Strategic Petroleum Reserves

Strategic Petroleum Reserves: News

• Existing liquefied natural gas (LNG) tunnels and exhausted oil wells are likely to be utilized for the gas reserve, along with the construction of new underground infrastructure such as large salt caverns.
• The gas reserve facility may be chosen close to the pipeline infrastructure so that the fuel can be easily transported in the times of need.

Strategic Petroleum Reserves (SPR) in India

• About: Strategic Petroleum Reserves are stockpiles of crude oil maintained by countries for release in the event of a supply disruption.
• Objective: To ensure energy security of the country by serving as a cushion during any external supply disruptions.
• Background:
  • It was first proposed in 1998 during PM Vajpayee government in the backdrop of volatile oil prices in 1990s.
  • The erstwhile Planning Commission, in its Integrated Energy Policy, 2006, recommended a reserve, equivalent to 90 days of oil imports for strategic cum-buffer stock purposes.
• Current status:
  • Presently, strategic reserves are situated at Visakhapatnam (Andhra Pradesh), Mangalore (Karnataka), and Padur (Kerala).
  • Current reserves can provide consumption coverage for 74 days. With the development of phase 2 reserves, the coverage will increase by 12 days, enhancing the complete coverage to 86 days.
• Managing authority: The construction of the Strategic Petroleum Reserves facilities is being managed by Indian Strategic Petroleum Reserves Limited (ISPRL), a Special Purpose Vehicle under the control of the Ministry of Petroleum and Natural Gas.

Strategic Petroleum Reserves: Significance

• Energy security: They ensure consistent energy supply by acting as a cushion during external supply disruptions and price fluctuations.
• They act like an insurance policy against future oil supply or price shocks.
• Monetary benefits: India can save crores of rupees by stocking up oil at times of price drop and relying on these reserves at times of price hike.
• When there was a fall in international crude oil prices due to COVID crisis, India was filling its strategic reserves at a low cost.
• Investment Avenue: The government has developed plans for the commercialization of the reserves.
• In 2020, the Union cabinet has allowed Abu Dhabi National Oil Co (ADNOC) to export oil from its Mangalore strategic petroleum reserve (SPR).
• Strategic cooperation: Oil stockpiling and development paves way for strategic collaborations with other countries.
• E.g. In 2020, India and the US signed an agreement for cooperating on emergency crude oil reserves, including the possibility of India storing oil in the US emergency stockpile.
• Safety: Underground rock caverns are the safest means of storing hydrocarbons. The caverns can be easily protected from threats like fires and sabotage, unlike large storage tanks.

Strategic Petroleum Reserves: Concerns

• Disaster vulnerability: Multiple drawdowns of oil from the reserves may cause cavern deformation and lead to building up of tectonic stresses.
• Lack of transparency: No specific Strategic Petroleum Reserves agreement between the oil refineries and the Union/State governments. The information about which refineries hold Strategic Petroleum Reserves, in what Form (refined or crude) and location of Strategic Petroleum Reserves is not available publicly.
• High cost: The capital cost of constructing Strategic Petroleum Reserves facilities and maintaining them is enormous.
• Most studies estimate that the opportunity cost of holding crude oil is more than the cost of crude oil. To reduce this cost, auctioning or trading oil in Strategic Petroleum Reserves is suggested.
• Climate concerns: Promoting more Strategic Petroleum Reserves facilities would encourage adoption of fossil fuels which are source of carbon emissions.

Sharing is caring!