Strategic Oil Reserves

Strategic Oil Reserves

Subject – Economy

Context – India to sell half of Mangaluru strategic oil reserves by December

Concept –

• India has started selling crude oil from its strategic reserves to state refiners with a view to soften the blow from surging global crude prices, while also creating space for leasing out to private and international companies.
• The sale follows the government decision earlier this year to liberalise its oil policy by allowing Indian Strategic Petroleum Reserves Ltd (ISPRL)to commercialise up to 50 per cent of its reserves — under which ISPRL can use 20 per cent of the volumes for trading and lease out the remaining 30 per cent of the capacity.

About Strategic oil reserves –

• Strategic petroleum reserves are huge stockpiles of crude oil to deal with any crude oil-related crisis like the risk of supply disruption from natural disasters, war or other calamities.
• According to the agreement on an International Energy Programme (I.E.P.), each International Energy Agency (IEA) country has an obligation to hold emergency oil stocks equivalent to at least 90 days of net oil imports.
• In case of a severe oil supply disruption, IEA members may decide to release these stocks to the market as part of a collective action.
• India’s strategic crude oil storages are currently located at Visakhapatnam (Andhra Pradesh), Mangaluru (Karnataka), and Padur (Karnataka).
• The government has also given approval for setting up of two additional facilities at Chandikhol (Odisha) and Padur (Karnataka).
• The concept of dedicated strategic reserves was first mooted in 1973 in the US, after the OPEC oil crisis.
• Underground storage is, by far the most economic method of storing petroleum products because the underground facility rules out the requirement of large swathes of land, ensures less evaporation and, since the caverns are built much below the sea level, it is easy to discharge crude into them from ships.
• The construction of the Strategic Crude Oil Storage facilities in India is being managed by Indian Strategic Petroleum Reserves Limited (ISPRL).
  • ISPRL is a wholly owned subsidiary of Oil Industry Development Board (OIDB) under the Ministry of Petroleum & Natural Gas.
• After the new facilities get functional a total of 22 days (10+12) of oil consumption will be made available.
• With the strategic facilities Indian refiners also maintain crude oil storage (industrial stock) of 65 days.
• Thus, approximately a total of 87 days (22 by strategic reserves + 65 by Indian refiners) of oil consumption will be made available in India after completion of Phase II of the SPR programme. This will be very close to the 90 days mandate by the IEA.