91bln) from a variety of sources. Although there is a positive trend
in the development of renewables, fossil fuels (Oil, Gas and Coal) 70% 28% 28% 27% 27% 27%
comprised the lion’s share in the global energy mix at ~82.3% of total
60%
(CY20: ~82.2%) with oil being the most dominant source of energy at
~31%. 50%
23% 24% 24%
• A gradual decrease in demand for fossil fuels is expected in the longer 40%
25% 24%

term following advances in renewable technology, improved efficiency of

internal combustion engines, a more widespread use of EVs and 30%
international efforts for environmental sustainability.
20%
34% 33%
• On the sidelines, the conflict in Eastern Europe that started in the 33% 31% 31%

beginning of CY22 has exposed major geopolitical risks in the fossil fuel 10%

supply chain. This may also act as the impetus for accelerated renewable
0%
technology adoption; as major developed economies sure up their energy CY17 CY18 CY19 CY20 CY21
security. Oil Gas Coal Nuclear Hydro Renewables

Source: BP Stats, Yale School of the Environment, McKinsey & Company 1

Oil Marketing Companies
Global | Economic Outlook
• CY22 began with an expectation of normalization after the Global GDP Growth Outlook
rapid global economic recovery of CY21, as IMF in its 7%
6.0% 4.9%
October’21 WEO forecasted the global GDP to grow at ~4.9% 5% 3.6%
3.6%
and then convergence to its LT trend rate of ~3.6% in CY23. 3%
3.2%
• However, with the conflict in Eastern Europe, and subsequent 1%
2.7%

inflationary pressure and tightening monetary policy, expected -1%

global CY22 GDP forecast was revised at 3.6%. It maintained -3%

convergence with the trend rate in CY23, in IMF’s April’22 CY18 CY19 CY20 CY21 CY22* CY23* CY24*

WEO. Historic WEO Oct'22 WEO Apr'22 WEO Oct'21 Trend

• As inflation pressures remained persistent, with high risks to Global Inflation Outlook
energy security in developed economies, fears of a looming 9%
rescission have become prevalent. IMF in its latest October’22 8%
8.8%

WEO forecasts a below trend GDP growth rate for CY22 at 7%

~3.2% with subdued economic activity going into CY23 with its 6%
7.4%

estimated GDP growth rate at 2.7%. 5%

4.7%
• IMF in its latest World Economic Outlook (WEO) October, 2022 4%

estimates global inflation for CY22 to clock in at ~8.8% (CY21: 3%

CY18 CY19 CY20 CY21
3.8%
CY22* CY23* CY24*
~4.7%) and remain persistent through CY23 with convergence Historic WEO Oct'22 WEO Apr'22 WEO Oct'21 LT Trend Rate
expected to LT trend in CY24.
*Forecast values Source: IMF 2
Oil Marketing Companies
Global | Energy Consumption
• Global energy consumption growth is highly correlated with global GDP
growth as the two have a long-term correlation coefficient of 0.91. WEO CY22 | Global Energy Forecast
6%
• Similar to global GDP, energy consumption also rebounded by ~5.5% in 5.5%
5%
CY21.
4%
• During CY20 slowdown, global energy consumption fell by ~4.0% while
3%
global carbon emissions dipped by ~5.9%, indicating high integration of fossil
fuels in the modern economy. 2%

1% 1.6% 1.6%
• It is estimated that in order to reduce greenhouse gases emissions may cost 1.1%
0%
up to ~€60 per ton of CO2 equivalent.
-1%
• Energy commodity price change have historically observed, on average, a
-2%
higher volatility of ~38.4% compared to non-energy commodities at ~15.1%
in the past five years. Energy and non-energy prices are forecast to rise by -3%

~50 and ~20% in 2022. -4%

• The Russia-Ukraine conflict which began in February 2022 set the pace for -5%
CY18 CY19 CY20 CY21 CY22* CY23* CY24*
energy markets for the rest of the year, since Russia has been one of the
Global Energy Consumption Growth Rate Global Energy Growth Trend Rate
largest energy exporters in the world, holding a global export share of
~12.8% in petroleum, ~19.8% in nature gas and ~17.9% in coal, in CY21.

• Given the subdued economic growth outlook, growth in global energy consumption is also expected to remain below the trend rate.

*Forecast values Source: McKinsey, IMF, WB 3

Oil Marketing Companies
Market Segments

Upstream Midstream Downstream

• Exploration • Transportation
• Field • Processing & • Wholesale &
Development Refining Marketing
• Production • Storage &
Operations Distribution

• Oil sector is divided into Upstream, Midstream and Downstream segments.

• Upstream Sector encompasses Exploration and Production of oil.
• Midstream includes transporting oil from production sites to refineries via pipelines, trains, tankers, and trucks and production of
refined products.
• Downstream comprises marketing & distribution of refined petroleum products.

Source: OPEC 4
Oil Marketing Companies
Value Chain

Crude oil is a mixture of hydrocarbons that exists in liquid phase in natural

underground reservoirs and remains liquid at atmospheric pressure after passing
through surface separating facilities.

