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Govt approves 54% rise in cost of crude oil storage

The government has approved over 54% increase in cost of the nation's first strategic crude oil storage being built as insurance against supply disruptions.

business Updated: Jun 16, 2011 13:49 IST

The government has approved over 54% increase in cost of the nation's first strategic crude oil storage being built as insurance against supply disruptions.

India, which is 75% import dependent to meet its crude oil needs, is building under-ground storages at Visakhapatnam in Andhra Pradesh and at Mangalore and Padur in Karnataka to store about 5.33 million tons of crude oil. This is enough to meet nation's oil requirement of 13-14 days.

The cost of storage at Visakhapatnam has been revised to Rs 1,038 crore from Rs 671.83 crore primarily due to increase in cavern capacity from 1 million tons to 1.33 million tons, an official statement issued after a meeting of the Cabinet Committee on Economic Affairs (CCEA), which approved the revised cost estimates, said.

"The enhanced storage capacity at Visakhapatnam will enable larger strategic storage of crude oil at a lower cost due to cost sharing while providing operating flexibility and cost savings," it said.

State-owned Hindustan Petroleum Corp Ltd (HPCL) will take 0.3 million tons capacity at the Visakhapatnam stockpiles by paying at a proportionate cost of Rs 230 crore.

"The CCEA has approved the enhancement of cavern capacity, manner of utilisation and revised cost estimates of Strategic Crude Oil Storage cavern at Visakhapatnam," the statement said.

The Visakhapatnam storage, being built by India Strategic Petroleum Reserves Ltd (ISPRL), is being targeted for completion by year end.

Huge underground cavities, almost ten storey tall and approximately 3.3 km long, are to be built in Visakhapatnam.

A similar facility in Mangalore will have a capacity of 1.55 million tons and would be mechanically completed by November 2012. A 2.5 million tons storage at Padur, near Mangalore, would be completed by December 2012.

With this, India will join nations like the US, Japan and China which have strategic reserves. These nations use the stockpiles not only as insurance against supply disruptions but also to buy and store oil when prices are low and release them to refiners when there is a spike in global rates.

However, the storage India is building is very small compared to the 90-day strategic stockpile in the US. New Delhi was considering to raise the storage capacity to 15 million tons to cover for 45 days requirement but no decision has been taken as yet.

ISPRL is a wholly-owned subsidiary of Oil Industry Development Board (OIDB) - a government body that lends money to energy projects.

The cost of building the strategic stockpile is being provided by OIDB as equity to ISPRL.

The cost estimate does not include the cost of purchasing 5.3 million tons of crude oil.

"The crude procurement and how it will be managed will be the responsibility of the government," an ISPRL official said.

"Like the US, the government may buy crude oil when rates are low for stockpiling. It may release it to refiners during times of spike in global crude rates like those witnessed in July 2008 when prices touched an all-time high of $147.