Cairn India has said it will start crude oil production from its prolific Rajasthan oil discovery next month even though the government is yet to find a buyer for the oil.
Cairn in a letter to the Petroleum Ministry stated that it would be starting oil production from Barmer fields next month with an initial output of 4,000-5,000 barrels per day.
The company, sources said, proposes to truck the oil to a refinery named by the government for processing the crude.
Petroleum Secretary R S Pandey had few weeks back stated that buyers for the Rajasthan crude oil would be found by mid-February, but no refiner has yet been named.
Under the production sharing contract (PSC) for the Cairn block, the government has to appoint the buyers of the crude before the actual production.
The government had previously nominated Mangalore Refinery and Petrochemicals Ltd as the buyer of Rajasthan crude, but it is unwilling to take anything more than 1.02 million tonnes out of the peak output of 8.75 million tonnes, sources said.
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While state refiners are reluctant, Reliance Industries has placed a demand for 30,000 to 60,000 bpd (1.5-3 million tonnes) of Cairn crude at each for its two refineries at Jamnagar in Gujarat while Essar Oil has written for 30,000 bpd this year and 120,000 bpd (6 million tonnes) by 2011 when it expands its Vadinar refinery in Jamnagar district.
The Mangala field, the first of the three discoveries Cairn is putting to production, is expected to produce 30,000 bpd by the second quarter of 2009-10 fiscal, sources said.
Production is then expected to ramp up to 80,000 bpd by the end of 2009 before reaching a plateau of 125,000 bpd during H1 of 2010.
Besides 125,000 bpd of Mangala, the adjacent Bhagyam field would produce 40,000 bpd and Aishwariya another 20,000 bpd. The peak of 175,000 bpd would be reached in 2011.
Peak output of 8.75 million tonnes a year from the Mangala, Bhagyam and Aishwariya fields is to first go to state refiners but so far only one-third of the peak output has been claimed by state refiners, they said.
Indian Oil Corp (IOC) is willing to 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.
MRPL, a unit of Oil and Natural Gas Corp (ONGC), wants only 1.2 million tonnes, while Hindustan Petroleum says it can take another 0.5 million tonnes at its Vizag unit.
Since the Cairn crude was waxy, refiners needed to put up infrastructure to receive the oil. Laying of spur pipelines and special heated storages for Rajasthan crude would take about six months and the lapse on the Petroleum Ministry's part in finding buyers can derail production plans.
Sources said the initial production from Mangala field in the Barmer district of Rajasthan would be transported in trucks to refiners in adjoining Gujarat state.
By Q4 of 2009, the 600-km insulated and heated pipeline, which would be used for shipping the oil, from Barmer to Gujarat coast would be completed.
Cairn is investing USD 850 million in a processing facility and another USD 800 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 per cent stake and is the operator of the Rajasthan block. ONGC is its partner, with a 30 per cent stake.
Sources said Cairn was working on a pricing formula. 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. The company feels the Rajasthan crude could be benchmarked to Indonesian grades, which it resembles.
Cairn's Rajasthan project will be a substantial addition to India's crude oil production, which currently averages around 680,000 bpd.