Pakistan Refinery Upgrades Aim to End Diesel Imports, Slash Petrol Dependence

ISLAMABAD: Pakistan could virtually eliminate diesel imports and reduce imported petrol to just 10 to 15 percent of domestic demand once its oil refineries complete multibillion-dollar upgrades, the chief executive of one of the country’s five major refiners told Arab News on Friday.

Four refineries — Attock Refinery, National Refinery, Pakistan Refinery, and Cnergyico Petroleum — signed long-awaited upgrade agreements with the government-designated Inter State Gas Systems (ISGS) on Thursday. The deals advance investments worth roughly $5 billion at a time when the Iran conflict is disrupting oil and shipping flows across the Gulf and Red Sea, heightening energy security concerns for import-dependent Pakistan.

The hostilities have severely disrupted traffic through the Strait of Hormuz, the critical gateway for Gulf energy exports, while renewed instability around the Bab el-Mandeb strait has pressured another vital shipping artery. For Pakistan, which sources much of its petroleum from the region, the turmoil has injected fresh urgency into a years-long drive to boost domestic fuel production.

“This upgradation would almost enable all the refineries combined to meet the entire diesel demand of Pakistan — 100 percent,” said Attock Refinery Limited CEO Adil Khattak.

Currently, Pakistan imports about 70 percent of the petrol it consumes, producing the remaining 30 percent domestically. For diesel, the ratio is roughly reversed, with local refineries supplying around 70 percent of demand. Khattak projects that if all planned projects are completed, the imported share of petrol supply could drop to 10 to 15 percent, adding that the country might eventually export diesel. These figures represent his projections rather than official government targets.

The transformation stems not only from expanded capacity but also from a shift in product slate. Local refineries have historically produced significant volumes of furnace oil, once a staple for Pakistan’s power plants but increasingly displaced as electricity generation diversified. With domestic demand fading, refineries have been forced to export surplus furnace oil, occasionally at a loss. The upgrades are designed to curb production of that lower-value fuel while boosting output of higher-value petrol and diesel.

“Currently, refineries have been forced to export furnace oil at a loss,” Khattak explained. “These upgrades would enable refineries to reduce furnace oil production and increase diesel and motor gasoline output, which are more high-value products.”

The refinery modernization program is expected to cost between $5 billion and $6 billion. Attock Refinery’s project is estimated at roughly $600 million, while Pakistan Refinery Limited’s project is pegged at around $1.8 billion, partly because it includes capacity expansion. The four agreements signed Thursday account for about $5 billion of that total. The country’s fifth major refinery, Pak-Arab Refinery Limited (PARCO), has yet to sign; its participation would push the overall program closer to $6 billion.

The government will help finance the upgrades through a mechanism that directs customs duties on petroleum products into dedicated accounts maintained jointly with individual refineries. This allows companies to recover a portion of project costs as agreed milestones are met. Refineries can recoup up to 27.5 percent of eligible costs for projects using new equipment and up to 25 percent for those deploying used equipment, with ISGS monitoring progress and authorizing withdrawals.

For Attock Refinery, much of the remaining capital may be sourced domestically. Khattak noted that around eight major Pakistani banks have expressed interest in financing its $600 million project, and the company expects to rely largely on local funding. Pakistani refiners had previously looked to foreign lenders and investors — including potential backing from Saudi Arabia, Azerbaijan, and Türkiye — to support the broader modernization effort.

Consumers could initially face slightly higher fuel prices as the investment mechanism takes effect, though Khattak said the precise impact remains to be calculated. He estimated a potential increase of Rs2–3 ($0.007–$0.011) per liter for petrol and diesel.

The projects are also intended to align Pakistan’s locally refined fuels with Euro-V specifications, a cleaner-fuel standard that sharply limits pollutants. Khattak said the upgrades would reduce sulfur content in diesel to roughly 10 parts per million.

However, neither the cleaner fuel nor the reduction in imports will materialize immediately. Under the amended refinery policy, companies have five years after signing to commission new facilities. Khattak expects Attock Refinery to complete its project in four to four-and-a-half years, including about three years of construction following engineering and contracting phases.

The eventual savings would not mean Pakistan stops importing petroleum altogether. Instead, the upgrades would allow the country to import more crude oil for domestic processing, reducing purchases of more expensive finished products such as petrol and diesel, as well as additives currently required to bring locally produced gasoline up to standard.

“We would be increasing crude import instead of finished product import,” Khattak said.

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