India is capitalizing on low global oil prices to fill its underground strategic oil reserves, with the first shipload of 1 million barrels of crude oil from the UAE arriving at Mangalore as part of efforts to shore up supplies to meet any supply or price disruption.
While the 5.33 million tonne of emergency storage -- enough to meet its oil needs for 9.5 days -- was built in underground rock caverns in Mangalore and Padur in Karnataka and Visakhapatnam in Andhra Pradesh by the government, state-owned oil firms have been asked to buy oil at cheaper rates from the market and fill them up.
"Under the guidance of MoP&NG, IndianOil is importing crude oil to strengthen India's Strategic Petroleum Reserves while taking advantage of prevailing low crude prices. First such cargo of 1 million barrels of Upper Zakum Crude oil is being unloaded at Mangalore since yesterday," IOC Director (HR) Ranjan Kumar Mohapatra tweeted.
Oil prices have declined by more than 60 per cent since January and benchmark crude still trading under USD 32 per barrel despite an unprecedented deal by the world's biggest producers to cut output to steady a market pummeled by the coronavirus.
The storages at Mangalore and Padur are half-empty and there was some space available in Vizag storage as well. These will now be filled by buying oil from Saudi Arabia, the UAE and Iraq.
Oil Minister Dharmendra Pradhan, who attended the office for the first time since the nationwide lockdown was imposed, reviewed the reserve filling plans.
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"Min. P&NG Shri @dpradhanbjp along with officials of MoPNG reviewed the ongoing operations of India's Strategic Petroleum Reserves Program in the light of prevailing low crude oil prices," the Ministry of Petroleum and Natural Gas (MoPNG) tweeted.
Pradhan has in the last few days held talks with his counterparts in Saudi Arabia and the UAE with a view to shoring up supplies.
"He instructed officials of @ISPRL1 to augment storage of crude in the strategic reserves to further enhance India’s energy security," the ministry tweeted.
The Strategic Petroleum Reserve entity of India (ISRPL) built the underground storages as insurance against supply and price disruptions. It allowed foreign oil companies to store oil in the storages on condition that the stockpile can be used by New Delhi in case of an emergency.
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Pradhan also reviewed marketing and supply of essential petroleum products including petrol, diesel, and LPG, the ministry said. "Together with officials of MoPNG reviewed exploration and production activities of @ONGC_ through video-conferencing. ONGC is maintaining oil and gas production in spite of the challenges posed by the lockdown and the Covid-19 pandemic."
Abu Dhabi National Oil Co (ADNOC) had previously hired half of the 1.5 million tonnes of Mangalore storage.
It has stored for its commercial purposes 0.75 million tonnes of oil at Mangalore and the remaining space was empty, sources said adding the UAE's Upper Zakum crude is being bought for storing in the empty space.
Padur, the biggest of the three storages, has a total capacity of 2.5 million tonnes (about 17 million barrels). ADNOC had in November 2018 signed up to hire half of this capacity but never actually stored oil in it.
Government-sourced crude fills up half of the Padur capacity currently and 1.25 million tonnes of crude oil from Saudi Arabia is planned to be sourced for filling up the empty space, they said.
Padur storage has four compartments of 0.625 million tonnes each. The 1.33 million tonnes Vishakhapatnam storage has a small amount of unfilled space which would be filled with Iraq crude oil, they added.
While the oil to be stored in the three caverns will belong to the government, the government isn't paying for it. State-owned Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) have been asked to source oil from the three Middle-East countries for storing the caverns, sources said, adding the government will reimburse them of this cost at a later date.
The Finance Ministry has set aside ₹700 crore for the purpose, they said adding the amount wouldn't cover for the cost of entire oil to be bought and more allocations will need to be made.
At least ₹2,000 crore more would be needed for buying the 15 million barrels of oil needed to fill Mangalore, Padur and Vizag, they said.
ADNOC had in February 2018 signed a pact to fill half of the 1.5 million tonnes of strategic oil storage at Mangalore.
In November 2018, it had signed a similar pact with the ISRPL for Padur. In Mangalore, it had agreed to stock 5.86 million barrels or 0.75 million tonnes of oil.
The agreement allows ADNOC to sell or trade crude oil storage in the storages to local refiners but give the Indian government the first right to the oil in case of an emergency.
Allowing foreign companies to use the storage for storing crude oil helps the government save on the cost of filling the reserves.
Sources said foreign oil firms are allowed to hire the storages and use them to stock their oil and sell it to refineries in the region on commercial terms.
India, which meets 83 per cent of its oil needs through imports, will have the right of first refusal to buy the crude oil stored in the facilities in case of an emergency, they said.
Indian refiners maintain 65 days of crude storage, and when added to the storage planned and achieved by ISPRL, the Indian crude storage tally goes up to about 87 days.
This is very close to the storage of 90 days mandated by IEA for member countries.
This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.