First oil cargo for India’s strategic reserve in Mangaluru sails from UAE

The first consignment of 2 million barrels of crude oil that is en route from United Arab Emirates (UAE) for India’s strategic petroleum reserve at Mangalore, will help the world’s third-largest oil importer’s energy security programme.

With India building around 39 million barrels of strategic crude oil storage facility, the 5.86 million barrels supplied by state-run Abu Dhabi National Oil Company (ADNOC)—the only one to partner with India on its crude oil reserve programme till date, can be used during an emergency.

According to a 12 May Indian government statement the loading of the first crude consignment was witnessed by petroleum minister Dharmendra Pradhan who is currently on a visit to the Gulf nation.

Indian Strategic Petroleum Reserves Ltd (ISPRL) has an agreement with ADNOC under which ADNOC will store around 5.86 million barrels of crude oil in India’s Strategic Petroleum Reserve (SPR) facility at Mangalore at its own cost. This agreement was signed during Prime Minister Narendra Modi visit to UAE in February this year.

This comes in the backdrop of a spike in oil prices with President Donald Trump pulling the US out of a 2015 historic accord with energy-rich Iran that was inked to curb the Islamic Republic’s nuclear programme in return for ending sanctions. Also, there has been a rally in international crude oil prices due to a combination of factors such as Opec and Russia cutting supplies, falling production in Venezuela and geopolitical tensions.

India’s strategic crude oil storages are located at Vizag (1.33 million tonnes), Mangalore (1.5 million tonnes) and Padur (2.5 million tonnes). The US has also evinced interest to collaborate with India on its crude oil reserve programme as part of a strategic energy partnership that covers sectors such as oil and gas, power, renewable energy, and coal.

For ADNOC, the oil storage facility will enable it to meet market demand across Asia at a time, when the global energy architecture is changing, with buyers at the centre of oil majors’ future growth plans. The development also assumes importance given that UAE supplies 8% of crude oil imports of India.

With India’s energy demand expected to grow at 4.2% over the next 25 years, energy majors are scouting for opportunities here. A case in point being world’s biggest oil producer—Saudi Arabian Oil Co., or Saudi Aramco that is planning to set up one of the largest global refinery and petrochemical complex at Ratnagiri in Maharashtra at an investment of $44 billion, in partnership with a consortium of Indian state-run companies.

India-UAE ties moved into a new trajectory with the August 2015 visit to Abu Dhabi by Prime Minister Narendra Modi. One of the key outcomes of that visit, the first by an Indian prime minister in 34 years, was the two sides agreeing to the setting up of a multi-billion dollar fund to tap into investment opportunities in India’s infrastructure sector. Also, during Modi’s visit in February this year, a consortium of Indian state-run firms was awarded a 10% stake in Abu Dhabi’s offshore Lower Zakum oil concession.

About SPR programme:

To ensure energy security, the Government of India had decided to set up 5 million metric tons (MMT) of strategic crude oil storages at three locations namely, Visakhapatnam, Mangalore, and Padur (near Udupi). These strategic storages would be in addition to the existing storages of crude oil and petroleum products with the oil companies and would serve as a cushion during any external supply disruptions.

In the 2017-18 budget, it was announced that two more such caverns will be set up Chandikhole in Jajpur district of Odisha and Bikaner in Rajasthan as part of the second phase.

The construction of the Strategic Crude Oil Storage facilities is being managed by Indian Strategic Petroleum Reserves Limited (ISPRL), a Special Purpose Vehicle, which is a wholly owned subsidiary of Oil Industry Development Board (OIDB) under the Ministry of Petroleum & Natural Gas.

In 1990, as the Gulf war engulfed West Asia, India was in the throes of a major energy crisis. By all accounts, India’s oil reserves at the time were adequate for only three days. While India managed to avert the crisis then, the threat of energy disruption continues to present a real danger even today.

It is unlikely that India’s energy needs will dramatically move away from fossil fuels in the near future. Over 80% of these fuels come from imports, a majority of which is sourced from West Asia. This is a major strategic risk and poses a massive financial drain for an embattled economy and its growing current account deficit.

To address energy insecurity, the Atal Bihari Vajpayee government mooted the concept of strategic petroleum reserves in 1998. Today, with India consuming upwards of four million barrels of crude every day (January 2015 figures), the case for creating such reserves grows stronger.

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