Crude oil is transported to refineries to convert it into its derivatives.

Refining breaks crude oil down into its various components, which are then
selectively reconfigured into new products. All refineries have three basic steps:
Separation, Conversion, Treatment

Petroleum products include gasoline, distillates such as diesel fuel and heating
oil, jet fuel, petrochemical feed stocks, waxes, lubricating oils, and asphalt.

Source: EIA 5
Oil Marketing Companies
Global | Crude Oil Reserves Position
• World crude reserves stood around ~ 1,545bln barrels as at Global Crude Oil Reserves (bln barrels)
Dec’21.
Period CY17 CY18 CY19 CY20 CY21
• Reserves have been growing at a meagre CAGR of ~0.7% over the Total World 1,491 1,495 1,554 1,545 1,545
period of last five years (CY17-CY21). In 2021 alone, OPEC
member countries added ~68.8bln barrels to their total proven Note: Oil Sands not considered

crude oil reserves.

• According to current estimates, OPEC countries account for Global Crude Reserves | Share (%) CY21
~80.4% (~1,241.82bln barrels ) of the world’s proven crude oil 3% 1%

reserves. 3%

8%
Middle East
• Middle East makes up for the bulk of OPEC oil reserves, with S. & Cent. America
~62% of OPEC total. Africa
8%
CIS
• For CY21, Venezuela accounted for a total of ~303bln barrels 56%
Asia Pacific
(~24.4%) of crude oil reserves, followed closely by Saudi Arabia,
North America
with ~267.2bln barrels (~21.5%). 22%
Europe

1 Barrel = 0.1364 MT Source: OPEC, EIA 6

Oil Marketing Companies
Global | Crude Oil Production & Consumption
• During CY21, global crude oil extraction as a percentage of Global | Crude Oil Extraction-mln MT
global reserves was recorded at ~2.2%. Period CY17 CY18 CY19 CY20 CY21
Global Extraction 4,386 4,487 4,478 4,171 4,221
• Global crude oil consumption grew by ~5.9% but remained Middle East 1,470 1,485 1,408 1,295 1,316
~4.1% below pre-COVID levels during CY21. North America 920 1,029 1,108 1,059 1,075
CIS 702 715 720 661 674
• World crude oil extraction grew by ~1.2% in CY21, however, it Asia Pacific 369 361 361 353 348
remained ~5.7% below pre-COVID levels. Africa 386 393 397 331 345
S. & Cent. America 374 341 323 305 304
• In CY22, global crude oil extraction is expected to grow at ~4.4% Total Europe 165 163 159 168 160
reaching pre-COVID levels. However, following OPEC’s Global | Crude Oil Consumption-mln MT
agreement to cut production targets by ~2mln bbl/ day in the Period CY17 CY18 CY19 CY20 CY21
later half of CY22, coupled with ~16% decline in Russian oil Global Consumption 4,362 4,421 4,429 4,019 4,246
production, crude extraction in CY23 is expected to grow by a
Asia Pacific 1,594 1,631 1,659 1,571 1,640
meager ~0.7%.
North America 1,012 1,033 1,025 890 958
Europe 705 704 700 608 638
• In CY22, global crude oil consumption is expected to grow by
Middle East 396 402 392 362 375
~2.3%. The expected economic slowdown in CY23 may keep
S. & Cent. America 282 273 270 238 261
demand subdued, with crude consumption growth forecasts at
CIS 188 193 197 184 194
~1.2%.
Africa 185 187 187 166 180

Source: BP Stats, EIA 7

Oil Marketing Companies
POL Crack Spreads
• Refined petroleum products trade at a premium above crude oil POL Crack Spread
prices. This spread between prices is referred to as ‘Crack Spread’ and 45%
40%
is indicative of midstream profitability margins. 40%
35%
35% 33%
30%
• Prices of crude and refined products are independently subject to 25%
24%
20% 20%
19%
their own supply and demand dynamics, as well as regulatory, 20% 15% 15% 14% 14%
18%

environmental and economic factors. 15%

10%
5%
• Historically, crack spreads of MOGAS and diesel has averaged ~15% 0%
3QCY21 4QCY21 1QCY22 2QCY22 3QCY22 Oct-Nov'22
and ~20% respectively. Mogas - Crude Spread Diesel - Crude Spread

• In CY21, global refining capacity reduced by ~0.4% with further POL Product Futures
expected capacity cuts up to ~1bln bbl/ day; Refinery throughput also 155
remained ~4.3% below pre-COVID levels and combination of sanctions 145
on Russia have pushed the crack spreads of MOGAS and diesel to 135
~20% and ~40% respectively. 125
115
105
• Substitution of natural gas with diesel (for heating and power 95
generation) has kept diesel market in backwardation and the market 85

can reasonably be expected to remain tight and volatile going

forward.
Mogas (USD/bbl) Diesel (USD/bbl)

