Strategic Petroleum Reserves (SPRs) in India - Know All The Facts

Strategic Petroleum Reserves (SPRs) are underground oil storage facilities created and managed by Indian Strategic Petroleum Reserves Limited (ISPRL) to meet the domestic demands of petroleum in case of extremities and mitigate the effect of sudden rise in crude oil prices or disruptions in oil supply. SPRs store crude oil in addition to the stock held by Indian refineries.

Let's discuss all the facts about Strategic Crude Oil Reserve in the context of India and how it would be significant in ensuring India's energy security.

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1)  What are Strategic Petroleum Reserves?

Strategic Petroleum Reserves are underground oil storage facilities created and managed by Indian Strategic Petroleum Reserves Limited (IPSRL).

India has setup 5.33 million metric tons (MMT) of Strategic Oil Reserve at three places in Phase-I with an investment of USD 600 million:
  • Vishakhapatnam - commissioned in June 2015 (1.33 MMT)
  • Mangalore - commissioned in October 2016 (1.5 MMT)
  • Padur (near Udupi) - commissioned in Dec 2018 (2.5 MMT)
As per the consumption pattern of 2017-18, the total capacity is estimated to provide for about 9.5 days of crude oil requirement.


Government is planning to setup two additional Strategic Petroleum Reserves (SPR) of 6.5 MMT in Phase-II at a cost of Rs.11,000 Crores(US$ 1.6 Billion), at:
  • Chandikhol in Odisha (4 MMT)
  • Padur in Karnataka (2.5 MMT)
As per the consumption pattern of 2017-18, 6.5 MMT SPR capacity is estimated to provide for about additional 11.57 days of India’s crude oil requirement, taking up reserves from 10 days to 22 days.

These strategic oil reserves are in addition to existing storage of crude oil and petroleum products held by oil companies.

Indian refiners maintain 65 days of crude storage, and when added to the storage planned and achieved by ISPRL, takes the Indian crude storage tally to 87 days. This is very close to the storage of 90 days mandated by IEA for member countries


* Note: 
  • Work on two more SPR at Bikaner, Rajasthan (5.6 MT) and Rajkot, Gujarat will start soon. When the work would complete, the country would hold crude oil reserves enough to meet 1 month domestic demand.
  • USA and China have 88 million tonnes and 44 million tonnes of oil reserves respectively.


2) Who gave idea to build Strategic Petroleum Reserves in India?
  • The concept of oil reserves in the world was introduced by USA in 1983 after OPEC oil crisis.
  • The idea to build oil reserves in India was given by Atal Bihari Vajpayee in 1998.
The idea came after analyzing the effects of Gulf War on Indian economy.

Due to Gulf War in 1990s, the oil prices shot up and import bills rose high. The current account deficit (CAD) went out of control and India was on the verge of bankruptcy. The foreign exchange reserves of India went record low and India was left with $1.2 billion, enough to pay import bills for only 3 weeks.  

India has to take a loan from IMF by pledging its gold reserve to clear out its balance sheet.

To fix the foreign exchange crisis, India opened up its economy and introduced the concepts of Liberalization, Globalization and Privatization.

To handle the volatile oil prices in international market and mitigate effects of disruptive oil supplies, Atal Bihari Vajpayee came up with the long term plan to store crude oil and petroleum underground which would act as buffer in extremities.



3)  Who will manage Strategic Crude Oil Storage facilities?

The Strategic Crude Oil Storage facilities will be managed by Indian Strategic Petroleum Reserves Limited (ISPRL).
  • Indian Strategic Petroleum Reserves Limited (ISPRL)     
ISPRL is a Special Purpose Vehicle (SPV) created in 2004, which is a wholly owned subsidiary of Oil Industry Development Board (OIDB) under the Ministry of Petroleum & Natural Gas.

Functions of ISPRL are:

1) Create strategic crude oil storage facilities

2) Coordinate the release and replenishment of strategic crude oil stock during supply disruptions through an Empowered Committee of the Government of India.



