The Biden administration is contemplating the use of the US Strategic Petroleum Reserve (SPR) as one method to control escalating oil prices, following the 2022 midterm elections. While this move may not completely mitigate the rise in US oil prices, which have struck a seven-year high of over $85 per barrel, it represents a strategic response to ongoing global market shifts. Alongside the US, China and India are also expected to tap into their respective strategic reserves, especially in light of Saudi Arabia and Russia’s refusal to pump additional oil into the global markets.
The Origin and Purpose of Strategic Petroleum Reserves
Strategic petroleum reserves are vast inventories of crude oil that countries maintain to manage potential crises related to oil supply disruptions. These disruptions could stem from various factors like natural disasters, war, or other catastrophic events, and strategic reserves are meant to stabilise prices during such periods.
The concept of maintaining strategic reserves was first proposed in the United States in 1973, in the wake of the OPEC (Organization of the Petroleum Exporting Countries) oil crisis. As per the International Energy Programme (I.E.P.) agreement, each International Energy Agency (IEA) member country is required to hold emergency oil stocks equivalent to a minimum of 90 days of net oil imports. In scenarios of severe oil supply disruption, IEA members may decide to release these stocks to the market as a collective measure.
Global Leaders in Strategic Petroleum Reserves
Currently, Japan, the United States, and China possess the three most significant strategic petroleum reserves. To meet the 90-day requirement for SPR levels, the International Energy Agency (IEA) provides three options: commercial stocks held by refiners, governmental and agency-held stocks, and a chosen balance between the two. The IEA plays a crucial role in managing these reserves, coordinating member releases, and providing relevant data. The IEA further recommends demand-restricting measures or supply-enhancing alternatives, such as voluntary fuel savings, fuel-switching, or ‘surge production’.
India’s Strategic Petroleum Reserves
In India, the construction of Strategic Crude Oil Storage facilities is managed by the Indian Strategic Petroleum Reserves Limited (ISPRL), a subsidiary of the Oil Industry Development Board (OIDB) under the Ministry of Petroleum & Natural Gas. Currently, strategic crude oil storages are located in Mangalore (Karnataka), Visakhapatnam (Andhra Pradesh), and Padur (Karnataka), with a total fuel storage of 5.33 Million Metric Tonnes (MMT). Further plans include two additional caverns at Chandikhol (Odisha) and Udupi (Karnataka), set to add an extra 6.5 million tons of oil reserves.
Once these new facilities are operational, it will provide India with approximately 22 days worth of oil consumption. Combined with the current industrial stock held by Indian refiners, India will be able to provide for approximately 87 days worth of oil consumption. This makes India align closely with the 90-day mandate provided by the IEA, especially following its acceptance as an associate member in 2017.
The Necessity for SPRs in India
Given that approximately 86% of India relies on oil, with daily consumption nearing 5 million barrels, the need for Strategic Petroleum Reserves is vital. Building sufficient capacity is crucial to manage any unpredictable events occurring in the international crude market. Furthermore, it provides energy security, considering the fluctuation in the price of crude oil in the international market. It also prevents potential monetary loss due to such fluctuations.
