Official: Oil from existing strategic reserves cannot be used for commercial purposes

India does not intend to use crude oil from its commissioned strategic petroleum reserve caverns for commercial purposes. With continued volatility in global crude oil prices, expectations were high that India may use its strategic reserves to meet its demand.

Using crude oil in the strategic petroleum reserves to help mitigate the impact of skyrocketing global prices was considered, a senior official said, but added: “this cannot be allowed as the Centre has to make legislative changes. These structures have not been optimised for being used as trading units.”

“Storage facilities built during the first phase of the Strategic Petroleum Reserves programme cannot work as commercial facilities to mitigate price impacts or to make profits. The oil can be used only in the event of a calamity, war and supply disruption. The current situation does not merit this,” a senior Petroleum Ministry official said.

Storage capability

Under the first phase of the strategic petroleum reserve programme, which is managed by Indian Strategic Petroleum Reserves Ltd (ISPRL), the country has developed capability to store crude oil to meet its need for nine days at current levels of domestic consumption. There is 1.33 million tonnes of crude oil (bought at around $48 a barrel) currently stored at a cavern in Visakhapatnam.

Another 1.5 million tonnes (11 million barrels) of oil can be stored at the two units currently commissioned at Mangaluru cavern. One unit in Mangaluru has been filled with oil at a price between $55 and $58 a barrel. The second unit has not been fully filled. The second unit has 4 million barrels of crude oil, which is two-thirds of its total capacity.

ISPRL has Abu Dhabi National Oil Company (ADNOC) as a partner in the project. Under the agreement with ADNOC, 35 per cent of the total crude oil stored in the second unit can be traded within the domestic market. The filling of the third cavern in Padur (2.5 million tonnes) will start soon. The total 5.33 million tonnes capacity under Phase-I of the programme is currently estimated to supply approximately 10 days of India’s crude requirement according to the consumption data for 2016 - 2017.

“But the caverns to be built during the next round of the strategic petroleum reserve programme will be done on Public-Private-Partnership model. Rights for developing will go to the bidder that offers a higher share of the crude oil stored,” said HPS Ahuja, CEO & Managing Director ISPRL.

Recently, the government decided to establish an additional 6.5 million tonnes Strategic Petroleum Reserve facilities, which once completed and commissioned, will provide an additional supply for about 12 days. The facilities will be built at two locations — Chandikhol in Odisha and Padur in Karnataka

ISPRL proposes to initially test the water and hold roadshows to see private sector interest in the projects. The terms and conditions of such participation will be determined by the Petroleum Ministry in consultation with the Finance Ministry after the roadshows.