India builds up strategic reserves as prices drop
India is quietly and quickly working on filling up its strategic petroleum reserves of 5.33 million metric tons (MMT), taking advantage of low crude oil prices, as it seeks to ensure that the country has enough fuel to power vehicles amid a global pandemic that has infected hundreds of thousands, killed more than 9,300, disrupted global trade and roiled economies and markets. India imports around 84% of the oil it uses.
Around half this capacity is full, an official with direct knowledge of the matter said. The total capacity will meet India’s crude oil requirements for about 9.5 days, perhaps double that at a time when most people are preferring to stay at homes and economic activity is down. In addition, domestic refiners usually keep stocks that can last 64.5 days.
India recently contracted crude oil worth Rs 690 crore, the first major purchase towards filling its strategic petroleum reserves even as crude oil prices plunged to a nearly 16-year low of $24.88 per barrel on Wednesday, two officials, including the one cited above, said.
The officials, who spoke on condition of anonymity, declined to disclose commercial details such as the purchase price, the quantity and the name of the supplier. “Average price of the contracted quantity of crude is around $30 per barrel,” the first official said. The price is substantially lower than India’s average crude oil purchase price of $69.88 per barrel in 2018-19.
The deal is being executed by one of the public sector refiners, and the crude oil, expected to be delivered next month, will be stored in one of the caverns (underground storage facilities) of Indian Strategic Petroleum Reserves Ltd (ISPRL), the second official said.
ISPRL currently has strategic petroleum reserves with a total capacity of 5.33 MMT in three locations — Mangaluru, Visakhapatnam and Padur.
The government has approved construction of two more strategic crude oil reserves with a total 6.5 MMT capacity at Chandikhol in Odisha (4 MMT) and Padur in Karnataka (2.5 MMT). The proposed facilities will provide additional storage for 11.57 days.
The first official said it is an opportune time for oil consumers and that India will procure more crude oil from Abu Dhabi and Saudi Arabia under separate agreements for its reserves. “Talks are on with Saudi Arabia and we are awaiting a final nod from Riyadh,” he said.
Brent crude gained marginally from Wednesday and was hovering around $25.60 per barrel at 7:38 pm IST on Thursday. On January 6, 2020, it was at $70.25 a barrel.
ISPRL already has an oil storage and management agreement with Abu Dhabi National Oil Company (ADNOC) and has filled one storage chamber at the Mangaluru facility. The agreement was signed in February 2018 for storing about 5.86 million barrels of crude oil (around 0.8 MMT) by ADNOC in Cavern-A of Mangaluru strategic petroleum reserve (SPR).
The Union Cabinet on November 8, 2018, approved filling of crude oil in Padur SPR facility by overseas oil companies on the ADNOC model, the officials said. The model allows state-owned oil companies of oil producing countries to store crude oil in the SPR and use it on commercial terms. But in case of national emergency, they have to sell the oil to Indian refiners.
The decision to construct underground caverns to ensure India’s energy security — as a buffer to deal with any situation of supply chain disruption due to external reasons — was taken by the Cabinet on January 7, 2004. India imported 83.8% of the crude oil it processes in 2018-19. The import dependence was 78.3% in 2014-15.
Due to its strategic importance in the country’s energy security, the Budget speech of finance minister Nirmala Sitharaman on February 1 provided a tax exemption to Indian Strategic Petroleum Reserves Limited (ISPRL).
ISPRL was set up on June 16, 2004, as a special purpose vehicle to build and operate strategic crude oil reserves. Later in May, 2006, it became a fully owned subsidiary of the Oil Industry Development Board (OIDB).