New Delhi: The government has shelved plans to build a refinery in Rajasthan to process crude oil found by Cairn India in the state and instead will lay a pipeline to transport it to Gujarat coast for sale to refiners.
The plan for a mini-refinery of 3-4 million tons capacity to obviate the need for setting up a pipeline to transport the crude, was uneconomical and would have led to delay in start of production from the fields, said R.S. Sharma, chairman and managing director of Oil and Natural Gas Corp, the 30% partner in Cairn’s Rajasthan fields.
“The economics (of the mini-refinery) worked out to be worse than the previously conceived 7.5 million tons refinery. Clearly it was not workable (and so) the petroleum ministry has agreed to the proposal of building a pipeline from Barmer to Gujarat coast,” he said.
Cairn is to begin production from the Rajasthan fields in first quarter of 2009 with a peak output of 150,000 barrels per day (7.5 million tons). But the ministry at one point was considering delaying production and cutting it to half to enable a well-head refinery be set up in Rajasthan to obviate the need for building an heat-treated pipeline to transport the waxy crude oil to refiners.
Sharma said ONGC had not found a 7.5 MT refinery in the coastal city of Kakinada in Andhra Pradesh feasible and had to scale up its capacity to 15 million tons to make it viable.
The cost of 580-km pipeline will be included in the field development plan and like the cost of finding oil and briging it to production, the operator (Cairn/ONGC) will get to recover the investment from sale of crude oil.
Reliance Industries, Essar Oil and Chinese refiners are among the companies eyeing Cairn’s Rajasthan crude.
Cairn, which holds 70% interest in the Rajasthan fields, aims to start producing 40,000 barrels a day (bpd) of oil by February-March 2009 and reach a peak output of 1,50,000 bpd by the end of 2009.
According to sources, RIL has indicated a need of 63,000 bpd of crude from Rajasthan, split equally between its existing 33 MT refinery at Jamnagar in Gujarat and an export-oriented unit that is coming up by the end of next year at a plot adjacent to the current unit.
Essar has also formally written to Cairn, seeking 40,000 bpd of crude for its 10.5 MT Vadinar refinery in Gujarat.
State-run ONGC’s subsidiary Mangalore Refinery and Petrochemicals Ltd (MRPL), the official buyer of Cairn’s Rajasthan crude, is not interested in taking the entire production but has agreed to ship from the Gujarat port 20,000 barrels per day to the refinery on Karnataka coast.
Early this year, Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) too had evinced interest in taking the Rajasthan crude. BPCL was keen on making the Rajasthan crude a base input for its upcoming Bina refinery in Madhya Pradesh. It had said it could consume up to 1,00,000 barrels per day in the 6 MT refinery.
Besides, BPCL could take 30,000 bpd to its Mumbai refinery after a pipeline is laid from Barmer to a port on Gujarat coast, from where the oil can be shipped. HPCL can also take a similar quantity in its Mumbai refinery.