New Delhi: The Sultanate of Oman may become the first investor to take up an Indian invitation to set up large crude oil storage facilities in the country, helping the world’s second fastest growing major economy reinforce emergency oil reserves and reduce its vulnerability to supply disruptions.
India has invited oil-producing West Asian nations to set up storage facilities on the country’s coastline to help them serve their energy markets in Asia such as Japan.
In turn, the facilities will augment India’s oil storage infrastructure, helping it meet domestic demand in the event of any short-term disruption in supplies, whether caused by a natural calamity or by unexpected global events.
“An Indian delegation is expected to leave for Oman in January next year to discuss the modalities of the joint venture arrangement,” said a senior official in the ministry of petroleum and natural gas who did not want to be identified.
Oman is among the few West Asian oil producers that’s actively engaged in the Indian energy sector. Oman Oil Co. (OOC), owned by the Oman government, is a partner with India’s Bharat Petroleum Corp. Ltd (BPCL) in the 6 million tonnes per annum, or mtpa, Bina oil refinery in Madhya Pradesh with a 26% stake.
Indian Strategic Petroleum Reserves Ltd is constructing three strategic storage facilities at Visakhapatnam, Mangalore and Padur with a combined capacity of 5 million metric tonnes, equivalent to around 14 days of consumption.
“The proposal has been sent to all the Gulf countries and discussions are going on. They can invest and have a storage,” said petroleum secretary R.S. Pandey. “The arrangement with the foreign countries for the creation of crude oil infrastructure will be separate from the three strategic storage facilities being set up.”
Pandey declined to comment on the proposed Oman visit by the Indian delegation.
India depends on imports to meet its oil needs and is particularly vulnerable to supply disruptions. West Asia holds the key to energy security for India, the world’s fifth largest oil importer. India imports 75% of its requirements and accounts for some 3.5% of global consumption. It will become the third largest oil importer after the US and China before 2025, with energy demands expected to almost double by 2030, according to the International Energy Agency.
OOC, the embassy of Oman in New Delhi and consulate in Mumbai could not be contacted for comment. Questions emailed to the OOC, the embassy of Oman and the consulate bounced back.
“An official offer has been extended to Oman. From a strategic view-point, such an arrangement works to our advantage as in emergency the crude stored in the facilities created through overseas participation can be given to the refineries to meet the domestic demand,” said a top executive at a government-owned oil refining company.
Japan is heavily dependent on West Asian oil producers such as the UAE, Saudi Arabia, Kuwait, Qatar and Iran to meet its energy needs. Japan, the world’s second biggest economy, is the third largest oil consumer after the US and China.
“Creating crude oil storage facilities is extremely critical for India’s long term energy security,” said Gokul Chaudhri, partner at audit and consulting firm BMR Advisors. “If we are able to build this infrastructure, rather than it just being a stock point, we can optimally use it as a trading hub for commercial advantage.”
Such facilities should be built as part of a special economic zone, or SEZ, to eliminate the tax impact, said Chaudhri. SEZs offer attractive tax incentives to investors.
India has already emerged as a major Asian refining hub, with an installed refining capacity of 177.97 mtpa and is exporting petroleum products worth $25 billion (Rs1.17 trillion) annually. The new storage facilities could help India emerge as a hub for crude oil trading. Energy supply deficits in East Asia are a cause of concern for the growing economies of China, India, Japan and South Korea. West Asia supplies around 70% of Asian oil consumption.