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RSTV – THE BIG PICTURE ANALYSIS

Strategic Oil Reserves and Energy Security

The Topic covers GS paper 3 [Infrastructure: Energy, Ports, Roads, Airports, Railways etc.]

Ministry of Petroleum and Natural Gas a Twitter: "The #CCEA ...

Context

  • India, the world’s third largest crude oil importer has an existing storage capacity of 5.3 million tonnes at Visakhapatnam, Mangalore and Padur, built at an investment of $600 million in the first phase. 

  • This is operational and can support 9.5 days of net imports. In addition, the government has approved the construction of an additional 6.5 million tonnes of strategic crude oil reserves. 

What is the background?

  • Strategic crude oil reserves, which are typically state-funded and meant to tackle emergency situations, allow a country to tide over short-term supply disruptions. 

  • International Energy Agency members maintain emergency oil reserves equivalent to at least 90 days of net imports. 

  • India will have oil reserves equivalent to at least 87 days of net imports, once the $1.6 billion second phase of Indian Strategic Petroleum Reserves, which aims to add 12 days of crude storage, is operational. 

  • These facilities together will help support 22 days of India’s crude oil requirements. Indian refiners also maintain 65 days of crude storage, taking the total tally to 87 days.

What is the need for more reserves?

  • First, there is a need for a concentrated effort to build more strategic petroleum reserves (SPR). 

  • Every delay in decision making matters. 

  • While the minister has been making frequent reviews, there have been a few hitches. 

  • It is time to take action rather than get stuck in bureaucratic glitches.

  • At present, India has 5.33 million tonnes (mt) of SPR capacity across three locations — 1.3 mt at Visakhapatnam, 1.5 mt at Mangalore and 2.5 mt at Padur (Karnataka). 

  • The Ministry has allowed public sector oil refiners to use the SPRs for storing their purchases as well as to buy for the government.

  • Pradhan has instructed India Strategic Petroleum Reserves Ltd (ISPRL), a special purpose vehicle under the Ministry mandated to build and operate SPRs, to augment the storage of crude. 

  • A move in the right direction, but the government is yet to open access for domestic refiners to use the oil in SPR for commercial purposes at a cost.


What is the import reduction strategy?

  • The Ministry has been working in collaboration with various Central government ministries/State governments and other stakeholders to make efforts to trim oil import dependency. 

  • More than 80 per cent of India’s crude oil requirement is met through imports.

  • The import reduction strategy broadly includes increasing domestic production of oil and gas, improving energy efficiency and productivity, giving thrust to demand substitution, promoting biofuels and using alternative fuels/renewables.

  • The Centre constituted a committee for ‘Preparing a roadmap to reduce the dependency on import in energy by 10 per cent by 2021-22’. 

  • The report submitted by the committee and accepted by the government envisages a five-pronged strategy. 

  • This broadly comprises increasing the domestic production of oil and gas, promoting energy efficiency and conservation measures, giving thrust to demand substitution, capitalising untapped potential in biofuels and other alternative fuels/renewables and implementing measures for refinery process improvements. And yet there are miles to go.


What is the way forward?

  • While enhancing the domestic production of oil and gas has remained a constant challenge for the companies as well as the government, India could further push for acquiring oil and gas assets abroad. 

  • If not acquiring an asset, it may consider increasing a stake in the existing assets given the low oil prices — the right time to hunt.

  • India has, for some time now, aimed at emerging as a major refining hub. 

  • It currently has a refining capacity of 249.35 mt per annum. 

  • Pradhan has often expressed optimism about the domestic refining industry.


Conclusion

Meanwhile, the Phase II of the strategic petroleum reserves has been long delayed. In June 2018, the government had approved 6.5 million tonnes’ capacity in Chandikhol and Padur. Nearly two years on, not much has happened. Earlier, in the Phase I construction of the 5.33 million tonnes, there were huge time and cost overruns. The country’s total crude storage capacity — with oil refiners and SPRs — is about 75 days of oil import. This is short of the global norm of 90 days. India needs to get its act together.



 
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