Strategic Petroleum Reserve – Big Move by Modi Sarkaar

The Modi government has been going through turbulent times with respect to its PR, mainly due to its mismanagement in communication of the Land Acquisition Bill. However, there are other critical decisions that are getting drowned in this mayhem. Topic such as strategic petroleum reserve (SPR) is not sexy for a discussion on prime-time news show. However, critical steps have been taken by the government that shows that the long term is indeed being taken care of.

India imports nearly two-thirds of its oil requirements and this is expected to increase to approx. 80% by 2020. It has been one of the biggest reasons for increase in India’s deficit. With the falling crude prices since last year, the onus was on the government to make maximum use of the opportunity.  The government allocated Rs 4,948 crore to upgrade India’s strategic petroleum reserves (SPR) to cover itself from any crises.

Every country plans for contingencies and India too initiated the strategic crude oil reserve in 2003. Three facilities are being developed, in the first phase. These three facilities would be enough to store less than two weeks (11 – 13 days) of India’s oil requirements:

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Mangalore, Karnataka – 1.5 million metric tonnes

Padur (near Mangalore), Karnataka – 2.5 million metric tonnes

Vishakhapatnam, Andhra Pradesh – 1.33 million metric tonnes

Only the Vishakhapatnam facility is operational, as of date and the other two are expected to be ready by October 2015.

In addition, the government also initiated the second phase of capacity expansion in Padur, Bikaner (Rajasthan), Rajkot (Gujarat) and Chandikhol (Odisha). Together, all the reserves is targeted to store 90 days of oil requirements or 12.5 million metric tonnes of crude oil. The second phase is expected to be complete by 2020. Creating additional infrastructure for these four capacities, including storage, transport, pipeline is expected to cost Rs 20,000 crore. The government is currently exploring additional avenues to generate finance these capacities.

Officially, India placed its first order for the strategic reserve in March 2015. Indian Oil Corporation (IOC) bought 2 million barrel from Iraq, as the first order. In addition, IOC and Hindustan Petroleum (HPCL) will buy three million barrels each for storage in Vizag. Thus, the total arrival is estimated to be eight million barrels.

This eight million barrel is approximately 10% of the daily global market demand. Though not huge by global standards, it is expected that this purchase by India can offset drop in the purchase by China and Asian refinery maintenance stoppage.

India is a relatively new player in the SPR game, with USA and Japan leading with 95 million metric tonnes and 44 million metric tonnes of oil respectively. China and Germany are the other big economies ramping up their capacities. For India, its a step that hasn’t come a day too late.

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