Strategic Petroleum Reserves

//Strategic Petroleum Reserves

Strategic Petroleum Reserves

The Union Cabinet has recently approved the construction of two more strategic petroleum reserves in the country at Chandikhol in Odisha and Padur in Karnataka with an aggregate capacity of 6.5 million tonnes.

What are ‘strategic petroleum reserves’?

  • A strategic petroleum reserve is like a piggy bank in which we pour oil. The objective is to save for the periods of shortages or other unforeseen circumstances.
  • With these reserves, the government prepares itself through emergency stores of crude oil to tide over severe supply shocks.
  • They are essentially huge stockpiles of crude oil to keep the wheels of the economy (country) running in supply-crunch situations.

Background 

  • Several global oil consumers such as the US, China and Japan have already built massive strategic reserves of oil over the past many years. India too had embarked upon this path in the last decade.
  • Indian Strategic Petroleum Reserves Ltd, a special purpose vehicle (SPV) created under the Oil and Gas Ministry, has already constructed three strategic petroleum reserves at Visakhapatnam on the East Coast, and at Padur and Mangaluru on the West Coast.
  • They have a total capacity of 5.33 million tonnes which can meet about 10 days of India’s crude oil requirements. The new facilities (approved last week) of 6.5 million tonnes can provide additional supply for about 12 days.

Need for strategic petroleum reserves 

  • Despite being the world’s third largest consumer of oil after the US and China, we produce very little of our own oil and are therefore dependent on imports for more than 80 percent of our requirements.
  • A major chunk of these imports come from West Asia which is usually in the middle of some geopolitical crisis or the other. Also, there is a possibility of any major oil supplier arm-twisting India during supply side restrictions.
  • There is also a possibility of supply disruption due to natural disasters, war or other such calamities. These strategic reserves provide us with much-needed heft to our energy security, giving us crucial time and breathing space in case of such a crisis situation.
  • Global practice calls for maintaining strategic reserves of at least 90 days of oil imports. Therefore, India has a long way to go.
  • Petroleum reserves are also needed as the crude oil prices remain extremely fickle throughout the year. In case of a sharp increase in prices, India can utilise these strategic petroleum reserves to avoid inflation from increasing in the economy and hurting the ultimate consumers.

Conclusion 

Although India has a long road ahead to build strategic petroleum reserves, but as Lao Tzu said, the journey of a thousand miles begin with a single step.

SourceThe Hindu Business Line

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By | 2018-08-31T14:45:03+00:00 August 31st, 2018|Categories: Uncategorized|Tags: , |0 Comments

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