Oil Reserves On A Fast Track

Reserves may be gradually raised to cover 45 days of crude requirements

The government has decided to speed up the setting up of 5 million metric tonnes (mmt) of strategic crude reserves, in view of the increasing uncertainties regarding the supply of crude due to the war in the Persian Gulf.

The cost of the project is estimated at around Rs 1,225 crore. The cost of 5 mmt of crude will be Rs 5,200 crore assuming global crude prices of $25 a barrel and an exchange rate of Rs 49 against the dollar.

At an investment rate of 10 per cent, the carrying cost of 5 mmt of crude will be Rs 520 crore per annum. Besides, the government has estimated the annual operating cost of the strategic reserves at Rs 29 crore.

The detailed feasibility study on storing the crude reserves has identified three locations in the country, including Rajkot, where 2.5 mmt of crude could be stored.

In Mangalore, the government will build reserves for 1.5 mmt of crude, while the Visakhapatnam reserves will hold 1 mmt of crude.

While the sites at Rajkot and Mangalore have been cleared by the defence ministry, the petroleum ministry is yet to get clearance for the reserves in Visakhapatnam. The storages at these locations will be constructed in around three years.

Five million metric tonnes of crude reserves is equivalent to about 15 days of refining capacity in the country.

The petroleum ministry says, based on the experience gained, the strategic reserves could be gradually increased to cover 45 days of crude requirements.

The government feels that maintaining crude reserves is preferable to product inventories because India has adequate refining capacities and maintaining product inventories will make the refining capacities idle. Operating the refineries is also expected to render more cost-effective products than imports.

Maintaining product inventories will also mean separate storage of 15 days for multiple products, resulting in the creation of huge storage capacities, which will be cost-intensive and will have limited infrastructure.

Moreover, according to the petroleum ministry, procurement of large volumes of crude will lead to competitive pricing, while the volume of products will vary according to the requirement and may not fetch reasonable discounts.

Crude plan

The cost of the project comes to around Rs 1,225 crore

The carrying cost of 5 mmt of crude will be Rs 520 crore per annum

The annual operating cost of the strategic reserves has been estimated at Rs 29 crore

The reserves will be located in Rajkot, Mangalore and Visakhapatnam

5 mmt of crude reserves is equivalent to about 15 days of refining capacity in the country