What is Strategic Petroleum Reserve (SPR)?

A private firm or consortium will run the two new underground crude oil storage facilities at Odisha and Karnataka. This move discards the previous plan by the government to build these reserves through ISPRL (Indian Strategic Petroleum Reserves Limited).

1. Strategic petroleum reserves are substantial stockpiles of crude oil to meet the emergencies of supply shocks of crude oil. (To know more about Crude oil pricing, read the linked article.)
2. The government has to keep the wheels of the country running in times of emergencies. So India has built its Strategic Petroleum Reserves at Visakhapatnam, Mangalore and Padur.
3. The USA, China and Japan had built huge Strategic oil reserves. India had set its path for the construction of its Strategic Oil Reserves.

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Petroleum Reserves Concept in India

1. Crude oil prices in the International market had risen very high due to the First Gulf War (1990).
2. India’s Foreign Exchange Reserves declined, and India’s Foreign Currency Reserve ($1.2 billion) was sufficient to pay the import bill in only three weeks.
3. As a long term solution to this problem, the Government of India (GoI) had decided to construct oil reserves in India in 1998

SPR Programme

1. In addition to the existing storage of oil companies’ crude oil and petroleum products, The GoI had decided to set up 5 MMT of Strategic oil storage at three locations to ensure energy security. These three locations are:
   • Visakhapatnam
   • Mangalore and
   • Padur
2. As part of the second phase, two more such caverns are set up at:
   • Chandikhole in Odisha and
   • Bikaner in Rajasthan.
3. Indian Strategic Petroleum Reserves Limited is a Special Purpose Vehicle that manages the construction of Strategic Crude Oil Storage Facilities. ISPRL is a subsidiary of the Oil Industry Development Board (OIDB) under the Ministry of Petroleum & Natural Gas.

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Need for Strategic Petroleum Reserves

1. Dependency on imports:

India Imports 83% of its crude oil requirement. Imports increase the Current Account Deficit Of the country. The IEA predicts that by 2020, India could be the largest oil importer. Thus increasing the vulnerability to threats of supply disruptions.

2. Volatility in oil markets:

Tensions in the Middle East, Organization of the Petroleum Exporting Countries (OPEC) policies, stock market fluctuations and the USA’s sanctions affect the oil markets. All of these can affect India’s oil prices.

3. Rising oil demand:

Petroleum continues to be the primary fuel for India. The World Energy Outlook 2019 published by IEA shows that India’s oil demand in total energy may increase from 233 MT in 2018 to 305 MT in 2025.

4. Reassure its growth trajectory:

All major powers, the USA, China and Japan, have a solid strategic reserve to secure their needs. International Energy Agency (IEA) members maintain emergency oil reserves equivalent to 90 days of net imports.

Benefits of SPR

• Energy security:

The total oil reserves can provide consumption coverage for 74 days. With the development of phase 2 reserves, the coverage will increase by 12 days, enhancing the complete coverage to 86 days.

• Monetary benefit:

India can save crores of rupees by stocking up oil at times of price drop and relying on these reserves at times of price hike. As there is a fall in the international crude oil prices due to the COVID crisis, India is filling its strategic reserves at a low cost.

• Investment avenue:

The government has developed plans for the commercialisation of the reserves. India recently allowed Abu Dhabi National Oil Co (ADNOC) to re-export some of its oil stored in Mangalore SPR.

• Strategic cooperation:

Oil stockpiling and development opens paths for strategic collaborations with other countries. E.g., India and the US have signed an MoU on the operation and maintenance of strategic petroleum reserves and prospect the possibility of India storing oil in the US.

• Safety:

Underground rock caverns are the safest means of storing hydrocarbons. The caverns can be easily protected from threats like fires and sabotage, unlike large storage tanks.

Problems With SPR

1. Lack of transparency: No specific SPR agreement between the oil refineries and the Union/State governments. The information about which refineries hold SPR, in what Form (refined or crude) and location of SPRs is not available publicly.
2. Ambiguity in the mobilisation process: SPRs must be utilised for emergency purposes where time is crucial. But there is no solid framework that assigns roles for agencies.

Way Forward

1. The facts about Indian SPRs, procedures and protocols require greater transparency.
2. By laying out designated roles for different agencies to avoid duplication of work during the crisis, the efficiency of the SPR mobilisation process can be increased.
3. Each time the Brent Crude Oil prices fall below a specific price($35 per barrel), ISPRL should fill up the reserves.
4. India should diversify its SPR holdings depending on
   • Geographical location
   • Storage location(underground or overground)
   • Product type(crude or refined) and
   • Form of ownership(private or government)

Conclusion

The construction of strategic petroleum reserves is a great way to enhance India’s energy security. Moreover, SPRs would act like piggy banks for India during emergencies.

Strategic Petroleum Reserves of India – UPSC Notes:-Download PDF Here

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