India is in final stages of talks with the United Arab Emirates (UAE) government for allowing Abu Dhabi National Oil Company (ADNOC) to store crude oil in the upcoming underground strategic crude storage facilities at Mangalore and Padur in Karnataka. As per the proposal, ADNOC will fill the 1.5 million tonne (MT) Mangalore facility.
Around two-thirds of the storage will be available to India for free for strategic use — guarding against global price shocks and supply disruptions — while the rest will be used by the firm for commercial storage.
“The proposal required the cooperation of the Karnataka government. It has now been announced as a relief in the budget. The storage had to be made tax neutral to maintain its competitiveness,” a senior oil ministry official told Business Standard. “We will start with one of the caverns but gradually it will be extended for both Mangalore and Padur facilities,” he added.
India, which imports 80 per cent of its crude oil requirement, has already built 1.3 MT strategic crude storage capacity at Vishakapatnam. With global oil prices tumbling to near 12-year lows of less than $40 per barrel, that facility has been filled with crude at a cost of around Rs 5,000 crore.
In the second phase, state-owned India Strategic Petroleum Reserves (ISPRL) is constructing 1.5 MT capacity at Mangalore and another 2.5 MT storage project at Padur. The total 5.3 MT capacity of crude oil storage would be enough to meet the domestic requirement for around 10 days.
Initially, ADNOC would be allowed to fill a 0.75 MT compartment at the Mangalore facility. Of this, 0.5 MT storage would be available to India for free and the rest would be utilised by ADNOC for commercial sales. “They (ADNOC) will bring their crude and the investment will be theirs. We will get crude oil of two-third capacity,” the official said. ADNOC will use the facility as a warehouse for trading oil.
Oil minister Dharmendra Pradhan had last month held talks with the UAE’s energy minister Suhail Mohammed Al Mazrouei on the matter. This followed Prime Minister Narendra Modi’s visit to UAE in August last year, the first by an Indian Prime Minister in 38 years, focused at closer bilateral cooperation under which UAE had committed $75 billion investment.
India has imported 16.1 MT crude oil from UAE in the current financial year — around 8 per cent of total oil imports. The imports from the middle-east nation are seen rising to 18.5 MT in 2016-17. India’s total crude oil imports are estimated to rise 6.3 per cent to 201 MT valued at $64 billion in the current financial year.
ISPRL had obtained Environment Clearance for the Vishakhapatnam facility in 2008 and the Mangalore facility in 2009. Experts say underground crude storage projects come with complex health, safety and security-related challenges that must be addressed. “The OECD countries have been maintaining such reserves since 1973 oil crisis. So, there is a long history and established international norms related to maintenance of these reserves. India must keep in mind the need to follow proper norms for safety and security,” said Debasish Mishra, senior director at Deloitte.
