First oil cargo for India's strategic reserve sails from UAE

New Delhi: The first consignment of 2 million barrels of crude oil that is en route from United Arab Emirates (UAE) for India’s strategic petroleum reserve at Mangalore, will help the world’s third largest oil importer’s energy security programme.

With India building around 39 million barrels of strategic crude oil storage facility, the 5.86 million barrels supplied by state-run Abu Dhabi National Oil Company (ADNOC)—the only one to partner with India on its crude oil reserve programme till date, can be used during an emergency.

According to a 12 May Indian government statement the loading of the first crude consignment was witnessed by petroleum minister Dharmendra Pradhan who is currently on a visit to the gulf nation.

Indian Strategic Petroleum Reserves Ltd (ISPRL) has an agreement with ADNOC under which ADNOC will store around 5.86 million barrels of crude oil in India’s Strategic Petroleum Reserve (SPR) facility at Mangalore at its own cost. This agreement was signed during Prime Minister Narendra Modi visit to UAE in February this year.

This comes in the backdrop of a spike in oil prices with President Donald Trump pulling US out of a 2015 historic accord with energy rich Iran that was inked to curb the Islamic Republic’s nuclear programme in return for ending sanctions. Also, there has been a rally in international crude oil prices due to a combination of factors such as Opec and Russia cutting supplies, falling production in Venezuela and geopolitical tensions.

India’s strategic crude oil storages are located at Vizag (1.33 million tonnes), Mangalore (1.5 million tonnes) and Padur (2.5 million tonnes). US has also evinced interest to collaborate with India on its crude oil reserve programme as part of a strategic energy partnership that covers sectors such as oil and gas, power, renewable energy and coal.

For ADNOC, the oil storage facility will enable it to meet market demand across Asia at a time, when the global energy architecture is changing, with buyers at the centre of oil majors’ future growth plans. The development also assumes importance given that UAE supplies 8% of crude oil imports of India.

“With this partnership, new market opportunities will open up for ADNOC, as we not only help to ensure the energy security of the UAE’s largest trading partner, but also gain greater access to one of the fastest-growing markets for high-quality crude oil. Our increased presence in India, will also catalyse demand for our own refined and petrochemical products,” said Sultan Ahmed Al Jaber, UAE minister of state and ADNOC group chief executive officer in a ADNOC statement.

With India’s energy demand expected to grow at 4.2% over the next 25 years, energy majors are scouting for opportunities here. A case in point being world’s biggest oil producer—Saudi Arabian Oil Co., or Saudi Aramco that is planning to set up one of the largest global refinery and petrochemical complex at Ratnagiri in Maharashtra at an investment of $44 billion, in partnership with a consortium of Indian state-run companies.

“Government of India can use the entire available crude oil stored by ADNOC in the Mangalore SPR facility during an emergency situation. The agreement with ISPRL also allows ADNOC to sell part of the crude oil to Indian refineries on commercial basis while adhering to mutually agreed minimum crude storage which is for exclusive use of the Indian government,” the Indian government statement added.

India-UAE ties moved into a new trajectory with the August 2015 visit to Abu Dhabi by Prime Minister Narendra Modi. One of the key outcomes of that visit, the first by an Indian prime minister in 34 years, was the two sides agreeing to the setting up of a multi-billion dollar fund to tap into investment opportunities in India’s infrastructure sector. Also, during Modi’s visit in February this year, a consortium of Indian state run firms was awarded a 10% stake in Abu Dhabi’s offshore Lower Zakum oil concession.

“The strategic reserve will provide a boost to India’s energy security and help us deal with supply side disruptions. While part of the stored oil will be used for commercial purposes by ADNOC, the major part will be purely for strategic purposes,” Pradhan added in the ADNOC statement.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.