New Delhi: The government has named Mangalore Refinery and Petrochemicals Ltd, a unit of state-run Oil and Natural Gas Corporation (ONGC), as the buyer of Cairn India’s initial output from its prolific Rajasthan oilfields that are expected to begin production within a month from now.
“We have named some of the refineries as government nominees to take Cairn crude,” Petroleum Secretary R S Pandey said on the sidelines of a conference here on Tuesday.
MRPL has been appointed as the buyer of the initial crude oil and state-run refiner Indian Oil Corporation (IOC) would take the crude once volumes rise.
“I am told crude oil production will begin in about a month’s time in small quantities,” Pandey said.
Cairn will initially produce 4,000 to 5,000 barrels of oil per day from its fields in Barmer district of Rajasthan which would be transported in trucks to Kandla on Gujarat coast for onward shipment to Mangalore.
Though IOC had indicated it can take up to 1.5 million tonnes of Rajasthan crude between its Koyali refinery in Gujarat and Panipat refinery in Haryana, the company would not immediately take the initial volumes as it lacks receiving facility at the refineries.
Koyali, where the oil can be transported in trucks, does not have facility which can unload the waxy Rajasthan crude that turns solid at room temperature. Also, it does not have heated storages.
Output from the Mangala field, the first of the three fields Cairn is putting to production, would rise to 30,000 barrels per day (1.5 million tonnes) in July-September.
The initial output will be transported through trucks. A heated pipeline to transport the crude to Gujarat coast would start in the fourth quarter, when an additional 50,000 bpd will be produced.
Peak output of 1,75,000 bpd (8.75 million tonnes a year) from the Mangala, Bhagyam and Aishwariya fields in Rajasthan block is to first go to state refiners, Pandey said.
IOC has indicated that it can take 20,000 bpd (one million tonnes) at its Panipat refinery in Haryana and another 0.5 million tonnes at Koyali unit in Gujarat once a delayed coker is installed at the refinery.
Mangalore Refinery, which is the official offtaker of Rajasthan crude, wants only 1.2 million tonnes while Hindustan Petroleum says it can take 0.5 million tonnes at its Vizag unit. The remaining unsold output would go to private refiners, he said.
Reliance Industries and Essar Oil have expressed interest in buying Cairn crude. RIL wants 30,000 to 60,000 bpd (1.5-3 million tonnes) of Cairn crude each for its two refineries at Jamnagar in Gujarat while Essar Oil has written for 30,000 bpd this year and 1,20,000 bpd (6 million tonnes) by 2011 when it expands its Vadinar refinery in Jamnagar district.
Since the crude is waxy, refiners need to put up infrastructure to receive the oil. Laying of spur pipelines and special heated storages for Rajasthan crude would take about six months.
The Mangala field is expected to produce 30,000 bpd by the second quarter of 2009-10. Production is then expected to ramp up to 80,000 bpd by the end of 2009 before reaching a plateau of 1,25,000 bpd during H1 of 2010.
Besides 1,25,000 bpd of Mangala, the adjacent Bhagyam field would produce 40,000 bpd and Aishwariya another 20,000 bpd. The peak of 1,75,000 bpd would be reached in 2011. Cairn is investing $850 million in a processing facility and another $940 million in a heated oil pipeline from the fields to the port of Viramgam in Gujarat.
Cairn India, the subsidiary of UK-based Cairn Energy, holds a 70% stake and is the operator of the Rajasthan block. ONGC is its partner with a 30% stake.
Pandey said Cairn and the buyers will work on the pricing of the crude. The crude from the onshore Rajasthan block RJ-ON-90/1 is waxy, low in sulphur, and has an API gravity of between 25 and 35 degrees.
Cairn feels the Rajasthan crude could be benchmarked to Indonesian grades, which it resembles, while the buyers want heavy discounts to make up for the waxy nature of the crude.