India to build first commercial crude oil strategic storage

New Delhi: India, the world's third biggest oil consumer and importer, plans to build its first commercial crude oil strategic storage as part of efforts to shore up stockpiles as insurance against any supply disruption.

Indian Strategic Petroleum Reserves Ltd (ISPRL), a special purpose vehicle created by the government for building and operating strategic petroleum reserves in the country, has invited bids for constructing 2.5 million tonnes of underground storage at Padur in Karnataka, according to the tender document.

ISPRL had in the first phase built a strategic petroleum reserve in underground unlined rock caverns for storage of 5.33 million tonnes of crude oil at three locations Visakhapatnam (1.33 million tonnes) in Andhra Pradesh and Mangalore (1.5 million tonnes) and Padur (2.5 million tonnes) in Karnataka.

Under Phase-II, it intends to build a commercial cum strategic petroleum reserve in underground unlined rock caverns along with associated above ground facilities, including dedicated SPM and associated pipelines (offshore and onshore) for storage of 2.5 million tonnes of crude oil at Padur-II at a cost of Rs 5,514 crore.

The Phase-I storages were built at government expense.

In the tender, ISPRL said the Padur-II will be constructed in a PPP (public-private partnership) model where private parties will design, build, finance, and operate the storage.

Bidders have been asked to quote the financial grant they require for the building of the reserves or the premium/fee they want to offer to the authority.

The project will be awarded to entities that offer the highest premium. Where no bidder is offering a premium, it would go to the one seeking the lowest grant, the tender document said.

"Maximum quantum of grant to be quoted for the project shall be capped to Rs 3,308 crore," ISPRL said. "A bidder who seeks a grant cannot offer any premium."

The operator of Padur-II will lease out the storage to any oil company wishing to store oil and charge a fee. The companies storing oil can sell it to domestic refiners. But in case of an emergency, India will hold the first right on oil usage.

Bids are due by April 22 and the tender is to be awarded by June 27, the document said.

ISPRL is acquiring about 215 acres of land for Padur-II.

India, which meets over 85 per cent of its oil needs through imports, will use the strategic reserves in any emergency situation like supply disruption or war.

Of the Phase-I reserves, UAE's Abu Dhabi National Oil Company (Adnoc) has hired half of the 2.5 million tonnes storage capacity at Padur and 1.5 million tonnes facility at Mangalore. While the remaining 1.25 million tonnes at Padur has been filed by ISPRL, the 0.75 million tonnes of vacant storage at Mangalore is to be leased out.

Out of the 1.33 million tonnes of storage built at Visakhapatnam, 0.33 million tonnes was a space that was built at the expense and for Hindustan Petroleum Corporation Ltd (HPCL). Of the remaining, HPCL has hired 0.3 million tonnes more and the rest of the storage is to be leased out.

The government had in the 2023-24 budget provided for Rs 5,000 crore for filling the vacant slots in the caverns but mid-year that plan was deferred. In the interim budget for 2024-25, presented in February, no allocation has been made for the purpose.

Companies like Adnoc use the strategic storages to hold oil for further sale to users.

Last month, the government allowed Adnoc to export crude oil it has stored in Mangalore reserves to give operational flexibility to the foreign firm.

At present, crude oil, which is the raw material for producing fuels like petrol and diesel, is not allowed to be exported except through state-owned Indian Oil Corporation (IOC).

In an order, the Ministry of Commerce and Industry on March 23 said the condition of export being allowed only through IOC will continue but "AMI (Adnoc Marketing International (India) RSC Limited India) is exempted from STE conditions and is allowed to re-export crude oil from their commercial stockpile at Mangalore strategic petroleum reserve, at their own cost."

Adnoc had sought permission for the export of its oil from the cavern in cases where it could not find buyers in Indian refiners.