Public sector oil marketing giant Indian Oil today said that it is prerpared to buy up to 2 million tonnes of crude from Cairn India's Rajasthan field at Barmer, but at heavy discounts for the heavy, waxy crude.
Acrding to B N Bankapur, IOC's director (refineries), normal oil pipelines could not transport Rajasthan crude as it solidified at normal temperatures and therefore required to be blended with normal crude for pipeline transportation.
Cairn's Rajasthan crude is a sweet (low sulphur), waxy crude with medium API gravity of 27.41 and its yield produces straight run diesel which meets Euro II quality standards without any further hydro treatment, while its 'vacuum gas oil' for secondary units is said to be of 'excellent' quality with high paraffin content.
Bankapur told reporters in Panipat that normal pipelines could take only 10 per cent of Rajasthan crude. IOC's 12 million tons a year Panipat refinery in Haryana could take only 0.6 million tons and the Koyali refinery in Gujarat could take another 0.8 million tons.
He said Cairn's Rajasthan crude could be processed at refineries which have coker, which Panipat refinery in Haryana and Barauni refinery in Bihar have cokers and the Gujarat refinery would have one by 2009. Depending on the commercial viability, IOC could stretch its consumption to two million tons.
But, processing the Rajasthan crude that has a very high pour point and viscosity with 70-75 per cent heavy ends can only be economically viable only if it came at heavy discounts he said.
Cairn plans produce 8.75 million tons a year of peak crude from its Barmer fields in Rajasthan from second half of 2009.
ONGC's subsidiary Mangalore Refineries is the current government nominee for the offtake of Rajasthan crude. But MRPL says it is unable to take more than 1-1.5 million tons.
IOC has so far not entered into price negotiations with Cairn and the pricing benchmark would be decided by the government, which wants the price of crude to be determined according to the contract for the field. The contract for the field that stipilates a pricing at the appropriate basket of crude oils actively traded and quoted by Platts.
However, IOC wanted it benchmarked to prices for Mexico's Maya crude or Ratawi crude, produced from the Wafra, South Umm Gudair and South Fuwaris fields in the Partitioned Neutral Zone situated between Kuwait and the Kingdom of Saudi Arabia.
These crudes can be classed as a heavy, sour grade and are similar to Eocene, and are sold at a discount of $15-18 per barrel to Nigeria's bonny light crude.