Cairn might be allowed to sell crude on open market

Vol 11, PW 12 (18 Oct 07) People & Policy

This is not yet official but it is becoming increasingly likely that a major portion of crude oil from Cairn India’s fields at RJ-ON-90/1 in Rajasthan could be refined by private sector refiners, not state-owned refiners.

If this happens, it would be the first time that refiners who are not state-owned would process domestic crude oil production in India. Under current law a government â€کnominee’ (usually a state-owned refiner) is made responsible for refining home-produced crude.

That is, so long as India is dependent on imports. Till now, the government â€کnominee’ has never been a private sector refinery.

But that could change, given several unresolved complex issues about Cairn’s Rajasthan crude, leaving the door open to sell to Reliance and Essar, the country’s two largest private-sector refiners, or even exports to China. Cairn says it will produce 150,000 b/d from Rajasthan, beginning the second half of 2009.

For now the government â€کnominee’ is a 9.69m t/y refinery at Mangalore in Karnataka on the west coast of India, belonging to ONGC, Cairn’s 30% partner at RJ-ON-90/1. But Mangalore Refinery wants only 20,000 b/d, leaving Cairn with 130,000 b/d in need of a home.

Cairn’s crude from Mangala - the largest field in RJ-ON-90/1 – is waxy, complicating matters further. Under the PSC, finding a buyer is the government’s responsibility, not Cairn’s.

But efforts to persuade another state-owned refiner, Indian Oil, to buy a major chunk of the crude are going nowhere. “It looks unlikely that IOC will buy the crude,â€‌ says a ministry source.

Hindustan and Bharat Petroleum, two other Mumbai-based state-owned refiners, are equally disinterested. IOC is demanding a hefty discount to the price asked by Cairn, ignoring the advantage of a major crude supply source in its backyard.

All of this has led to deadlock in Cairn’s plans for a smooth start to production. The only way out, believes the oil ministry, is for “bold thinkingâ€‌.

See below.