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GS Analyst: Daily Current Affairs

8th July 2024 (11 Topics)
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India May Rent Oil Storage in Southeast Asia for Reserves

Context

India is considering renting oil storage space in Southeast Asian countries to enhance its strategic petroleum reserves, aiming to bolster energy security and meet international standards.

Key Highlights of the Developments

  • Strategic Locations: Indian Strategic Petroleum Reserves Ltd (ISPRL) is considering storage spaces in Singapore, Japan, and South Korea due to their strategic, logistical, and economic viability.
  • Commercial Viability: The decision will hinge on commercial viability and accessibility, ensuring that rental charges are reasonable and do not exceed transportation costs.
  • Previous Efforts: This is not the first instance of India considering overseas crude storage. In 2020, India and the US signed an MoU to explore storing oil in the US Strategic Petroleum Reserve.

Reason Behind the Initiative

  • Energy Security: Increasing strategic reserves is crucial for India’s energy security, providing a buffer during supply disruptions or emergencies.
  • Geopolitical Considerations: Locations like the UAE are strategically favorable due to their proximity and stability compared to other oil-rich regions.

Impact of the Initiative

  • Enhanced Strategic Reserves: This move will help India meet the International Energy Agency’s (IEA) requirement of maintaining oil stock levels equivalent to at least 90 days of net imports.
  • Increased Storage Capacity: ISPRL’s current capacity stands at 5.3 million tonnes, with ongoing projects to add 6.5 million tonnes more. Additional storage abroad would significantly augment this capacity.
  • Geopolitical Stability: Storing oil in stable regions like Southeast Asia can mitigate risks associated with volatile areas, ensuring a more reliable energy supply.
Required Measures
  • International Agreements: Finalizing agreements with countries like Japan, South Korea, and Singapore to secure storage space.
  • Cost-Benefit Analysis: Conducting thorough cost-benefit analyses to ensure the economic viability of renting overseas storage.
  • Regulatory Framework: Establishing a robust regulatory framework to manage and oversee international storage agreements and logistics.
Strategic petroleum reserve (SPR)
  • They are typically state-funded oil reserves. These are essentially huge stockpiles of crude oil to keep the wheels of the country running in crunch situations.
  • They are meant to tackle emergency situations and allow a country to tide over short-term supply disruptions. SPR is deemed essential because the government has to stay prepared with emergency stores of crude oil to tide over severe supply shocks of this critical fuel.
  • International Energy Agency (IEA) members maintain emergency oil reserves equivalent to at least 90 days of net imports.
  • The concept of building underground caverns to store oil is not new. In the US, the crude reserve is stored at four sites in the Gulf of Mexico. The world’s second largest emergency supply of oil is reported to be in Japan.
India’s Strategic Oil reserves:
  • A strategic reserve is the reserve of a commodity or items that is held back from normal use by governments, in pursuance of a particular strategy or to cope with unexpected events.
  • Countries keep strategic reserves of crude oil to meet the immediate demand in ‘times of crisis’ or ‘unexpected events’.
  • India, the world’s third-largest consumer of crude, depends on imports for more than 85% of its requirement.
  • Government of India through Indian Strategic Petroleum Reserve Ltd. (ISPRL) under Phase–1 has setup Strategic Petroleum Reserves (SPR) at three locations with a capacity of 5.33 MMT (million metric ton) –
  • Vishakhapatnam (1.33 MMT),
  • Mangaluru (1.50 MMT) and
  • Padur (2.5 MMT)
Mains Practice Question

Q: "Discuss the significance of strategic petroleum reserves for India’s energy security. How does renting storage space abroad fit into this strategy?"

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