India, the world’s third largest crude oil importer has an existing storage capacity of 5.3 million tonnes at Visakhapatnam, Mangaluru and Paadoor, built at an investment of $600 million in the first phase. This is operational and can support 9.5 days of net imports. In addition, the government has approved the construction of an additional 6.5 million tonnes of strategic crude oil reserves.

Strategic crude oil reserves, which are typically state-funded and meant to tackle emergency situations, allow a country to tide over short-term supply disruptions. International Energy Agency members maintain emergency oil reserves equivalent to at least 90 days of net imports. India will have oil reserves equivalent to at least 87 days of net imports, once the $1.6 billion second phase of Indian Strategic Petroleum Reserves, which aims to add 12 days of crude storage, is operational. These facilities together will help support 22 days of India’s crude oil requirements. Indian refiners also maintain 65 days of crude storage, taking the total tally to 87 days. 
Current Scenario

• The oil prices have reached their lowest levels in years, leading to the deepest oil crisis in decades.
• Impact of COVID-19 on Oil Sector: Restrictions on movement have reduced travel needs and industries have been closed down. Major demand for crude oil comes from transportation and industries along with electricity sector which are under shut down mode.
• India has to import 84% crude oil of its requirement which constitutes 25% of the total Indian import bill. 
• India should take advantage of the low prices to stock up on crude oil in its strategic oil reserves and refineries.
• The oil savings made by the government could help it finance the economic package announced by the government during the pandemic, without affecting its fiscal position.
• The fall in crude prices will also help ease inflationary pressures that have been building up over the past few months. This will increase the space for the monetary policy committee to ease rates further.

About Strategic petroleum reserves

• Strategic petroleum reserves are essentially huge stockpiles of crude oil as a hedge against potential future energy crises.
• They represent a defense against any event of downfall in future oil production, including physical or economic actions which disrupt any part of the production process from exploration and development through refining.
• Many major global oil consumers such as the US, China and Japan have built massive strategic reserves of oil over the years, and India too embarked on the path in the last decade.
• Strategic reserves do not get counted among a nation's or company's proven oil reserves, as proven reserves must be available for production by definition.
• In the event of a major disruption due to political or natural disaster (E.g. 1990s during Gulf wars), countries holding reserves could increase the available supply of oil by releasing some portion of their reserves. The increased supply would moderate price increases caused by the disaster.
• An agreement among members of the International Energy Agency (IEA) requires any country that does not export more reserves than it imports to maintain reserves equivalent to each country's average 90-day crude oil imports for the previous year.
• It is unlikely that India’s energy needs will dramatically move away from fossil fuels in the near future. Over 80% of these fuels come from imports, a majority of which is sourced from West Asia. This is a major strategic risk and poses a massive financial drain for an embattled economy and its growing current account deficit.

Why India need Strategic Reserves for its energy security?

• India is the world’s third largest energy consumer after the US and China.
• The trouble is India produce very little oil of its own and are dependent on imports for more than 80 per cent of its needs.
• The chunk of this is from West Asia which is often in the midst some geo-political face-off or the other.
• Added to this, there’s always the risk of supply disruption from natural disasters, war or other calamities.
• Thus strategic petroleum reserves add much-needed heft to the country’s energy security.

India’s Plan on Strategic Petroleum Reserve

• The Indian Strategic Petroleum Reserve (ISPR) refers to the emergency fuel storage maintained by Indian Strategic Petroleum Reserves Limited, a Special Purpose Vehicle - wholly owned subsidiary of Oil Industry Development Board under the Ministry of Petroleum & Natural Gas.
• Strategic crude oil storages are at Mangalore (Karnataka), Visakhapatnam (Andhra Pradesh) and Padur (Karnataka) as per Phase I. They have fuel storage of total 5. 33 MMT (Million Metric Tonnes).
• The government of India is planning to set up two more such caverns at Chandikhol (Odisha) and Udupi (Karnataka) as per phase II through Public-Private Partnership. This will give an additional 6.5 million tons of the oil reserves.
• Thus, a total of 22 days (10+12) of oil consumption will be made available by ISPR.
• Crude oil from underground rock caverns (considered safest for storage of Hydrocarbons) can be supplied to refineries through pipelines and ships.
• Indian refiners also maintain crude oil storage (industrial stock) of 65 days. Thus, a total of 87 days (22 by ISPL + 65 by Indian refiners) of oil consumption will be made available in India after completion of Phase II by ISPR. This will be very close to 90 days mandate by the IEA.

Govt Move on it

• India wants to develop a transparent market for natural gas where the price is determined on an exchange. The aim is to increase the use of natural gas in India’s total energy mix from 6.5 percent to 15 percent between 2028 and 2030.
• The Oil Ministry plans to set up bio-CNG (compressed natural gas) plants and allied infrastructure to promote the use of clean fuel.

Road Ahead

• Post-COVID 19, role of conventional energy, particularly Oil, is going to grow because of the setback to the renewable energy sector and for going back to the normal GDP growth. E.g. In case of solar energy, 80% of the solar equipments are imported which hampers energy security. 
• Despite a predominantly Oil based global economy, there have been attempts being made towards more electrification and shift to renewable energy sources. Continued global investments in renewable energy sources had posed a challenge to the oil sector.
• It’s a blessing in disguise for the Indian economy, which is currently grappling with severe slowdown and seeks a quick turnaround.