Energy security: India considering options for strategic petroleum reserves

With some plans in consolidating the country’s energy security either delayed or abandoned, India is considering other options to expand its strategic petroleum reserves (SPRs), parliamentary documents show.

Now the plan is to build five or six small, ground-level storage tanks with smaller capacities at state-run refineries and designate them “strategic”, according to the recommendations made to the petroleum ministry in the 23rd Standing Committee Report of the petroleum ministry last month.

It is not clear if the ministry has accepted the recommendations.

What did not materialise were building underground caverns to store oil and substituting oil in transportation with electricity. In the near term these small tanks are expected to compensate for the lack of adequate crude oil storage, which covers hardly nine days’ import. The oil ministry spokesperson did not reply to email and text messages.

“Existing refinery projects and the recently commissioned refineries may be asked to set up strategic storage capacity with a smaller capacity like 2 to 3 days at 5 to 6 locations which can bring up 15 to 20 days additional capacity in a definite time frame,’’ according to a recommendation made by the committee. The committee asked the ministry to provide funds for creating storage caverns. It also asked state-run petroleum companies to store and maintain the caverns for their usage.

The suggestion to the ministry is also to increase the capacity for SPRs with an eye on demand in 2040. India’s plans to replace most petrol vehicles with electric ones may fall well short of the target, forcing the country to continue depending on crude oil. The Paris-based International Energy Agency anticipates India’s crude oil demand to reach 8.7 million barrels a day by 2040, with an import dependency of over 90 per cent.

“The impact in the near term of creating capacities for strategic storage in the individual refinery’s storage areas is limited because of the lack of adequate space at most refineries in the country,” said R Ramachandran, former refinery director, Bharat Petroleum, and an oil industry consultant. He said in principle strategic storage facilities needed to have adequate infrastructure in the form of ships, ports, and connectivity across India. Given the limited space at existing facilities, each of the proposed storage tanks, made of steel, may hold only around 30,000 tonnes of crude oil, another industry official said.

Even 20 such tanks across India will hold around 600,000 tonnes, a day’s demand. Moreover, these tanks are not connected to other plants across India and will at best serve the refinery to which they are attached, nullifying the concept of strategic storage, the official said. The United States (US) and China are examples of creating strategic storage, which can be readily used in times of emergencies.

The US has nearly 800 million barrels of underground strategic storage, linked to ports through pipelines to bring in crude oil, and connected to hubs like Oklahoma/Cushing to transport it in times of emergencies.

China, which has 700 million barrels in storage and is building an additional 130 million barrels in caverns, has dedicated tankers, ports, and pipelines, which enable it to buy distressed crude oil parcels easily and store it. Plans since 2020-21 to build caverns in Odisha and Karnataka for a combined capacity of 48 million barrels have been delayed because of lack of interest from outside investors, including Trafigura, Vitol, Glencore, Shell, and Saudi Aramco, industry officials said.

The government will own the facility, according to a press release last August, but the allocation for building the SPRs is meagre. It allocated only Rs 510 crore for constructing the additional strategic storage capacity. 

The money is a fraction of what it cost to build the first SPR phase. The first phase, which enabled the storage capacity of 39 million barrels at three locations in the pre-pandemic period, cost around Rs 4,100 crore.

For stocks to be strategic, they must be easily accessible to any refinery in the country. But India’s existing strategic storage of 5.33 million tonnes (39 million barrels) capacity -- at Visakhapatnam, Mangaluru, and Padur -- has limitations. For instance, when some state refiners wanted to buy crude oil from the Mangaluru SPR during the pandemic, they were told by state-run refiner Mangalore Refinery and Petrochemicals that the latter must cease receiving crude oil for its own operations first, a refining source said.

There’s only one SBM (single point mooring buoy) that facilitates operations for receiving one ship only at a time.