{"id":157363,"date":"2021-12-30T19:49:48","date_gmt":"2021-12-30T14:19:48","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=157363"},"modified":"2021-12-30T19:49:48","modified_gmt":"2021-12-30T14:19:48","slug":"trading-on-a-buffer-can-india-afford-to-commercialize-its-fuel-reserves","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/trading-on-a-buffer-can-india-afford-to-commercialize-its-fuel-reserves\/","title":{"rendered":"Trading on a buffer-Can India afford to commercialize its fuel reserves"},"content":{"rendered":"\n

News<\/strong>: Govt earlier this year allowed the Indian Strategic Petroleum Reserve (ISPRL), which runs the SPRs, to lease 30% of capacity and trade another 20%<\/span>.<\/span>\u00a0<\/span><\/p>\n

The d<\/span>ecision to commercialise half of India’s paltry SPRs is ill-conceived. <\/span><\/p>\n

What is a Strategic Petroleum Reserve (SPR)?<\/span><\/b>\u00a0<\/span><\/h5>\n

SPR initiative was launched in 1998 as India to bolster energy security of India as it had little foreign exchange available to import oil.<\/span>\u00a0<\/span><\/p>\n

The SPR inventory acts as a supply buffer in the event of unexpected disruptions or surges in demand.<\/span><\/p>\n

Read more <\/span>here<\/span><\/b><\/a>.\u00a0<\/span><\/p>\n

Why is government deciding to commercialize SPR?<\/span><\/b>\u00a0<\/span><\/h5>\n

India\u2019s decision to commercialise SPRs came after it filled the reserves cheaply in early 2020, averaging $19 a barrel.<\/span>\u00a0<\/span><\/p>\n

State oil companies, which were forced to honour term purchase contracts for crude, diverted fuel to underground caverns.<\/span>\u00a0<\/span><\/p>\n

Government will earn around $900 million<\/span> with this.<\/span>\u00a0<\/span><\/p>\n\n\n\n
Must Read<\/strong>: Govt approves two more new strategic oil reserves of capacity<\/span><\/a><\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
What are the associated challenges?<\/span><\/b>\u00a0<\/span><\/h5>\n

India is surrounded by <\/span>hostile neighbours and is dependent on imported crude<\/span><\/b> thus cannot afford to commercialise its energy security<\/span>.<\/span>\u00a0<\/span><\/p>\n

\"chart\"<\/p>\n

India still has <\/span>very high crude oil demand<\/span><\/b> which is only going to increase in future-It consumes around 4 million barrels a day of fuel, but its reserves can just about meet nine days<\/strong> of demand.<\/span> \u00a0<\/span><\/p>\n

Even <\/span>developed nations<\/span><\/b> such as the US, Japan and South Korea commercialised the reserves decades after <\/span>building it to a position of strength<\/span><\/b> in line with the IEA\u2019s guidelines.<\/span>\u00a0<\/span><\/p>\n

–<\/strong> IEA mandates 90 days of the previous year\u2019s net oil imports<\/strong> in storage<\/span> (India is an associate member and this requirement is not binding).\u00a0<\/em><\/p>\n

– The IEA forbids trading<\/strong> and typically allows release of stocks only during emergencies or supply shocks<\/strong>.<\/span><\/p>\n

SPR is not for commercialisation as it can serve as India\u2019s first line of <\/span>defence during a calamity or conflict<\/span><\/b>.<\/span>\u00a0<\/span><\/p>\n

Further, the SPR inventory acts as a <\/span>supply buffer<\/span><\/b> in the event of unexpected disruptions or surges in demand.<\/span> Specially for net importers like India, Japan, Korea.<\/span>\u00a0<\/span><\/p>\n

How is China’s policy on SPRs different from India’s?<\/h5>\n

China has built around 500 million barrels of SPRs in a little over a decade and filled more than half the capacity, according to analyst estimates. <\/span><\/p>\n

India has a tenth of what China has despite planning a decade earlier, reflecting the priority Beijing gives to energy security.<\/span><\/p>\n

What is the way forward?<\/span><\/b>\u00a0<\/span><\/h5>\n

India should build capacity fast and grow stocks to a comfortable level<\/strong> before considering trade.<\/span>\u00a0<\/span><\/p>\n

Specially in light of the fact that India is poised to face the fastest growth in oil demand in the next couple of decades, <\/span>and its dependency on overseas crude is going to climb to over 90% by 2040 as per IEA. <\/span><\/p>\n

South Korea has one of the best SPR models. <\/strong>It has a storage capacity of around 300 mb with nearly half coming from SPRs.<\/span><\/p>\n

Source: <\/span><\/b>This post is based on the article \u201c<\/strong><\/span>Trading on a buffer-Can India afford to commercialize its fuel reserves\u201d <\/span><\/b>published in\u00a0Business Standard<\/strong>\u00a0on<\/span>\u00a030th<\/sup>\u00a0Dec 2021<\/span><\/b>.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

News: Govt earlier this year allowed the Indian Strategic Petroleum Reserve (ISPRL), which runs the SPRs, to lease 30% of capacity and trade another 20%.\u00a0 The decision to commercialise half of India’s paltry SPRs is ill-conceived. What is a Strategic Petroleum Reserve (SPR)?\u00a0 SPR initiative was launched in 1998 as India to bolster energy security… Continue reading Trading on a buffer-Can India afford to commercialize its fuel reserves<\/span><\/a><\/p>\n","protected":false},"author":10328,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[10503,216],"class_list":["post-157363","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-business-standard","tag-gs-paper-3","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1703240425},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/157363","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10328"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=157363"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/157363\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=157363"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=157363"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=157363"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}