Pakistan's energy debate usually focuses on reducing the oil import bill, lowering electricity tariffs or finding new energy sources. Yet the more fundamental challenge receives far less attention: Pakistan extracts too little value from every barrel of crude oil it already imports. The country's refining sector continues to produce a fuel mix that no longer matches domestic demand, forcing Pakistan to import high-value petroleum products while generating surplus low-value products that have limited use at home.

The problem lies in the structure of Pakistan's refining industry rather than the availability of crude oil. Over the past decade, transport demand has shifted decisively toward motor gasoline (petrol), reflecting rising vehicle ownership and growing mobility. However, most domestic refineries were commissioned several decades ago and continue to operate as relatively low-complexity hydroskimming refineries. These facilities are unable to convert heavier fractions of crude oil into larger quantities of high-value fuels such as petrol and diesel, resulting instead in significant production of residual furnace oil. The Ministry of Energy's Pakistan Oil Refining Policy 2023 identifies this low conversion capacity as one of the principal structural weaknesses of the refining sector and the primary reason refinery upgrades have become a national priority.

The mismatch is evident in the latest data. According to Oil Companies Advisory Council (OCAC) industry figures for FY2025-26, oil marketing companies sold approximately 7.68 million tonnes of motor spirit against 6.85 million tonnes of high-speed diesel, making petrol the largest road-transport fuel by OMC sales volume. Local-refinery upliftment of petrol amounted to only about 2.63 million tonnes, equivalent to approximately 34% of annual petrol sales. Meanwhile, OCAC’s full-year import data show petrol imports of approximately 5.38 million tonnes, equivalent to around 70% of annual sales. The two shares do not add precisely to 100% because refinery upliftment, imports and retail sales are recorded at different stages of the supply chain and are affected by inventory movements. For HSD, local-refinery upliftment reached approximately 5.49 million tonnes, while imports were about 1.35 million tonnes, equivalent to roughly 20% of annual sales. Pakistan therefore continues to import substantially more finished petrol than diesel, even while importing crude oil for processing by domestic refineries.

Furnace oil illustrates the opposite side of the imbalance. Full-year OMC sales of furnace oil fell to approximately 599,000 tonnes in FY2025-26, down 26% from 806,000 tonnes a year earlier. Local-refinery upliftment, however, remained much higher at approximately 2.19 million tonnes. Separately, OCAC’s refinery-production series indicates output of about 2.44 million tonnes, including approximately 191,000 tonnes produced in June. The difference between production and upliftment reflects changes in refinery inventories and the timing of market offtake. According to the full-year OCAC import-export table, Pakistan exported approximately 1.75 million tonnes of different furnace-oil products during FY2025-26. In effect, domestic refineries continued producing several times more furnace oil than the local market purchased, leaving exports as the principal outlet for the surplus.  

Most of Pakistan’s existing refineries use old hydroskimming or limited-conversion technology, which means that processing crude oil inevitably produces a relatively large share of heavy residual furnace oil alongside petrol and diesel. As electricity generation has shifted toward hydropower, coal, nuclear energy, LNG and renewables, the domestic market for furnace oil has contracted, leaving refineries increasingly dependent on exports and periodic inventory clearance. Pakistan therefore imports millions of tonnes of higher-value finished petrol while exporting lower-value furnace oil produced from the crude it already processes. The problem is not a shortage of petroleum demand, but the inability of the existing refining system to convert a greater proportion of crude oil into the petrol and diesel that the domestic economy actually requires. This is precisely why the government’s refinery-upgradation policy seeks to increase the production of petrol and diesel while minimising furnace-oil output.

Regional experience demonstrates that this challenge is solvable. India has invested consistently in deep-conversion refining capacity, enabling refineries to maximize gasoline, diesel and aviation fuel while minimizing residual fuel oil production. This has transformed India from a large fuel importer into one of the world's leading exporters of refined petroleum products. Pakistan's own Brownfield Refinery Policy aims to move in the same direction by encouraging investments that would significantly increase petrol production, expand diesel output and reduce furnace oil production through higher refinery complexity and Euro-V compliant technology.

The implications extend well beyond the energy sector. Almost every litre of imported petrol represents domestic value that Pakistan could potentially create itself through a more sophisticated refining industry. At the same time, continuing to produce surplus furnace oil ties up refinery capacity in a product whose domestic market has steadily contracted. Modern refinery upgrades would therefore improve not only energy security but also industrial competitiveness, reduce dependence on imported finished fuels, strengthen the current account and create new opportunities for downstream petrochemical industries. Pakistan's energy challenge is ultimately not one of importing crude oil. It is one of failing to extract sufficient value from every barrel it already processes.