India, UAE discuss strategic oil storage lease - sources

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By Nidhi Verma

NEW DELHI (Reuters) - India is in talks to lease part of its planned strategic storage to United Arab Emirates' state oil company ADNOC, two government sources said, as New Delhi moves to protect its economy against crude price shocks and supply disruptions.

India, the world's fourth largest oil consumer, imports about 80 percent of its oil needs and is building emergency storage capacity to hedge against energy security risks.

India had initially planned to fill the oil storage without overseas participation, but it is now drawn to deals similar to those that the Abu Dhabi National Oil Company (ADNOC) struck earlier with Japan and South Korea.

Such a deal would take into account India's growing role as a regional refining hub. The South Asian nation imports around 16 million tonnes of crude a month - more than it consumes - and exports about a third of that as refined products.

"Final details of the plan are yet to be worked out but they (ADNOC) have said they can take up to 2 million tonnes capacity," said one of the sources, referring to a recent meeting between ADNOC representatives and Indian officials.

This source said Kuwait had also shown interest in leasing part of the Indian storage space but that "talks with ADNOC are at an advanced stage".

Still, it is not clear when any deal with ADNOC might be finalised. The second government source said a final deal with ADNOC hinges on tax breaks - including issues such as abolishing state entry taxes - and permission to re-export cargoes.

An ADNOC source had no comment. The state company does not have an official spokesperson.

India's planned oil storages sites at Mangalore and Padur in Karnataka on the southwestern coast and Vizag in Andhra Pradesh on the eastern seaboard would together be able to hold 5.3 million tonnes or about 39 million barrels of oil.

That would be sufficient to cover about 10 days of domestic Indian consumption.

The International Energy Agency in comparison requires its 29 member nations to hold stocks equivalent to at least 90 days of net imports. At the end of March 2014, IEA stores totalled 4.1 billion barrels, or about 44 days of total global demand, it said in a June report.

ADNOC last year leased space to store six million barrels of oil in south Korea. South Korea has the first rights to the stored crude in case of emergency, while the deal allows ADNOC to move cargoes around the region to meet any shift in demand.

"If we think there is an emergency we will draw down from the reserves and pay ADNOC the official selling price prevailing at the time of withdrawal," said the second Indian government source, adding that ADNOC could sell its crude to local refiners as well.

ADNOC was the fifth biggest crude supplier to India last year, according to Reuters data.

The government sources said a 1.33 million tonne storage facility at Vizag in Andhra Pradesh would be ready by September. The 1.5 million tonne Mangalore facility and 2.5 million tonnes unit at Padur in Karnataka are to be completed by mid-2015.

State-run Hindustan Petroleum Corp Ltd and Mangalore Refinery and Petrochemicals will use 0.3 million tonnes each of the available storage capacities at the Vizag and Mangalore sites, respectively.

(Additional reporting by Rania El Gamal in Dubai; Editing by Douglas Busvine and Tom Hogue)