Cabinet to discuss strategic oil reserve

The Cabinet is expected to shortly take up the petroleum ministry's proposal of setting up a 5 million metric tonnes (mmt) strategic crude oil reserves.

The petroleum ministry has submitted the proposal to the Cabinet after receiving "favourable" comments on the draft Cabinet note circulated by it among the ministries concerned, it is learnt.

As per the Cabinet note, the total cost of the project will be around Rs 1,225 crore. The cost of 5 mmt of crude would be Rs 5,200 crore, assuming prices to be at $25 a barrel and an exchange rate of Rs 49 per dollar.

The note says that 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 annual operating cost for the strategic reserves has been estimated by the government at Rs 29 crore.

The 5 mmt of crude oil storage is equivalent to about 15 days of refining capacity in the country. The petroleum ministry said based on the experience gained, the storage could be gradually increased in phases to achieve a total of 45 days' cover.

The ministry is of the view that maintaining crude oil reserves is preferable over product inventories since India has adequate refining capacities and maintaining product inventories would effectively idle the available refining capacities.

The detailed feasibility study for storing the strategic reserves has identified three locations in the country. The locations are: Rajkot in Gujarat, where 2.5 mmt of crude could be stored, Mangalore in Karnataka, with a storage capacity for 1.5 mmt, and at Vizag in Andhra Pradesh, where the storage would be for 1 mmt of crude.

While the sites at Rajkot and Mangalore have already been cleared by the defence ministry, the petroleum ministry is still to get clearance for Vizag. The storage at these locations would be constructed in three- to three-and-a-half years.