Petroleum ministry asks for money to fill strategic oil reserve

Expects allocation soon, with 5 mt capacity expected to be ready shortly

Taking advantage of falling global oil prices, India plans to start filling its strategic crude reserve. It will shortly make a provision for financing such purchases in the coming Budget, said Petroleum Minister Dharmendra Pradhan.

The price is at a six-year low of $47.36 a barrel, on the back of a supply glut in the global market, coupled with a decline in demand from Asian and European economies.

“Construction of reserves for five mt is underway, which will be ready by February-end,” he announced at  the Business Standard Infrastructure Summit.

Strategic reserves are built by nations to tide over crisis supply situations and boost energy security. “We have asked the finance ministry for approval of the provision to create an additional reserve, as part of the last supplementary (grant) for the current financial year,” said the minister.

India is the world’s fourth largest consumer of crude oil. It is building facilities of 5.3 mt at three locations – Visakhapatnam (1.33 mt), Mangaluru (1.5 mt) and Padur, near Chennai (2.5 mt) -- in the first phase. This capacity would be sufficient to cover 13 days of demand in case of supply disruption.

These are being set up by India Strategic Petroleum Reserves Ltd (ISPRL), a special purpose vehicle owned by the Oil Industry Development Board under the petroleum ministry. According to ISPRL, the first under-ground storage facility at Vizag is ready for commissioning, pending a final go-ahead by the government. The other two are also likely to be commissioned this year.

The government had earlier estimated that to create reserves to provide a cover of 90 days on net oil imports, the country would require storage of 13.32 mt by 2020, in addition to the crude oil and product storages with oil companies. To further increase the strategic storage capacity, ISPRL has conducted a detailed study for construction of 12.5 mt storage in the second phase at four locations — Padur, Bikaner in Rajasthan, Rajkot in Gujarat and Chandikhol in Odisha.

Pradhan also said the National Democratic Alliance government is working on two key priorities — ensuring energy costs are affordable for all and producers are paid reasonable returns to cover up costs. “We are not in favour of crony capitalism but, at the same time, investors’ interest is also to be kept in mind,” he said. He was referring to the government announced new domestic natural gas price of $5.61 a unit, which a section of the industry believed was too low to support fresh investments.

Seeking to put to rest a debate over the new regime of revenue from oil and gas contracts, Pradhan said his ministry is working to put in place a model that adopts the best provisions from the production sharing contract regime and the proposed revenue sharing model. The new model will be adopted in the tenth round of bidding of blocks under the New Exploration Licensing Policy, to be launched soon.