Cairn begins pumping oil from R’sthan block

Petroleum Minister Murli Deora and Rajasthan Chief Minister Ashok Gehlot witnessed the milestone event.

Mangala,one of the world’s largest new onshore finds,is the biggest in India after Oil and Natural Gas Corporation’s Gandhar in Gujarat that was discovered more than two decades ago.

For the Asia’s third largest oil consumer that imports 75 per cent of its oil needs,the Rajasthan oilfields will cut its oil import cost by USD 6.8 billion or 7 per cent.

Peak output of 175,000 barrels per day (8.75 million tonnes a year) by 2011 from Mangala,Bhagyam and Aishwariya – three of the 25 discoveries Cairn has made in the Rajasthan block – will account for about 28 per cent of India’s current oil production.

Initially,Mangala is being put into production and other fields will follow. The output from Mangala to begin with will be a few thousand barrels per day (bpd) and ramp up to 30,000 bpd in next few weeks. It will hit the peak output of 1,25,000 bpd in the first half of 2010.

Bhagyam and Aishwariya and also other small fields will start production in 2010 and peak output of 1,75,000 bpd is forecast in 2010.

Cairn India holds a 70 per cent stake in the RJ-ON-90/1 block,while state-run explorer Oil and Natural Gas Corp (ONGC) holds the balance.

The initial output from Mangala will be transported by trucks and tankers to Kandla on Gujarat coast for onward shipment to Mangalore Refinery and Petrochemicals Ltd,nominated by the government as one of the buyers of Cairn’s crude.

Indian Oil Corp (IOC) and Hindustan Petroleum (HPCL) are the other buyers of Rajasthan crude.

Supplies to IOC will begin after commissioning of a pipeline from Barmer to Gujarat coast in December. IOC will starting buying crude once the pipeline is ready.

Cairn India,a unit of London-listed Cairn Energy,braved blazing heat and sandstorms to erect the giant Mangala oil processing terminal in Thar desert.

The facility,which is the size of 200 football fields,will process oil from Cairns Rajasthan fields.

Coming on the heels of Reliance Industries beginning natural gas production from its eastern offshore KG-D6 fields,the Cairn operation is set to change India’s energy equation for decades.

Reliance’s gas discovery in the KG basin will double India’s supply of gas once it reaches full production of 80 million standard cubic meters per day by the year-end.

According to Macquarie Securities,these two new discoveries will have total production equivalent to 30 per cent of the Gulf of Mexico.

Cairn and Reliance are Deora’s poster boys to promote the nation’s largest offering of oil and gas blocks in the eighth round of the New Exploration Licensing Policy (NELP).

While Cairn’s Mangala discovery predates NELP that was launched in 1999,together with RIL it is cited by the government as evidence of the effectiveness of its new more liberal oil regulatory regime that allows much greater involvement of private sector operators.

But the journey for Cairn was far from smooth. It faced numerous delays to its development,particularly over a proposal to build a 600-km heated pipeline to deliver the oil to the coast for shipment to refineries.

Today,it faces a challenge from the Rajasthan government which wants to levy the higher state sales tax on the crude oil despite the fact that the sales are inter-state and central sales tax is to be levied.