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Anand Kalyanaraman | Updated on: Jul 02, 2018

Strategic Petroleum Reserves

Last week, the government approved the construction of two more strategic petroleum reserves in the country. These will come up at Chandikhol in Odisha and Padur in Karnataka and will have an aggregate capacity of 6.5 million tonnes.

What is it?

A strategic petroleum reserve is like a piggy bank. Just that it is used to store crude oil instead of coins and currency notes. The objective is the same — to save for stormy and rainy days. Some of us had to tap into the piggy banks in our homes to tide over the initial shock-and-awe days of demonetisation in November 2016. Similarly, the government has to stay prepared with emergency stores of crude oil to tide over severe supply shocks of this critical fuel. Strategic petroleum reserves are essentially huge stockpiles of crude oil to keep the wheels of the country running in crunch situations.

Many major global oil consumers such as the US, China and Japan have built massive strategic reserves of oil over the years, and India too embarked on the path in the last decade. Indian Strategic Petroleum Reserves Ltd, a special purpose vehicle under the Oil and Gas Ministry, has constructed three strategic petroleum reserves in huge underground rock caverns at Visakhapatnam on the East Coast, and at Mangaluru and Padur on the West Coast.

These facilities, with total capacity of 5.33 million tonnes, can meet about 10 days of India’s crude oil requirements. The new facilities approved last week can provide additional supply for about 12 days.

Why is it important?

India is the world’s third largest energy consumer after the US and China. The trouble is, we produce very little oil of our own and are dependent on imports for more than 80 per cent of our needs. The chunk of this is from West Asia which is often in the midst some geo-political face-off or the other. There’s no saying when some major supplier would toy with the idea of arm-twisting India.

Added to this, there’s always the risk of supply disruption from natural disasters, war or other calamities. In short, our energy demand-supply dynamic is delicately poised. Strategic petroleum reserves add much-needed heft to the country’s energy security, giving us crucial time and breathing space if push comes to shove.

The global practice is to maintain strategic reserves of at least 90 days of oil imports. On that India has a long way to go, but then, as wise Lao Tzu said, the journey of a thousand miles begins with a single step. Petroleum reserves are also a good idea because crude oil prices are extremely fickle, and defy punditry. Few anticipated its crash from triple digits in 2014 to less than $30 a barrel in 2016. Fewer anticipated the near-doubling of prices since then to about $80 a barrel now.

But when electric is set to upend the internal combustion engine, why bother with strategic petroleum reserves? Well, the electric revolution is still some time away; oil will likely stay the energy boss until then.

Why should I care?

Didn’t you gnash your teeth and forward sarcastic memes when petrol prices shot up to ₹75 recently? Imagine if you had to pay ₹150 or even ₹200 for a litre of petrol. That will then cascade into sharp price jumps for a host of stuff from milk to vegetables, and burn a nice big hole in your pocket. Strategic petroleum reserves can hopefully help avoid such scenarios.

Bottomline

When your economy depends on it, it’s better to be safe than sorry.

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Published on July 02, 2018

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