New Facilities Under Strategic Petroleum Reserves

• 27 Jul 2021

Why in News

Recently, under the Strategic Petroleum Reserves (SPR) programme, the government has given approval for establishing two additional facilities.

• In 2020, India filled its strategic petroleum reserves in view of the slump in crude prices.

Key Points

• New Facilities:
  
  • The new facilities will be commercial-cum-strategic facilities with a total storage capacity of 6.5 MMT (Million Metric Ton) underground storages at:
    
    • Chandikhol, Odisha (4 MMT)
    • Padur, Karnataka (2.5 MMT)
  • They will be built in Public Private Partnership mode under phase II of the SPR Programme.
• Existing Facilities:
  
  • Under Phase I of the Programme, Government of India has established petroleum storage facilities with total capacity of 5.33 MMT at 3 locations:
    
    • Visakhapatnam, Andhra Pradesh (1.33 MMT).
    • Mangaluru, Karnataka (1.5 MMT).
    • Padur, Karnataka (2.5 MMT).
  • The petroleum reserves established under Phase I are strategic in nature and the crude oil stored in these reserves will be used during an oil shortage event, as and when declared so by the Government of India.

Strategic Petroleum Reserves

• About:
  
  • Strategic petroleum reserves are huge stockpiles of crude oil to deal with any crude oil-related crisis like the risk of supply disruption from natural disasters, war or other calamities.
  • According to the agreement on an International Energy Programme (I.E.P.), each International Energy Agency (IEA) country has an obligation to hold emergency oil stocks equivalent to at least 90 days of net oil imports.
    
    • In case of a severe oil supply disruption, IEA members may decide to release these stocks to the market as part of a collective action.
    • India became an associate member of the IEA in 2017.
  • The concept of dedicated strategic reserves was first mooted in 1973 in the US, after the OPEC (Organization of the Petroleum Exporting Countries) oil crisis.
  • Underground storage is, by far, the most economical method of storing petroleum products because the underground facility rules out the requirement of large swathes of land, ensures less evaporation and, since the caverns are built much below the sea level, it is easy to discharge crude into them from ships.
  • The construction of the Strategic Crude Oil Storage facilities in India is being managed by Indian Strategic Petroleum Reserves Limited (ISPRL).
    
    • ISPRL is a wholly owned subsidiary of Oil Industry Development Board (OIDB) under the Ministry of Petroleum & Natural Gas.
  • After the new facilities get functional a total of 22 days (10+12) of oil consumption will be made available.
  • With the strategic facilities Indian refiners also maintain crude oil storage (industrial stock) of 65 days.
  • Thus, Approximately a total of 87 days (22 by strategic reserves + 65 by Indian refiners) of oil consumption will be made available in India after completion of Phase II of the SPR programme. This will be very close to the 90 days mandate by the IEA.
• Need of SPRs in India:
  
  • Build Sufficient Capacity:
    
    • The current capacity of this is not sufficient to tackle any unpredicted event that occurs in the international crude market.
    • 86% of the country is dependent on oil with nearly 5 million barrels of oil consumption in a day.
  • Energy Security:
    
    • The fluctuation in the price of crude oil in the international market leads to a dire need for India to make petroleum reserves to ensure the country's energy security and avoid monetary loss.

Way Forward

• The demand is to look for assets of energy sources present abroad. India should buy and store the oil in the host countries as Indian assets and retrieve them when required like China.
• India should distribute its oil contracts in several countries so as to avoid the monopoly of any one region.
  
  • For example, currently India is importing most of the oil from the Gulf region.
• The oil is the central source of energy but is limited, therefore alternative sources need to be looked upon.
• Indian oil imported in the ships consisting of 90% foreign ships; is also an issue to be looked upon. India needs to acquire its own ships to transport oil.

Source: PIB