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INTERVIEW: India allowing SPR crude re-export to attract more producers, says SPR chief

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INTERVIEW: India allowing SPR crude re-export to attract more producers, says SPR chief

Highlights

ADNOC can now export up to 50% of its crude from India's SPRs

New Delhi brings SPR policy in line with other Asian countries

Second phase SPR expansion to draw in more Middle Eastern producers

Singapore — India's move to allow oil producers holding volumes in its strategic petroleum reserves to re-export crude will whet the appetite of more producers to take up storage space, while encouraging them to invest in the second phase of SPR expansion, the chief of India's SPRs told S&P Global Platts in an interview.

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H.P.S. Ahuja, CEO and Managing Director of Indian Strategic Petroleum Reserves Ltd., said the recent policy decision allowing overseas producers to re-export up to 50% of their volumes from SPRs is already attracting the interest from big Middle Eastern producers who are now keen to actively take part in India's future SPR expansion plans.

"The recent change is a very attractive proposition for oil producers keen to store oil in India's SPRs. Our government has made it easier for the oil companies looking for a share of India's SPRs. If they can re-export up to 50% of the oil they store in our SPRs, it's quite an investor-friendly policy decision."

India's Ministry of Petroleum and Natural Gas said Oct. 15 that UAE's Abu Dhabi National Oil Co., which now is the only overseas producer that has oil in the caverns in southern India, can re-export the crude to other countries "with the first right of refusal retained by the government."

The move will bring India in line with major Asian oil consumers, like Japan and South Korea, countries where international oil producers store oil as well as re-export from those facilities. Before the recent policy change, the overseas companies looking to store oil in Indian SPRs were only permitted to sell only 35% of their volumes commercially, that also to domestic refiners.

OPTION TO RE-EXPORT

Given the weak oil demand in India this year due to the COVID-19 pandemic, ADNOC has been urging the Indian government to be allowed to export some volumes from the caverns to make their investment lucurative.

"This decision will make it easier for a company like ADNOC to independently decide during the contract period on how to handle up to 50% of their volumes stored in the SPR. They can sell it to Indian domestic companies or re-export depending on where they get the best value," Ahuja said.

India has filled its domestic SPRs mainly with cargoes from the Middle East earlier this year when oil prices crashed amid sharp destruction in demand following the COVID-19 outbreak. Ahuja said the SPRs are currently completely filled.

"We don't have any empty space to offer to overseas producers now given that it's completely full, even though we are seeing a lot of interest. But now with the new policy, we are confident to witness a lot of international participation once we launch the second phase expansion," Ahuja said.

In the Phase 1, ISPRL set up its SPR at three locations with a combined capacity of 5.33 million mt: Visakhapatnam (1.33 million mt), Mangalore (1.50 million mt) and Padur (2.50 million mt). All three facilities have been commissioned.

For the second phase, the Indian cabinet has approved another 6.5 million mt of SPRs at two locations Chandikhol in Odisha, which will have a facility to store 4 million mt, and at Padur in Karnataka, which will have a capacity of 2.5 million mt.

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

When fully filled, the first phase is estimated to supply about 9.5 days of India's crude oil requirements, and the second phase will add another 12 days of requirements.

TALKS FOR US STORAGE ONGOING

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 S&P Global Platts Analytics.

India and the US earlier this year signed a memorandum of understanding to begin cooperation on SPRs, comprising both operations and management, and discussed the possibility of India storing crude in US SPRs.

"Discussions on the issue are still ongoing. Our strategic plan to store crude oil in the US will not only help to strengthen India-US energy ties, but will also boost US crude flows to India," Ahuja said.

The UAE was the third-largest oil supplier to India in the January-August period with shipments volumes of 10.92 million mt, accounting for 9% of the India's crude import basket. US was the sixth-largest crude supplier to India in the same period with shipments of around 6.49 million mt, which was about 5% of India's crude import basket, data from GAC Shipping (India) Pvt. Ltd showed.

"As far as overseas locations are concerned for storing oil, US is the only location we are considering at the moment," Ahuja said.