India’s strategic petroleum reserves have begun supplying crude oil to state-owned refiners, implementing its strategy to buy and stock up crude when prices are low, and release it in the domestic market when prices are high.
The Indian Strategic Petroleum Reserves Ltd (ISPRL) plans to sell 2.17 million barrels each of crude oil to Hindustan Petroleum Corp. Ltd (HPCL) and Mangalore Refinery and Petrochemicals Ltd (MRPL) by December, totaling 4.34 million barrels, two people aware of the development said.
Of this, ISPRL has already sold 439,000 barrels to MRPL and 113,000 barrels to HPCL in August.
Last year, India bought crude oil at $19 a barrel to fill up its 5.3 million tonnes of strategic reserves, saving $685.11 million in the process.
The strategic reserves are typically state-funded and meant to tackle emergency situations. ISPRL stocks 5.3 million tonnes of crude oil at three locations for the country, which is the world’s third-largest oil importer.
The new playbook also involves state-owned oil refiners and private sector companies drawing up a coordinated approach for sourcing crude oil. India also plans to construct an additional 6.5 million tonnes of strategic crude oil reserves.
“If prices are to fall going forward, it makes sense to consume more of our reserves, and when the price falls to replenish them," said a senior Indian government official, one of the two people cited above, requesting anonymity.
India has an existing crude storage capacity of 5.3 million tonnes, including 1.33 million tonnes in Visakhapatnam, 1.5 million tonnes in Mangaluru, and 2.5 million tonnes in Padur. Built at a cost of $600 million, these reserves are operational, and are sufficient to meet around nine-and-a-half days of India’s crude oil requirements.
The National Democratic Alliance government in June 2018 also approved the construction of an additional 6.5 million tonnes of strategic crude oil reserves at Chandikhol (4 million tonnes) in Odisha and Padur (2.5 million tonnes) in Karnataka to support 12 days of crude oil requirements for the $1.6 billion second phase of the Indian Strategic Petroleum Reserves program. Indian refiners also store crude oil.
In comparison, countries that are part of the International Energy Agency (IEA) hold 1.55 billion barrels of public emergency oil stocks. In addition, 650 million barrels are held by industry under government obligations and can be released as needed.
“With demand playing a very important part in international crude oil prices, this will provide us with some help. Even as we have a low volume of reserves comparatively, we plan to use them," the official cited above said.
While MRPL has received oil supplies from the Mangaluru Strategic Petroleum Reserve (SPR), it’s the Vishakhapatnam SPR that is supplying HPCL.
“I can confirm that MRPL has taken crude oil from ISPRL Mangaluru," an MRPL spokesperson said in a text response. MRPL is a subsidiary of Oil and Natural Gas Corp. Ltd.
Queries emailed to spokespersons of India’s petroleum and natural gas ministry and HPCL on Friday afternoon remained unanswered till press time.
The retail prices of petrol and diesel in India track the global prices of these auto fuels, not crude, although they are broadly linked to crude oil price trends. Diesel and petrol prices are at a record high in India. India, which is a major energy consumer, has been calling for a global consensus on “responsible pricing".
India is particularly vulnerable as any increase in global prices can affect its import bill, stoke inflation, and increase its trade deficit.