Three buyers needed for 150,000 b/d from Rajasthan

Vol 10, PW 21 (22 Feb 07) Midstream & Downstream

Deadlock continues over crude oil to be produced from Cairn Energy’s fields in Rajasthan.

Who will buy it and who will transport it out An industry source familiar with the Cairn PSC for RJ-ON-90/1 tells us the problem centres not only on the waxy nature of the crude but also Cairn’s production plan, which aims for a very short peak production period: 150,000 b/d over four or five years. “Any operator would be tempted to have peak production as early as possible and over a short period of time,â€‌ we hear.

“Existing taxation laws are an incentive to produce early. From 1998 onwards any discovery in India is eligible for a seven-year tax holiday once production starts.

If you keep a high production profile for the first seven years you can make huge profits. All operators would like to produce the maximum in the initial seven years.

It is pure economics.â€‌ This, we are told, works perfectly if the crude oil is light.

“But in Cairn’s case as the crude is waxy and heavy it may not be practical to build a production profile around the anticipated tax holiday.â€‌ Why “With production of 150,000 b/d both Indian Oil and (government nominee) MRPL will not be able to absorb this heavy oil.

â€‌ Agrees the oil ministry: “IOC or MRPL on their own can’t pick up this quantity of crude. It is too much for them.

â€‌ A third buyer will have to be introduced at some stage, believes the ministry. What is the solution “Cairn could have a plateau production period for 15 years instead of four or five years as they provide now.

â€‌ This can be done by sharply lowering the peak production rate. During discussions within the oil ministry on selecting a nominee for the crude oil, the (government’s) Centre for High Technology suggested that the peak production rate could be lowered.

“This might not fit in with the tax (holiday) incentive but it is a practical solution,â€‌ we are told. “Look at it any way and the peak production rate of 150,000 b/d is just not working out in the market."