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Crude oil is one of the most valuable commodities, and petroleum is the most popular energy. Despite various alternative energies like solar energy, wind energy, thermal energy, etc., being developed, India still depends a lot on petroleum.25% of import expenditure in India is spent on crude oil. The price of crude oil in marketing is fluctuating right now. The war between Ukraine and Russia has made the conditions even more critical. Hence, the government of India feels a dire need to create strategic petroleum reserves and store crude oil under the ground.
Strategic petroleum reserves in India
Most crude oil is imported, about 84% of what India requires. This costs 25%, which is one-quarter of the import expenditure of India. It is estimated that this expenditure rate will only go up. The crude oil prices in the market are also constantly fluctuating and rising now, and the Russia – Ukraine war has worsened the conditions.
The Government of India needs a more strategic petroleum reserve to ensure the energy security of the country and avoid monetary loss as the prices fluctuate.
The idea of constructing an oil reserve in India surfaced in 1988 as crude oil prices in the international market rose rapidly during the first gulf war.
Hence, Atal Bihari Vajpayee came up with establishing strategic petroleum reserves.
The strategic petroleum reserves in India are maintained and constructed by the Indian Strategic Petroleum Reserves Limited, which is abbreviated as ISPRL.ISPRL is the subsidiary of the oil industry development board OIDB. OIDB is managed by the Ministry of Petroleum and Natural Gas.
The strategic petroleum reserves were constructed underground at Mangalore, Padur, and Visakhapatnam during the first phase. In these areas, they store crude oil under the ground. There are existing crude oil storage, and these three strategic stores are in addition to that. Arun Jaitley, the finance minister of India, announced in the 2017-18 Budget that two more strategic petroleum reserves would be constructed at Bikaner in Rajasthan and Chandikhole in Odisha. The reserve capacity in Chandikhole would be double the reserve capacity in Padur.
In the second phase, more strategic crude oil facilities are planned to be established in India. The first facility in the second phase will be developed at Rajkot in Gujarat.
The storage capacity of strategic petroleum reserves in India
The storage capacity of the various strategic petroleum reserves in India is different. The biggest reserve is the one in Chandikhole, with a capacity of 4 million tons. It is still under construction. The second-largest reserve is constructed at Padur with a capacity of 2.5 million tons, and more than 2.5 million tons will be added to it and is under construction right now. The strategy petroleum reserve located in Mangalore in Karnataka has a capacity of 1.5 million tons. The reserve at Visakhapatnam, situated in Andhra Pradesh, is the smallest one. The capacity of the reserve in Visakhapatnam is around 1.33 million tons.
The cost of the strategic petroleum reserves in India
The total cost for the construction of strategic petroleum reserve facilities at Visakhapatnam, Mangalore, and Padur in phase one was estimated to be around 23.97 billion rupees according to September 2005. However, the cost was later revised according to prices and was estimated to be around 40.98 billion. This cost was covered through funds provided by OIDB, the Oil Industry Development Board, and some of it was covered by Hindustan Petroleum Corporation Limited. The cost required for the operation and maintenance of the strategic petroleum reserve is funded by the Indian government. However, ISPRL faced a loss of about 1 billion rupees in 2019-2020.
Recently, India has tried to commercialise the crude reserves of SPR two generate revenue with the help of oil stocks for trading. The strategy behind this was to purchase the crude oil at a low level and then put out that crude oil in the domestic market when the oil prices rise.
The SPR works like insurance against oil price shocks that the country could face in future. Since crude oil is still a pretty important energy source for India, undertaking such a measure is important.
Conclusion
Crude oil is still a very important commodity for India since crude oil is a significant energy source in India. But India needs to import about 84% of its crude oil, which greatly strains the import expenditure. The fluctuations in oil prices in the international market could also create problems for India. Hence, to come with these issues, strategic petroleum reserves were constructed in India. The reserves constructed in the first phase are located at Visakhapatnam, Mangalore and Padur. The construction and maintenance of this research are the responsibility of ISPLR.