Source: Investing.com, BP Stats, Fitch, ifs.marketcenter.com 8

Oil Marketing Companies
Stock Analysis
• Strong demand rebound in CY21 led to petroleum Oil Stock Movement (mln bbl)
consumption outpacing its production levels, leading to total 9,400 100
76
oil stock draws of ~1.28mln bbl/ day. The largest draw was 9,200 50
9,000
observed in the month of February, when Saudi Arabia 8,800 16
0
-13 -50
imposed a production of 1bln bbl/ day. This was coupled 8,600 -26 -27
-100
8,400
with a drop of 1.3mln bb/ day from the US due to severe 8,200 -107 -150
temperature drops. 8,000 -154 -168 -171 -200
-187
7,800 -250
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4* Q1* Q2*
• OECD’s commercial inventories, an important indicator of CY21 CY22 CY23
market stability conditions, dipped by ~9.3%, while USA’s
World Production World Consumption Oil Stock Movement
Strategic Petroleum Reserves dipped by ~10.05%.

• As petroleum production ramped up in CY22, draws on OECD Commercial Inventory (mln bbl)
2,950 2,916
global petroleum inventories are expected to increase by 2,900 2,873

~0.48mln bbl/ day, with OCED’s commercial inventories to 2,850

2,800 2,759 2,752 2,760 2,761
2,726
increase by ~4.1% during CY22. 2,750
2,700 2,656
2,640
2,650 2,604
2,600
• As productions cuts from OPEC and Russia are expected to 2,550
2,500
come into effect, inventory draws are expected from Dec’22 2,450
2,400
onwards till 2QCY23 end. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4* Q1* Q2*
CY21 CY22* CY23*

Forecast values Source: EIA, OPEC 9

Oil Marketing Companies
Global | Crude & Products Trade
• In CY21, Russia, USA and Saudi Arabia were the Imports Share - Crude & Products Exports Share - Crude & Products
major exporters of crude in the international
Country/ Region CY20 CY21 Country/ Region CY20 CY21
market, with the highest share of 12% each.
Russia is the world’s largest exporter of oil to the Europe 19% 20% Russia 11% 12%
world market, and following its invasion of
China 20% 19% USA 12% 12%
Ukraine, it has rose to become a key crude and
products exporter in CY21, compared to the Other Asia Pacific 15% 14% Saudi Arabia 12% 12%
preceding year, when it ranked third in crude
exports category. US 12% 13% UAE 7% 7%
India 8% 8% Canada 7% 7%
• A major portion of world crude and products
import was dominated by Europe (~20%) and Japan 5% 5% West Africa 7% 6%
China(~19%). India’s share in crude imports Singapore 5% 4% Iraq 6% 6%
clocked in at ~8%.
S. & Cent. America 3% 4% Other Asia Pacific 5% 5%
Mexico 2% 2% Other Middle East 5% 5%
Canada 2% 2% S. & Cent. America 5% 5%
ROW 9% 9% ROW 23% 24%
Total World 100% 100% Total 100% 100%

Source: BP Stats 10
Oil Marketing Companies
POL Product Mix | Consumption

• Among POL products, MOGAS remains the Global | POL Consumption Mix
highest consumed product with a share of ~30%,
followed by HSD with a share of ~29%. Period CY17 CY18 CY19 CY20 CY21

• HSD is mainly used as a fuel in engines operating White Oils 74% 74% 75% 72% 72%
above 750rpm in commercial vehicles, stationery
MOGAS 33% 33% 33% 33% 33%
diesel engines (e.g. pumps, generators, factory
machinery) and locomotives etc. HSD 31% 31% 31% 33% 32%

• Following the economic rebound and ease in Jet fuel 9% 9% 9% 6% 6%

travel restrictions post-COVID, Jet Fuel registered Kerosene 1% 1% 1% 1% 1%
a ~1% increase in the POL consumption mix.
Black Oils 26% 26% 25% 28% 28%

Other petroleum liquids 22% 21% 21% 24% 23%

Residual fuel oil 5% 4% 4% 4% 4%

Total 100% 100% 100% 100% 100%

Source: EIA 11
Oil Marketing Companies
Global | Top 10 Oil Companies
World’s top 10 companies involved in oil marketing operations are vertically integrated either in all three segments or middle and down streams
of oil value chain. These companies have cumulative assets worth USD~2.9trn and revenues of USD ~1.8trn representing ~1.9% of the expected
global GDP of CY21.

Global | Top 10 OMCs | CY21

Sr. OMC Country/ Region Revenues Assets
1 China Petroleum & Chemical Corp China, Asia Pacific 324,780 267,521
2 PetroChina Co Ltd China, Asia Pacific 298,385 383,911
3 Saudi Aramco. Saudi Arabia, EMEA 229,891 510,470
4 BP UK, EMEA 183,500 267,654
5 Royal Dutch Shell Netherland, EMEA 183,195 379,268
6 Exxon Mobil Texas, Americas 181,502 332,750
7 Total France, EMEA 140,685 266,132
8 Chevron California, Americas 94,471 239,790
9 PJSC Lukoil Russia, EMEA 78,388 83,283
10 Public JSC Rosneft Oil Co Russia, EMEA 70,063 209,969
Total 1,784,860 2,940,748

