Strategic Petroleum Reserve – UPSC

Context: Government has decided to use its Strategic Petroleum Reserve temporarily.
  • India is the 3rd largest consumer of oil
What is a Strategic Petroleum Reserve (SPR)? 
  • SPR initiative was launched in 1998 to bolster energy security of India as it had little foreign exchange to import oil.
  • The SPR inventory acts as a supply buffer in the event of unexpected disruptions or surges in demand.
Why is government deciding to commercialize SPR? 
  • India’s decision to commercialise SPRs came after it filled the reserves cheaply in early 2020, averaging $19 a barrel.
  • State oil companies, which were forced to honour term purchase contracts for crude, diverted fuel to underground caverns.
  • Government will earn around $900 million with this.

What are the associated challenges? 
  • India is surrounded by hostile neighbours and is dependent on imported crude thus cannot afford to commercialise its energy security.
  • India still has very high crude oil demand which is only going to increase in future. It consumes around 4 million barrels a day of fuel, but its reserves can just about meet nine days of demand.
  • Even developed nations such as the US, Japan and South Korea commercialised the reserves decades after building it to a position of strength in line with the IEA’s guidelines.
  • IEA mandates 90 days of the previous year’s net oil imports in storage.
  • India is an associate member of IEA and this requirement is not binding. 
  • The IEA forbids trading and typically allows release of stocks only during emergencies or supply shocks.
  • SPR is not for commercialisation as it can serve as India’s first line of defence during a calamity or conflict.
  • Further, the SPR inventory acts as a supply buffer in the event of unexpected disruptions or surges in demand. Specially for net importers like India, Japan, Korea.
How is China’s policy on SPRs different from India’s?
  • China has built around 500 million barrels of SPRs in a little over a decade and filled more than half the capacity, according to analyst estimates.
  • India has a tenth of what China has despite planning a decade earlier, reflecting the priority Beijing gives to energy security.
Way Forward:
  • India should build capacity fast and grow stocks to a comfortable level before considering trade.
  • India is poised to face the fastest growth in oil demand in the next couple of decades, and its dependency on overseas crude is going to climb to over 90% by 2040 as per IEA.
  • South Korea has one of the best SPR models. It has a storage capacity of around 300 mb with nearly half coming from SPRs.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top