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Analysis | Oil price drop spotlights India’s strategic petroleum reserves

According to an agency report, India will spend about $ 670 million to buy oil at around $30 a barrel, for its strategic reserves, drawn from Saudi Arabia and the United Arab Emirates.

According to an agency report, India will spend about $ 670 million to buy oil at around $30 a barrel, for its strategic reserves, drawn from Saudi Arabia and the United Arab Emirates.   | Photo Credit: Reuters

The country currently holds its Strategic Petroleum Reserves in Visakhapatnam, Mangaluru and Padur, storing 5.33 million tonnes of crude, which could last for nine days.

The steep drop in oil prices following the COVID-19 pandemic has sharpened India’s focus on its strategic petroleum reserves, which have been built up as a bulwark against energy disruptions and geopolitical typhoons.

India currently holds its Strategic Petroleum Reserves (SPR) in Visakhapatnam, Mangaluru and Padur, storing 5.33 million tonnes of crude, which could last for nine days.

Oil prices have dropped to less than $30 a barrel following the post-COVID-19 fall in energy demand across the globe, enforced by lockdowns, travel bans and interlocking geopolitical feuds.

Saudi-Russia feud

Saudi Arabia and Russia, the world’s big oil producing heavyweights, have quarrelled after they were unable to agree on slashing production in order to shore up falling prices. Instead, they decided to flood oil into a market, where energy demand was already in free fall.

Also read: Blunting the economic impact of a pandemic

But lurking behind the Saudi-Russia feud was also the cut-throat tit-for-tat between Moscow and Washington. By driving prices below $30 a barrel, Russia was targeting the U.S. shale oil producers — mostly supporters of President Donald Trump — who require a $50 per barrel price line in order to stay in business. The Russians had fired their riposte against the U.S., which had earlier hit the Nord Stream-2 undersea pipeline project to ferry Russian gas directly to Germany, by sanctioning any foreign company engaged in the undertaking.

Away from the geopolitical firestorm, India is focused on topping up its SPR. According to an agency report, India will spend about $ 670 million to buy oil at around $30 a barrel, for its strategic reserves, drawn from Saudi Arabia and the United Arab Emirates. Deliveries will start around April-May. The Strategic Petroleum Reserves Ltd. (ISPRL), a subsidiary of the Oil Industry Development Board, run by the Ministry of Petroleum and Natural Gas manages these reserves.

Unlike India, it is estimated that China will achieve its strategic petroleum reserve target of 90 days this year.

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In government circles, there is an acute realisation that the existing SPR are hardly sufficient, in view of the ongoing global economic uncertainly, which is unlikely to abate any time soon. “ In order to manage contingencies, we need at least one month of strategic petroleum reserves, which was the original plan when the exercise began in 2003,” says R.S. Sharma, former head of Oil and Natural Gas Corporation (ONGC), during a conversation with The Hindu.

Unsurprisingly, the government is considering building 30 day reserves in the first phase which will be eventually extended to 60 and, finally 90 days. In June 2018, the Cabinet had cleared an additional 6.5 million tonne SPR facilities at Chandikhol in Odisha and Padur in Karnataka, to augment India’s energy security by 11.5 days. Two more facilities — one in Bikaner and another in Rajkot — are also expected to be initiated soon to enable storage for 30 days. The ISPRL has also been asked to pin down new sites so that a 90-100 days of oil reserve stocks are eventually available at all times.

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Printable version | Apr 5, 2020 2:40:19 AM | https://www.thehindu.com/news/national/oil-price-drop-spotlights-indias-strategic-petroleum-reserves/article31134539.ece

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