Revenues for OMCs are latest available. All numbers are in USD mln. Source: S&P Global Platts, BP stats, IMF 12
Oil Marketing Companies
Local | Industry Snapshot
• Pakistan relies significantly on imports to meet the demand Overview FY21 FY22
of its energy products. During FY22, the country consumed Gross Revenue (PKR bln) 3,076 5,278
~23.1mln MT of petroleum products (FY21: ~20.1mln MT), Gross Revenue Growth (YoY%) 4.67 71.5
up ~14.9% YoY. Owing to declining local oil reserves amid low Contribution to GDP 5.5% 7.9%
new discoveries, the dependence on imported POL products
Sector Players 35 35
is increasing with each passing year.
POL Consumption
20.1 23.1
• Currently, there are ~35 registered OMCs. There are five (5) (mln MT)
POL Local Production (mln MT) 10.3 10.3
Listed OMCs operating in the country namely (i) Pakistan
State Oil (PSO) (ii) Shell Pakistan (SHELL) (iii) Hascol POL Imports (mln MT) 10.1 13.1
Petroleum (HASCOL) (iv) Hi-Tech Lubricants (HTL) and (v) POL Storage (mln MT)* 0.3 0.3
Attock Petroleum (APL). Crude Consumption (mln MT) 11.6 11.6
• The sector is highly regulated with the prices of two major Crude Local Offtake (mln MT)* 2.8 2.3
products, i.e., MOGAS and Diesel being determined by the Crude Imports (mln MT) 8.8 9.3
Oil & Gas Regulatory Authority (OGRA) on a fortnightly basis. Petroleum Group
15 22
(% Share in Imports)
• OMCs generated an aggregate revenue of PKR~5,278bln in Total Storage Capacity (mln
1.77 1.77
FY22 (FY21: PKR~3,076bln), with an annual GDP contribution MT)**
of ~7.9% (FY21: 5.5%). The sector’s revenues during FY22 Structure Oligopoly
registered a YoY growth of ~71.6% on account of higher Regulator OGRA
prices of petroleum products. Associations OCAC

*Figures are estimated.

Source: Economic Survey, PBS, OCAC,B0R 13
**Latest available figures.
Oil Marketing Companies
Demand | Product-wise POL Consumption
• Pakistan’s POL products demand is largely driven by the POL Consumption (mln MT)
transportation sector and level of industrial activity in the Period FY18 FY19 FY20 FY21 FY22
country. White Oils 17.4 15.9 14.8 16.9 18.8
MOGAS 7.4 7.6 7.5 8.5 9.1
• MOGAS and HSD consumption grew by ~7% and ~14% YoY HSD 9 7.4 6.6 7.8 8.9
in FY22 respectively, signaling an uptick in auto sales and JP-1/ JP-8 0.1 0.1 0.1 0.5 0.6
growth in agricultural sector. Others 0.9 0.8 0.6 0.09 0.08
Black Oils 7.4 3.5 2.4 3.2 4.2
• Total consumption of petroleum products during FY22 was RFO 7.4 3.5 2.4 3.2 4.2
recorded at ~23.1mln MT (FY21: ~20.1mln MT) with YoY Total 24.8 19.4 17.2 20.1 23.1
growth of ~15%.
• The three major products, i.e., HSD, MOGAS and RFO POL Consumption Mix (%)
account for ~97% of the total POL products consumption in Period FY18 FY19 FY20 FY21 FY22
the country. RFO consumption drastically declined at a White Oils 70% 82% 86% 84% 81%
CAGR of ~24% from CY17-CY21 mainly due to MOGAS 30% 39% 44% 42% 39%
government’s decision to reduce its use as a fuel for power HSD 36% 38% 38% 39% 39%
sector plants. JP-1/ JP-8 0% 1% 1% 1% 2%
Kerosene 4% 4% 0.6% 0.4% 0.4%
• However, in FY22, FO sales (~32% YoY increase, compared
Black Oils 30% 18% 14% 16% 19%
to CAGR equivalent to ~-19%), due to high demand in RFO 30% 18% 14% 16% 19%
power plants amidst non-availability of RLNG, along with
Total 100% 100% 100% 100% 100%
low hydel generation.
Source: PBS, OCAC 14
Oil Marketing Companies
Demand | Sector-wise POL Consumption
• Transport sector is the highest consumer of petroleum products, as it comprised ~75% of total POL products consumed in FY22 (~79% in
FY21). This may have been due to reduced auto sales and lower demand from the public, owing to double-digit inflation and high petrol
prices.
• POL consumption by industries is largely driven by LSM growth. The industrial consumption share remained almost stable at ~1.7% during
FY22 (FY21: ~1.6%). Power sector’s oil consumption reduced at a CAGR of ~22% from FY18-FY21 due to shift from RFO to cheaper and
environment-friendly alternatives. However, it grew by ~1.3mln MT in FY22 to ~3.7mln MT.

