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INTERVIEW: India liberalizes oil reserves policy to manage price risk, woo investors


ISPRL to trade part of the barrels to manage price risk

Storage leasing plan to provide tenure flexibility

Looking to invite offers for second phase expansion

India has decided to further liberalize its strategic oil reserve policy by allowing to trade part of the volumes, while leasing out another portion of the barrels, steps that will help to achieve the twin objectives of managing price risk and generating revenue, the head of India's SPRs told S&P Global Platts.

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H.P.S. Ahuja, CEO and Managing Director of Indian Strategic Petroleum Reserves Ltd. (ISPRL), said that the cabinet's recent approval to allow ISPRL to commercialize up to 50% of its reserves will help to attract more private and overseas investment into the sector, whose growth was crucial for achieving the country's energy security.

"We have got the approval to commercialize the reserves to the extent of 50% of the volumes -- 20% of these volumes can be used for trading and another 30% can be leased out to oil marketing companies and overseas parties," Ahuja said.

In the first phase, India set up SPRs at three locations with a combined capacity of 5.33 million mt: 1.33 million mt at Visakhapatnam, 1.5 million mt at Mangalore and 2.5 million mt at Padur in Karnataka. All three facilities have been commissioned. Out of it total capacity, UAE's ADNOC is currently the only overseas company which holds about 750,000 mt capacity at the reserves under a government-to-government deal.

Explaining the recent policy move, Ahuja said the decision to allow ISPRL to trade 20% of the volumes would give the company flexibility to sell crude oil to domestic refiners, while import and refill the reserves when international prices are low.

"This will help the organization to generate revenue and become self-sustaining," Ahuja said.

Leasing tenure flexibility

He added that ISPRL had got approval to lease up to 30% of capacity currently with the government to both and international investors. That will exclude the capacity that has been already leased out to ADNOC.

"We are going to provide a lot of flexibility to companies keen to take advantage of this leasing policy. The lease tenure and other details can be worked out mutually -- it could be two years, five years, 10 years, depending on their requirements. We are already seeing a lot of interest from a lot of companies to take the SPRs on lease," Ahuja added.

Given the weak oil demand in India since year due to the pandemic, ADNOC had asked the Indian government that it be allowed to export some volumes from the caverns.

As a result, India's petroleum ministry last October said ADNOC, which now is the only overseas producer that has oil stored in the caverns in southern India, can re-export the crude to other countries, "with the first right of refusal retained by the government.

This has helped to raise the level of investment interest among international players as this decision gives oil producers flexibility to independently decide how to deal with up to 50% of their volumes stored in the SPR.

The policy change to allow re-exports to ADNOC has brought India in line with major Asian oil storage countries like Japan and South Korea, where international oil producers store oil as well as re-export from the facilities.

Green light for expansion

"The union cabinet has also approved second phase expansion," Ahuja said." We should soon be inviting request for proposal for the second phase."

For the second phase, India is augmenting storage capacity further by creating additional 6.5 million mt of SPRs at two locations: 4 million mt at Chandikhol in Odisha and another 2.5 million mt at Padur.

Ahuja said the second phase of SPRs will be pursued on a design, build, operate, finance and transfer, or DBOFT, basis and will be based on a public-private partnership model. The first phase, which is fully filled now, can cater to almost 9.5 days of India's crude oil requirements.

"The second phase will add another 12 days of our requirements. And for a country that imports more than 80% of its oil requirements this expansion will help take India a step closer towards its own energy security," Ahuja said.

Indian policymakers have said that oil will continue to play a critical role in India's energy mix in the foreseeable future, making it imperative to pursue refining expansions as well as build larger reserves of oil, although there will be efforts to meet a part of the incremental demand growth through relatively cleaner and renewable forms of energy.

Platts Analytics expects India's oil products demand to grow by an average of more than 200,000 b/d over the next few years, supported by population growth and increase in disposable personal incomes as its economy continues to expand.