Mumbai: India has squandered most of the opportunity presented by record low oil prices to stock up for the future and left itself vulnerable to possible supply shocks, a whole decade after it first decided to store crude oil for emergency purposes.

Gigantic underground caverns cut into rocks in coastal Visakhapatnam will start filling up by the end of July, as the move to store 5.33 million tonnes (mt) of crude oil to last 13 days gets off to a slow start.

However, only 1.33 mt of oil can be stored at this facility, which will last just three days. Two more facilities, planned at Mangalore in Karnataka and Padur in Tamil Nadu, are expected to hold the rest.

All three reserves, expected to be up and running by October, are part of the first phase of building India’s strategic petroleum reserves (SPR).

Contrast these figures with reserves of 90 days, held by member countries of the International Energy Agency (IEA), the apex body of oil and gas importing countries, which ensures smoother supplies across the world.

What’s worse, even after all three facilities—Visakhapatnam, Mangalore and Padur—are ready, it will take years for the government to secure the desired amount of crude and fill them up.

The storages are built by the Indian Strategic Petroleum Reserves Ltd (ISPRL), a government entity.

India will take at least three years to tank up for 13 days’ supply, international brokerage firm Macquarie Research noted in a 7 July report, adding the eventual goal is to secure 90 days’ worth of supplies.

Oil prices have fallen by nearly 50% since July last year and are anticipated to stay subdued in the near term due to weak global economic activity and increased supply from the US.

To achieve the longer-term goal of saving for 90 days, the second phase of planned storage facilities needs to be in place. However, there is no visibility on this.

According to the ISPRL website, facilities for 12.5 mt to hold an additional 30 days’ worth of supplies will be part of the second phase of building strategic reserves. These facilities are planned at Bikaner in Rajasthan, Rajkot in Gujarat, Chandikhol in Odisha and Padur in Tamil Nadu.

While the ISPRL website says feasibility studies for these facilities have been completed, no details are provided on the timeline for completion.

Rajan K. Pillai, chief executive officer of ISPRL, did not respond to phone calls and text messages.

An email sent to the ministry of petroleum and natural gas on Thursday remained unanswered.

“If India starts construction of the second phase from today, it will take at least five years to have a 12.5 mt capacity up and running, indicating that India has already missed the bus on taking advantage of low crude oil prices to beef up its strategic reserves to a substantial volume," said a consultant with an international firm, who did not wish to be named.

Based on the crude oil and product storage already existing with the oil companies and also taking into consideration the storages being built by ISPRL, it is estimated that to have a total cover of 90 days on net oil imports, the country would require additional crude oil storage of approximately 13.32 million metric tonnes by 2019-20, oil minister Dharmendra Pradhan told Mint in July 2014.

However, time may not be on India’s side.

“In acknowledgment of our import dependence, SPRs were under consideration for a long time. As soon as crude prices firm up, we will realize another opportunity to stock up has been missed," said Deepak Mahurkar, leader, oil & gas, at consultancy firm PwC India, adding that SPR projects are technically and technologically not difficult to execute.

“...completion timelines are extended and we will be lucky if they match with the lower crude price cycle," he added.

Apart from planning storage facilities, the government has to also keep in mind the additional cost associated with building these reserves.

In July last year, Pradhan had said that the government plans to adopt what he called a dynamic business model for financing the construction of strategic reserves, without elaborating.

“There are a lot of business models that we are looking at. We need to invest in that. These are stagnant and long-term investments. We are in talks with a lot of countries. We need to devise a formula for that," Pradhan had told Mint.

Besides the cost of constructing the first 5.33 mt storage facility, which is pegged at ₹ 4,098.35 crore, an additional ₹ 2,500 crore has been allocated to secure crude for the facility, Pradhan said in February. The 12th Plan had allocated ₹ 4,948 crore for filling up strategic reserves.

“Filling up of strategic reserves, albeit important, depends on what is the aim of the government as there is a huge cost involved in it," said Tushar Tarun Bansal, head of oil, East of Suez, Facts Global Energy, Singapore, a specialized oil and gas consultancy firm.

Since India is geographically close to West Asia, its largest source of crude oil supplies, emergency oil can be sourced in a matter of two days, Bansal pointed out.

“India has some amounts of emergency reserve in its pipelines and terminals which can meet a few days of emergency," said Bansal, adding the country’s location may make it less imperative for it to have strategic reserves.

Bansal, however, acknowledged that most other Asia-Pacific countries have higher reserves.

Countries such as Japan, South Korea and Australia have 90 days of reserves, while China is also expected to reach 90 days of reserve very soon as it is rapidly beefing up its strategic reserves, Bansal said.

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