Strategic Crude Oil Reserves
What are SPRs?
- Strategic Petroleum Reserves (SPR) are huge stockpiles of crude oil stored in the underground rock caverns (considered safest for storage of Hydrocarbons) to tackle emergency situations and allow a country to tide over short-term supply disruptions.
- They represent a defence against any event of downfall in future oil production, including physical or economic actions which disrupt any part of the production process from exploration and development through refining.
Importance of Strategic Petroleum Reserves (SPR) programme
- The Gulf War in 1990 led to a sharp rise in oil prices and a huge increase in India’s imports. During the post-1991 Indian economic crisis, foreign exchange reserves could barely finance three weeks’ worth of imports, while the government came close to defaulting on its financial obligations. India was able to address the crisis through policies that liberalized the economy.
- However, India continued to be affected by volatility in oil prices. In 1998, former Prime Minister Atal Bihari Vajpayee administration proposed the creation of petroleum reserves as a long-term solution for managing the oil market.
- In India, Strategic Petroleum Reserves are maintained by Indian Strategic Petroleum Reserves Limited, a Special Purpose Vehicle – wholly owned subsidiary of Oil Industry Development Board under the Ministry of Petroleum & Natural Gas.
- Strategic crude oil storages are situated at Mangalore (Karnataka), Visakhapatnam (Andhra Pradesh) and Padur (Karnataka) as per Phase I of India’s SPR programme. They have fuel storage of a total 5.33 MMT (Million Metric Tonnes) and all the storage facilities have been filled with crude oil. As per the consumption pattern of 2019-20, the total capacity is estimated to provide for about 9.5 days of crude oil requirement.
- In addition, Oil Marketing Companies (OMCs) in the country have storage facilities for crude oil and petroleum products for 64.5 days, thus the current total national capacity for storage of crude oil and petroleum products currently is 74 days.
- The global practice is to maintain strategic reserves of at least 90 days of oil imports.
- Under the second phase of the Petroleum Reserves programme, the government has recently approved the setting up of two additional commercial-cum-strategic facilities with a total storage capacity of 6.5 MMT underground storage at Chandikhol in Odisha (4 MMT) and Padur (2.5 MMT), on Public-private partnership (PPP) Mode.
- The request for proposal for building these storage facilities is under finalisation.
- This would raise India’s strategic reserve capacity to 11.83 MMT, and in times of crisis, India can manage its oil requirement for a specific time period.
Why in News?
- India set to release 5 million barrels of crude oil from its strategic reserves as part of a coordinated move along with the US, China, Japan and South Korea aimed at lowering international prices.
- This is the first time ever that India is releasing stocks for such purposes. The move is being seen as a strategic step to control spiralling global crude oil prices and to keep them under check.
- In response, the OPEC+ group of oil exporting countries, which accounts for about 50 per cent of global crude supply, has indicated that it may reconsider plans to restore production over the coming months.
- A release of 5 million barrels of crude oil would equate to about 12.8 per cent of India’s strategic oil reserves of 5.33 million tonnes of crude oil, which is estimated to be equivalent to 9.5 days of its crude oil requirement.
- The US had recently made an unusual request to some of the world’s largest oil-consuming nations to consider releasing crude stockpiles in a coordinated effort to lower global energy prices. This after members of the Organisation of the Petroleum Exporting Countries (OPEC) and its allies rebuffed repeated requests to speed up their production increases.
Targeting economic recovery
- Accommodating inflation and crude oil prices are key to sustain economic recovery. The global move to limit crude oil prices could also be a precursor to check other commodity prices, such as that of steel and basic raw materials.
- The coordinated action from major oil consumers, particularly the US, would help reduce international oil prices.
- OPEC+ has been slow to restore production levels after it imposed a supply cut of 10 million barrels per day in April 2020 when the price of Brent crude fell to an 18-year low of under $20 per barrel due to the impact of Covid.
- Despite an increase in crude oil supply of 400,000 barrels per day in December, OPEC+ figures are still lower than the reference level of production for them by nearly 5.4 million barrels per day.
About OPEC arrangement
- The Organization of the Petroleum Exporting Countries (OPEC) is a group consisting of 13 of the world’s major oil-exporting nations.
- Countries that belong to OPEC include Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela (the five founders), plus the United Arab Emirates, Libya, Algeria, Nigeria, Angola, Congo, Equatorial Guinea and Gabon.
- Note: Ecuador and Qatar terminated their membership of OPEC recently.
- OPEC was founded in 1960 to coordinate the petroleum policies of its members and to provide member states with technical and economic aid.
- OPEC is used to work as a cartel and fix prices in a favourable band. It could bring down prices by increasing oil production and raise prices by cutting production.
- The 2014 oil crisis, which was accentuated by oversupply of crude, brought down prices below $30 a barrel. Since then, OPEC has been working with non-OPEC countries like Russia, Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Sudan and South Sudan to fix the global prices and supply.
- Known as the “OPEC Plus” arrangement, this alliance kept production lower and pumped up the prices.
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