Taking advantage of lower oil prices, India will next month begin filling up its maiden strategic oil reserves to insulate itself from supply disruptions.
India, which is 79 per cent dependent on imports to meet its crude oil needs, is building emergency stockpiles with millions of barrels of crude that mirror the reserves that the US and its western allies amassed after the first oil crisis of 1973 to 1974.
Underground storages are being built at Visakhapatnam in Andhra Pradesh and Mangalore and Padur in Karnataka to store about 5.33 million tonnes (28 million barrels) of crude oil. This is enough to meet nation's oil requirement for 11-12 days.
The first of the storages at Visakhapatnam (Vizag) is ready and will begin receiving crude as early as next month, a top Oil Ministry official said here.
"The Finance Ministry has provisioned Rs 2,399 crore in the Supplementary Demands for Grants for buying crude oil to fill the Vizag facility. Indian Strategic Petroleum Reserve Ltd (the firm that is creating the reserves) has been asked to use cheaper oil to fill the storage," he said.
Brent crude, a global oil benchmark, has almost halved over the past year to about USD 56 a barrel.
Visakhapatnam facility would have the capacity to store 1.33 million tonnes of crude oil in underground rock caverns. Huge underground cavities almost ten storey tall and approximately 3.3 km long are being built.
A similar facility in Mangalore will have a capacity of 1.55 million tonnes and would be mechanically completed by June 2015. A 2.5-million tonnes storage at Padur, near Mangalore, would be completed by July, he said.
The money sanctioned by the finance ministry is enough to buy 6.5 million to 7 million barrels of crude as against Vizag capacity to hold 10 million barrels of crude.
With the commissioning of Visakhapatnam storage, India will join nations like the US, Japan and China that 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.
The official said India plans to use strategic reserves to offset the risk of a disruption in supplies, mostly from the Middle East and North Africa.
Western countries have used their strategic reserves only three times over the past 35 years, during the first Gulf War in Iraq in 1991, after hurricane Katrina in 2005 and in 2011, after the start of the war in Libya.