India's strategic oil reserves are enough for 12-15 days of requirement and the stocks available with refineries will run out in next 45-60 days.
Drone Attack on Saudi Oil Refinery: It’s a nightmare coming true for oil-hungry countries like India and China that are heavily dependent on imported oil to meet their energy needs. Drone attack on Aramco refinery in Saudi Arabia has shaken the world oil market. It has a direct impact as the crude oil prices have gone up by nearly 15% within two days of the attack. The price surge is more in case of Brent North Crude, an oil basked that accounts for bulk of India’s imports unlike West Texas Instrument (WTI) that is relevant for the US market. It is not yet clear whether Saudi Arabia will be able to restore the supply to pre-attack level within 10-15 days or it will take more time. If the disruption continues for more than 10-15 days then it will have an impact on the retail price of petrol, diesel and if it drags on for months then it will mark the end of the era of moderate crude prices, two top former petroleum sector officials said.
India consumes 4.5 million barrels of oil a day that is 250 million tonnes of crude oil a year. The country is heavily dependent on the imports and more than 80% of crude oil requirement is imported. And nearly 70% of the country’s crude oil imports come from the middle east.
Why Saudi oil is important for India
As the world’s largest oil producer, Saudi Arabia accounts for nearly 10 million barrels of crude production per day, which is 10% of the global output. India is heavily dependent on Saudi Arabia to meet its energy requirements. For several years, Saudi Arabia has been the largest supplier of crude oil to India. Though it was briefly overtaken by Iraq as the largest source of crude oil for India but by-and-large it remains the largest crude oil supplier for the country.
This kind of major attack on Saudi oil installations that instantly affected half of its oil production has a direct impact on the energy-starved emerging economy like India.
“Saudis have to give a clear assessment that how much time it will take to restore the production. If it’s a matter of a week, 10 days or even a month then the reserves available with the Saudis, the US and India’s own reserves can help the country to manage the situation,” said Sushil Chandra Tripathi, former petroleum secretary.
India has been developing its own strategic oil reserves on the lines of the United States and Japan. However, unlike the US which has the world’s largest strategic reserve of crude oil to meet two months of its requirement, India’s strategic oil reserves maintained by public sector company Indian Strategic Petroleum Reserves Limited (ISPRL) will not last beyond two weeks.
“India’s strategic oil reserves are enough for 12-15 days,” said Saurabh Chandra, former oil secretary.
The country has a total installed capacity to store over 5 million tonnes of oil at three underground locations in Visakhapatnam in Andhra Pradesh and Mangalore and Padur (near Udupi) in Karnataka.
“In addition to these three underground caverns to store oil, refineries of the country also maintain a large stock of commercial storage that should be sufficient for 45-60 days,” Saurabh Chandra told Financial Express Online.
What will happen if the situation further escalates
With its strategic reserves and commercial storage maintained at the refinery level, the country will be able to manage its energy requirements for around a month without any problem. However, the situation will change dramatically if the situation drags on for more than six months or a year. Another factor that will have an immediate adverse impact on India’s energy security is further escalation of tension in the gulf region. In such a situation, supply lines will be severely restricted that will force the country to look for alternative sources but this option has its own limitations.
“In case of existing oil fields, the scope for increasing the production other than Saudi Arabia is not much. Saudi Arabia can increase the production but these fields that have been attacked were its major fields,” former oil secretary SC Tripathi told Financial Express Online.
“If the situation further escalates then there will be problem because other countries do not have the capacity to immediately shore up their production. It’s a long cycle, there has to be a survey, exploration, and finding. It takes 5-10 years,” said SC Tripathi.
He said it is not easy even for Saudi Arabia to ramp up oil production on its off-shore oil fields that is costlier and cannot be easily scaled up unlike its on-shore oil fields that have been attacked.