5 million tonnes of India’s oil reserves lie uninsured
India is unable to secure insurance cover for about 5 million tonnes of crude oil reserves kept in caverns for any exigency, which also include supplies from sanctions-hit Iran. Global reinsurers are unwilling to provide cover fearing adverse action against them for the breach of US sanctions, two persons with direct knowledge of the matter said requesting anonymity.
“We are in a quandary, what to do? One option is to ask refiners to use the crude as it is too risky to keep the high-valued and highly volatile commodity without insurance cover. But, why would refiners bear additional costs for evacuation of crude from the underground caverns and transport it to their refineries?” one of the persons cited above said.
Indian refiners are reluctant to immediately use the crude oil due to various reasons, including inventory and cost issues, the second official said.
The government-run Indian Strategic Petroleum Reserves Limited (ISPRL) has created storage facilities in three caverns in Visakhapatnam, Mangaluru and Padur (near Udupi). The combined storage capacity of these caverns is a little over 5.33 million tonnes (MT), which is enough to meet India’s domestic energy requirements for 9.5 days as per the 2017-18 consumption figure of 206.2 MT, officials said. The consumption grew next year to 211.6 MT.
The quantum of Iranian crude oil present in caverns and the total value of the stored commodity in the three caverns could not be immediately ascertained. The oil ministry offered no comments on this matter. ISPRL did not respond to an email query.
Officials quoted earlier said ISPRL stored Iranian crude oil because it is relatively cheaper and its quality is ideal for Indian refiners. Iran offers its crude oil to India on attractive terms. Reinsurers are hesitating to give insurance cover to the facilities because they also store Iranian crude oil.
Even in 2012-13, reinsurers had refused to provide insurance covers to domestic refineries for processing Iranian crude despite the sanctions, oil sector experts who did not wish to be named said. They had also refused insurance cover to vessels carrying crude oil from Iran during that period, experts said.
Indian general insurance companies provide cover to oil refineries and installations and then reinsure that risk with global reinsurers by paying a premium. Most of the reinsurers are American and European and they take sanctions seriously, experts said.
“Sovereign governments may take the risk and act against the US sanctions, but no commercial enterprise would jeopardise its business interests. Reinsurers are no exception,” RS Sharma, former chairman of Oil and Natural gas Corporation, said.
Experts said insured amounts of the oil and gas sector are huge, often running into several billions of dollars, which is too big for Indian general insurance companies to take on their books. They are mandated by the regulator to get such risks covered through reinsurance. India’s only reinsurer is GIC Re, but it has limited capacity, experts said.
The Vishakhapatnam cavern has storage capacity of 1.33 MT, Mangaluru (1.5 MT) and Padur (2.5 MT). The government plans to construct two more such storage facilities with total capacity of 6.5 MT at Chandikhol in Odisha (4 MT) and Padur in Karnataka (2.5 MT). As per the consumption pattern of 2017-18, 6.5 MT capacity is sufficient to meet about 12 days of the country’s crude oil requirement.