You are here: Home » Economy & Policy » News
Business Standard

India in final stage of talks with UAE for strategic crude oil storage tie-up

Around two-thirds of the storage will be available to India for free for strategic use

Sudheer Pal Singh  |  New Delhi 

Image via Shutterstock
Image via Shutterstock

India is in the final stages of talks with the United Arab Emirates (UAE) government for allowing Abu Dhabi National Oil Company (ADNOC) to store crude oil in the coming underground strategic crude oil storage facilities at Mangaluru and Padur in Karnataka.

According to the proposal, ADNOC will fill the 1.5-million-tonne (mt) Mangaluru facility. Around two-thirds of the storage will be available to India for free for strategic use — guarding against global price shocks and supply disruptions — while the rest will be used by the firm for commercial storage.

“The proposal required the cooperation of the Karnataka government. It has now been announced as a relief in the Budget. The storage had to be made tax neutral to maintain its competitiveness,” a senior oil ministry official told Business Standard. “We will start with one of the caverns but gradually it will be extended for both the Mangaluru and Padur facilities,” he added.

India, which imports 80 per cent of its crude oil requirement, has already built a 1.3-mt strategic crude storage capacity at Visakhapatnam. With global oil prices tumbling to near 12-year lows of less than $40 per barrel, that facility has been filled with crude oil at a cost of around Rs 5,000 crore.

In the second phase, state-owned India Strategic Petroleum Reserves (ISPRL) is constructing a 1.5 mt capacity at Mangaluru and another 2.5 mt storage project at Padur. The total 5.3 mt capacity of crude oil storage will be enough to meet the domestic requirement for around 10 days.

Initially, ADNOC will be allowed to fill a 0.75 mt compartment at the Mangaluru facility. Of this, 0.5 mt storage will be available to India for free and the rest will be used by ADNOC for commercial sales. “They (ADNOC) will bring their crude oil and the investment will be theirs,” the official said. ADNOC will use the facility as a warehouse for trading oil.

Oil Minister Dharmendra Pradhan had last month held talks with UAE’s Energy Minister Suhail Mohammed Al Mazrouei on the matter. This followed Narendra Modi's visit to the UAE last August, the first by an Indian Prime Minister in 38 years, focused on closer bilateral cooperation under which the UAE had committed $75 billion investment.

India has imported 16.1 mt crude oil from the UAE in the current financial year – around 8 per cent of total oil imports. Imports from the UAE are seen rising to 18.5 mt in 2016-17. India’s total crude oil imports are estimated to rise 6.3 per cent to 201 mt, valued at $64 billion, in the current financial year.

ISPRL had obtained environment clearance for the Visakhapatnam facility in 2008 and the Mangaluru facility in 2009. Experts say underground crude oil storage projects come with complex health, safety and security-related challenges that must be addressed.

“The OECD countries have been maintaining such reserves since the 1973 oil crisis. So, there is a long history and established international norms related to maintenance of these reserves. India must keep in mind the need to follow proper norms for safety and security,” said Debasish Mishra, senior director, Deloitte.

  • Indian firming up talks with the United Arab Emirates to allow Abu Dhabi National Oil Company (ADNOC) to store crude oil in Mangaluru ad Padur strategic reserves for commercial sales
  • ADNOC will fill one 0.75 compartment at Mangaluru reserve to begin with; two-thirds of reserves available to India for free
  • Same model to be expanded later to cover Padur reserve, too, also part of phase-II of the strategic reserve project
  • Vishakhapatnam cavern already built and filled with crude oil at a cost of Rs 5,000 crore. Work on other two caverns in advanced stage
  • The three reserves would together constitute 5.3 mt of crude oil storage to provide fuel security to India for 10 days during supply crisis

First Published: Thu, March 24 2016. 00:10 IST