India bullish on strategic oil reserve plan

New Delhi: India has decided to fast track its plan to augment its strategic oil reserves facility with 90-100 days stock to shield itself from supply disruptions coming from perennial political risk in the prime oil supplying countries in the Middle East and Africa.

The reserve will also help the country cope with demand spike and price rise in the event of border skirmishes and war like situation that played out with Pakistan recently.

Sources in the Oil Ministry said that apart from the operational 5.33 million tonnes (mt) underground strategic reserve facility at Visakhapatnam, Mangalore and Padur, another 6.5 mt facility is coming up at Padur in Karnataka and Chandikhole in Odisha. Work on two more facilities at Bikaner in Rajasthan and Rajkot in Gujarat would be initiated soon. When complete, these would hold enough oil to meet domestic requirements for over a month.

In addition, the Oil Ministry has asked the Indian Strategic Petroleum Reserves Ltd (ISPRL), a special purpose vehicle of the Oil Industry Development Board, to identify new sites so that oil storage facility for 90-100 days can be made ready in the country at all times, the sources quoted above said.

This would enable the country to meet the requirements during any crisis as India imports more than 80 per cent of its crude requirements. It would also come to the rescue of the consuming sectors in times of volatility in oil markers.

ISPRL Chief Executive Officer and Managing Director H.P.S. Ahuja was not available for comments.

"Developing facilities to store crude oil is a time consuming process. We want all clearances at the sites to be taken in advance so that sanctions for work programme could be accelerated. The aim is to keep ready storage facilities so that it could be filled with oil when oil prices are low," said a government official privy to the development.

The ISPRL is taking the commercial model to activate the strategic reserves at a faster pace by getting investors to build and fill the storage facilities. As part of this, about half of its reserve facility at Mangalore in Karnataka has been leased out to Abu Dhabi National Oil Company.

The government had purchased crude oil to fill the caverns in Visakhapatnam and half of the facility in Mangalore.

Also, India is seeking investment from Saudi Arabia to build emergency crude reserves which are considered strategic for the world's third largest oil consumer.

In fact, investment to the tune of $1.5 billion is sought from global oil producers and traders to build additional emergency crude reserves. An equivalent amount may be targeted when further expansion is finalised.

"The first target of the government is to complete work on two additional facilities that are in advanced stage of planning. The other two would be taken up for completion by 2020. With this, the country will have more than 40 days of strategic petroleum reserve (SPR)," said the official. This together with the existing non-strategic oil storages maintained by the state-run oil marketing companies such as Indian Oil Corporation (IOC), Hindustan Petroleum and Bharat Petroleum would take the oil stock in the country to well over 100 days.

In the next step, work on new sites identified by the ISPRL would be taken up for construction so that the level of SPR itself is taken up to the level of 90-100 days of the country's oil imports.

For India, building SPRs is important as the country currently imports more than 80 per cent of its oil requirements and its inventory is clearly inadequate. This becomes a concern especially when oil prices result in high cost of processing.

India's aggressive plan for SPR comes at a time when China, which is in the midst of a slowdown, is taking advantage of the situation of moderate oil prices to scale up its own strategic reserve to 500 million barrels of oil equivalent (mboe).

Industry sources say that it has already put in place SPR of 200 mboe. Compared to the size, India's seven SPR facilities would together hold just about 128 mboe. The SPR in the US has remained stable at 700 mboe.