POL Consumption Mix (%) POL Consumption (mln MT)

100%
7% 7% 7% 8% 6%
90%
Year Transport Power Industry Others Total
9%
15% 12% 16%
80%
26%
FY18 16.1 6.4 1.8 0.47 24.7
70%

FY19 14.6 2.8 1.3 0.41 19.2

60% 81% 79%
76% 75%

50%
65% FY20 13.8 1.5 1.2 0.37 17.0

40% FY21 15.9 2.4 1.6 0.31 20.1

FY18 FY19 FY20 FY21 FY22

Transport Power Industry Others FY22 17.4 3.7 1.3 0.7 23.1

*Figures are for 10MFY22 (Jul-Apr) Source: Pakistan Economic Survey 15

Oil Marketing Companies
Demand | Power Generation Mix
• Thermal and hydro-energy are two major sources of Power Generation | Commercial Mix (%)
electricity generation in Pakistan. During Jul-Apr’22,
thermal electricity generation had a share of ~61% Source FY18 FY19 FY20 FY21 FY22
(FY21: ~58%) in total power generation mix followed by Thermal 68% 67% 60% 58% 58%
hydroelectric, which contributed ~28% to total
electricity generation in the same period (FY20: ~28%). Hydroelectric 21% 21% 29% 31% 25%

• RFO-based power plants generated ~1,454 GWH Nuclear 7% 8% 7% 7% 13%

electricity during FY22 (FY21: ~6,270.8 GWH) with a YoY Renewable 3% 4% 3% 3% 4%
decrease of ~77%, and at high fuel cost of PKR~36.2/
KWh. The share of RFO-based power plants in total
thermal energy generation decreased to ~9% during
Thermal Energy Mix (FY22)
FY22 (FY21: ~12%). This was likely due to low demand
from state-run and private electricity producers.
19% 19%

• Going forward, the government is committed to increase

the share of renewable energy sources in total power
generation mix through Integrated Generation Capacity
1%
Expansion Plan (2021-2030). 9% 10%

Coal HSD Gas RFO RLNG

Source: SBP EasyData 16

Oil Marketing Companies
Supply| Crude Oil & POL
• In FY22, local crude offtake was recorded at ~2.3mln MT crude oil, a YoY decline of ~18% (FY21: ~2.8mln MT).
• In FY22, ~9.3mln MT (FY21: ~8.8mln MT) crude oil was imported, marking an increase of ~5.7% YoY.
• In FY22, local POL production remained unchanged at ~10.3mln MT (FY21: ~10.3mln MT).
• RFO comprised ~32% (FY21: ~33.6%) of total locally produced energy POL products, while MOGAS share was ~22% (FY21: ~25%)
and HSD share was ~41% (FY21: ~47%).

Petroleum Supply (mln MT) POL Products | Local Production (mln MT)
25 12

20 10

13.1
15 10.1 8 5.3
4.7 4.7 4.7
2.3 6 3.8
10 2.8

4 2.2 2.3
5 10.3
2.5 2.5
8.8 10.3 9.3 2.0
2
3.3 2.9
0 2.2 2.5 2.4
FY21 FY21 FY21 FY22 FY22 0
FY22
FY18 FY19 FY20 FY21 FY22
Crude Local Offtake POL Imported Crude Local OfftakePOL Imported
Crude Imported POL Local Crude Imported POL Local RFO MOGAS HSD JP-1 Kerosene

Source: Economic Survey, PBS, Journal of Petroleum Technology and Alternative Fuels, Cabinet Division, OCAC 17
Oil Marketing Companies
Supply | Crude Oil & POL Imports
• Pakistan significantly relies on imports to meet its demand of crude oil. On
average, around ~8.6mln MT of crude oil is imported every year.
• Total crude oil imports in FY22 amounted to USD~5.6bln (FY21: USD~3.1bln) POL & Crude | Import Share (%)
representing ~7.1% of total import bill. While the volume imported increased
by just ~0.5mln MT to ~9.3mln MT (FY21: ~8.8mln MT), value of imports
increased most likely increased due to ~35% currency depreciation against 15%
9%
USD. 6%
7%
• POL product imports for FY22 rose to ~13.1mln MT (FY21: ~10.1mln MT), an
FY22 FY21
increase of 29.7% YoY.
• In FY22 POL product import bill amounted to USD~12.1bln (FY21: USD~5.2bln) 85%
78%
representing ~15% (FY21: 9.1%) share in total imports. The hefty bill resulted
due to a culmination of rupee depreciation, higher oil prices in international
market and surge in demand.
POL Products Crude Oil Others
• In the first quarter of FY23, petroleum products’ imports declined in quantity
by ~31% YoY (~1.1ml MT), reflecting high pump prices and suppressed demand
due to flash floods in the recent months.

