Cairn to ready Barmer-Gujarat pipeline in 4 weeks

Cairn India is to commission its 590-km heated crude oil pipeline, from its Barmer field to near the Gujarat coast, early next month.

The company has begun tests and plans to take the remaining 80 km, the second phase of the pipeline, to Bhogat (Jamnagar, Gujarat) after commissioning of the first phase.

The pipeline would help reduce the total cost of production and transportation (trucking and shipment) from the present $10-12 per barrel to $5-6 per barrel. “Our plan, all along, has been to get everything ready by the second half of this calendar year and we are going to be ready with that. Of the total length of the Mangala Processing Terminal (pipeline of 670 km which passes through Rajasthan and Gujarat), the MPT to Salaya section of 590 km has been completed, along with the final delivery infrastructure to each buyer,” said a company official.

Cairn has invested around $1 billion (Rs 4,500 crore) in laying the 670-km pipeline from Barmer to Bhogat to transport crude oil to the refiners — Indian Oil, Reliance Industries and Essar Oil.

At present, Cairn trucks crude to Jamnagar for sale to Reliance (RIL) and to Kandla for onward shipment to the Mangalore Refineries and Petrochemicals (MRPL). To date, more than four and a half million barrels of crude from Mangala has been delivered to these two refiners.

Capacity expansion on
The Mangala field currently produces 60,000 barrels of oil per day (bopd). A further capacity expansion of 50,000 bopd is targeted for completion by the end of this month.

According to Cairn, “The commercial terms and pricing negotiations have been concluded with all the buyers. In accordance with the Production Sharing Contract, this pricing is based on comparable low sulphur crude frequently traded in the region – Bonny Light - with appropriate adjustments for crude quality. The implied price realisation represents an average 10-15 per cent discount to Brent on the basis of prices prevailing for the twelve months to May 2010.”

The company, while announcing its fourth quarter results last month, had said sales arrangements with four refineries were in place for 1,43,000 bopd. “With the completion of the pipeline and related facilities, sales to both public and private refiners are expected to ramp up to the currently approved plateau of 1,25,000 bopd in the second quarter of calendar year 2010. In addition, discussions are underway with PSU refiners, as well as refiners in Special Economic Zones and overseas, subject to Government of India approval. Discussions are in progress with the GoI to allocate additional volumes,” it had said.

The gross cumulative Rajasthan development capital expenditure is estimated to be $2.3 billion (Rs 10,772.4 crore), of which $934 million (Rs 4,389.8 crore) was spent during financial year 2009-10.

Cairn with 70 per cent interest, is operator of the field, while Oil and Natural Gas Corporation, India’s largest producer, owns the rest.