Why is oil and LPG being stored in Caverns in India?

India has recently saved Rs 5,000 crore because to massive strategic oil reserves built up over the last decade. New reserves will increase total storage capacity from 9.5 days to 22 days.

As crude prices rise, India is anticipated to release a portion of its strategic oil reserves to reduce imports. Since 2008, India has been stockpiling strategic oil reserves in underground rock caves that can carry up to ten days’ worth of the country’s needs. Following an extraordinary appeal from the US to India, China, South Korea, and Japan to release oil reserves as US gasoline prices increase and OPEC+ declines to pump more oil to reduce prices, India has been a part of the first international coordinated effort.

Prime Minister Narendra Modi advocated for improved storage facilities for these raw petroleum products in a virtual conference with CEOs of global companies on October 20. The government gave the go-ahead in July to seek private investors to create two more rock cavern reserves, bringing the total capacity to 22 days from 9.5 days in the three existing caverns. When oil prices plummeted following the Covid-19 outbreak last year, India purchased crude to store in rock caves, saving Rs 5,000 crore.

oil and LPG being stored in Caverns

Hardeep Singh Puri, the petroleum minister, had urged against using reserves on November 16 since they were intended for crisis scenarios such as war or natural calamities, he said. In the days ahead, the impact of the decision to release oil from reserves on oil prices, which may decline owing to the European shutdown, and their diplomatic relations with OPEC-plus countries will be assessed. President Joe Biden’s attempt to mobilise other countries to release oil is perceived as payback for Saudi Arabia and other OPEC members’ failure to bail him out of a domestic political crisis caused by rising crude prices.

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This is the first time India, which has 5.33 million tonnes of crude oil (equivalent to 517,857 truck-tanker loads of 12 kilolitre capacity each) stored in underground rock caverns built and filled only in the last decade at three locations on the east and west coasts, has released stocks for such purposes. About 5 million barrels will be released in conjunction with other countries in order to have the greatest impact on rising crude prices. The Indian Strategic Petroleum Reserves Ltd is in charge of the reserves (ISPRL). Refineries in India, on the other hand, have their own stockpiles, which are often more than two months’ worth of supplies. Major countries’ strategic stockpiles are equal to 15 days of world supplies. India is the third-largest oil consumer in the world. The International Energy Association (IEA) requires 90 days of net oil import reserves, comprising strategic and commercial supplies, according to the IEA.

Pipelines or a combination of pipelines and coastal transportation can be used to transport crude oil from underground caves to Indian refineries. The Indian government has built critical crude oil storage facilities in Karnataka at Visakhapatnam (1.33 MMT), Mangalore (1.5 MMT), and Padur (2.5 MMT). Two more are being built under the PPP in Chandikjole, Odisha (4 MMT) and Padur. Bikaner is also considering building the country’s first salt cavern.

Since 1975, when the Arab oil embargo ended, the US has established a strategic reserve capacity of 727 million barrels in its rock and salt cavern. During the Gulf War in 1990, India first saw the serious consequences of a disruption in oil supplies. The increase in prices had an impact on the country’s foreign exchange status, resulting in the 1991 economic crisis. The Vajpayee government advocated establishing strategic petroleum reserves in 1998 as a long-term answer to any unexpected oil shortage. No government or firm, however, was willing to give further reserves or money to invest. The three subterranean storage facilities cost India Rs 4,800 crore to construct.

Originally intended for strategic storage, India is now considering commercial applications. India would have started distributing oil from its Strategic Petroleum Reserve (SPR) to state-run refineries even if the US had not urged it to do so. The country has already amended its policy to allow ISPRL, which maintains the federal oil inventories, to lease 30% of its total capacity of 38 million barrels to Indian and foreign corporations. ISPRL has agreed to lease a portion of its rock caverns at Pudur and Mangalore to the Abu Dhabi National Oil Company (ADNOC), as well as a portion of its rock caverns at Pudur to Saudi Aramco. On October 20, Sultan Ahmed Al Jaber, the UAE minister for industry and advanced technologies and managing director and group CEO of ADNOC, told PM Modi, “We are very delighted that you have entrusted us to serve as a key supplier to India’s Strategic Petroleum Reserves.”

India also has LPG stored in a rock cavern near Vishakhapatnam, however this is for commercial purposes rather than as a strategic reserve. We’ve been saving a lot of money by balancing the butane and propane ratios in our LPG and keeping it in the rock cavern when it’s cheaper.

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