India’s first privately managed strategic petroleum reserve (SPR) by 2030

India plans to build its first privately managed strategic petroleum reserve (SPR) by 2029-30, granting the operator the freedom to trade all of the stored oil according to Indian Strategic Petroleum Reserves Ltd (ISPRL).

India is world’s third biggest oil importer and consumer. As the country’s economy continues to grow, ensuring a stable and secure supply of petroleum products has become a top priority.

Why Is India Planning to Involve a Private Company in Its SPR by 2029/30?

India currently has three partially commercialised, & operational SPR facilities with a total capacity of 5.33 million metric tonnes (MMT) located in Visakhapatnam, Mangalore, and Padur.

However, to further strengthen its energy security, India is planning to expand its SPR capacity.

India is planning to construct two new Strategic Petroleum Reserve (SPR) facilities:

1. An 18.3 million barrel storage cavern at Padur, Karnataka
2. A 29.3 million barrel facility in Odisha

In a unique public-private partnership model, the government will allow private companies to trade 100% of the oil stored in these new SPRs within the domestic market. This approach aims to expand India’s SPR capacity with private sector participation and financing.

The rationale behind involving private companies in SPR management is multifaceted.

• Firstly, private participation is expected to bring in additional investment, expertise, and operational efficiency to the SPR program.
• Secondly, it will allow the government to share the financial burden of maintaining and expanding the reserves.
• Lastly, private involvement will provide strategic flexibility in terms of SPR utilization and commercialization, enabling India to better respond to market dynamics.

How Will India’s First Private Company-Operated SPR Function?

The proposed model for private participation in India’s SPR operations involves a public-private partnership (PPP) approach. Under this model, private companies will be responsible for the construction, filling, and maintenance of the SPR facilities, while the government will retain strategic control over the reserves.

The private companies will invest in the SPR infrastructure and will be allowed to commercialize a portion of the reserves to recover their costs and generate returns.

Notably, the government will have the first right to access the reserves in case of a national emergency or supply disruption.

The government will also establish regulatory mechanisms to ensure that the private companies operate the SPRs in alignment with national energy security objectives.

How Does India’s Move Compare With Global Practices in SPR Management?

Increasing its oil storage capacity would enable India to meet the International Energy Agency (IEA) membership requirement of maintaining a minimum strategic reserve equivalent to 90 days of domestic oil consumption.

Currently, India’s total oil stocks, including its Strategic Petroleum Reserves (SPR), are sufficient to cover approximately 66 days of consumption. To align with the IEA standard, India needs to expand its strategic storage by an additional 24 days’ worth of oil consumption.

India’s move towards a private company-operated SPR model is in line with global trends in SPR management. Several countries have adopted different models for SPR management, ranging from fully government-operated reserves to those with private participation.

For example, the United States has a government-owned and operated SPR system, while countries like Japan and South Korea have adopted fully commercial SPR.

What Are Strategic Petroleum Reserves and Why Are They Important?

Strategic Petroleum Reserves (SPRs) are large stockpiles of crude oil maintained by countries to ensure a stable supply of petroleum products in the event of a supply disruption or price shock.

The concept of SPRs gained prominence after the 1973 oil embargo, which highlighted the vulnerability of oil-importing nations to supply disruptions.

SPRs play a crucial role in stabilizing oil markets and ensuring national energy security. By maintaining a buffer stock of crude oil, countries can mitigate the impact of supply disruptions caused by geopolitical events, natural disasters, or technical failures.

SPRs also provide a strategic tool for countries to respond to price volatility and protect their economies from the adverse effects of oil price spikes.