Karachi: National Refinery Limited (NRL) is navigating a complex landscape of rising freight costs and crude supply challenges, according to a recent corporate briefing by JS Global. The company, which relies heavily on crude procurement from Aramco, is facing increased costs in transporting crude oil, with freight expenses for Fujairah rising to approximately US$4 per barrel and up to US$11 per barrel for Yanbu.
According to JS Global, NRL's crude procurement strategy in FY26 was dominated by Aramco, accounting for 90% of its supplies. The mix shifted in October 2026 to an even split between term and spot cargoes. The pricing for crude oil includes several components such as the Official Selling Price, crude premium, freight, and insurance costs, with an additional war risk premium that has seen a notable increase.
Spot crude premiums are currently varying considerably, ranging from US$10-15 per barrel for regional crude and reaching up to US$35 per barrel for non-regional crude. Management noted that these figures are indicative and subject to negotiation outcomes between traders and refineries. Furthermore, refineries are grappling with crude quality differentials due to supply constraints, impacting the usual preference for sweet crude.
NRL is also planning a significant upgrade of its refinery, with estimated capital expenditures between US$300 million and US$1.2 billion. This upgrade aims to enhance production capabilities for Euro-V Motor Spirit and Lube Base Oil while decreasing furnace oil output. The higher end of the CAPEX range includes the installation of a hydrocracker, which would transform furnace oil into Motor Spirit and High-Speed Diesel.
The feasibility study for these upgrades is expected to be completed by June 2027, and the company anticipates a 27.5% deemed duty benefit on new machinery, equating to an estimated 16% benefit after tax. Despite current constraints, NRL is effectively managing the risk of shortages in refined petroleum products and is leveraging Very Large Crude Carriers to mitigate transportation costs.
From a market perspective, the total Lube Base Oil market is estimated at 400k-450k metric tons, with a significant portion comprised of Group I and Group II base oils. Regulatory requirements mandate the company to maintain a seven-day crude oil inventory, although it typically does not hold large inventories of finished products. NRL is currently trading at a FY27E price-to-earnings ratio of 2.3x.