India Plans to Rent New Strategic Petroleum Reserves in South-East Asia: 4 Ways it Benefits You

In a recent move, the Indian Strategic Petroleum Reserves Limited has expressed intent to rent out new contingency oil storages in South-East Asian nations. As it looks for expanding SPRs in Japan, Singapore, or South Korea- know how it benefits you, and how it doesn’t!

In the face of intensifying middle-eastern conflicts, and risk at major oil trade routes like the Gulf of Hormuz, Gulf of Aden, Red Sea, and others- Strategic Petroleum Reserves (SPRs) serve as contingency back-up. India’s capacity of storing 5.3 million tonnes of reserve oil can last the country for almost 7 days in case of a supply blockage. The capacity being several days short of International Energy Agency’s (IEA) prescribed threshold- 90 days, requires a severe boost- leading to ISPR’s decision.

What is ISPR and why does it create Strategic Petroleum Reserves?

The 1973 Israel-Arab war had led to a sudden oil supply blockage from the side of OPEC (Organisation of Petroleum Exporting Countries) to all Israeli allies, including the USA. The oil shock created a set-back for the West and Europe, pushing them to create the IEA (International Energy Agency). The organisation was tasked to monitor the creation of Strategic Petroleum Reserves (SPRs) for all member nations. It prescribed that any nation must store at least 90 days of consumption reserve to avoid inflation or shortages in cases of cuts in petroleum supply. 

However, for most developing countries with high petroleum consumption, and low native production, like India- creation and maintenance of SPRs happens to be a costly affair. Until now, the government agency ‘Indian Strategic Petroleum Reserves Limited’ (ISPR) solely created, maintained, and managed oil reserves in Karnataka and Andhra Pradesh. 

While there were plans to centrally fund new SPRs, the burdens were recognised in time, and in February, plans to lease out new storages to local and global private firms were brought forth. The 6.3 million tonnes of new storage being created in Odisha and Padur might function under such partnership- with the privates sharing cost for maintenance of the SPRs, while the government gets the right to first usage in contingency situations.

How will it benefit to rent SPRs outside the country, and how it may not?

The next move ISPR is looking at- is to rent out spaces in territories of strategic partners. While South Korea, Japan, and Singapore promise uninterrupted supplies due to their strategic locations, in situations of global disruption; UAE on the other hand might serve to be more economically viable- considering the costs of transportation.

Previously, USA and India have attempted to work out Memorandums of Understanding (MoU) for creating SPRs in each other’s territories. Substantial collaborations are yet to be worked out. 

Such SPRs in foreign territories will strengthen bilateral inter-dependence. They will also enhance India’s oil storage capacity, bringing it closer to IEA’s threshold, at much lower maintenance costs. The diversification of storage locations will add to the safety cover. What do these benefits exactly mean for you? It can simply offer 4 benefits. As a resident of the 3rd largest petroleum consuming nation, in face of contingencies, SPRs will aid you to-

1. Face lower risks of oil shock and ensuing inflation due to supply cuts.
2. Witness enhanced right of the country to seek for a stronger role in UNSC.
3. Rely on distinct sources of supply in cases of environmental or geopolitical risks at one location of reserves.
4. Access quality and budget-friendly product ranges with entry of private and global collaborations in petroleum storage and trade.

However, the renting costs, especially as a shift to non-petroleum fuels is noted, might rise in the coming decade- weaking the viability of such reserve arrangements. For now, India’s progress toward privatisation and diversification of SPRs is a welcome move.