Source: PBS 18
Oil Marketing Companies
Domestic OMCs | Market share
Domestic | OMCs | Liquid Fuel Market Share Top 10 Players | POL Product (FY22)
100%
Company MS Company HSD
90% 19%
25% 24% 26%
PSO 44% PSO 52%
27%

80% 0.3% Total Parco 12% Total Parco 11%

10% 0.3% 0.4% 0.4%
0.3%
70% 3% 10%
7% 5% 2% 1% Shell 11% APL 9%
2% 3% 3% 4%
3%
60%
8%
5%
6% 6% 6% GO 9% Shell 8%
8% 6%
8%
50%
8% 7%
APL 8% GO 8%
7%
8%
8%
BE 3% BYCO 3%
40%
BYCO 2% BE 2%
30%
50%
46%
51% HASCOL 2% HASCOL 2%
42% 44%
20%
PUMA 2% PUMA 2%
10%
ZMOPL 1% ZMOPL 0%
0%
FY18 FY19 FY20 FY21 FY22 Others 4% Others 5%
PSO APL Shell GO Byco HASCOL HiTech Others Total 100% Total 100%

Source: PACRA Database, Financial Statements, OCAC 19

Oil Marketing Companies
Country-wide Retail Outlets
• As per latest publicly available data as at Top 10 Players | 2021
Dec’21, OMCs in Pakistan have a cumulative No. of Share in Storage Share in Total Storage
OMC Share in Storage (MS)
MOGAS storage capacity of ~798,525 MT. stations (HSD) Capacity

• Cumulative HSD storage capacity of OMCs PSO 3,484 31% 31% 31%
stands at ~978,750 MT that puts the GO 892 12% 8% 10%
cumulative MOGAS and HSD storage capacity
Total Parco 763 7% 4% 5%
at ~1,777,275 MT.
Shell 757 8% 8% 8%
• As per FY22 consumption figures, storage
capacity can cover ~32 days of average Attock 746 11% 10% 10%
MOGAS consumption and ~40 days of average Hascol 623 6% 7% 7%
HSD consumption, exceeding OGRA’s Puma 542 4% 2% 3%
minimum requirement of 20 days.
Byco 427 3% 5% 4%
Askar 394 1% 2% 2%
BE Energy 381 6% 10% 8%
Others 598 11% 13% 12%
Total 9,607 100% 100% 100%

Based on latest available public data Source: OCAC 20

Oil Marketing Companies
Price per Liter Breakdown | MS & HSD

Ex-Refinery Price: The refinery output price for finished inventories of HSD and MOGAS

Petroleum Levy (PL) & Sales Tax (ST) PL is a variable development tax imposed by the GoP subject to variations
on the GoP’s disposal. Sales Tax is collected by the OMCs at a monthly fixed percentage charged to the Ex-Depot
price and dealer commission.

In-Land Freight Equalization Margin (IFEM): The element of pricing structure which allows pricing of petroleum
products to remain at par across the country. A freight pool managed by OGRA is developed to keep the prices
equalized countrywide.

Distribution Margin (OMCs): Fixed Commission per liter earned by the OMCs upon sales of HSD and MOGAS to
Industrial and retail clients.

Dealer Commission: Fixed Commission per liter earned by the dealer or owner of the petrol pump.

Source: OGRA 21
Oil Marketing Companies
Pricing Mechanism| How it Works

• The pricing structure of POL products (MOGAS & HSD) is a computation of six different price components (discussed in previous
slide) embedded in a price formula.

• While OMC Margins and Dealer Commission are fixed, the Petroleum Levy, Sales Tax and IFEM are variable components, the
former two depending on the GoP’s discretion, and the latter computed through a freight pool mechanism.

• The start-up point for pricing mechanism is the ‘Ex-Refinery Price’. This price is determined by OGRA and was earlier determined
based on PSO’s weighted average costs of POL products in the preceding monthly and ~30 days International prices published in
the Platt’s Oilgram.

• Since September 01, 2021, the pricing mechanism has been shifted from monthly basis to fortnightly basis and the price
benchmark based on PSO’s oil imports has been shifted to Platt’s Index. This development is expected to shield the Industry from
Inventory losses.

• As per OGRA Rules, OMCs are required to build storage/ depots at different areas of the country in order to maintain a stock of at
least 20 days so as not to end up with dry petrol stations. Ex-Refinery Price, PL, IFEM and OMC margin add up to Ex-Depot Price,
while Dealer Commission is added on the next step. Sales Tax is applied to an aggregate of Ex-Depot Price and Dealer Commission.

Source: OCAC, OGRA 22

Oil Marketing Companies
Local | Fuel Retail Prices
• For FY22, OMC margins increased to PKR~3.3/liter, compared to MOGAS – Average Retail Price/ Liter (Composition)
PKR~2.9/liter. For MOGAS, share of OMC margins as % of average FY23
retail prices declined from ~2.7% in FY21 to ~2.3% in FY22. Similarly, Price Components FY19 FY20 FY21 FY22
1QFY23 Oct’22 Nov’22*
in case of HSD, the share of OMC margins fell by ~0.3% YoY in FY22. Cost of Supply 71.9 61.5 60.5 131.3 184.7 172.0 164.5
IFEM Margin 3.3 3.4 3.6 4.0 4.1 2.3 (0.35)
• Moreover, the ex-refinery price for MOGAS increased by more than
OMC Margin 2.6 2.8 2.9 3.3 3.7 3.7 3.7
100% for both MOGAS and HSD in FY22, most likely due to the ~67%
Dealer Commission 3.5 3.6 3.7 4.4 6.7 7 7
climb in international prices over the course of last two years
(Approx. USD~22/ bbl to USD~66/ bbl in FY20 compared to USD~78/ Petroleum Levy 15 19.8 20.3 5.4 30.3 39.8 50

