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Strategic crude Reserve

Vikrant Vishal MBA (O&G) 1st semester

From 1970 to till date world market has seen roughly 6 significant spikes in price of crude oil

and petroleum product. These includes the Arab oil embargo in 1973,Iranian revolution in 1980s, OPEC Production cut and insurgence in world oil demand during first gulf war in 1990-1991,

and during the recent recession in the year 2007. It was during these times that every country

which imports crude oil to fulfill its energy needs realized a need for a strategic crude reserve.

A strategic reserve is a term used to describe a reserve of a commodity or items, held back from

normal use by governments, organizations or business in pursuance of a particular strategy or to

cope with unexpected events. The origin of the idea of maintaining petroleum crude reserves

originated from 1973 Arab- Israel war, because of the support to Israel, Arab had to cut the crude

oil supply to the United States. In response to the embargo U.S.Congress authorized the strategic

petroleum under the energy policy and conservation act (EPCA, P.L.94-163). The Arab oilembargo also fostered the establishment of the International Energy Agency to develop plans and

measures as a response to the energy crises. Strategic stocks are one of the policies included in

the Agencys international energy program. Signatories to the IEA have to be committed to

maintain a 90 days balance of crude reserve and have to help other IEA members in case of any

crises. At present there are 28 members of IEA. Strategic crude reserve of some of the countries

has been given in table below

Strategic crude reserve of some major countries

Country Reserves in million barrel

U.S.A. 727

JAPAN 583

CHINA 475, 101,+(170 BY 2011,+204 BY 2020)

GERMANY 250

DENMARK 14

IRAN 10

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INDIA 5.33(by 2012)

Now let us try to reason why for a country like India it is necessary to maintain a

strategic oil reserve?

India is facing a lot of challenges to bridge the gap of its energy and demand. At present it buys

75% of oil requirement from the Middle Eastern countries, which are politically volatile and this

demand is going to increase up to 90% by the year 2020.Hence in this scenario it becomes very

important to have a strategic crude reserve which will provide a support to the economy in case

of an adverse condition.

India will complete building its first strategic crude oil storage by October 2011 in an effort to

insulate itself from supply disruptions. India is building under-ground storages at

Visakhapatnam in Andhra Pradesh and Mangalore and Padur in Karnataka to store about 5.33

million tons of crude oil. This is enough to meet nation's oil requirement of 13-14 days.

y Visakhapatnam:-Capacity to store 1.33 million tons of crude oil in underground rockcaverns. Huge underground cavities, almost ten storey tall and approximately 3.3 km

long are proposed to be built here .

y Mangalore: - Has a capacity of 1.55 million tons and would be mechanically completedby November 2012.

y Padur

:

- 2.5 million tons storage would be completed by December 2012.

Indian government is planning to raise the storage capacity to 15 million tons to meet the

demand for 45 days.

Benefits of the strategic crude reserve:-

y It increases security of supply .y It means greater price stability in crises situation.y It has a positive impact on neutrality of competition.

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