How India plans to counter short-term energy supply disruptions?

India’s plans of protecting itself against disruptions in energy supplies by setting up three strategic crude oil reserves will increase their level to 78 days of consumption.

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. India—the world’s fifth largest energy consumer—imports 80% of its requirements and accounts for around 3.5% of global consumption. A country that is a net importer of oil must maintain emergency reserves equivalent to at least 90 days of consumption to be eligible for International Energy Agency (IEA) membership.

“We are building extremely efficiently the capacity of 5 million tonnes (mt) of reserve capacity,” said petroleum secretary S. Sundareshan. “They are the largest excavation work being done in the country and are likely to be completed before the end of 2011. This will support (an additional) 15 days of India’s consumption.”

While the country currently has crude reserves to support 74 days of consumption, Indian Strategic Petroleum Reserves Ltd, a subsidiary of the Oil Industry Development Board, is constructing three strategic storage facilities at Visakhapatnam, Mangalore and Padur with a combined capacity of 5 mt. They individually will have a capacity of 1 mt, 1.5 mt and 2.5 mt, respectively. The crude oil from these reserves will be released in situations where there is a short-term supply disruption, natural calamity or global event such as a war that may lead to an abnormal increase in prices.

“We presently have 74 days storage. With the additional capacity being built, we would have 89 days of storage. But this will not translate into 90 days for the reason that there will be an increase in demand by that time. So, we would expect that we would have around 80 days storage by that time,” Sundareshan added.

India’s consumption of petroleum products has been increasing considerably. Its petroleum consumption is expected to rise to 135 mt per annum by 2012 from 112 mt now, according to IEA. The US Strategic Petroleum Reserve and the Japanese National Oil Co. also maintain huge reserves.

Countries such as India that are dependent on imports to meet their oil needs are particularly vulnerable to price volatility. Extreme volatility has marked the crude oil price, which reached a record $147 (Rs6,894.3) per barrel in July 2008, but has since fallen to around $74. India has also 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.

Mint had reported on 21 April about a joint response mechanism being considered by countries such as India, Japan, China, South Korea and the US based on their combined strategic crude oil reserves. The five nations together account for 44% of global demand.

In a related development, India is also looking at setting up additional such locations in structures such as hard rock caverns, salt caverns, concrete storages and even depleted hydrocarbon fields. “We are looking at new locations to increase the country’s strategic crude oil storage capacity. Various sites are being inspected,” said a government official involved in the process who did not want to be identified.
Source:
http://www.livemint.com/2010/07/13211325/India-oil-reserves-to-meet-78.html?atype=tp