In a first, ONGC tapped to fund ₹15,000 crore strategic oil reserve in Mangaluru amid Iran war woes

State-owned Oil and Natural Gas Corp (ONGC) is set to play a key role in strengthening India’s energy security, with plans to develop and stock the country’s next strategic petroleum reserve (SPR) facility. According to a report by Economic Times citing sources familiar with the development, the project could require an investment of nearly ₹15,000 crore ($1.6 billion).

The government’s push comes in the wake of the Iran conflict, which highlighted India’s relatively limited strategic crude reserves and its vulnerability to disruptions in global oil supplies. In response, authorities have reportedly asked ONGC to spearhead the development of a new emergency oil storage facility to enhance the country’s preparedness against future supply shocks.

The proposed reserve will be built as an underground cavern in Mangaluru with a storage capacity of 1.75 million metric tonnes (MMT). Once completed, it will increase India’s existing strategic crude storage capacity of 5.33 MMT by roughly one-third.

ONGC already owns the land required for the project. The company is expected to spend approximately ₹5,000 crore on constructing the cavern, while an additional ₹10,000 crore may be needed to fill the facility with crude oil at prevailing prices and exchange rates, reported ET.

However, uncertainty remains about the project's financial viability. It is not yet known how ONGC would recover the substantial investment or whether the facility would operate solely as a strategic reserve or incorporate commercial activities to generate revenue.

The move marks a significant departure from past practice. Until now, all strategic petroleum reserve projects in India have been funded by the government and managed by Indian Strategic Petroleum Reserves Ltd (ISPRL), a special-purpose state-owned entity. India’s existing SPR facilities are located at Visakhapatnam in Andhra Pradesh with a capacity of 1.33 MMT, and in Mangaluru and Padur in Karnataka with capacities of 1.5 MMT and 2.5 MMT, respectively.

India consumes around 5 million barrels of crude oil per day, making its strategic reserve capacity relatively small compared with major global energy consumers. The country’s total SPR capacity of about 5.33 million tonnes, equivalent to nearly 39 million barrels, is modest by international standards and is not always fully utilised.

Data from the US Energy Information Administration shows that India held only 21 million barrels of strategic crude reserves at the end of 2025. In comparison, China maintained reserves of approximately 1.397 billion barrels, while the United States and Japan held 413 million barrels and 263 million barrels, respectively.

Initially designed exclusively for emergency use, India’s strategic reserves have gradually evolved to include commercial functions. In 2021, the government allowed ISPRL to utilise up to half of its storage capacity for commercial purposes. Under the revised framework, 30% of capacity can be leased to refiners and traders, while 20% can be used for crude trading operations.

The second phase of India’s SPR expansion, covering proposed facilities at Chandikhol in Odisha (4 MMT) and Padur in Karnataka (2.5 MMT), was approved under a public-private partnership (PPP) model in 2021. Last year, Megha Engineering & Infrastructures Ltd secured the contract to develop and operate the Padur facility, while the Chandikhol project is yet to be awarded.

Megha won the bid after seeking the lowest viability gap funding (VGF) among competing bidders. The government had capped VGF support at 60% of the project’s estimated cost of ₹5,700 crore. The PPP model allows developers to recover investments through leasing storage space to the government or oil companies, while also providing flexibility to trade crude stored in the facility.

Strategic petroleum reserves are considered vital safeguards against supply disruptions, sudden spikes in oil prices and currency volatility caused by geopolitical tensions. The Iran conflict, which began on 28 February, underscored the importance of maintaining large emergency stockpiles. China, supported by its extensive reserves, was able to reduce crude imports by nearly one-third in May as oil prices surged. Indian refiners, on the other hand, were forced to aggressively source crude from multiple global suppliers to ensure uninterrupted refinery operations.