bbl to USD~110/ bbl in FY22). Sales Tax 16.4 15.5 15.5 4.6 0.0 0.0 0.0
Max Ex-Depot Sales
112.7 106.6 106.6 145.1 229.5 224.8 224.8
Price
• Despite increasing global prices, petrol prices were fixed at Rs~150/
liter for a period of 2 months (Apr-May) [a subsidy to the tune of HSD – Average Retail Price/ Liter (Composition)
roughly PKR~30+ per liter). Simultaneously, the Sales Tax on all POL
products was reduced to zero which cost FBR PKR~45 billion in April, Price Components FY19 FY20 FY21 FY22

hence average sales tax for FY22 recorded at PKR~4.6/ liter Cost of Supply 85.7 66.3 65.0 135.0
compared to PKR~15.5/ liter in FY21. IFEM Margin 1.1 1.2 1.0 1.3
OMC Margin 2.6 2.8 2.9 3.4
• However, following the overnight regime change in April of this year, Dealer Commission 2.9 3.1 3.2 3.8
the incumbent government rolled back the fuel subsidy in order to Petroleum Levy 16.0 21.1 21.1 5.2
revive IMF’s EFF program for the country and keeping the fiscal Sales Tax 18.4 16.0 15.8 6.9
deficit in check. Max Ex-Depot Sales Price 126.8 110.4 108.9 146.0

Prices for HSD are the latest available.

Source: OGRA, PSO 23
*As of Nov’01, 2022
Oil Marketing Companies
Business Risk
• OMC margins per liter of fuel prices are determined by OGRA. While
Sector Margins
that may be the case, gross profit margins for OMCs rose by ~2% during
FY22. OMC sales, on average, stood at ~22.8mln MT in FY22. This ~15%
8%

YoY increase could be attributed to higher-than-expected FO sales

6%

(~32% YoY increase, compared to CAGR equivalent to ~-19%), due to 4%

high demand in power plants amidst non-availability of RLNG, along 2%

with low hydel generation. 0%

-2%
FY18 FY19 FY20 FY21 FY22
• In terms of gross margin retention, OMCs can only retain their fixed GP OP NP
government determined margins, due to recent increase in overall
prices the share of OMCs in per liter price has decreased to ~2.2% in
MOGAS and ~2.0% in HSD. OMC Margins to POL Prices
3% 2.7%
• While OMC margins stood stable at PKR 3.68/ liter during 4QFY22, 2.6%
2.6%
prices for MOGAS and HSD increased sharply in the month of June, 3% 2.7% 2.5%

from PKR~150/liter to average PKR~208/liter and from PKR~144/liter to 2% 2.3% 2.5% 2.5%
PKR~214/liter. The most notable contributor to these increases was 2.2%
2.5%
2.2%
cost of supply, which increased on the back of higher international 2% 2.1%

prices and deteriorating rupee. 2%

2.1%
2.0%
FY19 FY20 FY21 1QFY22 2QFY22 3QFY22 4QFY22

MOGAS HSD

Numbers based on annual data from listed companies and PACRA database. Source: Financial Statements, PSO, OGRA 24
Oil Marketing Companies
Financial Risk
• Interest coverage of the sector clocked in at ~26x compared to ~4.6x in FY22. This may have occurred due to exponential increase in PBIT of more
than ~200%, since OMCs recorded, on average, a surge in sales driven by increased demand, particularly from the transport and industry sectors.
On the other hand, interest expense also, on average, declined by ~45% YoY, despite interest rate hikes. PSO, with ~51% market share, reported a
reduction in finance cost by 53.9% due to low reliance on borrowings and low mark-up rates during 1HFY22.

• The sector is moderately leveraged with average gearing ratio of ~30% in FY22 (FY21: ~37%). The borrowing needs of the sector arise from
working capital financing for which the sector relies heavily on short-term borrowings as they constitute an average of ~90% of the total
borrowings. Significant reliance on short-term borrowings increases the financial risk of the sector as well.

Coverage Gearing Ratio

30 45% 42% 41%
40% 37%
25 34%
35%
30%
20 30%

25%
15
20%

10 15%

10%
5
5%

0 0%
FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22

Numbers based on annual data from listed companies Source: PACRA Database 25
Oil Marketing Companies
Working Capital Management
• In FY22, the sector’s average inventory days stood at ~35 days (FY21: ~25 days) with a YoY increase of ~10 days, which may have resulted from increase in
international oil prices.

• Average receivable days of the sector during FY22 were recorded at ~37 days (FY21: ~55 days). This was likely due to the price differential claim or subsidy
which the government used to disburse to oil companies during 2HFY22.

