US tapping its Strategic Petroleum Reserves

• 20 Nov 2021

Why in News

In wake of the 2022 midterm elections in the US, the Biden administration is considering tapping the US Strategic Petroleum Reserve (SPR) to check rising oil prices.

• Such a move may not have a long-term impact on dampening US oil prices that hit a seven-year high above $85 a barrel.
• China and India are also expected to do the same, after Saudi Arabia and Russia, members of the OPEC+ production group declined to pump more oil into global markets.

Key Points

• Strategic Petroleum Reserves:
  
  • 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 (thus moderating prices).
  • 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.
  • 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.
    • 3 Biggest 'Strategic Petroleum Reserves’ are with Japan, US, China.

Role of IEA in National SPRs

• According to the IEA, there are typically three ways to maintain SPR levels to meet the 90-day requirement.
  
  • Commercial stocks held by refiners,
  • Those held by the government and agency stocks,
  • With countries choosing which balance to maintain.
• The IEA helps coordinate member releases, provides data on levels and plays other roles.
• IEA also suggests measures to restrain demand or otherwise help supply.
  
  • These may include calls for voluntary fuel savings, fuel-switching such as oil to gas for power generation or "surge production" to quickly tap underground reserves.

• Strategic Petroleum Reserves in India:
  • 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.
  • Strategic crude oil storages are at Mangalore (Karnataka), Visakhapatnam (Andhra Pradesh) and Padur (Karnataka) as per Phase I. They have fuel storage of total 5. 33 MMT (Million Metric Tonnes).
  • The government of India is planning to set up two more such caverns at Chandikhol (Odisha) and Udupi (Karnataka) as per phase II through Public-Private Partnership. This will give an additional 6.5 million tons of the oil reserves.
  • 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.
  • India became an associate member of the IEA in 2017 and recently, IEA has invited India to become a full time member.

• 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.

Source: IE