Strategic Oil Reserves of India
Currently, India depends on imports for more than 80% of its crude oil needs. Most of these imports come from Middle East. The demand for crude oil is unlikely to go down in near future. Further, since India is also a regional refining hub, we import more crude than our own domestic requirements; so that we refine it and re-export it.
Oil imports are always vulnerable to risks of supply disruptions as well as changes in the prices of crude oil. Any price aberrations in crude have a direct impact upon the current account and inflation. These risks amount to strategic risks. Since 2003, the Government of India has commissioned the strategic oil reserves to maintain nation’s energy as well as economic security.
Where India is building its Strategic Petroleum Reserves?
The construction and maintenance the strategic petroleum reserves (SPR) is given to the Indian Strategic Petroleum Reserves Ltd (ISPRL), a special purpose vehicle of the Oil Industry Development Board, a statutory body created for India’s energy security. ISRPL is building the underground rock caverns at Visakhapatnam with capacity of 1.33 MT of oil, at Mangaluru (1.5 MT) and at Padur (2.5 MT). While Visakhapatnam is located on eastern coast, other two locations Mangaluru and Padur (near Mangaluru) are located in western coast of Karnataka state. These three strategic reserves would have the capacity of 5.33 MT. The three projects will store crude oil for 13 days. To ensure energy security for 90 days, additional 13.32 MT capacity storages have to be created. That will be achieved in the second phase. The second phase, which is under planning seeks to create 12.5 MT storage capacity at Padur, Chandikhol (Odisha), Bikaner (Rajasthan) and Rajkot (Gujarat).
Present status of Strategic Petroleum Reserves
Though the concept of strategic oil reserves was mooted in 1988 and commissioned in 2003, the progress has been very slow in building them. There are various factors influencing the operationalization of strategic oil reserves. When the UPA government has come to power, it has decided to review the strategic storage plan and precious time was wasted in studies by the Planning Commission. After a decade of announcement, no storage facilities have been constructed. Meanwhile, construction costs were escalated. Time also wasted for land acquisition.
In May 2015, the Visakhapatnam storage facility received a small parcel into the 0.3 MMT compartment given to HPCL. In June 2015, the first parcel of strategic crude oil was received into the 1.03 MMT compartment. The other two projects at Mangaluru and Padur are nearly complete, waiting only for the pipeline connection from the nearest ports. Crude oil from these reserves is to be released by an empowered committee constituted by the government, in the event of any supply disruptions from abroad.
Funding and building the caverns is relatively easier than filling the caverns. Filling up the first three reserves require 25,000 crore rupees. Presently only government can store as there is no viable mechanism for private players to exploit. The government should take opportunity from the present low prices market to fill the reserves. For that, the storages facilities have to be completed at a fast speed. Other option to fill the storage reserves is to offer the capacities to the crude oil producers. Though the ownership of the stored crude oil will lie with the producer, India retains the first right of refusal during emergencies. Presently government is in talks with West Asian crude oil producers such as Kuwait, Saudi Arabia and Abu Dhabi to allow them to book capacities in the crude oil storage facilities. Kuwait and Abu Dhabi are keen on storing crude oil in India to tap into the vast Asian markets because energy imports of America are on the decline due to availability of shale gas at relatively cheaper rates. Besides foreign producers, Indian refiners such as HPCL and Mangalore Refinery and Petrochemicals have already booked two compartments of 0.3 MT each in Visakhapatnam and Mangaluru, respectively. The government should also leverage this storage facility in the international markets as it could release inventory and book profits when prices climb, and recharge reservoirs when prices fall again.
Conclusion
Under the present situation of low oil prices in the global market, it is wise to rapidly build the strategic reserves and fill them. It would make a long-term difference to India’s energy security.