• Moreover, average payable days in FY22 stood at ~46 days (FY21: ~-31 days). On average, payables to creditors increased by ~2.5% YoY, from PKR~33 billion
to PKR~117 billion, most likely due to increase in trade payables on account of increase in international oil prices.

• Average working capital cycle improved to ~25 days in FY22 (FY21: ~49 days). This came largely on the back of sharp increase in average payable days.

Working Capital Management

80 68
55 56 52 55
60 49 46 49
35 37
40 27 27 25 25
20
20

-20

-40 -27 -31

-34
-40
-60 -46
FY18 FY19 FY20 FY21 FY22

Inventory Days Recievable Days Payable Days WCAP Days

Numbers based on annual data from listed companies Source: PACRA Database, Financial statements 26
Oil Marketing Companies
Ratings
PACRA rates eleven companies in the sector, in the bandwidth of BBB to AA-.

Ratings Chart
4

3
No. of Clients

0
AAA AA- A+ A A- BBB+ BBB BBB-
PACRA 1 3 3 3 1
VIS 1 1 2

PACRA VIS

Source: PACRA Database 27

Oil Marketing Companies
SWOT Analysis
• Major contributor to GDP
• Guaranteed margins
• Established supply chain • Significant reliance on imports
• Strategic importance of the sector • Strict government regulations
• Wider range of products • Circular debt build-up
• Availability of low-paid unskilled
and skilled labor-force
Strengths Weaknesses

• Basic commodity – low bargaining Opportunity Threats

• Shift of power sector to alternate
power of customers sources of energy
• Increasing demand of HSD due to • Oil price/ supply fluctuations
increased industrial activity
• Exchange rate fluctuations
• Exploration of new markets and
• Outdated technology
development of retail branches
• Low strategic storage capacities
• Black oil export opportunity
• Russia-Ukraine war

28
Oil Marketing Companies
Outlook: Stable
• The country’s V-shaped economic recovery continued in FY22, with GDP registering an impressive growth of ~5.97% during FY22 (FY21: ~5.7%).
Simultaneously, demand for petroleum products for the same period increased as well. As per latest available figures, local consumption of
petroleum products across all sectors increased, with cumulative consumption amounting to 23.1 million tons (FY21: 20.1 million tons).
• Resultantly, profitability of the sector improved on the back of increased sales and higher oil prices. Additionally, the GoP transferred a subsidy to
OMCs in the form of price differential claim, during 2HFY22. This was also in response to the Rs10/ liter reduction in petrol and diesel prices
announced by the government earlier this year.
• Although the sector relies largely on short-term borrowings to finance working capital needs, inherently a high financial risk, interest coverage in
FY22 improved significantly to ~22x compared to just ~4.6x in FY21, due to lower interest rates in 1HFY22 and lower total average borrowings.
However, both these factors deteriorated during 2HFY22, when interest rates observed an unprecedented hike and high global oil prices.
• Owing to torrential rains/ floods in early FY23, petroleum products’ imports in the first three months of the same period declined in volume by
~31% YoY (~1.1ml MT), reflecting high pump prices and suppressed demand.
• The Russia-Ukraine conflict which began in early 2022 set the pace for energy markets for the rest of the year, seeing as Russia is one of the
largest energy exporters in the world. Expected supply gluts, a global recession on the horizon, price spirals due to production cuts by OPEC+, and
Pakistan’s GDP estimated to slow down to ~2.9% by year-end 2022, oil markets
• Given the bleak global and local outlook, OMCs may suffer considerable setbacks in the medium-term, since import of petroleum group
comprised ~22% in FY22 (FY21: ~14.6%) of total import bill. Heavy dependence on petroleum imports, combined with almost stagnant local
production (~10.3mln tons in FY22, a decline of 0.045% YoY), along with currency depreciation against the US$, exposes the sector to
considerable market risk.
• Despite current challenges, major OMCs in the country fared considerably well in FY22. The government’s decision to revise down the turnover
tax rate from 0.75% to 0.5% for OMCs is likely to further improve average PBIT across the sector. Going forward, capricious global oil prices are
expected to negatively impact Pakistan’s oil segment, since the country has always been a price-taker.

Source: PACRA Database, PBS, AKD, BIPL 29

Oil Marketing Companies
BIBLOGRAPHY
• World Bank
• IMF Saniya Tauseef Ayesha Wajih
OGRA Research
• Manager Supervising Senior
• OCAC Team
[email protected] [email protected]
• BP STATS
• Cabinet Division
• EIA
Contact Number: +92 42 35869504
• IEA
• S&P Global
• OPEC
• Pakistan Bureau of Statistics (PBS)
• Economic Survey of Pakistan
• Business Recorder
•
•
State Bank of Pakistan (SBP)
Pakistan Stock Exchange (PSX) DISCLAIMER
• Financial Statements PACRA has used due care in preparation of this document. Our information
• PACRA in-house Database has been obtained from sources we consider to be reliable but its accuracy or
completeness is not guaranteed. The information in this document may be
copied or otherwise reproduced, in whole or in part, provided the source is duly
acknowledged. The presentation should not be relied upon as professional
advice.

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