Filling of strategic oil reserves delayed

Land acquisition row is blamed; Centre to seek Cabinet nod for second phase as oil prices hit 11-year low

The ministry of petroleum and natural gas is planning to approach the Union Cabinet to seek approval for starting work on the second phase of its strategic crude oil reserves programme, even as the filling of three caverns under the first phase got further delayed to March 2016. However, the delay has led to a fortuitous gain for the country, as crude oil prices have declined 46 per cent in the past six months.

While the window of low-cost opportunity thrown open by the historic 60 per cent slump in crude prices since June last year is fast shrinking, India expects readying two crucial pipelines connecting its strategic caverns will take three more months.

“For the Vizag cavern, we will be using a small existing HPCL pipeline. That cavern has already been filled at a cost of Rs 2,700 crore. There were no Right of Way (RoW) issues involved there. For the other two caverns, Mangaluru and Padur, the pipelines will be ready by some time round March. This is after taking into account the delay over land issues. That issue has now just been resolved,” a senior executive from India Strategic Petroleum Reserves Ltd (ISPRL) told Business Standard.

Phase I of the programme involves setting up three caverns including a 1.3-million-tonne capacity storage facility at Vizag in Andhra Pradesh and two other facilities at Mangaluru and Padur in Karnataka with combined capacity of four million tonnes. The Karnataka facilities will be filled by ISPRL — a Special Purpose Vehicle under the petroleum ministry — only after two pipelines of 12.8 km and 36 km length are laid connecting them to the port.

Local unrest over land acquisition has delayed the laying of the pipelines by more than six months. The deadlock was, however, recently resolved after the company agreed to pay high compensation. “It is a decision taken by the local land administration,” said the ISPRL executive. Noida-headquartered ISPRL is tasked with building and managing the reserves that will act as a buffer against future crude price shocks and supply disruptions.

The 5.3 mt strategic storage in the first phase will be enough to meet the oil requirement of the country — that imports over 80 per cent of its crude oil requirement — from around 10 days. In the second phase, India plans to set up four additional reserves with a combined capacity of 12.5 mt. Oil minister Dharmendra Pradhan had on Sunday said the second phase will start from Chandikhole in Odisha.

“India does not want to miss the bus with oil prices crashing down. We want to create more reserve capacity to store the cheap oil in our country,” said Pradhan in his speech at the Business Standard Odisha Roundtable-2015. He added the oil ministry hopes to receive central funds for the ambitious project in next year’s Budget.

Global crude oil prices have crashed from $110 (Rs 7,290) per barrel in June 2014 to less than $40 (Rs 2,659) per barrel currently. Benchmark Brent crude fell to 11-year low of $36 (Rs 2,386) per barrel on Tuesday, the record low levels fuelling the argument whether the government has already lost out a large part of the opportunity for quickly filling up reserves.

Experts say the government must pursue the strategic reserve programme with vigour, given the volatility in crude oil prices but must compliment efforts with diversifying supply sources.

“Anything below $50 (Rs 3,314) per barrel is a decent price to fill up reserves. But India is also consciously diversifying its supply sources away from the Persian Gulf and towards newer geographies, including Nigeria and Latin America. Diversification of supply sources also provides security of supply and these efforts must continue,” said Debasish Mishra, partner at Deloitte Touche Tohmatsu LLP.

RESERVE PLAN

• Phase-I of the programme involves setting up three caverns including a 1.3-million-tonne (mt) capacity storage facility at Vizag In Andhra Pradesh and two other facilities at Mangaluru and Padur in Karnataka with a combined capacity of 4 mt
   
• The Karnataka facilities will be filled by ISPRL — a special purpose vehicle under the petroleum ministry — only after two pipelines of 12.8 km and 36 km length are laid connecting them to the port
   
• Local unrest over land acquisition has delayed the laying of the pipelines by more than six months. The deadlock was, however, recently resolved after the company agreed to pay high compensation
   
• In Phase-II, India plans to set up four additional reserves with a combined capacity of 12.5 mt
   
• Oil minister Dharmendra Pradhan had, on Sunday, said       the Phase-II will start from Chandikhole in Odisha