Benefits of Strategic Oil Storage Project

Benefits of Strategic Oil Storage Project

Question - India consumes more than 4 million barrels of crude each day. What would be the benefits of a strategic oil storage project for the nation?

• Threat of energy disruption continues to be a real danger to India’s economic growth and development

• The concept of strategic petroleum reserves was mooted as early as 1998

• India consumed close to 4 million barrels of crude every day in January 2015

• Case for the creation of such reserves has grown much stronger with rising demand

Benefits of Strategic Oil Storage Project

• India will become self reliant if an oil storage project is in place as over 80% of fuels come from imports, mostly sourced from West Asia

• Having a strategic oil storage project will also cancel out the financial drain for an embattled economy and its increasing current account deficit

• There are deep rooted fissures in the Gulf area where terrorism and infighting have taken over; this induces uncertainty about global crude supply and pricing

• India can leverage the benefits of a good political situation and readily accessible markets if it builds on strategic oil reserves

• Storage capacity to the tune of even 39 million barrels falls short of Vision 2020 which envisaged 90 days of imports pegged at 360 million barrels of oil, as per 2014 figures

• Even other nations such as China, Japan and South Korea now have access to strategic oil storage alone with Kenya and Malawi

• Further, by doing so India will capitalise on its open governance structure and beneficial trade geography as well as historic links with the Persian Gulf

• India cannot afford to waste time as it imports almost 80% of its oil and huge forex reserves are going to be used for something India is already self sufficient in as it has excellent high capacity refining infrastructure wherein commercial agreements are vital

• Through commercial forward agreements with exporters/refiners, India can gain access to commercial reserves while reducing cost of doing so

• Investments can be invited in stockpile programme along with collaborations and partnerships with Gulf producers

• Cost and time efficient plan unites capital, infrastructure and energy in an effective manner

• Such strategic reserves could also cause obligatory sharing mechanisms to be in place

Facts and Stats

• During the 1990s when the Gulf war captured West Asia, India was in the midst of an energy crisis. India’s oil reserves were enough for only 3 days at that time

• Capacity building is costly for example: 10 days of imports are pegged at INR 4,000 crore for infrastructure and consequent cost works out to USD 17 to 18 per barrel

• India’s strategic oil reserve project was commissioned in 2003