Reliance, Essar not to buy Cairn crude

Reliance Industries and Essar Oil may not buy crude oil that Cairn India will start pumping from Rajasthan in the next few weeks as they say the oil was priced higher than its intrinsic value. RIL and EOL had wanted a minimum 30,000 barrels per day (1.5 million tons a year) each of Rajasthan crude but have been put off by the pricing agreement Cairn has reached with state-run Indian Oil Corp, the principal buyer, sources said. Cairn is to sell to IOC 1.9 million tonnes oil in 2009-10 and next year at a discount to Nigerian Bonny Light crude. The discount at current oil prices works out to about 11 per cent while RIL and Essar expect a minimum concession of 15 per cent considering the fact that Rajasthan crude does not have LPG and turns solid at normal temperature, they said. Cairn wants to price the crude taking taking three year average of Bonny Light which comes to USD 75 a barrel while current rates were about USD 20 lower. The discount as per the pricing formula at USD 75 work out to about 16 per cent. The Government has found in IOC, Hindustan Petroleum and Mangalore Refinery buyers of only 2.6 million tonnes of the 8.75 million tonnes peak output planned by Cairn India by 2011 and it may necessarily have to be sold to private refiners. A Cairn spokesperson declined to comment. Sources said Cairn was yet to arrive at an agreement on pricing with HPCL and MRPL.