4)  Ideal location of Strategic Crude Oil Reserves

The underground storage of oil is considered as the safe, secure, economical and environment friendly means of storing hydrocarbons when compared to conventional above ground storage tanks.

Thus, the crude oil storage are constructed in underground rock caverns and are located on the East and West coast of India. 

Crude oil from these caverns can be supplied to the Indian Refineries either through pipelines or through a combination of pipelines and coastal movement.

Strategic Petroleum Reserve

State

Ideal Location

Vishakhapatnam

Andhra Pradesh

Underground rock cavern

Mangalore

Karnataka

Underground rock cavern

Padur

Karnataka

Underground rock cavern

Chandikhol

Odisha

Underground rock cavern

Bikaner

Rajasthan

Underground salt cavern

Rajkot

Gujarat

 



Facility at Bikaner is likely to be cheapest to build as the region has mountains of salt underground. Thus, pump in water, dissolve the salt, drain out water and the cavern is ready.



5)  Investment required for creating Strategic Petroleum Reserve

1) The strategic crude oil reserves were created in Phase-I of SPR programme with an investment of USD 600 million.

a) Vishakhapatnam

HPCL has taken over the 0.3 MMT storage capacity at Vishakhaptnam facility as part of its refinery stock holding and operation, thereby unlocking the land parcel for the ongoing refinery expansion program.

ISPRL has filled its 1.03 million tonnes Vizag facility with Basra oil from OPEC producer Iraq.


b) Mangalore

ADNOC (UAE's national oil company)  had successful G2G collaboration and is storing 5.86 MM bbl at Mangalore SPR facility.

* ADNOC : Abu Dhabi's National Oil Company

c) Padur

Investment through PPP mode for filling and operation of the inventory.

The ISPRL has signed MoU with ADNOC for the lease of half of its 2.5 MT at the Padur facility. It has also signed MoU with Saudi Aramco for the lease of a quarter of Padur SPR.


2) The strategic petroleum reserves created in Phase-II of SPR programme required an investment of US$ 1.6 Billion.

  • Why investment through PPP model is favoured?
Investment through PPP model promises valuable  incentives to  an array  of stakeholders looking to profit from this business alliance ranging from: 
  • supply side assurance of downstream refiners;  
  • logistics and location advantage; 
  • availability of low cost underground storage facility as an economical storage alternative; 
  • reduced captive above ground storage with flexibility of multiple grade crude oil and multiple revenue streams; 
  • suitable land parcel and geological setting for creation of SPR, promising opportunity for financing, to a foreseen certainty of cash flows due to sustained Oil & Gas demand  market .

Strategic Petroleum Reserve

Oil filled by

Vishakhapatnam

Basra oil from Iraq

Mangalore

ADNOC of UAE

Padur

ADNOC of UAE

Aramco of Saudi Arabia



6)  Why India needs Strategic Oil Reserve?

As Indian economy is growing, the energy requirement of the country is also rising rapidly.
  • India is the 3rd largest consumer of energy after US and China. 
  • India is also the 3rd largest importer of crude oil in the world. 
  • Demand for petroleum products has been increasing at a CAGR of 5.5% from 2013 to 2017.
  • There is demand and supply gap in energy production-consumption pipeline. The domestic production is unable to meet the increasing domestic demand of petroleum fuels and petrochemicals.
Thus, India continues to depend on imports for foreseeable future which increases the current account deficit (CAD).

Further, the volatility in the oil prices due to various geo-political events happening in the world keeps Indian economy in uncertainty.

Thus, Strategic Petroleum Reserves will act as a buffer by storing adequate crude physically within the country. It will also help to mitigate the effect of volatile oil prices and disruptions in supply side.


7)  Significance of Strategic Petroleum Reserves

The strategic crude oil reserve will ensure energy security of India by: 

1) It will insulate the country from a volatile crude oil supply market and future oil shocks.

2) It will act as a cushion during supply disruptions due to wars, natural disasters or any calamity.

3) It will helps to tackle fluctuating prices of crude oil in the international market.



8) Shortcomings of SPR
  • Half of the underground crude oil storage facilities or SPRs are empty. Thus, defeating its purpose. 

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