Tuesday, June 12, 2007

Strategic Petroleum Reserves

What are strategic reserves of oil? Do we have any plans afoot on this front?

The crude oil prices are again soaring. Rumours of an imminent attack on Iran by the US are also doing rounds. In such a situation, if and when such an attack happens, our country which is heavily dependent on oil imports will be adversely affected. Do you remember that we consume about 2.5 mn barrels of crude oil per day and that of this about 73% is met through imports?

What do countries like the US do to face such a situation? They have what are called strategic reserves. Look at what the Wikipedia says on strategic reserves:

Strategic petroleum reserves ("SPR") refer to crude oil inventories held by the government of a particular country, as well as private industry, for the purpose of providing economic and national security during an energy crisis. According to the United States Energy Information Administration, approximately 4.1 billion barrels of oil are held in strategic reserves, of which 1.4 billion is government-controlled. The remainder is held by private industry. At the moment the US Strategic Petroleum Reserve is one of the largest strategic reserves, with much of the remainder held by the other 25 members of the International Energy Agency. Recently, other non-IEA countries have begun creating their own strategic petroleum reserves, with China being the largest of these new reserves.

According to a March 2001 agreement, all 26 members of the International Energy Agency must have a strategic petroleum reserve equal to 90 days of oil imports for their respective country. Only net-exporter members of the IEA are exempt from the reserve requirement. The exempt countries are Canada, Denmark, Norway, and the United Kingdom. Denmark and the U.K. have both recently created strategic reserves due to their requirements as European Union members.

Where do we stand as against the 90 day strategic reserve requirement? India is implementing a two pronged action in building up strategic reserves. One for the crude and another for LPG. Hindustan Petroleum Corporation in association with Total of France is constructing an underground LPG cavern storage facility at Vizag. It is one of the first of its kind in south and sout-east Asia. It is expected to be ready by end 2007. It has a 60,000 tonne capacity. Its capacity will be just enough to support the country’s requirement for a mere 2.5 days.

The government has also approved last year a funding mechanism for setting up strategic crude oil storage of 5 MT at various locations. This project is being implemented through a subsidiary of OIDB – Oil Industry Development Board.