Rajasthan refinery no deterrent to Cairn's plans

Shirish Nadkarni
OGJ Correspondent

MUMBAI, Sept. 19 -- Cairn India and India's state-owned Oil & Natural Gas Corp. (ONGC), partners in Barmer field in Rajasthan, said they will not "go slow" in constructing a preheated pipeline to carry the waxy crude from the field.

This is despite the Rajasthan government's saying it would build a refinery to process the oil, making the $750-million pipeline superfluous.

"The pipeline is the most feasible option and is likely to [be built] before the start of crude oil production," said a senior official of ONGC, Cairn's 30% partner in the oilfield.

He said building a refinery with a capacity of about 7.5 million tonnes/year "would take around 40 months, whereas work on the pipeline is expected to take just 18 months," he said.

A Cairn India executive revealed that 83% of the pipeline engineering design work has been completed and that tenders for construction would open soon.

The Scottish explorer's oil discovery in Rajasthan is the largest in the country since ONGC struck oil in Bombay High in 1972. Barmer field is expected to produce 150,000 b/d during its 4-year peak production period.

Pipeline vs. refinery
Although a refinery in Rajasthan would mean another buyer for the company's crude oil, "we know the economics of the refinery are dubious," the Cairn executive said.

ONGC agreed: "There is simply not enough crude oil in the field to justify a new refinery. The state consumes only 5 million tonnes/year of oil products. With new refineries coming up in Bina [in Madhya Pradesh] and Bhatinda [Punjab], there will be no market for the Rajasthan refinery.

The price of the oil also must be resolved. Its poor quality, Cairn says, likely will garner the companies about 10% less than the Brent benchmark. Refiners, however, hope for a discount of more than 20%. "The contract allows pricing to follow the international prices of similar oil," Cairn said.

The pricing will determine how cost-effective a preheated pipeline would be. The cost of operating the pipeline and its heating stations would be higher than for normal pipelines. If Cairn does not get a good price, the gains may not justify the cost of the pipeline.

A buyer has yet to be finalized, but Cairn executive said talks were under way "with almost all refineries. The Bhatinda and Bina refineries are keen on taking our crude oil."

ONGC said a realistic date for production to begin is yearend 2009. Design must be completed, land acquired, heating stations built, and more wells drilled. "All of this has to synchronise with the start of production. Production may be delayed [for] some time."

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