India’s strategic crude oil reserves will be full by mid-May, said petroleum minister Dharmendra Pradhan.
The minister was speaking to Daniel Yergin, vice chairman, IHS Markit. “India has 5.3 million metric tons of strategic storage capacity. By mid-May it will be full. Apart from that our companies have 7 million metric tons of floating oil in their contracts. We have booked them, we have purchased them," Pradhan said, according to a statement from IHS Markit.
India, the world’s third largest crude oil importer has an existing storage capacity of 5.3 million tonnes (mt) at Visakhapatnam (1.33mt), Mangaluru (1.5 mt) and Padur (2.5mt) 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 NDA government has approved the construction of an additional 6.5 mt of strategic crude oil reserves at Chandikhol (4 mt) in Odisha and Padur (2.5 mt) in Karnataka.
Pulitzer prize-winning American author Daniel Yergin has been part of Prime Minister Narendra Modi's brainstorming meetings with global oil and gas industry representatives.
“Apart from that, with our domestic online capacity in crude oil or products we have storage of around 25 million metric tons. Put together, we have nearly 38 million metric tons of product and crude oil storage facilities," Pradhan said. "This is around 18% of our annual requirement of energy. This is the maximum capacity we could hold and we are holding that."
Mint earlier reported about India trying to leverage the depressed prices to fill in its strategic crude oil reserves. With the global oil demands plunging due to the spreading contagion crude prices are in tailspin, providing an opportunity for India’s ambitious and costly Indian Strategic Petroleum Reserves (ISPR) programme.
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 (IEA) 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 ISPR, 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.
In comparison, IEA countries hold 1.55 billion barrels of public emergency oil stocks. In addition, 650 million barrels are held by industry under government obligations, and can be released as needed.
This comes in the backdrop of extremely low global crude oil prices, with Brent crude hitting a 21-year low, and US oil futures slumping into negative for the first time in history. The prices since then have recovered.
“We have to have a reasonable price. India is a major consumer. But at this juncture, India’s viewpoint is price should be reasonable and responsible. Very low prices are not the answer. Reasonable prices are the answers. Prices should give some space to the producer countries. It should be profitable for them; it should be viable for them," Pradhan said according to the statement.
The cost of the Indian basket of crude, which comprises Oman, Dubai, and Brent crude, averaged $56.43 and $69.88 per barrel in FY18 and FY19, respectively and $19.90 in April, according to data from the Petroleum Planning and Analysis Cell. The price was $26.12 a barrel on 7 May. Every dollar per barrel drop in crude prices reduces India’s oil import bill by Rs10,700 crore on an annualized basis.
Several state governments have raised petrol and diesel prices by increasing value-added tax (VAT) on transportation fuels to shore up revenues. Also, the union government has been repeatedly raising the excise duty on petrol and diesel.
“Our refiners are facing severe inventory loss because all of our purchases from February, March, and April prices are not what they are today. So we have to pay the whole price. It’s a double burden. There are a market loss and an inventory loss for our oil companies," Pradhan said according to the statement.