Securing energy future: India eyes new strategic crude oil reserve in Mangalore

India is digging deep to shield itself from the volatile global oil market. The state-run Indian Strategic Petroleum Reserves Ltd (ISPRL) is currently conducting a feasibility study for constructing a 1.5-2 million tonne capacity reserve, according to two familiar with the matter.

The feasibility study will likely conclude by September, said the people cited above, and the cost of the project is estimated at ₹5,000 crore.

"Based on feasibility study report, further process of necessary approvals shall be initiated," said one of the persons.

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As per protocol, if the study yields satisfactory results, the proposal for the new reserve will be submitted to the Union cabinet for approval. This initiative is part of ISPRL's broader phase II expansion, which has already seen bids invited for a 2.5 million tonne commercial and strategic reserve at Padur, Karnataka, with bids expected to be opened this month.

The expansion also includes plans for a 4 million tonne reserve in Chandikol, Odisha, where ISPRL is in advanced discussions with the state government, with land acquisition nearing completion, the other person cited above added.

Mangalore, the site of the proposed new reserve, currently hosts a 1.5 million tonne reserve as part of ISPRL’s existing 5.33 million tonne storage capacity. In its first phase, ISPRL established underground rock caverns to store 5.33 million tonnes of crude oil across three locations: Visakhapatnam in Andhra Pradesh (1.33 million tonnes), and Mangalore (1.5 million tonnes) and Padur (2.5 million tonnes) in Karnataka.

Queries sent to ISPRL and the ministry of petroleum remained unanswered at the time of publication.

Energy security is critical for India, which imports over 85% of its oil and 55% of its gas requirements. Fluctuations in global prices can significantly impact India’s import bill, stoke inflation, and widen the trade deficit.

Securing India's energy future

Strategic petroleum reserves are designed to store fossil fuel for use during supply disruptions or emergencies, such as conflicts that impact normal supplies.

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The proposed Mangalore reserve could also bolster India’s bid for membership in the International Energy Agency (IEA), which requires member countries to maintain oil stocks equivalent to at least 90 days of net imports.

India, an IEA associate member since 2017, formally requested full membership in October 2023. In February, the IEA announced the commencement of talks with India regarding this request. A January report from S&P Global highlighted that India’s current petroleum storage capacity is considerably lower than that of some IEA member countries, underscoring the need for expansion amid rising geopolitical risks and growing refining capacity.

A parliamentary committee’s review of India’s crude oil import policy indicates that the country’s current storage capacity accounts for just 9.5 days of national demand as of FY20. Combined with storage facilities maintained by oil marketing companies, India’s total storage capacity covers approximately 74 days of demand.

ISPRL, a subsidiary of the Oil Industry Development Board, is also focused on commercializing its reserves. The Union cabinet had approved the commercialization of ISPRL in July 2021, allowing it to utilize up to 50% of its phase-I storage capacity for commercial activities, including renting and trading.

As part of this mandate, ISPRL has already leased 300,000 tonnes of capacity to Hindustan Petroleum Corp. Ltd (HPCL) for three years at the Visakhapatnam reserve. Additionally, bids for leasing another 750,000 metric tonnes are expected to be opened this month. On the trading front, ISPRL is preparing to invite global expressions of interest (EoI) for a strategic partner to trade crude from its reserves.

Mint had earlier reported that, ISPRL, in a strategic move, is also considering renting storage space in Southeast Asia, particularly in Singapore, Japan, and South Korea, for their strategic, logistical, and economic advantages.