India's strategic crude oil reserves already marred by huge delays

[Singh]

Delays of the strategic kind : India's strategic crude oil reserves
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The project was started in 2004. Three underground strategic crude oil reserves, to hold reserves equivalent to 14 days of India's oil consumption, were to come up at Visakhapatnam (1.33 mmt – originally 1 mmt), Mangalore (1.5 mmt) and Padur (2.5 mmt). The scheduled date of completion of this project was four years. Double the time has already elapsed and not even one of the reserves has been completed. As per this report in the Hindustan Times, the latest projected dates of completion are:

The facility at Visakhapatnam is likely to be completed by March 2013, followed by Mangalore in end 2013 and Padur in the middle of 2014.[HT]

The total cost of this project in 2004 was around Rs 1,650 crore. Now, it has already escalated to Rs 23,000 crore. This excludes the cost of purchasing 5.33 mmt of crude oil at current prices, which are three times higher than those in 2004.

Missed deadlines, cost overruns on a 'strategic' project. And no one seems to care. Perhaps that is why the government is already formulating another plan for constructing additional strategic crude oil storage facilities to store 12.5 mmt of crude oil. It is estimated to cost Rs 55,000 crore.

Each of these new locations will have a crude oil storage capacity of 2.5 mt and will come up at Bikaner in Rajasthan, Chandikhol in Odisha, Rajkot in Gujarat and at Padur in Karnataka.

While all the earlier three strategic crude oil storages would be in underground rock caverns, the four new such facilities have been proposed as a mix of rock caverns, salt caverns and underground concrete tanks.[HT]

Even if these additional reserves are miraculously constructed in a short time, India would then have a total of about 55 days of crude oil reserves. Even then, India would be well short of the world standards – oil importing member-countries of International Energy Agency (IEA) are committed to hold oil stocks equivalent to 90 days of net oil imports.

These plans may sound worthless but planning is still worth it. Didn't Dwight D. Eisenhower say it best: "In preparing for battle I have always found that plans are useless, but planning is indispensable."

Delays of the strategic kind | Pragmatic Euphony

 

[Singh]

Rs 55,000 cr oil depots on the cards
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A Rs. 55,000-crore plus blueprint has been prepared for creating additional strategic crude oil storage facilities in the country to store 12.5-million tonnes (mt) of oil for usage during emergency situations arising in the wake of a natural calamity or any unforseen global event.

Such events generally lead to oil supply disruptions and an abnormal increase in oil prices.

Any increase in crude oil prices affects India in a big way since it imports over 80% of its oil requirement every year.

The government spent $150 billion (Rs 8.3 lakh crore) to buy 171 mt of crude, or 84% of the total requirement of 205 mt, in the last fiscal year.

While a Rs. 23,000-crore plus plan to create strategic crude oil facilities for storing 5.3 mt is already under way at three locations, the plan to create additional storage facilities will give India access to 17.8 million tonnes per annum (mtpa) of crude oil supplies.

"The new storage facilities along with those under construction will give India about 55 days of cover to counter any supply disruptions in the international oil market," said a senior petroleum ministry official, adding that the new plan will soon be sent to the Cabinet for approval.


"Engineers India Limited (EIL) has completed a pre-feasibility study for setting up crude storage facility in the next phase and has identified four additional locations for preparation of detailed feasibility reports (DFR)," the official said.

Each of these new locations will have a crude oil storage capacity of 2.5 mt and will come up at Bikaner in Rajasthan, Chandikhol in Odisha, Rajkot in Gujarat and at Padur in Karnataka.

While all the earlier three strategic crude oil storages would be in underground rock caverns, the four new such facilities have been proposed as a mix of rock caverns, salt caverns and underground concrete tanks.

Following oil security concerns, crude oil storage of 5.3 mt is underway at three locations including Visakhapatnam (1.33 mmt), Mangalore (1.5 mmt) and Padur (2.5 mmt).

The facility at Visakhapatnam is likely to be completed by March 2013, followed by Mangalore in end 2013 and Padur in the middle of 2014.

Rs 55,000 cr oil depots on the cards - Hindustan Times

 

[Singh]

A Dated Blogpost on the same

Indian Strategic Petroleum Reserves.


To recapitulate, this is what the Government of India had announced in 2004:

Availability of oil is vital for all countries. Oil security is of particular concern for the countries like India with high oil import dependency, presently around 69%. The gap between domestic crude availability and demand for crude indicates the vulnerability of the Indian economy to oil imports. Presently, about 67% of India's crude oil imports come from the Middle East region. The general political instability in this region is a further cause of anxiety from the oil supply security perspective.

