Seizing the opportunity provided by the global price of crude falling to less than $50 a barrel, India is planning to fill up a strategic storage...
Seizing the opportunity provided by the global price of crude falling to less than $50 a barrel, India is planning to fill up a strategic storage facility at Visakhapatnam by the first fortnight of February. This would be the first time the country is storing crude oil and the amount will be 1.03 million tonnes.
Strategic reserves are seen as vital for countries with high energy consumption levels and more so for India, which is heavily import-dependent when it comes to meeting its energy needs.
“We are just waiting for one specific approval. Once it comes, we are technically ready to fill the tank at Visakhapatnam,” said Rajan K Pillai, CEO & MD of Indian Strategic Petroleum Reserves (ISPRL) a special purpose vehicle owned by the Oil Industry Development Board.
Pillai said that at the current crude oil prices of around $50 per barrel and the rupee’s level of 61-62 to the dollar, filling up the facility at Visakhapatnam would cost about R2,400 crore and would be fully funded by the government. “India has set up among the cheapest storage facilities, which would cost about $17-18 per barrel,” Pillai said.
India imported 189 million tonnes of crude oil last fiscal, at a cost of $143 billion. Close to four-fifths of India’s oil consumption is met by imports. The construction of the proposed strategic storage facilities is being managed by ISPRL. To ensure energy security, the government has decided to set up 5 million tonnes (mt) or about about 39 million barrels equivalent strategic crude oil storages at three locations — Visakhapatnam, Mangaluru and Padur (near Udupi).
When fully filled, these reserves would be equivalent to 13 days of oil imports. The government is targeting an increase to 90 days of imports by 2020. Globally, the US has the maximum storage facility, which can last for about 90 days. After seeing strong volatility and price falls earlier in January, oil markets moved little last week with Brent prices range-bound between $47.78 and $50.45 a barrel.
The Visakhapatnam storage unit, built at a cost of Rs 1,038 crore, is divided into two compartments of 1.03 mt and 0.3 mt. The smaller compartment of 0.3 mt would be utilised by PSU refiner Hindustan Petroleum Corporation (HPCL), while the bigger section is meant for strategic reserves. The revised costs for the Mangaluru and Padur facilities are Rs 1,227 crore and Rs 1,693 crore, respectively, taking the total cost for the three projects to Rs 3,958 crore.
Oil prices rose on Friday after the death of Saudi Arabia’s king added more uncertainty to an oil market that has more than halved over the last six months. King Abdullah bin Abdulaziz died early on Friday and his brother Salman became king of the world’s top oil exporter. Brent crude futures were trading at $49.42 a barrel on Friday.
In 2013-14, India spent $143 billion on crude oil imports, which accounted for 32% of India’s total imports in the fiscal year. The strategic storage units are built in underground rock caverns on the east and west coasts so that they are readily accessible to the refining sector.
Underground rock caverns are considered the safest means of storing hydrocarbons.