Government Gives ONGC, Vedanta Freedom To Sell Crude Oil

The government on Wednesday decided to give marketing freedom to domestic crude oil producers, allowing them to sell oil to whosoever they want.

Briefing reporters on the decisions taken at a meeting of the Union Cabinet, Information and Broadcasting Minister Anurag Thakur said the Cabinet approved deregulation of the sale of domestically produced crude oil.

However, the ban on the export of crude oil will continue.

From October 1, condition in Production Sharing Contracts to sell crude oil to the government or its nominee or government companies will be waived.

This essentially means producers will be free to sell oil from their fields in the domestic market.

While contracts for oilfields awarded since 1999 gave producers the freedom to sell oil, the government fixed buyers for crude produced from older fields, such as Mumbai High of ONGC and Ravva of Vedanta.

This decision would mean ONGC can auction its 13-14 million tonnes a year of crude oil produced from Mumbai High field to any refiner, including private sector Reliance Industries Ltd and Rosneft-backed Nayara Energy.

The firm at present has to sell the Mumbai High crude oil to state-owned Bharat Petroleum Corporation Ltd. and Hindustan Petroleum Corporation Ltd. It could not sell the oil to its own Mangalore refinery, which had conceived a petrochemical complex on the premise that 5 million tonnes of Mumbai High crude could be turned into value-added PTA and Benzene.

Companies, such as ONGC, will most likely seek a premium over an international benchmark for the crude.

ONGC may even change the benchmark crude from Nigeria's Bonny Light to Brent, the world's most traded crude oil.

Vedanta's Cairn Oil & Gas will get the freedom to sell oil from its Ravva oil field in eastern offshore. It currently sells Ravva crude only to HPCL.