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Home / Industry / Energy /  India to invite private firms to build strategic crude oil reserves

New Delhi: India will invite private companies to build and operate strategic crude oil reserves to augment its protective storage of energy supplies.

Strategic reserves are a country’s answer to counter any short-term disruptions in energy supplies. These are typically state-funded and meant to tackle emergency situations.

“We have decided to opt for the public-private partnership (PPP) route for setting up future strategic crude oil reserves," said a government official, requesting anonymity due to the sensitive nature of the issue.

Private sector involvement has been sought to help the government meet the fund requirement given high crude oil prices. This involvement is meant for the 12.5 million tonnes (mt) of additional strategic storage facility planned during the 12th Plan period (2012-17).

Participation will be allowed on the condition that crude oil should be available for release at the government’s discretion. Crude oil from these reserves will be released in situations when there is a short-term supply disruption, a natural calamity or a global event such as a war that may lead to an abnormal increase in prices.

G.C. Chaturvedi, India’s petroleum secretary, confirmed the development: “We are exploring the PPP option."

Indian Strategic Petroleum Reserves Ltd, a subsidiary of the Oil Industry Development Board, is constructing three strategic storage facilities at Visakhapatnam, Mangalore and Padur that have a combined capacity of 5.39 mt (1.33 mt, 1.50 mt and 2.56 mt, respectively), capable of sustaining 15 days of consumption.

But the Visakhapatnam facility, which was to be commissioned by October, has been delayed due to geological issues. The Mangalore and Padur facilities, which are to be commissioned by 2013 and 2014, respectively, are also running late by a few months.

India currently has crude reserves to support 74 days of consumption.

The International Energy Agency wants large energy-consuming nations, including India, China and Russia, which are not part of the 28-member Organisation for Economic Cooperation and Development, to act in concert to counter supply disruptions.

A joint strategy is likely to promote regional and global energy security, and assuage concerns that oil supplies may not be able to match demand and lead to high prices.

India, Japan, China, South Korea and the US are working on a joint response mechanism to manage an oil shock based on their combined strategic crude oil reserves. The first meeting for this was held in Beijing in December 2006.

The US Strategic Petroleum Reserve and the Japanese National Oil Co. also maintain huge reserves.

India has been inviting 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.

Countries such as India that are dependent on imports to meet their oil needs are particularly vulnerable to price volatility. India, the world’s fourth largest energy-consuming nation, imports 80% of its crude oil and 25% of its natural gas requirements.

India trails the US, China and Russia, accounting for 4.4% of global energy consumption.

India’s energy demand is expected to more than double by 2035, from less than 700 million tonnes of oil equivalent (mtoe) today to around 1,500 mtoe, according to the oil ministry’s estimates.

shubham.s@livemint.com

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