Govt seeks to develop rock caverns to store oil reserves

India will hold consultations with Singapore and seek its expertise to develop underground rock caverns to store crude oil as part of a larger strategic petroleum reserve as envisaged under the Integrated Energy Policy.

The Planning Commission’s ‘Integrated Energy Policy’ was adopted in 2009, but has since been seen not implementable.

Amid its many recommendations was the creation of a strategic crude oil reserve capacity equivalent to 90 days of oil import.

These reserves are not intended to augment existing supplies in case of a disruption, but to act as a buffer stock that would build comfort levels in the market, government sources said.

Singapore has some of the largest underground oil storage facilities in the world. In fact, most of the oil that comes from the gulf countries, and bound for South East Asia, is stored in Singapore before reaching its final destination.

India’s keenness on developing capacity in strategic oil reserves is in line with the larger global emergency response that has been adopted by Paris- based, International Energy Agency — an autonomous intergovernmental organisation established in the framework of the Organisation for Economic Co-operation and Development  following the 1973 oil crisis.

India has had its own reasons for not joining the group as a member, or the OECD for that matter. However, the IEA has been working with India as also China and Russia in building a global emergency response.

As part of the global emergency response, the IEA stipulates creation of a 90-day oil import reserve and other overground reserves.

It also envisages setting up of a hotline  between India and Paris so that decisions on dealing with oil crisis could be taken quickly to diffuse crisis, many of which are fuelled by only speculation.

“The recent oil crisis, in June-July this year, following the deterioration in situation in Libya was diffused after some of IEA countries threatened to release some percentage of their strategic stockpiles. The threat served its purpose,” said a government source who has been closely monitoring the developments.
India is already working on building such strategic oil reserves in Mangalore, Visakhapatnam and Padur.

These facilities would be in excess of the already existing crude oil storage facilities with the government, and the national oil companies. The facilities at these three locations are expected to be ready by next year and would have the capacity to hold 5 million metric tones of crude oil reserves.

The construction of these storage facilities is being managed by Indian Strategic Petroleum Reserves Ltd (ISPRL), run by the Oil Industry Development Board.

However, these three facilities would only be able to hold at best 10-14 days of oil Import Reserves as against the targetted 90-day reserves.

India is expecting to reach the 90-day reserve target in a phased manner, by 2020. Why phased, because experts feel buying up a huge amount of oil suddenly will push the oil prices up.

“That’s what  happened during the 2008 oil crises. China bought a lot of oil for the Olympics. That sustained pressure pushed up the oil prices like anything,” government sources said.