Taking into account the oil security concern of India, the Government decided in January 2004 to set up 5 million metric tonne (MMT) of strategic crude oil storage at various locations in the country. This strategic storage would be in addition to the existing storage of crude oil and petroleum products with the oil companies and would provide an emergency response mechanism in case of short-term supply disruptions. The proposed facility would be managed by a Special Purpose Vehicle (SPV), 100% owned by one of the oil PSUs.

The oil importing member-countries of International Energy Agency (IEA) are committed to hold oil stocks equivalent to 90 days of net oil imports. Twenty-six member-countries of the Organization for Economic Cooperation & Development (OECD), including USA, Germany, Japan, etc., are members of IEA. India is not a member of IEA. After the setting up of the proposed Strategic Storage, India would also have a gross storage capacity roughly in line with IEA norms.

The proposed Strategic Crude Oil Storage would be in underground rock cavern/concrete structures and is projected to come up in a period of around four years. It is estimated that the total capital cost for construction may be around Rs 1,650 crore and annual operating cost around Rs 40 crore. Further, an amount of Rs 5, 000 crore may be required for purchasing 5 MMT of crude oil. The financing mechanism of the project is being finalized.

In 2006, the government again highlighted — what was very little progress during the previous two years — as its achievement.

Taking into account the oil security concerns of India, the Government in January 2006 approved funding mechanism for setting up Strategic Crude Oil Storage of 5 million tonne (MMT) at various locations in the country, Mangalore (1.5 MMT), Vizag (1.0 MMT) and Mangalore or nearby location (2.5 MMT). It was also decided to implement the project through a subsidiary of Oil Industry Development Board (OIDB). This strategic storage would be in addition to the existing storage of crude oil and petroleum products, with the oil companies and would provide an emergency response mechanism in case of short-term supply disruptions. The proposed Storage would be in underground rock cavern/concrete structures and is projected to come up in a period of four years.[link]

There isn't much change in the progress report as of April 2010:

To ensure energy security, Government of India has decided to build a strategic crude oil reserve of 5 MMT through a Special Purpose Vehicle (SPV). The SPV named Indian Strategic Petroleum Reserves Limited (ISPRL) was initially a subsidiary of Indian Oil Corporation Limited. Later on w.e.f 09.05.2006 it became a wholly owned subsidiary of Oil Industry Development Board (OIDB). Three locations selected for creating storages are Vishakapatnam (1.00 MMT), Mangalore (1.5 MMT) and adur (2.5 MMT). Capital cost for constructing the strategic storage facilities is estimated at Rs 2397 crore and operation and maintenance cost at Rs90 crore per annum at September,2005 prices. The authorized and paid up capital of the company as on 31.03.2010 is Rs1000 crore and Rs341.24 crore respectively. OIDB has contributed Rs519.64 crore towards equity participation (including Rs178.40 crore pending allotment of shares) in ISPRL.

Here is more on the specific Visakhapatnam project from the same report:

EIL was appointed as Project Management Consultant. EIL has, in turn, appointed M/s. SWECO of Sweden as their back up consultant. Supplementary investigations carried out at site through M/s RITES provided the inputs required for determining the optimal cavern capacity. Based on these inputs, the storage capacity originally planned at 1.0 MMT has been enhanced to 1.33 MMT. All requisite environmental clearances from Ministry of Environment & Forest (MOE&F) and State Pollution Control Board have been received. Hindustan Construction Company Ltd. (HCC), the underground civil contractor started the construction of the cavern in January, 2008. The mechanical completion of the project is scheduled for October 2011 and commissioning by April 2012. The Project involves excavation of huge underground caverns, 30 meter high (almost 100 feet) and 20 meter wide. The total length of the caverns will be more than 3.5 kilometers and the amount of rock expected to be excavated will be approximately 18.50 lakh Cu mts. As of March 31st 2010, 10.86 lakh cu mts excavation was completed and the progress in tunneling was approximately 3.5 KMs. The above ground works, have been awarded to M/s IOTESL in October 2009 with schedule of 23 months for mechanical completion and further 6 months for commissioning.

Two, the project was envisaged in 2004 and was scheduled to be completed in four years. As things stand today, only one of the three sites are likely to be completed after eight years. The progress on the other two sites is even slower.

Three, while the oil importing member-countries of International Energy Agency (IEA) are committed to hold oil stocks equivalent to 90 days of net oil imports, India's ISPR, when completed, will hold only 14 days worth of India's oil consumption.

The instinctive reaction to this story has to be the cynical one: Who cares? The apathy of the media to such an important 'strategic' project only adds to that cynicism. Alas, this is the way India functions.

Perhaps it would not be unfair then to concur with what John Galbraith famously said about India: "This place is functioning anarchy and it proves that God exists!"

Weekend quiz answer | Pragmatic Euphony

 

[Singh]