Policy
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A Sensible Strategy To Promote Use of Natural Gas In North East
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Alternative Energy / Fuel
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Market Watch
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Companies
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Adani Green Energy Raises $ 750 Mn
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Press Release [FREE Access]
Petro Intelligence » No Logic In Expanding Crude Storage Capacity

By R. Sasankan

The bureaucracy can often stump everyone with some pretty oddball ideas that it pursues with the passion of a zealot.

The move to expand crude storage capacity in the country can easily be added to that long list of unworthy causes.

“The Union cabinet has approved the second phase expansion of strategic crude storage by creating an additional 6.5 million tonnes of SPRs at two locations: 4 million tonnes at Chandrikhol in Odisha and another 2.5 million tonnes at Padur in Karnataka," H.P.S. Ahuja, CEO and Managing Director of Indian Strategic Petroleum Reserves Ltd (ISPRL) said in a recent interview.

Obviously, the cabinet must have been briefed by the new petroleum minister, Hardeep Singh Puri. A long-time career diplomat, Puri has still to get to grips with the intricate issues in the world of petroleum. It is fair to assume that Puri had gone along with the brief that the boffins in his ministry had prepared for his predecessor, Dharmendra Pradhan, who was shifted in the last month’s reshuffle.

Does India need additional strategic crude storage? Petroleum experts within the government had questioned the idea even when the proposal for the first phase of the SPR with a total capacity of 5.33 million tonnes was first broached because they felt it was wasteful expenditure.

The second phase defies all logic.

The country already had sufficient  storage capacity for crude and products. Each refinery has a storage capacity for 20-22 days. The Indian defence sector has a storage facility for three weeks. Imported crude and products shipments in transit, in pipelines and stocks with various depots of petrol pumps all over the country will take care of 12-15 days' requirement.

Crude is a product that continually flows. There has been only one instance in history when the movement of crude was disrupted and that too for just seven days. The creation of crude storage capacity became a strategic necessity for the US during the Second World War -- and that is where the idea gained currency. It has not served any strategic purpose since then anywhere in the world including the US. Several European countries have opted for a common crude storage capacity.

Even our planners remained unconvinced about the strategic importance of crude reserves. Nevertheless India went ahead with the creation of underground crude storage caverns in three places -- Vizag, Mangalore and Padur -- with a total capacity of 5.33 million tonnes. Storage is an expensive proposition. Stored crude has to be replaced and refilled periodically. A special purpose vehicle (SPV) called the Indian Strategic Petroleum Reserves Ltd (ISPRL) was created to manage these storage caverns. Long before India created these SPRs, the world had stopped storing crude for strategic purpose. It has since been used to manage market fluctuations in supply and price.

By adding three SPRs, India’s storage capacity went up by 9.5 days over and above the already existing 57 days of storage. The second phase with a capacity of 6.5 million tonne will add another 12 days.

This begs the question: Is India heading for a glut in petroleum storage capacity?

There is a real danger of this now which is why the cabinet decided that 50 per cent of the SPR capacity could be used for commercial purposes. This is based on the assumption that there will be a scramble for India’s storage capacity. ADNOC has been the only foreign company to store crude in one of the caverns here. Aramco evinced interest but did not pursue the idea.

Despite the current uptrend in crude prices, the fossil fuel market is not projected to be in robust health. True, ISPRL benefited from the pandemic-ignited crash in crude prices last year. It bought crude when the price was very low and started selling it when the price crossed $ 60 barrel. The Corona virus situation cannot be a sound reason for making such a major investment.

To minimise the financial burden, the cabinet has decided that the fresh SPR capacity ought to be created under the Public-Private Partnership (PPP) model. The PPP model sounds attractive but in India it has turned out to be a disaster. The private parties invariably make marginal investments and the rest comes from the banks. They manage to inflate the project cost and hop out of the project soon after they make their money. This can happen again.

The strategic purpose that underpins the idea for crude storage is that these caverns will come in handy in the event of an enemy attack that triggers disruption in supplies. There is a flip side to this argument: the enemy will have its sights trained to destroy any crude storage facility at a single location.

But if crude is stored at different places, it will make the task harder to achieve. Indian refineries are located all over the country and each has a storage capacity for 20-22 days. If their capacity is expanded by 50 per cent, there will be no need to create fresh SPRs. This is a Common Sense Model which looks a lot better than the PPP model, which will only push up costs that will be ultimately passed on to the end-consumer.



To download the latest issue 'Volume 28 Issue 11 - September 10, 2021', click here
Petro Intelligence [FREE Access]
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When Competition Comes A Cropper
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No Logic In Expanding Crude Storage Capacity
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India’s Business Ties With Saudi Arabia, UAE Call For A New Dimension
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Foreign Investment
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Gas Scene
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Domestic Natural Gas Scene In July 2021
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Natural Gas Price Trends: Global And Domestic
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Sectoral Consumption of Natural Gas In June 2021
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Domestic Natural Gas Scene: June 2021
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Sector-Wise, Month-Wise Demand & Consumption of Natural Gas
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Growth In Import Dependency Of Natural Gas Halted
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Natural Gas Price: Global and Domestic
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Sector-Wise Consumption Of Natural Gas In May 2021
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Natural Gas Price Trends : Global And Domestic
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Sector-wise Consumption Of R-LNG, Domestic Gas Since FY 2018-19
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Natural Gas: India’s Increasing Import Dependency
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CGD Becomes An Attractive Business In India
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Data Section
Monthly Upstream Data
Monthly Downstream Data
Historical database
Data Archives
Special Database
Quantity And Value Of Indian Crude Oil Imports (FY 2017-18 to FY 2020-21)
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Specific Energy Consumption Of PSU Refineries
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Weightage of crude oil, natural gas and petroleum products in Wholesale Price Index (WPI)
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Share Of Imported Crude Drops In Oil Processing
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High Sulphur & Low Sulphur crude oil processing
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Profit After Tax (PAT) Of Oil Companies
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India’s Rig Count Marginally Up In July
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The Rise And Fall Of India’s Petroleum Products Export
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Global Oil Demand Is Poised To Rise
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Global Rig Count Up
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Indian crude oil basket price in August 2021
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Contribution of Petroleum Sector to Union and State Exchequers
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Retail Selling Price of LPG, Kerosene in India & Neighbouring Countries
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Petroleum Products: Industry Consumption Trend Analysis
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Petroleum Products Import Down, Exports Up In July 2021
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India’s Crude Oil Import Up in July, OPEC’s Share Edges Up
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Share Of Domestic Crude Shrinks, High Sulphur Crude Up In July
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Product-Wise Consumption In July 2021
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Passenger Vehicles ,Two Wheelers Register Impressive Sales
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PSU Oil Marketing Companies, Shell Expand Marketing Infrastructure During Covid-19.
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Self-Sufficiency In Petroleum Products
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Story Behind Downgrading of India’s GDP
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ONGC’s Short Term Action Plan
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Indian Drilling Rig Count Up
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Recovering Economic Activity To Boost World Oil Demand, But Problem Areas Persist
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Impressive Growth In Passenger Vehicles,2 Wheelers
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Global Rig Count Up
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Prices In Indian Basket Of Crude In July 2021
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Capital Expenditure of PSU Oil Companies Moves At A Fast Pace
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Industry Consumption Trend Analysis
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Petroleum Products: Marginal Increase in Import, Big Jump in Exports In June 2021
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