The government has asked state-run Engineers India Ltd (EIL) to make detailed feasibility reports (DFRs) to build such new reserves at six locations, two people aware of the development said.
Of these, one is proposed to be at the Mangalore Special Economic Zone in Karnataka and the other at salt caverns in Rajasthan’s Bikaner. State-owned EIL, an engineering and consultancy firm focusing on the energy sector, is expected to submit its reports by the end of the year.
“EIL is doing DFR in six locations, which are close to the coast and refineries; including in Mangalore SEZ, and also salt caverns in Bikaner for strategic purposes. They haven’t finalized it, with the study expected to be completed by the end of this year. The plan is to take India’s reserve capacity to 90 days. That’s the basic requirement,” said one of the two people cited above requesting anonymity.
Vital reserves
During the West Asia conflict, Iran threatened to close the Strait of Hormuz in its territorial waters, through which a fifth of the world’s oil cargoes pass. With India consuming 5.5 million barrels of crude oil per day (mbpd), the threat turned the spotlight on 1.5-2 mbpd oil that heads for India through this vital choke point, highlighting the need for an effective SPR programme.
“The information sought is confidential in nature, considering present environment,” ISPRL’s chief executive officer and managing director L.R. Jain said in an emailed reply to a query.
An EIL spokesperson in an emailed response said, “Above Information is correct to our knowledge. Please note that as part of Phase 1, a capacity of 5.33 mmt of capacity was added.”
“Feasibility is under advance stage of finalization,” the EIL spokesperson added.
Queries sent to a spokesperson of India’s petroleum and natural gas ministry on late Tuesday remained unanswered.
Conflict concerns
SPRs are built underground in strategically chosen locations, often near refineries and ports, like rock caverns or salt caverns. India has been stocking up oil ever since opening its first SPR in Visakhapatanam a decade ago; however, the latest push comes against the backdrop of a 10-day conflict in West Asia, home to some of the world’s biggest oil fields, exposing vulnerabilities on the energy front.
Indian Strategic Petroleum Reserves Ltd (ISPRL), a state-run company, has built reserves totalling 5.33 million metric tonne (mmt) at Vishakhapatnam (1.33 mmt), Mangaluru (1.5 mmt) and Padur (2.5 mmt). The UAE’s Abu Dhabi National Oil Co. (Adnoc) has partnered with India’s strategic crude oil reserve programme, leasing capacity from the reserves. The government is also looking to secure participation from more global energy majors.
In the second phase, SPRs of 6.5 mmt are planned in a public-private partnership mode, at Chandikhol in Odisha (4 mmt) and Padur in Karnataka (2.5 mmt). The six new locations being explored will be in addition to these.
India currently has emergency reserves of crude oil and petroleum products equivalent to 77 days of net imports. This includes the capacity at SPRs, as well as the stocks maintained by state-run oil companies. For comparison, member countries of the International Energy Agency (IEA) maintain emergency stocks equivalent to at least 90 days of net imports. This assumes significance for India given its dependence on imported crude, and the fact that oil comprises about 30% of its total imports. In such a scenario, volatility and higher prices impact the country’s trade deficit, current deficit and eventually, economic growth.
Filling supply gaps
India’s current SPR capacity of 5.3 million tonnes is enough to meet just 9.5 days of its oil needs. According to data from the standing committee report on petroleum and natural gas submitted to the parliament in December 2024, 3.6 million tonne capacity was filled till October 2024.
Crude oil approached nearly $80 per barrel as the Israel-Iran conflict broke out, before easing on Tuesday after the rivals reached a ceasefire. At the time of writing, the August contract of Brent on the Intercontinental Exchange was trading at $67.74 per barrel, higher by 0.92% from its previous close. Similarly, the August contract of West Texas Intermediate (WTI) on the NYMEX rose 0.87% to 64.93 per barrel.
Prashant Vasisht, senior vice-president and co-group head, corporate rating at Icra Ltd said: “Given that India does not have a significant domestic production so far, having strategic reserves for emergency situations is important. Because, a geopolitical crisis may stretch from a few days to months, and India needs to ensure that any supply gap can be immediately filled to meet the demand for that period.”
He added that even considering energy transition, India’s demand for petroleum products like petrol and diesel will continue to grow for at least the next 15 years. “So, the expansion of strategic reserve capacity is critical for India,” Vasisht added.
Amit Kumar, Partner and Leader, Energy & Renewables at Grant Thornton Bharat said, “India needs to increase its strategic reserves significantly to reach the targeted 90 days of storage, and to ensure that in case of a crisis, the reserves can be used. However, these reserves come with huge investment requirements, and the government may also look at getting in global players, which would help in hedging their investments.”
Expenditure
According to industry estimates, building reserves of 1 mt requires capital expenditure of ₹2,500 crore.
In November 2021, India agreed to release 5 million barrels from its reserves to cool global crude oil prices, in coordination with other major oil consumers including the US, China, Japan and South Korea. Also, India bought oil at $19 a barrel in 2020 to fill its reserves, and in the process, saved $685.11 million.
“Government and OMCs (oil marketing companies) evaluate, from time to time, the possibility of augmentation of storage capacities based on technical and commercial feasibility. Assessment of new sites for establishing additional petroleum reserves is a continuous process,” minister of state (MoS) in petroleum and natural gas ministry Suresh Gopi informed the Lok Sabha in a written reply on 20 March, according to a government statement.
India imports around 244 million tonnes of crude oil annually, accounting for over 85% of its total crude oil requirement. It has the option to source crude oil from 39 countries.
In the backdrop of the West Asia crisis, New Delhi evolved an oil sourcing strategy that involves bypassing the Strait of Hormuz via two pipelines; tapping into the global reserves of Adnoc and Saudi Aramco; and significantly increasing imports from the US, as reported by Mint earlier. The two pipelines, which run east to west across the Arabian peninsula, was planned to be tapped if Iran closes the Strait. The first is Adnoc-operated 360-km Habshan-Fujairah strategic oil pipeline with a 1.5 million barrels per day (mbpd) capacity that opens to the Gulf of Oman; and the Saudi Aramco-operated 1,200-km East-West crude oil pipeline with a 5 mbpd capacity that offers access to the Red Sea.
Source:https://www.livemint.com/industry/strategic-petroleum-reserves-iea-west-asia-conflict-iran-hormuz-mangalore-sez-chandikhol-crude-oil-adnoc-aramco-israel-11750851539478.html