Facts:
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India is the 3rd largest consumer of oil
Government Proposals
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Since 2003, the Central Government has commissioned the strategic oil reserves to maintain nation’s energy as well as economic security.
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The erstwhile Planning Commission in its Integrated Energy Policy, 2006 also had recommended to maintain a reserve equivalent to 90 days of oil imports for strategic-cum-buffer stock purposes.
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The recommendation was based on identification that any supply, market and technical risks in global supply chain of oil may become major threat to India’s energy security.
Present Status
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Central Government under phase I of SPR programme had announced to build three underground crude oil storage facilities with total capacity of 5.33 million tonnes at Vishakhapatnam (Andhra Pradesh, storage capacity of 1.33 million tonnes), Mangalore (Karnataka, 1.5 million tonnes) and Padur (Kerala, 2.5 million tonnes) to provide energy security of 10 days of consumption in response to external supply disruptions.
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They are maintained by ISPRL, a special purpose vehicle (SPV), which is wholly owned subsidiary of Oil Industry Development Board (OIDB) under Ministry of Petroleum & Natural Gas.
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In 2017-18 budget, Government as part of phase 2 of SPR programme had announced to set up two more such SPR at Chandikhole (Odisha) and Bikaner (Rajasthan). This will take the strategic reserve capacity to 15.33 million tons.
To address energy insecurity, the government of India had mooted the concept of strategic petroleum reserves in 1998. At present the demand for the same is growing stronger with each passing day. Discuss why such reserve is needed. (200 Words)
Oil is a basic necessity for any production process. Oil derivatives are universal intermediaries and thus any shortage in their supply affects the entire economy. The concept of a strategic reserve was mooted in light of the 1990s oil crisis; however it still remains a critical infrastructure because:
- 80% of domestic oil need is imported primarily from West Asia. The region has been in the grip of constant crisis, especially now with the ISIS onslaught, Yemen crisis, Civil wars inter alia. Meeting our demand through reserves is thus important.
- India’s trade deficit is largely driven by oil imports. Oil prices are very sensitive & mainly globally driven. Thus in periods when oil imports become financially unviable it is crucial to maintain reserves.
- West Asia is ridden with politically unstable states. Even major players like Iran have faced the brunt of economic sanctions recently. In a climate of uncertainty we should ensure that our domestic supply is met in intermittent periods through reserves.
- Strategic reserves also provide autonomy & leverage in foreign policy to the nation in times of crisis.
- Even in internal security crisis when borders are to be sealed such reserves will provide the country elbowroom to manoeuvre such moves.
- Building of strategic reserves will also allow India to feed its neighbors in times of natural calamities such as recently in Nepal.
- The time is opportune because the oil prices have dipped to new lows. Existing reserves must thus be filled to their capacity before any upswings in oil price occur.
However, in light of the enormous cost of building reserves alternatives are proposed in the form of exclusive fuel supply agreements with West Asia especially in view of our proximity with the region. Such proposals are welcome, but they cannot substitute reserves as a strategic asset & hence the govt. must move to fulfil Vision 2020 of creating strategic reserves for 90 days of domestic supply.