With global oil demand plunging due to spreading contagion crude prices are in tailspin, providing an opportunity for India’s ambitious and costly Indian Strategic Petroleum Reserves programme
NEW DELHI: The novel coronavirus outbreak may be a blessing in disguise for India’s energy security efforts, with the National Democratic Alliance (NDA) government exploring ways to leverage the depressed prices to fill in its strategic crude oil reserves, said people aware of the development.
With the global oil demand plunging due to the spreading contagion crude prices are in tailspin, providing an opportunity for India’s ambitious and costly Indian Strategic Petroleum Reserves (ISPR) programme. Indian strategic planners have been worried over short-term supply disruptions, given that the country’s energy needs are primarily met through imports.
Strategic crude oil reserves, which are typically state-funded and meant to tackle emergency situations, allow a country to tide over short-term supply disruptions. International Energy Agency (IEA) members maintain emergency oil reserves equivalent to at least 90 days of net imports.
Growing concerns over the COVID-19 outbreak roiled global crude oil markets on Monday, with Brent prices crashing by as much as 10%. The international benchmark hit a low of $28.03 per barrel, far below the highs of $147 per barrel touched in July 2008. The West Texas intermediate (WTI) was trading at $28.53 per barrel.
Experts welcomed the game plan being explored.
“Although government has been thinking in terms of commercialisation or even a deal in lines of Adnoc to fill up the empty caverns in the strategic petroleum reserve at Padur -this may the opportune time to buy from spot market taking advantage of the prevailing low crude prices and fill these up," said Debasish Mishra, partner, consulting at Deloitte Touche Tohmatsu India LLP.
India has an existing storage capacity of 5.3 million tonnes (mt) at Visakhapatnam (1.33mt), Mangaluru (1.5 mt) and Padur (2.5mt) built at an investment of $600 million in the first phase. This is operational and can support 9.5 days of net imports. In addition, the NDA government has approved the construction of an additional 6.5 mt of strategic crude oil reserves at Chandikhol (4 mt) in Odisha and Padur (2.5 mt) in Karnataka. The government created a special purpose vehicle (SPV)—Indian Strategic Petroleum Reserves Ltd. (ISPRL)—-for building these SPRs.
India will have oil reserves equivalent to at least 87 days of net imports, once the $1.6 billion second phase of ISPR which aims to add 12 days of crude storage, is operational. These facilities together will help support 22 days of India’s crude oil requirements. Indian refiners also maintain 65 days of crude storage, taking the total tally to 87 days.
In comparison, IEA countries hold 1.55 billion barrels of public emergency oil stocks. In addition, 650 million barrels are held by industry under government obligations, and can be released as needed.
Queries emailed to India’s petroleum ministry spokesperson late Sunday remained unanswered.
This comes in the backdrop of India’s plans for calling bids to fill Padur strategic petroleum reserves with 19 million barrels of oil under the Design, Build, Finance, Operate and Transfer (DBFOT) model.
At a time of growing uncertainty in global oil markets, such reserves will help India manage supply and price risks as part of its evolving energy security architecture. 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 agreement to fill up Mangalore and part of Padur cavern. India has also been trying to rope in Saudi Arabia, that is the second largest supplier of crude and cooking gas to the country for participation in its SPR programme.
The IEA has been keen that India, the world’s third largest energy-consuming nation, becomes a member of the world’s premier energy monitor. Though not an IEA member, India has been building Strategic Petroleum Reserves from 2004 and in March 2017, became an IEA associate country.
With the world’s largest crude oil producer Saudi Aramco plans to boost crude oil supplies to 12.3 million barrels per day in April, and Russia lifting all production curbs in the backdrop of novel coronavirus pandemic, the global oil markets has turned on its head. A case in point being the Chinese state-run firms that are willing to offload their equity oil to Indian firms.
The sharp fall in crude prices has placed major consumers such as India at an advantage as it will help manage inflationary and fiscal pressures. India is the world’s third-largest crude oil buyer and the fourth-largest liquefied natural gas importer. Brent crude prices saw their biggest single-day fall on 9 March—-the sharpest decline since the 1991 Gulf War.
The cost of the Indian basket of crude, which averaged $56.43 and $69.88 per barrel in FY18 and FY19, respectively, was $65.52 in December, according to data from the Petroleum Planning and Analysis Cell. The price was $33.49 a barrel on 13 March. The Indian basket represents the average of Oman, Dubai and Brent crude.
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