What is the issue ?
- In a first, India received the 1st cargo of UAE crude oil for filling up one of the two Strategic Petroleum Reserve (SPR) caverns built by Indian Strategic Petroleum Reserve Ltd (ISPRL) at Mangalore.
Background to the issue :
- In order to reduce budgetary support of Government of India towards filling up of SPR facilities with crude oil, the Indian Strategic Petroleum Reserve Ltd (ISPRL), on 25 January 2017, signed the Definitive Agreement on Oil Storage and Management with Abu Dhabi National Oil Company (ADNOC) of UAE for filling up the second cavern at Mangalore facility.
- The Agreement stipulates that during an emergency oil shortage situation the Indian government can use the entire available crude oil stored by ADNOC in the Mangalore SPR facility for its use.
- Further, as an incentive for storing crude oil at its own cost, the Agreement allows ADNOC to sell part of the crude oil to Indian refineries during normal times.
- ADNOC’s investment by way of crude oil in Indian SPR facility is the first time that a private foreign entity, is filling up an Indian SPR cavern with crude oil.
Strategic Petroleum Reserves In India :
- The construction of the Strategic Crude Oil Storage facilities is being managed by Indian Strategic Petroleum Reserves Limited (ISPRL), a Special Purpose Vehicle, which is a wholly owned subsidiary of Oil Industry Development Board (OIDB) under the Ministry of Petroleum and Natural Gas.
The government, under Phase I of Strategic Petroleum Reserve (SPR) programme, has built SPR facility with a total capacity of 5.33 MMT at three locations:
- Vishakhapatnam (1.33 MMT)
- Mangaluru (1.5 MMT)
- Padur (2.5 MMT)
An expenditure of Rs 4098.35 crore has been incurred on creating the three SPR facilities.
- A second phase is also under planning, which seeks to create 12.5 million tonnes of storage capacity, at Padur, Chandikhol (Odisha), Bikaner (Rajasthan) and Rajkot (Gujarat)
- The caverns at Vishakhapatnam and one of the two caverns at Mangalore SPR facility have been filled with crude by Government.
- The three storage facilities to be implemented in the first phase can hold 13 days of India’s crude stock requirement.
About Strategic Petroleum Reserves :
Crude oil from the reserves are to be released by an empowered committee constituted by the government, in the event of any supply disruptions from abroad. These include any natural calamity or any unforeseen global event, leading to an abnormal increase in prices.
While the concept of massive caverns deep below the surface of the earth has been traditionally marketed as an energy security measure that can be a defence against an attack or invasion of some sort, underground storage is, by far, also the most economic method of storing petroleum products.
- The underground facility rules out the requirement of large swathes of land, loads of security, ensures less evaporation and, since the caverns are built much below the sea level, it is easy to discharge crude into them from ships.
Importance of the programme :
- The dedicated strategic reserve is something that is long overdue, given India’s dependency on imported fuel to meet its needs.
- India consumes an estimated 3.8 million barrels a day, of which about 80 per cent is imported, making it the world’s fourth-largest oil consuming nation in the world.
- The IEA predicts that by 2020, India could well be the largest oil importer, increasing the country’s vulnerability to threats of physical supply disruptions and to sharp price fluctuations.