Oil and Natural Gas Corporation is likely to abandon the proposed Rs 8,000 crore (Rs 80 billion) refinery at Barmer in Rajasthan if Cairn Energy declines discounts on the low grade crude oil the UK company will produce in the state.
Without a $4 to $5 a barrel discount, it is uneconomical to transport the waxy crude to MRPL in initial period and latter process at the proposed 7.5 million tonnes refinery, an ONGC official said.
Cairn's Rajasthan crude had high wax content and needed specialised pipelines with intermenient heating to transport it 400 km from Barmer district to Mundra port in Gujarat for further shipment to Mangalore Refinery for processing.
"Petroleum ministry is with us on the issue and feels there is no case for a refinery unless discounts are given," he said.
The official said Cairn has sought an international price for the 150,000 barrels per day Rajasthan crude expected from end-2008 but ONGC says Rs 2,000 crore (Rs 20 billion) it plans to sink in the pipeline needs to be compensated through discounts.
Cairn cannot sell the crude to any other refiner as the government had appointed ONGC/MRPL as offtakers in India.
Besides turning semi-solid at normal conditions, the crude has no LPG potential and Naphtha yield is also very low (less than 2 per cent) and this needs to be compensated through a discount, he said.
Earlier, Indian Oil Corporation had done ecmnomic analysis of Cairn's Rajasthan crude and concluded that it posessed transport dilemma.
If the deadlock continues, the ministry may ask Cairn to make its own arrangements for exporting the crude.
The pipeline, along with intermediate pumping and reheating stations and the export terminal tankage at Mundra, was expected to cost Rs 2,000 crore (Rs 20 billion). The pumping and reheating energy cost was expected to be around $0.30 per barrel.
Interestingly, ONGC hold 30 per cent stake in the Mangala, Aishwariya, Saraswati and Raageshwari fields in Block RJ-ON-90/1, which the British firm wants to put on production by end-2008.
As per Cairn's projections, the production of crude will commence from the last quarter of 2008 with initial output of little over 100,000 barrels per day peaking to around 150,000 bpd from 2009 to 2012. The production delines from 2014, reaching a low of around 20,000 bpd by 2024.
ONGC had said that considering the characteristics of the crude, best value addition to the crude can be obtained by a well head refinery to be located in the vicinity of the block which would be specifically designed to handle this crude along with a balancing crude which would be imported.
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