Rising Crude Costs Challenge NRL, PRL
KARACHI: National Refinery Limited (NRL) and Pakistan Refinery Limited (PRL) are facing rising crude procurement costs and changing market dynamics as they pursue refinery upgrades aimed at improving product quality, increasing efficiency and reducing Furnace Oil production.
PRL is engaging with the government to diversify its crude procurement and plans to sign term contracts that reduce its dependence on Saudi Aramco and Abu Dhabi National Oil Company (ADNOC). According to the company, Africa is being actively explored as an alternative source, with one to two cargoes already procured through spot purchases. The Far East and the Americas are also under evaluation.
Under its general term contracts, PRL can lift six to eight cargoes annually, with the refinery determining shipment placement. The main benefit is the negotiated premium, while the base price remains linked to prevailing market rates. Management said this flexibility is being used to schedule crude shipments during price dips in the first quarter of fiscal year 2026-27.
Customs duty on crude remains recoverable under the Refinery Policy signed by PRL, with reimbursements expected to continue in accordance with the applicable provisions.
NRL’s Import Dependence and Upgrade Feasibility Study
NRL management highlighted growing challenges in crude procurement, with the refinery primarily sourcing crude through spot cargoes via Fujairah, including purchases from the trading arms of Saudi Aramco and ADNOC.
The company said spot premiums for regional crude typically range between $8 and $12 per barrel, excluding freight and other associated costs, which have also risen significantly. Local crude accounts for only 3–5% of NRL’s overall crude mix due to limited availability, leaving the company heavily reliant on imports.
The company is conducting a feasibility study to determine the optimal refinery configuration, technology and investment requirements. The study will establish the capital expenditure and final scope of the planned upgrade.
Since NRL already produces Euro-V-compliant high-speed diesel (HSD), the proposed upgrade is expected to focus on Euro-5-compliant motor spirit (MS) and lube base oil (LBO), while reducing furnace oil (FO) output.
Management also stated that customs duty paid on crude oil would be reimbursed following the company’s signing of the applicable Refinery Policy.
Changing Base Oil Demand and Production Trends
NRL is facing a shift in market demand towards Group II base oils, while its production remains primarily concentrated in Group I base oils. Demand for synthetic lubricants remains relatively low, creating additional challenges for its LBO product mix. Group III and Group IV lubricants account for less than 5% of the market, while Group II products dominate demand.
The company has increased motor spirit production by 35%, resulting in higher chemical costs.
NRL currently exports approximately 70% of its furnace oil production, with the remaining 30% sold domestically. This compares with exports of 90–95% in 2025-26. Management said international furnace oil margins remain more attractive than domestic sales, supporting the export channel.
The refinery exports four to five products, including LBO, furnace oil, bitumen, naphtha and wax.
NRL’s capacity utilisation improved to 70% in 2025-26, compared with 56% in 2024-25, with management expecting further improvement in 2026-27. Utilisation could reach 90–95% when processing lighter crude grades.
PRL: Diversifying Crude Supply and Expanding Refinery Capacity
Pakistan Refinery Limited is also seeking to diversify its crude procurement sources amid supply disruptions and higher spot-market costs.
According to management, ADNOC, Saudi Aramco and local crude accounted for 68%, 18% and 10% of PRL’s crude intake in 2025-26, respectively. Around 90% of the refinery’s crude was procured through term contracts, with spot purchases undertaken as required to ensure uninterrupted operations.
Following the closure of the Strait of Hormuz, crude shipments have been sourced primarily through Fujairah. Management noted that spot cargoes generally cost more than term-contract supplies, although negotiated prices can occasionally be lower.
The company said purchasing expensive spot cargoes is necessary to avoid fuel shortages in the country and ensure the refinery continues operating.
PRL’s refinery upgrade has three main objectives:
Achieve Euro-V compliance for petrol and diesel. Increase refining capacity from 50,000 barrels per day to 100,000 bpd. Reduce furnace oil production.
On product pricing, management said high-speed diesel crack spreads are currently capped at $38 per barrel after the government approached refineries over concerns about passing higher diesel prices on to consumers.
PRL also noted that its higher-quality furnace oil commands a premium in the market.
During the fourth quarter of 2025-26, elevated crude costs coincided with falling product prices following the ceasefire, squeezing refining margins.
Despite these pressures, PRL recorded its highest-ever annual production of motor spirit and high-speed diesel during 2025-26, at 309,000 metric tonnes and 801,000 metric tonnes, respectively.
Both refineries are pursuing upgrades to improve product quality and reduce furnace oil output, while rising crude costs, procurement constraints and shifting demand patterns remain key operational challenges. PRL’s planned capacity expansion and efforts to diversify crude supplies could support its longer-term outlook, subject to project execution and market conditions.
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