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Highlights

New Delhi inching closer to rent SPRs in the US

Move to help boost energy ties with Washington

India to soon unveil details on domestic SPR expansion

Singapore — India is close to leasing strategic petroleum reserves in the US that is expected to help India take advantage of low oil prices and rising US crude production, as well as help strengthen energy ties with Washington, the chief of India's SPRs told S&P Global Platts in an interview.

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While the move is an indication that India is open to leasing SPRs overseas to benefit in the short to medium term, it will still be aggressively pushing to expand its SPR capacity at home, said HPS Ahuja, CEO and managing director of Indian Strategic Petroleum Reserves Ltd.

"The strategic decision to store crude oil in the SPRs in the United States will help India in many ways -- strengthen India-US energy ties, help to buy more oil and store when prices are low, as well as help to grow crude supplies from a stable source like the United States," he added.

The two countries signed a memorandum of understanding July 17 to begin cooperation on SPRs, comprising both operations and management, and also discussed the possibility of India storing crude oil in US SPRs.

At 39 million barrels, India has a relatively small SPR capacity at home, considering its ranking as the third largest oil consumer after China and the US. On the other hand, the US SPRs currently have a total capacity of 714 million barrels.

Ahuja said India would also be open to the idea of taking SPRs on rent in other countries if there are opportunities. This would help the country buy cheap oil and store it when prices hover at relatively lower levels. It would also act as a cushion in the event of any supply disruptions in the key production regions, such as the Middle East.

"This is a strategic decision that can help overcome our own domestic SPR capacity limitations for the time being," he added. "This will make sense as long as oil prices remain low. If oil prices rise, then we may not look at this option."

India's growing demand for oil has created the need to hold bigger crude storage volumes. But given the limited strategic storage available at home, taking SPRs on rent in the US would help the Asian consumer take advantage of plentiful crude supplies available at relatively low prices, according to Kang Wu, head of global demand at S&P Global Platts Analytics.

"Since US is now a crude exporter to India and other parts of Asia, renting SPRs there for India would make sense if SPRs are available. There are other north Asian countries where commercial or semi-governmental storage is available. It will be interesting to see if India will look at any of those options," Wu added.

Domestic SPR expansion

India has set up its SPRs at three southern locations with a combined capacity at 5.33 million mt: Visakhapatnam, having a storage capacity of 1.33 million mt, Mangalore, having 1.50 million mt of capacity, and Padur, at 2.50 million mt. All three facilities have been commissioned.

When fully filled, the first phase is estimated to supply about nine-and-half days of India's crude oil requirements, and the second phase is expected to add capacity worth another 12 days of requirements.

"Now, our domestic SPRs are 100% full. We have brought as much oil as we can to hold it for the future," Ahuja said.

India filled its domestic SPRs mainly with cargoes from the Middle East in the past few months when the oil market crashed. "If we managed to take SPRs in the US on rent, it will help to boost the flow of US crude to India," Ahuja said.

US crude exports to India fell to 144,000 b/d in May, down from 247,000 b/d in April, according to the latest US Census Bureau data. The flows peaked in April 2019 at 393,000 b/d, but have remained below 300,000 b/d since then.

With oil prices still at relatively low levels, India is speeding up plans to more than double its SPR capacity.

"You should hear certain developments on our plans about the second phase of SPR expansion soon," 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.

The second phase of SPRs will be developed on a public-private partnership model, as per the cabinet decision.