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
- 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