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India CEO series: India aims to cushion oil shock by doubling strategic petroleum reserves

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India CEO series: India aims to cushion oil shock by doubling strategic petroleum reserves

亮点

Pandemic causes some delays in approvals for expansion

Strong private, global participation anticipated in second phase

No current requirement to use SPRs as crude flows largely normal

Singapore — The S&P Global Platts India CEO Series is a compilation of exclusive interviews with the leaders of top oil and gas companies in India. Get insights on how they are planning their growth roadmap at a time when energy transition is changing the industry's landscape, how companies are finding their way through the COVID-19 pandemic, as well as solutions needed to meet the country's insatiable appetite for energy.

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India will push ahead with its plans to more than double its strategic petroleum reserves despite the unprecedented COVID-19 crisis creating some delays, and the country will soon invite interest from potential investors for its ambitious second-phase expansion, the chief of India's SPRs told S&P Global Platts.

HPS Ahuja – Indian Strategic Petroleum Reserves | Platts India CEO Series 2021
HPS Ahuja, CEO, Indian Strategic Petroleum Reserves

H.P.S. Ahuja, CEO and Managing Director of Indian Strategic Petroleum Reserves Ltd. (ISPRL), said he was hoping to get the final clearance from the petroleum ministry soon, following which ISPRL would be able to float the request for participation for building SPR sites at two more locations in India.

"The pandemic has created some delays and hurdles but we should be able to progress very soon. We have the entire plan in place and can start work on the projects the moment our proposal gets the final green signal from the government," Ahuja said in an exclusive interview.

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.

For the second phase, the federal cabinet has given its approval to build a further 6.5 million mt of SPRs at two locations -- 4 million mt at Chandikhol in Odisha and another 2.5 million mt at Padur.

The second phase of SPRs will be developed and built on a public-private partnership model. The first phase, which is fully filled, can cater to about 9.5 days of India's crude oil requirements. The second phase will add another 12 days.

"There is strong interest from private and international firms to participate in the second phase of SPR expansion. We are expecting investment interest from many firms once we float the request for participation," Ahuja said.

Crude re-export flexibility

The UAE's ADNOC currently stores 5.86 million barrels at the Mangalore facility, Ahuja said.

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

As a result, India's petroleum ministry said last October that 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 producers. India's policy to allow oil producers holding volumes in SPRs to re-export crude will attract producers to take up storage space," Ahuja said.

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

"One key element is that this policy decision will give oil producers flexibility to independently decide how to handle up to 50% of their volumes stored in the SPR. They will retain the option to either sell to Indian domestic companies or re-export, depending on their commercial interests," Ahuja said.

Also in the Platts India CEO Series:

From oil to hydrogen, energy transition to have room for all: Shrikant Madhav Vaidya, IOC chairman

ExxonMobil eyes bigger footprint in India's energy transition journey: Bill Davies, ExxonMobil South Asia CEO

Shell sees opportunity for India to recover 'cleaner and faster': Nitin Prasad, Shell Companies - India CEO

Cairn Oil & Gas says oil price recovery will support India's upstream push: Prachur Sah, Cairn Deputy CEO

Retail gas, LNG by trucks, hydrogen figure in H-Energy's growth vision: Darshan Hiranandani, H-Energy CEO

COVID-19 fallout on trade flows, SPRs

India filled its domestic SPRs mainly with cargoes from the Middle East in 2020 when oil prices crashed amid the sharp destruction in demand following the COVID-19 outbreak. Ahuja said that the caverns were now 100% full and the current second wave of the pandemic had not disrupted oil supplies.

"Despite the fears of shipping, crew change and other factors that we are now witnessing during the second phase of the pandemic, crude oil shipments have been coming in as per normal. Therefore, it has not created any need to dip into the strategic reserves, Ahuja said.

He said that he had not heard of many crude cargo cancellations or diversions.

"Short-term oil demand will be affected because of regional lockdowns, but demand should bounce back. Refiners have reduced operations, but not by much," Ahuja said.

S&P Global Platts Analytics has revised down its 2021 year-on-year oil demand growth estimate for India for a second time, now seeing 350,000 b/d of growth for the year, down from a forecast of 400,000 b/d made in April and 440,000 b/d in March.

Flagship state-run refiner Indian Oil Corp. recorded an average run rate of 100% for all its nine standalone refineries in March, compared with 98% in the year-ago month and 101% in February. But now its refineries are operating at 90% of capacity amid a slowdown in domestic demand due to lockdowns in many pockets of the country.

As the spread of COVID-19 across India continues to intensify, local communities are critically in need of resources and support. S&P Global has announced USD $1M in grants from the S&P Global Foundation to directly support India relief efforts, which will be allocated to Médecins Sans Frontières (MSF), Direct Relief, Nirmaan Organization and Project HOPE. These funds will support their efforts to strengthen healthcare centers and emergency response, as well as distribute critically needed oxygen supplies across India. Click here to learn more about the S&P Global Foundation.