According to officials from Directorate General of Hydrocarbons (DGH) and oil ministry, Cairn India would be forced to cut production unless it is allowed to sell surplus oil output to Reliance Industries' export-focused refinery. This is because Cairn India has limited storage capacity.
Cairn recently received approval to raise crude oil output from its Rajasthan block by 17 percent to 8.785 million tonne in 2012-13 from 7.5 million tonne last year.
It plans to sell 3.25 million tonnes to Essar, 3.96 million tonne to the other refinery of Reliance Industries, which sells products in the domestic market, and the balance to state-run MRPL and IOC.
While this is enough to absorb the entire production, the company wants to have the option of selling crude oil to Reliance's export-focused refinery because it may have surplus oil if any buyer shuts down its refinery for maintenance, or if there is an accident.
Cairn India sought government's permission to sell crude oil to Reliance Industries' refinery in the special economic zone (SEZ), putting the oil ministry in a fix because such supplies are regarded as deemed exports, which are forbidden by the production sharing contract.