Global crude oil prices are plummeting to historic lows. On Monday, the benchmark North Sea Brent was at $33.52, roughly half of what it was a year ago, but India’s storage tanks are only a little over half full.

India has the capacity to hold 5.33 million tonnes of crude oil, in three underground cavern systems at Visakhapatnam, Mangaluru and Padur (Karnataka), built at a cost of ₹4,000 crore by the government-owned Indian Strategic Petroleum Reserves Ltd (ISPRL).

HPS Ahuja, CEO and MD of the company, told BusinessLine on Tuesday that 56 per cent of the storage capacity has been filled with crude; the other 44 per cent is being filled in, for which orders have been placed.

Asked when the caverns will be fully tanked up, Ahuja said he could not give a timeline because “it is a time-consuming process which depends on a several factors”. He, however, said that there in no problem in crude carriers docking at Indian ports and discharging the goods.

(The storage facilities are gigantic, man-made, underground caverns that are permanently sealed. Crude oil is put in and taken out through pipes. From floor to roof, they are as high as a 10-storey building and as wide as 12 Mercedes Benz cars. The crude is kept under ‘hydraulic confinement’ — water, carefully let into the rocks around the tunnel at high pressure, prevents the crude from seeping out. The ‘strategic petroleum reserves’ are meant to be a buffer against an event that might cause a disruption in supplies. Crude is regularly put in and taken out, but a quantity of crude is always there to fall back on in times of emergency.)

If oil prices come down further, the delay in filling the caverns would turn out to be lucky, as India can buy even cheaper crude.

Experts’ take

Expert opinion is sharply divided on how global crude prices will move. There are many cues to falling prices. The oil cartel, OPEC, has postponed the meeting it was to have held on Monday. This means no immediate agreement between Saudi Arabia and Russia, each of which is trying to out-produce the other to grab market share. This race-to-the-cliff-edge game will only result in an oil glut depressing the prices. Russia also has a skin in the game in terms of elbowing US shale oil companies out of the market, as they will be unviable at such low prices. All this at a time when consumption is down due to the coronavirus-triggered economic downturn.

On the other hand, some expect that the current situation is unsustainable, hence prices will have to go up. A million oil field services jobs are at the risk of disappearing as, at the current level of prices, oil companies pull back on investments. At the outset of this year, Rystad Energy, a consultancy, forecast that projects representing about $190 billion worth of investments will be sanctioned this year. But exploration and production (E&P) companies are likely to reduce project sanctioning by up to $131 billion, it says.

The CEO of an Indian upstream oil company, who requested not be named, said that at the current level of prices only the onshore oilfields of the Middle East are viable; these account for only a third of global crude supply. So, something has to give and, if it does, prices will rise, though not much, going by most of the expert opinions.

If prices rise, India would have lost a golden opportunity to tank up, say industry insiders.

Delay in Phase-II

The 5.33 mt of storage capacity that India today has is just not enough. Ahuja’s predecessor, Rajan Pillai, had once told BusinessLine that the three storage facilities can hold 13 days’ stock of the country’s needs. But, the International Energy Agency recommends 90 days. Even counting the petroleum stock of the refineries and in transit, the inventory would be far short of IEA’s recommendations.

As such, ISPRL has been wanting to build more facilities, to hold 12.5 mt more, but the Phase-II has suffered huge delays.

In June 2018, the Centre gave its ‘in-principle’ approval for creating 6.5 mt of storage at Chandikhol in Odisha and Padur. But things have not moved since then. Ahuja said that ISPRL is expecting the government to give its approval for floating the request for quotation for Phase-II.

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