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
