Mumbai: The Union cabinet on Wednesday approved construction of an additional 6.5 million tonnes (mt) of strategic crude oil reserves, as part of India’s evolving energy security architecture.
Combined with an existing storage capacity of 5.3mt, the new strategic petroleum reserve facilities will help support 22 days of India’s crude oil requirements, according to a government statement.
The development assumes significance, given that India’s energy needs are primarily met through imports, which raises the issue of supply risks in times of war or natural exigencies for the world’s third-largest energy consumer after the US and China.
“The creation of these reserves will help to significantly strengthen the country’s strategic oil reserves," railways, coal and finance minister Piyush Goyal said at a press briefing after the cabinet meeting.
Strategic crude oil reserves, which are state-funded and meant to tackle emergency situations, allow a country to counter short-term supply disruptions. International Energy Agency (IEA) members maintain emergency oil reserves equivalent to at least 90 days of net imports.
The cabinet’s decision comes against the backdrop of uncertain global energy markets. A case in point is the US government on Wednesday asking all countries, including India, to stop oil imports from Iran by 4 November. The Organization of the Petroleum Exporting Countries (Opec), which accounts for about 83% of India’s total crude oil imports and 40% of global production, is also looking to strengthen its cooperation with Russia on production control. Falling production in Venezuela and geopolitical tensions have also added to the uncertainties.
“We are going to explore the PPP (public-private partnership) mode for execution of these underground caverns for which potential investors will be approached," Goyal said, adding that the cabinet has only accorded in-principle approval, while costs of the advanced design and engineering required would be worked out.
“The SPR (strategic petroleum reserve) facilities at Chandikhol (Odisha) and Padur (Karnataka) will be underground rock caverns and will have capacities of 4mt and 2.5mt, respectively. The government had announced setting up of two additional SPRs during the budget announcement for 2017-18," the government said.
India’s strategic crude oil storages are currently located at Visakhapatnam (1.33mt), Mangaluru (1.5 mt) and Padur (2.5mt).
“The in-principle approval is to take up the project under PPP model to reduce budgetary support of government of India. The terms and conditions of such participation would be determined by the ministry of petroleum and natural gas in consultation with ministry of finance after conducting road shows to elicit requirements of market, including prospective investors," the government statement added.
Abu Dhabi National Oil Co (Adnoc), the state-run oil company of the United Arab Emirates (UAE), is the only one to commit to India’s crude oil reserve programme till date. It has also become a stakeholder in one of the largest global refinery and petrochemicals complexes coming up at Ratnagiri in Maharashtra, along with the world’s biggest oil producer, Saudi Arabian Oil Co., or Saudi Aramco, and a consortium of Indian state-run companies.