India needs to enhance its capacity of Strategic Oil Reserves

Mechanization of the world has exponentially pushed the demand for crude oil in the energy market. Owing to the demand every country is striving to gain an uninterrupted and cheap source of crude oil. But the scattered & uneven presence of fossil sources of energy has posed a different kind of challenge for countries like India which lack the energy source. So, in an effort to maintain the uninterrupted supply of crude oil, every country is trying to keep a strategic reserve of it for critical situations like war, calamities, and other unwarranted supply chain disruption.

Russia: A new source of crude oil for India

Global uncertainty caused due to the Covid pandemic and the Ukraine war has disrupted the whole supply chain market. The supply chain constraint has effectively increased the prices of crude oil in the world market and countries like India which substantiate its energy requirement by import, are severely affected by it.

But harsh sanctions against Russia by the West and their allies have provided the country with an opportunity to secure a reliable and all-weather source of energy. Saving the country’s interest, India rising from the world’s pressure has secured the import opportunity from Russia in an unprecedented manner. The import happened at such a large scale that in about 100 days, Russia accounted for 18% of its crude import, up from the previous 1%, and became the second-largest crude source for India replacing Saudi Arabia.

The constant supply of crude at discounted rates by Russia is providing the country with another opportunity to fulfil the strategic reserve of crude oil. Growing tensions and manufactured price rise of oil-exporting countries have already affected the balance sheet of the country and USD 119 billion in crude imports are draining dollars from Indian forex reserves. So in this conflicting situation, India needs to absorb the Russian crude in its strategic stock basket and secure the country’s interest.

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Strategic Reserve Stockpiles

Currently, the Government of India has set up 5 million metric tons (MMT) of strategic crude oil storage at three locations namely, Visakhapatnam, Mangalore, and Padur. The approved Cost Estimates for Visakhapatnam, Mangalore, and Padur are Rs 4098.35 crore. The strategic reserves are managed by Indian Strategic Petroleum Reserves Limited (ISPRL), a special purpose vehicle under the Ministry of Petroleum & Natural Gas.

The crude oil storage is constructed in underground rock caverns and is located on the East and West coasts of India. Underground rock caverns are considered the safest means of storing hydrocarbons. Crude oil from these caverns can be supplied to the Indian Refineries either through pipelines or through a combination of pipelines and coastal movement.

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The Annual Report (2020-21) of the ISPRL states that the current capacity of crude storage is sufficient to manage the 9.5 days of oil requirement and to fulfil the strategic oil reserve; the government of India had allotted around 3000 crores to ISPRL in 2020-21. Owing to this visionary decision, the country had enough budgetary manoeuvring after the intense wave of covid.

So, on the same line, the government needs to further expand the strategic oil reserves capacity and store the discounted crude oil coming from Russia for future energy needs. It is also notable that the government has already sanctioned the two more strategic reserve development projects in Chandikhol in Orissa and Padur in Karnataka with a combined capacity of 6.5 MMT. This will cover the strategic reserve for around 12 days and the combined capacity cover of crude oil will reach to 21 days. But the government needs to expedite the project and secure the opportunity for India at all costs.