Graphic: Paras Jain / Mint

Graphic: Paras Jain / Mint

India, US and China consider joint strategic crude oil response

India, US and China consider joint strategic crude oil response

New Delhi: To protect themselves against disruptions in crude oil supplies, India, Japan, China, South Korea and the US will meet in June in Seoul to work on a joint response mechanism based on their combined strategic crude oil reserves. The five nations together account for 44% of global demand.

Graphic: Paras Jain / Mint

Strategic crude oil reserves are a country’s answer to counter short-term supply disruptions. They are state-funded and meant to tackle emergency situations.

The third meeting of the five energy ministers will determine a joint response framework in Seoul.

“We have to work out a joint strategy," said an official of India’s ministry of petroleum and natural gas, who didn’t want to be identified.

A joint strategy could promote regional and global energy security to counter supply disruptions. The first of the meetings to discuss the issue was held in Beijing in December 2006.

“This is a very important international development," said another official at the petroleum ministry, who also did not want to be identified.

The Seoul meeting plans to address the growing concern that oil supplies will not be able to match demand and may cause severe disruptions such as high prices as the recent global financial crisis has led to reduced investment in the hydrocarbon sector.

“It is very important for significant stakeholders to work very closely together in a strategic partnership for smooth supply of resources, particularly at a time when a completely new international economic order is emerging," said Monish Chatrath, executive director at consultancy firm Mazars India.

Nobuo Tanaka, chief of the International Energy Agency (IEA), said in a recent interview to Mint that he wants a lot of investments in upstream hydrocarbon sector to happen, “for decline of the current production level from the existing oil fields is a serious concern". “We need a huge investment just to offset this decline," he said.

The other areas of discussion include the facilitation of China and India’s entry into IEA, of which Japan, the US and South Korea are already members. A country that is a net importer of oil must maintain emergency oil reserves equivalent to at least 90 days of net imports to be eligible for IEA membership.

While the Japanese embassy did not comment on the matter citing unavailability of information, questions emailed to the embassies of China, South Korea and the US were unanswered at the time of going to press.

Nations have been cautious in disclosing the size of their strategic reserves. While the US Strategic Petroleum Reserve and the Japanese National Oil Co. maintain huge reserves, India is building three strategic storage facilities at Visakhapatnam, Mangalore and Padur with a combined capacity of five million tonnes, equivalent to around 14 days of consumption.

Countries such as India that are dependent on imports to meet their oil needs are particularly vulnerable to price volatility. India—the world’s fifth largest energy consumer—imports 75% of its requirements and accounts for around 3.5% of global consumption. Extreme volatility has marked the crude oil price, which reached a record $147 (Rs6,556 today) per barrel in July 2008, but has since fallen to around $82.

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. 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.