After many missed opportunities, India seems to have finally woken up to the importance of crude oil storage. Taking advantage of low global oil prices and to ensure that domestic public sector refiners do not default on their purchase agreements, the Ministry for Petroleum & Natural Gas has allowed them to use the strategic petroleum reserves (SPRs) for storing their purchases as well as to buy for the government.

“We have started filling our strategic reserves at the government’s cost. Three vessels have already come and the target is to get 10-11 more such large crude vessels in the next 40 days or so,” a senior government official told BusinessLine .

Short time-window

Oil guzzlers such as India cannot have better days than now for filling their storage capacities with cheap crude oil. On April 16, the cost at which Indian refiners bought their crude oil was about $20 a barrel.

But the challenge for India is the short time-window available to ship the buys to the storage facilities if the monsoon breaks on time. “The offloading at Mangaluru may not happen if monsoon breaks. Indications are that it will need to be shut for almost four months after May 22,” the official said.

Besides, each cavern can take only a specific grade of crude so that consistency is maintained. Though India has only 5.33 million tonnes (mt) of SPR capacity across three locations — 1.3 mt at Visakhapatnam, 1.5 mt at Mangaluru and 2.5 mt at Padur (Karnataka) – what is imperative is to make full use of this cheap oil opportunity while it lasts.

Avoiding delay in offloading

The move will also allow domestic refiners such as Indian Oil Corporation, Bharat Petroleum Corporation, Hindustan Petroleum Corporation and Mangalore Refinery and Petrochemicals Ltd to fill the caverns with their surplus buys so that the quantity already contracted for is not left floating in high seas. Additionally, it will ensure that the refiners do not end up defaulting on their payments to the sellers and pay higher for delays in offloading.

The storage facility at Visakhapatnam is almost full and HPCL has been asked to fill the remaining capacity there.

Petroleum Minister Dharmendra Pradhan, when recently when reviewing the country’s strategic petroleum reserve programme, instructed India Strategic Petroleum Reserves Ltd (ISPRL) to augment the storage of crude. ISPRL is a special purpose vehicle under the Ministry mandated to build and operate SPRs.

Taking stock

Pradhan tweeted recently: “We are going the extra mile to meet India’s energy security in spite of #Covid-19 challenge. More crude oil cargoes, at low prices, are lined up to reach Mangalore port during April and early May to completely fill the Mangalore and Padur SPRs. Taking advantage of the low crude oil price, India is filling the strategic petroleum reserves to their full capacity. The first consignment of 1 million bbls of crude procured through @IndianOilcl unloaded at Mangalore SPR...”

Yan Chong Yaw, Director, Refinitiv Oil Research, said: “India has sought to take advantage of the low-price oil environment by filling its SPRs. Despite the recent agreement by the OPEC+ alliance to cut production by an unprecedented 9.7 million bpd in a bid to shore up prices, the global glut in supplies, due to massive demand destruction in the wake of the Covid-19 outbreak, is still so high that prices will remain low enough to be attractive for the government to fill its three SPR sites in the South that can store up to 36.87 million barrels.”

Fall in demand

“A month ago, when oil prices first collapsed following a disagreement between OPEC and Russia over output cuts, Indian refiners had taken advantage by buying extra barrels, leading to record-high imports for March at 20.3 million barrels, based on Refinitiv Oil Research assessments. This move has since backfired when Covid-19 exploded through the country, forcing a nationwide lockdown that severely curbed air travel, vehicle movement and industrial activity,” he said.

“Refineries have to shut down capacity to cope with the devastating demand losses. To date, about 1.4 million bpd of capacity, or about a third of the country’s 5 million bpd capacity, has been shut amid declarations of force majeure on lifting of crude oil cargoes.”