Singapore — The steep fall in crude prices has created an opportunity for India to boost its strategic petroleum reserves to the maximum limit, a move that will help cut the country's oil import bill, the head of the country's SPRs told S&P Global Platts in an exclusive interview.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
Currently, India is mainly looking for cargoes from the Middle East to quickly fill the caverns, said H.P.S. Ahuja, CEO and managing director of Indian Strategic Petroleum Reserves Ltd, late Tuesday.
"Now our caverns are 56% full. The plan is to fill them 100% by next month," he said.
India has set up SPRs at three southern locations -- Visakhapatnam with a capacity of 1.33 million mt, Mangalore with a capacity of 1.50 million mt, and Padur with 2.50 million mt capacity -- taking the combined capacity to 5.33 million mt. All three facilities have been commissioned.
The first phase -- when fully filled -- is estimated to supply about 9.5 days of India's crude oil requirements, while the second phase is expected to add capacity worth another 12 days of requirements, Ahuja said.
"The voyage from the US is very long. Therefore, we are now looking mainly to buy crude from all the main Middle Eastern countries. This is a good time to buy and I think it will remain so for the next two to three months," Ahuja said.
While it takes roughly about four weeks for a crude oil cargo to arrive in India from the US, it takes less than a week for cargoes to arrive from the Middle East.
Now is the time
India's 21-day lockdown started March 25 and was due to end on April 14, but Prime Minister Narendra Modi has further extended it until May 3, saying it was needed to stem the spread of COVID-19.
S&P Global Platts Analytics expects India's oil demand to contract by 405,000 b/d year on year in the second quarter of 2020, before posting positive growth in the second half, which would take the whole year's demand decline to 110,000 b/d year on year.
"The domestic demand scenario for oil is not looking good at all in India, while supplies are all over the place. It will take some time for demand to bounce back. But for India, it's a good thing when oil prices are down as the country imports 80% of its crude oil needs," Ahuja said.
Except for strategic reserves, India is currently not making any large crude purchase commitments because of weak demand.
State-run refiners Indian Oil Corp., Bharat Petroleum Corp., Hindustan Petroleum Corp., and Mangalore Refinery and Petrochemicals are looking to buy up to 19 million mt of crude in April for strategic reserves.
IOC has received the first cargo of 1 million barrels of Upper Zakum crude from the UAE at Mangalore. A VLCC has been chartered by UAE's ADNOC for loading another cargo, to be delivered next month. The cargo is expected to go in for strategic reserves, trade and shipping sources said.
Second phase expansion
A lack of US oil storage capacity led to the front-month NYMEX WTI futures contract settling Monday in negative territory at minus $37.63/b, down $55.90/b from Friday. The prompt contract had never before traded in negative territory, and the previous record low front-month settlement was $10.42/b on March 31, 1986.
As oil prices hover at relatively low levels, India is speeding up plans for more than doubling the strategic petroleum reserve capacity, a move that will not only cushion the impact of any potential disruption to oil flows in case geopolitical tensions escalate, but also help to take advantage of any price falls.
"Our plan to build more capacity under the second phase expansion of the strategic reserves is moving on in full swing despite the current situation," Ahuja said.
For the second phase, the Indian cabinet has approved another 6.5 million mt of SPRs at sites in Chandikhol in Odisha, which will have a facility to store 4 million mt, and at Padur in the southern state of Karnataka, which will have a capacity of 2.50 million mt.
"To start work on the second phase, we have asked the government for approval. Hopefully by next month we should get the approval. Once the lockdown situation is over, we will look to invite expression of interest from overseas and private investors. We are hoping to get a good response," Ahuja said.
He said the second phase of SPRs would be developed on a public-private partnership, and global oil majors would be invited to take part.
India's SPR volumes are much lower than the oil import needs and compared with other major Asian oil buyers, such as China. According to S&P Global Platts Analytics, there was an urgent need for the Indian government to prioritize building more SPRs to ensure supply security.