With Falling Crude, Strategic Oil Reserves Need of the Hour

The storage with oil companies would serve as a cushion and will help save billions of dollars

Published: 11th January 2016 05:42 AM  |   Last Updated: 11th January 2016 05:42 AM   |  A+A-

NEW DELHI: With global crude oil touching 12-year lows at around $30 a barrel, India may have a huge opportunity ahead of them to buy and store crude oil at this rock bottom price for the purpose of energy security. This will also help the refiners to adjust pricing as well as restructure their capital expenditure plans and could also make possible to implement BS VI.

But the larger question here is that are we ready with adequate infrastructure. According to Amit Sharma, oil analyst with CommTrade, “Though steps are taken by the government for strategic reserves and setting up of underground crude oil storage facilities, but we are not equipped today.” He also said that refiners are already suffering from inventory losses and they will not try to speculate the price.

With Falling Crude.JPGHowever, to ensure energy security in the country, the government had decided to set up 5 million metric tons of strategic crude oil storages at three locations namely, Visakhapatnam, Mangalore and Padur. These strategic storage would be in addition to the existing storage of crude oil and petroleum products with the oil companies and would serve as a cushion in response to external supply disruptions. The construction of the strategic crude oil storage facilities is being managed by Indian Strategic Petroleum Reserves Limited (ISPRL), a Special Purpose Vehicle, which is a wholly- owned subsidiary of Oil Industry Development Board (OIDB). But none of these proposed caverns are anywhere near completion. The facility at Visakhapatnam is commissioned.

With the government planning to add storage capacity to the tune of 39 million barrels in the future, India stands poised to cover only a 10-day supply of imports. This is well short of Vision 2020 that envisages 90 days of imports, conservatively pegged at almost 360 million barrels of oil.

Keeping in view the current phase of low crude oil prices, experts cite this as an opportune time to proceed with the dedicated strategic oil reserve. While the concept of massive caverns deep below the surface of the earth has been traditionally marketed as an energy security measure and also the most economical method of storing petroleum products.

According to an expert from the National Institute of Rock Mechanics, the underground facility rules out the requirement of large swathes of land, loads of security, ensures less evaporation and, since the caverns are built much below the sea level, it is easy to discharge crude into them from ships.

To address energy insecurity, the Atal Bihari Vajpayee government mooted the concept of strategic petroleum reserves in 1998. As India consumes an estimated 3.8 million barrels a day, of which about 80 per cent is imported, making it the world’s fourth-largest oil consuming nation in the world. The International Energy Agency predicts that by 2020, India could well be the largest oil importer, increasing the country’s vulnerability to threats of physical supply disruptions and to sharp price fluctuations.

But till the time the facilities are built as crude continues to fall and remain benign, India, one of the largest importers of crude oil, will continue to save billions of dollars.

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