Although Cairn India has for some time been seeking government permission for exporting crude oil from its Barmer block in Rajasthan, current regulations do not allow the company to sell outside the country. Article 18 of the production sharing contract signed with the government bars the company from exporting crude oil till such time the country attains self-sufficiency. Cairn has suggested to the government that the export arrangement could be done under a swap arrangement in tie-up with a public sector refiner.
The Barmer crude could find more value in Singapore refineries though even there full quantity can't be absorbed, said a person privy to the discussions. "Besides, Japanese power utilities prefer such crude for power generation," he added. The contract obligates the contractor to sell to the government or its nominee all of its share of crude oil and condensate production in order to satisfy the national demand.
"With the country's import bill rising, it is highly unlikely that the government would allow such a proposal. However, Cairn would have made such a suggestion to make its operations commercially more viable. If such a situation arises where there is an excess production, the government would have to either restrict production or allow them to swap it with international crude until the Barmer refinery comes up," said Dhaval Joshi, research analyst at Emkay Global Financial Services.
Last week, United Progressive Alliance chairperson Sonia Gandhi laid the foundation of a refinery in Rajasthan that is expected to process Cairn crude. "Normally, refineries in India can use Mangala crude only to an extent of about 20 per cent. Till 2017-18, we would use 50 per cent of Mangala crude and blend it with Arab crude. Once the production from the block increases, the refinery would be tuned to take in 100 per cent Mangala crude," said B K Namdeo, director (refineries) at HPCL.
The Rajasthan refinery is planned to process 180,000 barrels a day (bpd) eventually, but at an initial annual capacity of 4.5 million tonnes it would consume only 90,000 bpd. With the output from the fields expected to rise, Cairn would have to struggle to dispose of the crude.
When it started production in 2009, Cairn was producing only 25,000 bpd. "The potential from Cairn block is high and we expect the production to increase to 300,000 bpd from the current 1,75,000," said petroleum minister M Veerappa Moily. According to Cairn estimates, the Rajasthan block has estimated reserves of 4,197 million barrels of oil equivalent. Cairn plans to produce 215,000 bpd and invest $2 billion in two years.