India's Rs 14,527 crore oil reserve plan: Why it matters | Explained

India's Strategic Oil Reserves: India is moving ahead with the second phase of its Strategic Petroleum Reserve (SPR) programme, planning to invest Rs 14,527 crore to expand the country's emergency crude oil storage capacity. The expansion comes at a time of heightened geopolitical tensions, volatile crude prices and disruptions to key global shipping routes, making energy security a growing priority for the country.

The government plans to add 6.5 million tonnes of commercial-cum-strategic crude oil storage through new facilities in Odisha and Karnataka under a public-private partnership (PPP) model. But what are strategic petroleum reserves, why is India expanding them now, and how will they strengthen the country's energy security? Here's an explainer.

What is the government's new strategic petroleum reserve plan?

The Phase-II expansion, approved in July 2021, will add 6.5 million tonnes of storage capacity through two new facilities -- 4 million tonnes in Odisha and 2.5 million tonnes in Karnataka, news agency PTI reported.

Minister of State for Petroleum and Natural Gas Suresh Gopi, in a written reply in the Lok Sabha, said the project will be developed under a public-private partnership (PPP) model with government viability gap funding capped at 60 per cent of the total project cost.

He also said the government is continuously assessing new locations for setting up additional strategic petroleum reserves.

What are Strategic Petroleum Reserves (SPR)?

Strategic Petroleum Reserves are underground storage facilities where countries stockpile crude oil for emergencies such as wars, geopolitical conflicts, supply disruptions or sharp spikes in global oil prices.

These reserves act as a strategic buffer, allowing governments to maintain fuel supplies even if imports are disrupted for a limited period.

How much strategic oil storage does India currently have?

Under Phase-I, India established strategic petroleum reserves with a total capacity of 5.33 million tonnes through Indian Strategic Petroleum Reserve Ltd (ISPRL).

The storage facilities are located at:

These facilities were commissioned between 2016 and 2018, with crude inventories varying depending on market conditions.

Why is India expanding its oil reserves now?

The expansion comes amid rising global uncertainty over energy supplies. Recent geopolitical conflicts, including tensions in West Asia and disruptions in major shipping routes such as the Strait of Hormuz and the Red Sea, have highlighted the importance of maintaining emergency oil stocks.

Larger strategic reserves can help India cushion short-term supply shocks and reduce the impact of sudden spikes in crude oil prices.

How will the project be funded?

Unlike Phase-I, which did not receive any government budgetary support, the second phase will follow a PPP model.

According to the government, the total project cost is estimated at Rs 14,527 crore, with the Centre providing viability gap funding of up to 60 per cent.

What is India's partnership with ADNOC?

Gopi said ISPRL has signed an agreement with the Abu Dhabi National Oil Company (ADNOC), allowing the UAE energy company to use a 750,000-tonne crude storage cavern at Mangaluru.

The two sides have also signed a non-binding memorandum of understanding for broader strategic cooperation.

How is India reducing its energy security risks?

The government said it is continuously monitoring threats that could disrupt global energy supplies while diversifying crude oil and LNG imports.

What other steps is India taking to cut oil import dependence?

Apart from expanding strategic reserves, the government is pursuing multiple measures to reduce reliance on imported crude oil. These include promoting natural gas, expanding the use of CNG, PNG, ethanol, compressed biogas and biodiesel, improving refinery efficiency, encouraging energy conservation, and boosting domestic oil and gas production through various policy initiatives.