The perfect cocktail of low global crude oil prices and galloping domestic demand has prompted India’s petroleum ministry to carve out a detailed plan that will help the country’s strategic oil reserve storage capacity to more than triple over the next five years. India’s petroleum minister Dharmendra Pradhan told S&P Global Platts in an exclusive interview late Friday that with the new plan in place, India would be able to raise its oil storage capacity and take advantage of low oil prices.
“We want to join the high table as far as strategic oil storage is concerned,” Pradhan said on the sidelines of his Singapore visit for a roadshow seeking potential investors for India’s small oil and gas fields. “With the new plan in place in the next five years, we should be able to sharply raise our storage. But that target could get even bigger because of refinery and pipeline expansions that will be on the way during the coming years.”
Under the first phase, India has set up strategic petroleum reserves, or SPRs, in three locations — Visakhapatnam, Mangalore, and Padur — in southern India. They will have a combined capacity of 5.3 million mt, or 38.8 million barrels, of crude oil. The Visakhapatnam facility on the eastern coast began filling its underground caverns last summer. The Mangalore and Padur facilities are expected to be completed later this year.
Pradhan said his ministry had finalized plans to set up two new larger storage facilities, each with about 5 million mt of capacity, in the eastern state of Odisha and in the northwestern state of Rajasthan. It would involve a total cost of about $2 billion. “To set up the new storage facilities, we are open to both private and foreign participation,” Pradhan said. “Work on the new storage facilities will start this financial year (April 2016-March 2017). It will take our overall storage capacity to more than 15 million mt in the next five years. We can use the reserves as and when required.”
The Indian Strategic Petroleum Reserves Limited, a special-purpose legal entity owned by the Oil Industry Development Board, manages all the SPR facilities in the country. The US Energy Information Administration had recently said in a report in July that the significant drop in international oil prices since mid-2014 had provided India with an incentive to speed up construction and filling up of SPRs.
India is seeking to finance the second phase of its SPR partially through commercial agreements with foreign oil producers who can lease storage, it said. As such, New Delhi was currently negotiating with the UAE’s Abu Dhabi National Oil Company to lease 5.5 million barrels of the Mangalore facility. Two-thirds of this volume would be available for India, and ADNOC could store the remaining volumes or sell it in the domestic market, said the EIA report.
OVERSEAS INTEREST IN RETAIL SECTOR
Pradhan said that with demand for oil products growing in double digits, many oil multinationals — such as Saudi Aramco, BP and Shell — had evinced interest to either expand or set up shop in India’s retail oil sector. “Our size is a big attraction to a lot of these companies,” Pradhan said. “Also, providing clear and transparent polices through market reforms is helping us to attract those companies.” “Shell is already there in our retail sector but in a smaller scale. BP has applied for licence and others are discussing,” Pradhan said.
“They are all keen to bring in the investment and set up their infrastructure. There will be healthy competition between these players and domestic companies and ultimately, the consumer will reap the benefits.” The minister’s remarks came just three days after Trafigura’s CFO for Asia Pacific, Nicolas Marsac, told Platts in an interview that the surge in Indian oil demand was just the start of a story that promises to run for long, prompting the commodities trader to put together a strategy and a team on the ground in place to win in the South Asian nation.
India’s oil products demand grew 8.5% year on year in 2015 to 177 million mt, or 3.81 million b/d, as gasoline, LPG and naphtha saw double-digit growth in consumption. Over January-July this year, India’s oil products demand rose 10.1% year on year to 112.50 million mt, or 4.15 million b/d, according to India’s Petroleum Planning and Analysis Cell. The IEA expects Indian oil demand to average at 4.3 million b/d in 2016.
The government’s clear policies for the oil sector, strong and sustained GDP growth, and a huge push towards making India a manufacturing hub were not only playing crucial roles in accelerating oil consumption but were also whetting appetite of leading multinationals to set up shop in the nation. “The oil demand growth we are witnessing is phenomenal. Transparent policies can attract more investment into the sector,” Pradhan said.
Some of other policy reforms India had recently undertaken for the oil sector — such as gradually raising the price of kerosene in an effort to promote cleaner fuels and expanding the LPG network — was moving ahead swiftly as per plan. “All these have to be gradual. For example we can’t raise the price of kerosene at one go,” he added. India deregulated diesel prices in October 2014, but continues to subsidize LPG and kerosene prices.
The BJP-led government has recently also given the go-ahead to state-run companies to raise prices of kerosene, which accounts for more than 40% of the total petroleum subsidies, by a small amount every month until April 2017. The government has also announced 2016 as the “year of LPG consumers” and has set an ambitious target to open 10,000 new LPG dealerships across the country this year, in addition to the 16,000 that already exist. Terrance Williams Womens Jersey
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