India's Monster Oil Hoard Tempts Indianoil And Trafigura To L&T

(MENAFN- Live Mint)

New Delhi: Multiple energy and engineering giants, including Indian Oil Corp., Trafigura, Vitol, and Larsen & Toubro Ltd, have shown interest in developing a strategic crude reserve at Chandikhol, Odisha, said two people in the know.

Afcons Infrastructure, Bharat Petroleum Corp. (BPCL), Hindustan Petroleum Corp. (HPCL) and Hindustan-Mittal Energy Ltd (HEML) have also shown initial interest in building the storage with 4 million tonnes of capacity, the people said on the condition of anonymity. The reserve would require around $1 billion to develop and an additional $2 billion to fill it, they said.

“After Padur (reserve in Karnataka), there is a lot of interest in Chandikhol," said the first of the two people quoted above. The request for proposal (RFP) is expected to be released once the land is allotted by the state government, one of the two people quoted above said.

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Strategic petroleum reserves (SPRs) are built underground in rock and salt caverns, often near refineries and ports. While India has been stocking up oil ever since the first SPR opened in Visakhapatnam a decade ago, the latest push comes after a 10-day conflict in West Asia. Operation Sindoor and concerns about future conflicts underline the importance of such critical reserves for India, the world's third-largest energy consumer that imports 85% of its crude requirements and consumes 5.5 million barrels of crude oil per day (mbpd).

Megha Engineering & Infrastructures Ltd secured the contract to build India's first private-sector SPR in Padur with a capacity of 2.5 million tonne, the Economic Times reported.

The Chandikhol tender would be based on a design-build-finance-operate-transfer model, where the developer would have to carry out the required process, ranging from designing to operating the reserves, including trading of the crude stored, said the second person quoted above.

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"Several companies, including private players and government companies, have shown initial interest. State-run refiners are among the major players. Given the proximity of the proposed reserve to the eastern coast and better logistics for imported crude, there is robust interest," the second person said.

Trafigura declined to comment, while Vitol, IndianOil, BPCL, HPCL, HMEL, Afcons and L&T did not respond to queries sent by Mint.

HMEL is a joint venture between HPCL and Mittal Energy Investments Pte. Ltd

The Chandikhol project is part of the second phase of Indian Strategic Petroleum Reserves Ltd (ISPRL). In 2021, the Union cabinet approved developing commercial and strategic reserves at Chandikhol (4 mmt) and Padur (2.5 mmt) in a public-private mode, along with dedicated single-point mooring (to load and unload crude in deep waters) and associated pipelines. The petroleum ministry informed the parliamentary panel on petroleum and natural gas that ISPRL has been evaluating, from time to time, the possibility of augmenting storage capacities based on technical and commercial feasibility.

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India's 5.33 mmt strategic reserves are stored at Visakhapatnam (1.33 mmt), Mangaluru (1.5 mmt), and Padur (2.5 mmt), which were built by state-run Engineers India Ltd.

The current SPR of 5.3 mmt is enough to meet only 9.5 days of oil needs. Including strategic reserve and stocks maintained by state-run oil companies, India has total emergency crude and petroleum product reserves equivalent to 77 days of net imports. That compares with emergency stocks equivalent to at least 90 days of imports maintained by International Energy Agency (IEA) member nations. India, which joined the IEA as an associate country in 2017, sent a formal request for full membership in October 2023.

“Oil prices have fluctuated widely between $60-80, and geopolitics have swung both ways as well for India," said Gaurav Moda, partner and energy sector leader, EY-Parthenon, India.“In such a scenario, it is imperative for India, and it is great to see that we are rapidly expanding strategic reserves to strengthen energy security for our growth requirements."

The UAE's Abu Dhabi National Oil Co. (Adnoc) is the only international player to have partnered in India's strategic crude oil reserve programme, leasing capacity from the reserves. The government is also looking to secure participation from more global energy majors, including the world's biggest oil producer, Saudi Arabian Oil Co. or Aramco.

Last December, the ministry of external affairs informed a parliamentary panel that Kuwait's state-run Kuwait Petroleum Co. had shown initial interest in participating in the second phase of the strategic petroleum reserve.

Mint earlier reported that India is doubling down on building new SPRS at six proposed locations. The government is asking EIL to create detailed feasibility reports for the new reserves, including the one proposed to be at the Mangalore Special Economic Zone in Karnataka and the other at salt caverns in Rajasthan's Bikaner. The reports are expected by the end of the year.

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