Project ready to transport petrol through oil pipeline
Aftab Ahmed
Islamabad: The Petroleum Division has submitted a plan before the economic coordination committee (ECC) that seeks to transport petrol through oil pipeline.
The petroleum division is also seeking approval to put a multibillion rupees burden on the oil consumers to recover operational losses in transportation of petrol through the pipeline.
The oil industry is not ready to bear loss of pipeline to transport petrol and therefore, petroleum division is now seeking consent of ECC to put this burden on oil consumers.
Currently, diesel is fulfilling the entire up-country demand from Karachi to Lahore through the White Oil Pipeline (WOP) and Mehmoodkot-Faisalabad-Machike (MFM) pipelines.
PAPCO and PARCO, the oil pipeline operators, have been pursuing a project for converting the two pipelines from the present single product (diesel) to multiproduct (diesel & petrol) one with an investment of around the US $ 194 million.
Oil Marketing Companies [OMCs) have also made significant capital investments in storage tanks and their associated facilities at various delivery points along the pipelines. The project has been technically completed, while its commissioning is expected around June-July 2021.
The two retail fuels namely, gasoline and diesel are currently distributed through the length & breadth of the country by tank lorries exclusively in case of gasoline (sales of around 7.4 million tons- 10 billion liters (in FY 2019-20) and combination of tank, lorries & pipeline movements in case of diesel (sales of around 6.6 million tons -7.9 billion liters in FY 2019-20).
Gasoline is a volatile product with a high evaporation rate, which results in significant working losses when handling the product. As such, the operational losses would be much higher in gasoline transportation as compared to diesel, due also to multiple handling of the product (from ship to storage tanks, to pipeline then off-take at Shikarpur/ MahmoodKot/Faisalabad/Machike storages as well as Intermix handling/reprocessing).
The oil industry has stated that it can not bear operational Losses in pipeline transportation can nor PAPCO/PARCO are ready to bear, out of their existing margins. Petroleum division has, therefore, recommended that operational losses up to a maximum of 1% for gasoline transportation through WOP & MFM pipelines should include in the Inland Freight Equalization Margin (IFEM) calculations.
Pipeline operators have to conclude transportation agreements with OMCs covering the provisions for operational Losses. Therefore, government is insisting to resolve the issue of recovery mechanism before commissioning of the multi-grade movement project.
There is no universal benchmark for operational loss tolerance in respect of petrol transportation by oil pipeline. Different countries have allowed different percentage allowances in the international market.
Local Customs Authorities provide an allowance of 1% on account of evaporation and terminal handling losses.
Custom &Excise Department, Singapore allows 1% working losses for products with a flashpoint below 23 deg C such as gasoline, LPG and aviation gasoline, etc.
US Army Regulations about allowable losses for bulk petroleum products provide a transportation loss allowance of 0.5% of the quantity documented.
Energy Regulation Board of Zambia/Tanzania provides terminal losses allowance and transportation losses allowance at 0.5% for gasoline.
Government of India (Ministry of Finance) Order dated 09.07.2013 allows the transit loss in deliveries by pipeline to a maximum ceiling of 0.5% for motor gasoline.
Results of PARCO laboratory test on evaporation rate/physical behavior show that gasoline evaporation rate is around 11 times more than that of diesel. Accordingly, inference based on PAPCO’s experience factor at 0.06% for diesel works out to an estimated loss percentage at 0.66% for gasoline.
Since the instant case pertains primarily to the transportation loss only to the extent of oil pipeline segment to transport petrol rather than all-inclusive operational losses, Petroleum Division believes that based on international benchmarks used in the USA, India, and Zambia/Tanzania, operational losses up to a maximum of 0.5% for gasoline transportation through WOP & MFM pipelines may be allowed through Inland Freight Equalization Margin (IFEM).
The government will adjust the same against actuals (zero-sum process) in line with a physical inventory of pipelines to undertake periodically. However, if the pipeline operators find actual losses in the first year higher than 0.5%, they will resubmitted case before ECC for appropriate decision.
Moreover, OGRA, being the regulator, shall devise a transparent mechanism to determine and calculate the actual losses and settlement thereof through IFEM, in consultation with the oil pipeline operators to transport petrol. They will also discuss OMCs and other concerned stakeholders.
The primary movement of gasoline through the pipeline, after accounting for 0.5% operational losses, would still result in a typical freight saving of around Rs 3.38 per liter on the volumes.
The other ancillary benefits of this shift are; road safety, lower environmental population, efficient transportation, less congestion, and reduced wear and tear of highways, which are not so easily quantifiable, but are significant.
