India’s Strategic Petroleum Reserve
- Category
Economy
- Published
22nd Oct, 2018
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- The Indian government is looking forward to forge partnerships with private oil companies to build out its strategic petroleum reserves within the coming year
- As part of India’s evolving energy security architecture, India is seeking $1.5 billion of investments from global oil producers and traders to build additional emergency crude reserves that will act as a buffer against volatility in oil prices.
- The plan is to build underground caverns that can hold a combined 6.5 million tons of crude oil at three locations.
Issue
Context:
- The Indian government is looking forward to forge partnerships with private oil companies to build out its strategic petroleum reserves within the coming year
- As part of India’s evolving energy security architecture, India is seeking $1.5 billion of investments from global oil producers and traders to build additional emergency crude reserves that will act as a buffer against volatility in oil prices.
- The plan is to build underground caverns that can hold a combined 6.5 million tons of crude oil at three locations.
Background:
- Many major global oil consumers such as the US, China and Japan have built massive strategic reserves of oil over the years, and India too has embarked on the path in the last decade.
- Indian Strategic Petroleum Reserves Ltd., which was formed in 2006, has constructed 5.33 million tons of three strategic petroleum reserves in huge underground rock caverns at Visakhapatnam on the East Coast, and at Mangaluru and Padur on the West Coast.
- These facilities can meet about 10 days of India’s crude oil requirements. The government has approved new facilities recently that can provide additional supply for about 12 days.
- India has purchased crude oil to fill the caverns in Visakhapatnam in Andhra Pradesh and half of another facility in Mangalore in Karnataka, while leasing out the other half to Abu Dhabi National Oil Co.
- Indian Strategic Petroleum Reserves Ltd. is scouting investors to fill the caverns at Padur. It will hold road-shows in New Delhi, Singapore and London in October 2018 to draw investors for the new caverns as well as filling the Padur facility.
About:
Strategic petroleum reserve (SPR)
Analysis
Need for Strategic Petroleum Reserve
- In 1990, as the Gulf war engulfed West Asia, India was in the throes of a major energy crisis. By all accounts, India’s oil reserves at the time were adequate for only three days. While India managed to avert the crisis then, the threat of energy disruption continues to present a real danger even today.
- It is unlikely that India’s energy needs will dramatically move away from fossil fuels in the near future. Over 80% of these fuels come from imports, a majority of which is sourced from West Asia. This is a major strategic risk and poses a massive financial drain for an embattled economy and its growing current account deficit.
- To address energy insecurity, the previous NDA government mooted the concept of strategic petroleum reserves in 1998. Today, with India consuming upwards of four million barrels of crude every day (January 2015 figures), the case for creating such reserves grows stronger.
- Such reserves will help India, the world’s third-largest oil importer after the US and China, to manage supply risks. The development comes at a time of growing uncertainty in global oil markets, driven by tensions between the US and Venezuela, and US demands for a global end to imports of Iranian oil by early November.
- Added to this, there’s always the risk of supply disruption from natural disasters, war or other calamities.
- Thus, strategic petroleum reserves add much-needed heft to the country’s energy security.
Advantages of an Underground Storage Facility
- The concept of massive caverns deep below the surface of the earth has been traditionally marketed as an energy security measure that can be a defence against an attack or invasion of some sort.
- Underground storage is also by far the most economic method of storing petroleum products.
- According to an expert from the National Institute of Rock Mechanics, Kolar, Karnataka, the underground facility rules out the requirement of large swathes of land, loads of security, ensures less evaporation.
- Since the caverns are built much below the sea level, it is also easy to discharge crude into them from ships.
Limitations of SPR
- Huge Economic cost: Apart from the capital cost of Rs. 4,098 crore, the crude oil cost would be approximately Rs 11,725 crore.
- Supply disruptions: In the event of any natural calamity or unforeseen global event, leading to an abnormal increase in prices there might be supply disruptions of crude oil from abroad.
- Security of SPR: Terrorists might threaten to attack India’s oil reserve facilities. In the event of war, the security of SPR facilities might come under threat.
Conclusion
The dedicated strategic reserve is something that is long overdue, given India’s dependency on imported fuel to meet its needs. Oil is likely to remain a critical source of energy at least in the near future. Even the carbon footprint is much lesser with the use of oil as compared to coal. Apart from oil, India also needs to look into its gas reserves because it is the most eco-friendly source of energy among fossil fuels.
Learning Aid

Practice Question
Q.“Strategic petroleum reserves are essential to address India’s growing energy insecurity.” Analyse. Also, discuss the advantages of an underground storage facility.
Approach:
- Briefly introduce SPR.
- Outline the pros and cons of SPR in India.
- Elaborate on the need to have SPR for India’s energy security need.
- List down the advantages of an underground facility.
- Conclusion.