Essar Oil wants capacity in Mundra to Delhi pipeline

Vol 10, PW 1 (04 May 06) Midstream & Downstream

Essar Oil wants to book capacity in Hindustan Petroleums upcoming 1100-km Mundra to Delhi petroleum products pipeline.

PETROWATCH learns Essar first made the proposal to HPCL four months ago and the first round of discussions took place in February. During these discussions Essar is learnt to have indicated its willingness to book almost the entire spare capacity in the pipeline.

HPCL responded positively to the proposal, says a source. They said they need to check what kind of spare capacity is available and at which stretch of the pipeline.

Technical teams from HPCL are now believed to be evaluating the Essar proposal. HPCLs Mundra to Delhi pipeline is expected to be ready in January or February next year and will be the first to operate on the common carrier principle in line with ministry guidelines issued in October 2003 making it mandatory for all new product pipelines to have 25% spare capacity.

If the deal between Essar Oil and HPCL happens, it will be the first time in India that one oil company will be using a competitors pipeline. HPCLs Mundra to Delhi pipeline is designed to carry 5m t/y products of which 1m t/y has been set aside as spare capacity.

Essar plans to pump in petrol and diesel from its upcoming refinery at Vadinar into the new pipeline. Essar will connect to Mundra through the now almost defunct Vadinar to Kandla pipeline, we learn.

A small (8-km) stretch of pipeline has to be laid to connect Kandla to Mundra. Phase-II of the Mundra to Delhi pipeline will see capacity increase to nearly 6m t/y by 2011-12.

Essars decision to be first in line to book all the excess capacity in the pipeline will give it direct access to the lucrative and high demand north Indian market. Essar and HPCL have yet to discuss tariffs.

These details are expected to come under the remit of the soon-to-be-appointed Petroleum Regulator. Generally, the practice in the industry is that pipeline tariffs are at 30% discount to the railway freight.