The Union Cabinet on Wednesday allowed Abu Dhabi National Oil Co (ADNOC) to trade half of the crude oil it has stored in Indian underground strategic reserves. Till now, ADNOC, which has hired half of 1.5 million tonnes underground storage at Mangaluru, was allowed to commercially use 35 per cent of the oil stored. It could trade or sell another 15 per cent with the explicit approval of the government.
The Cabinet Committee on Economic Affairs (CCEA), headed by Prime Minister Narendra Modi, allowed ADNOC to commercially use 50 per cent of the oil it has stored in the reserves, an official said. The flexibility allowed will encourage the company to store more oil in the three reserves India has built as insurance against supply and price disruptions.
The official said while ADNOC bears the cost of oil, India has the first right over its usage in an emergency. This guarantees energy security without spending money on oil. Besides hiring half of the Mangaluru capacity, ADNOC had also in November 2018 signed up to hire half of the 2.5 million tonnes (about 17 million barrels) capacity at Padur, the biggest of the three storages, but did not store any oil.
The government had previously exempt such trade by ADNOC from local taxes. Briefing reporters on Cabinet decisions, Information and Broadcasting Minister Prakash Javadekar said the CCEA allowed ADNOC to trade oil but did not offer details.
The CCEA also gave its approval to Rs 3,874 crore spending on stocking low priced oil in the three strategic underground crude oil storages. India saved over Rs 5,000 crore when the country in April-May used two-decade low international oil prices to fill up its three strategic underground crude oil storages.
India, the world’s third-biggest oil importer, has built strategic storages in underground rock caverns at three places to meet any contingency. Taking advantage of the low crude oil prices in the international market, India purchased 16.71 million barrels (mbbl) of crude in April-May 2020 and filled all the three Strategic Petroleum Reserves created at Visakhapatnam, Mangaluru and Padur. The Ministry of Petroleum and Natural Gas spent Rs 3,874 crore on buying of such oil and the Cabinet on Wednesday gave a post-facto approval for the same, he said.
Oil prices globally had slumped after the coronavirus pandemic pummelled demand. The average cost of procurement of crude oil was USD 19 per barrel, as compared to USD 60 a barrel prevailing during January 2020.
This helped save USD 685.11 million or Rs 5,069 crore. The Indian Strategic Petroleum Reserves Ltd (ISPRL) built the underground storages at Mangaluru and Padur in Karnataka and Visakhapatnam in Andhra Pradesh as insurance against supply and price disruptions.
Mangaluru storage has a total capacity of 1.5 million tonnes. Of this, half had previously been hired by ADNOC to store its crude oil. The remaining half was in April-May. The arrangement with ADNOC allows India to have a first right over the crude oil stored in the reserves during any emergency, he said.
Padur, the biggest of the three storages, has a total capacity of 2.5 million tonnes (about 17 million barrels). ADNOC had in November 2018 signed up to hire half of this capacity but never actually stored oil in it. India meets 85 per cent of its oil needs through imports and the three storages meet 9.5 days’ requirement.