Joint strategic crude oil response considered by India, Japan, China, South Korea and US

India, US and China consider joint strategic crude oil response

To protect themselves against disruptions in crude oil supplies,
India, Japan, China, South Korea and the US will meet in June in Seoul
to work on a joint response mechanism based on their combined
strategic crude oil reserves. The five nations together account for
44% of global demand.

Strategic crude oil reserves are a country's answer to counter
short-term supply disruptions. They are state-funded and meant to
tackle emergency situations.

The third meeting of the five energy ministers will determine a joint
response framework in Seoul.

"We have to work out a joint strategy," said an official of India's
ministry of petroleum and natural gas, who didn't want to be
identified.

A joint strategy could promote regional and global energy security to
counter supply disruptions. The first of the meetings to discuss the
issue was held in Beijing in December 2006.

"This is a very important international development," said another
official at the petroleum ministry, who also did not want to be
identified.

The Seoul meeting plans to address the growing concern that oil
supplies will not be able to match demand and may cause severe
disruptions such as high prices as the recent global financial crisis
has led to reduced investment in the hydrocarbon sector.

"It is very important for significant stakeholders to work very
closely together in a strategic partnership for smooth supply of
resources, particularly at a time when a completely new international
economic order is emerging," said Monish Chatrath, executive director
at consultancy firm Mazars India.

Nobuo Tanaka, chief of the International Energy Agency (IEA), said in
a recent interview to Mint that he wants a lot of investments in
upstream hydrocarbon sector to happen, "for decline of the current
production level from the existing oil fields is a serious concern".
"We need a huge investment just to offset this decline," he said.

The other areas of discussion include the facilitation of China and
India's entry into IEA, of which Japan, the US and South Korea is
already members. A country that is a net importer of oil must maintain
emergency oil reserves equivalent to at least 90 days of net imports
to be eligible for IEA membership.

While the Japanese embassy did not comment on the matter citing
unavailability of information, questions emailed to the embassies of
China, South Korea and the US were unanswered at the time of going to
press.

Nations have been cautious in disclosing the size of their strategic
reserves. While the US Strategic Petroleum Reserve and the Japanese
National Oil Co. maintain huge reserves, India is building three
strategic storage facilities at Visakhapatnam, Mangalore and Padur
with a combined capacity of five million tonnes, equivalent to around
14 days of consumption.

Countries such as India that are dependent on imports to meet their
oil needs are particularly vulnerable to price volatility. India the
world's fifth largest energy consumer imports 75% of its requirements
and accounts for around 3.5% of global consumption. Extreme volatility
has marked the crude oil price, which reached a record $147 (Rs. 6,556
today) per barrel in July 2008, but has since fallen to around $82.

India has been inviting oil-producing West Asian nations to set up
storage facilities on the country's coastline to help them serve their
energy markets in Asia such as Japan. In turn, the facilities will
augment India's oil storage infrastructure, helping it meet domestic
demand in the event of any short-term disruption in supplies.

Source:Mint, New Delhi, April 21, 2010