Pakistan to require lower sulphur diesel fuel starting in 2017

By Jessica Jaganathan

SINGAPORE (Reuters) - Pakistan will lower the sulphur content of diesel imports from January next year, in line with a global shift toward cleaner fuels, said two sources familiar with the matter.

As vehicle numbers in Asia have surged, countries across the region, including China, India and Vietnam, have adopted more stringent sulphur requirements for their fuels in recent years to cap emissions.

Pakistan will require diesel fuel with 500 parts per million (ppm) sulphur starting from January 2017 from the current 5,000 ppm sulphur gasoil, the sources said this week.

Pakistan and Indonesia are some of the few remaining Asian countries still using high-sulphur gasoil.

With the shift, the South Asian nation will be on par in terms of sulphur standards with Bangladesh, Vietnam and Myanmar.

State-owned Pakistan State Oil Co (PSO), the country's largest oil products importer, could not be immediately reached for comment.

But the country's refineries are still not completely ready to meet the change in sulphur standards, one of the sources familiar with the matter said.

About 40 percent of Pakistan's refineries have upgraded their units to produce the low sulphur diesel while the remaining refineries are still working to finish units to reduce the amount of sulphur in the fuel, the source said.

The country's refineries use outdated hydro-skimming equipment and desperately need updating, only surviving due to a favourable tax regime, Pakistan's petroleum minister told Reuters last year. [nL3N12Z3G5]

PSO has a long-standing term contract with Kuwait Petroleum Corp (KPC) to import about 2.2 to 2.5 million tonnes of high sulphur gasoil every year.

KPC has agreed to supply diesel with 500 ppm sulphur to PSO from next year, the two sources close to the matter said.

PSO rarely imports gasoil in the spot market except for summer when it needs the fuel for power generation. So, the shift in sulphur specification is not expected to have a major impact on trade flows, middle distillates traders said.

Pakistan is also moving towards 92-octane gasoline from November and is phasing out imports of 87-octane gasoline, one of the sources said.

PSO is looking to potentially sign long-term contracts for gasoline cargoes, though this is not firm, the source added. It currently imports about 150,000 to 200,000 tonnes of gasoline every month through the spot market.

(Reporting by Jessica Jaganathan; Editing by Christian Schmollinger)