Strategic Petroleum Reserves (SPR)

ECONOMY/GOVERNANCE

Topic: General Studies 2 & 3:

• Government policies and interventions for development in various sectors 
• Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment

Strategic Petroleum Reserves (SPR)

Context: The oil price meltdown provides an opportunity for oil importing country like India to tweak its energy policies to take advantage of the situation

Did You Know?

• Brent Crude Oil is trading around $25 a barrel (April 2020), the lowest in 18 years.
• In 2019, the average closing price of a barrel of crude was $57.05. In 2018, it was $64.90, and in 2017, U$50.84. 

Reduced oil price and India

• Normally, reduced oil prices would translate into surplus oil for the consumers 
• It also means a fiscal bonus for the government through increased tax collections (when the reduced price is not fully transferred to consumers)
• However, these gains will not be easy to come by given that the demand for petrol has drastically reduced.

Strategic Petroleum Reserves (SPR) programme

• Objective is to maintain emergency stockpile of oil reserves
• India claims to have 87 days of reserves. 
• Out of this, Oil refiners maintain 65 days of oil storage 
• The rest of the reserves are held in underground salt caverns maintained by Indian Strategic Petroleum Reserves Limited (ISPRL). 
• The existing and planned capacity for the underground reserves is 10 and 12 days of import cover for crude oil respectively.

Issue with SPR 

• Lack of transparency with refinery holdings.
  • The SPR arrangement between the oil refineries and the Union or state governments is not specified well
  • A breakdown of which refineries hold SPR and in what form (crude or refined) or information about where they are located is not publicly available.
• Ambiguity surrounding the mobilisation process 
  • SPR are meant to be utilized for emergency purposes, where time is crucial. 
  • However, there is no definite framework delineating roles for various agencies

Way Ahead

• Policy Framework: ISPRL could fill up the reserves each time the price of Brent crude oil falls below a certain price, say $35 per barrel. 
• The procedures, protocols and facts about Indian SPR storage require greater public and parliamentary scrutiny
• Thus, there is a need to introduce transparency and accountability in relation to the SPR
• SPR mobilisation process could be made more efficient by laying out designated roles for different agencies to avoid duplication of work in times of crisis
• India should look to diversify its SPR holdings. Diversification can be based on 
  • Geographical location – storing oil either domestically or abroad. For instance: Trincomalee in Sri Lanka, Oman (Ras Markaz) 
  • Storage location – underground or overground 
  • Product type (oil can be held in either crude or refined form). 
  • Form of ownership — either publicly owned through ISPRL or by private oil companies, such as ADNOC of Abu Dhabi, which could fill up the SPR when prices are low

Connecting the dots:

• Solar Power in the times of reduced Oil Prices
• 1973 Oil Crisis