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Cairn India has found a way to export crude oil from its Rajasthan block without flouting domestic laws. The company has suggested to the Government a ‘swap’ mechanism, in collaboration with a public sector oil refiner to be nominated by the Petroleum and Natural Gas Ministry.
The proposed mechanism will help the explorer get higher value for the produce which, at present, it sells at a discount.
Simply put, the nominated refiner will swap the Rajasthan crude with a variety that is more suitable for it. At present, India does not allow export of domestically produced oil and gas, as it is yet to attain self-sufficiency.
Besides, the low-sulphur crude with high wax content being produced at Barmer, Rajasthan is not being fully leveraged by domestic public sector refiners, including Indian Oil Corporation. One reason is that the refiners need to blend the waxy crude with other varieties in order to use it. The domestic refiners are constrained from using Rajasthan crude because their refinery configurations restrict them from processing all varieties of crude.
Cairn has been seeking permission to export Rajasthan crude oil for some time now, but with little luck. In fact, its request to sell to Reliance Industries’ export-oriented refinery at Jamnagar was not considered by the Government.
“We do believe that the right place to test crude price is in the market — domestic and international. We also recognise that export is not easy in our context. Swap is a different agreement. Our suggestion is that we can swap this crude oil both to get the volume and the price,” P. Elango, Chief Executive Officer, Cairn India, said.
To provide comfort, Cairn has suggested that the Government could nominate a public sector refinery to be part of the arrangement, he added. A likely choice could be Indian Oil Corporation, which is open to the idea.
Elango told Business Line that the objective is to take this crude to those refiners which can extract the best out of it. “One such market that we found in our assessment is Japanese utilities. These utilities use low-sulphur crude/fuel oil directly for power generation.”
While for Cairn, the swap will generate higher value, for the country, there is oil supply security and the terms of contract are also under control, he explained.
At present, Rajasthan oil is being sold at 8-13 per cent discount to Brent which, last month, averaged $109 a barrel.
With a public sector refinery being involved, there will be no issue of lack of transparency, Elango said, adding: “Swap will at least show what the right price for this crude is.”
“This mechanism, if implemented, also means that the Government and ONGC will realise higher profits from the fields,” Elango added. ONGC is Cairn’s partner in the Rajasthan block.
Cairn produces 180,000 barrels of oil a day in Rajasthan. A significant portion of this is sold to Reliance Industries’ first Jamnagar refinery, which caters to the domestic market. The other buyers are Essar Oil (Vadinar), and Indian Oil Corporation (Koyali refinery, Gujarat, and Panipat refinery).
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