What are the ramifications as an importer?

A unique blend of innovation and technology are required in the Oil and Gas industry to benefit from the
current oil prices and store oil for future sales when the demand curve surges back to positive.

o The COVID-19 pandemic has had direct ramifications on the oil and gas sector leading to plunging of
WTI crude oil futures below zero for the first time in an unprecedented washout.

o The outbreak has occurred at a time when a pre-existing over production of oil was straining the market,
further propelled by the Saudi-Russian oil production glut amidst trends of tumbling demand. While the
volatility has always been a challenging element of the oil and gas market, it has rarely been more
extreme than now, thereby hitting the interests of the producers the hardest.

o India being the third largest crude oil importer and consumer, which relies on imports for more than 80
% of its requirement can continue importing crude in a measured way and store it for usage and
consumption in the future, thereby treading ahead in its initiative of building larger strategic oil
capacities within the country.

o GoI through is well equipped to take advantage of this pandemic situation by filling up its Strategic
Petroleum Reserves (SPR).

o Historically, ISPRL has been building underground storages as insurance against situations inducing
fluctuations in supply and demand. With a total capacity of 5.33 million tonne (MT), India holds
strategic reserves in Vishakhapatnam, Mangalore and Padur, respectively.

o The oil and gas industry of India could be in a position of strength through effective implementation of
indigenous ideas. One of the primary methods to achieve this could be for India to further strengthen the
strategic reserves through underground storage which would be available during such emergencies and
situations of oil disruptions.

o In the near future, India is likely to see a drop of 5-10 per cent in fuel sales volume during 2019-20
owing to COVID-19 restrictions. With the extended nationwide shutdown in place, the decline in
purchase of petrol, diesel, and jet fuel is set to dampen the annual consumption figures of 2020-21 as
well.

o The capacity of 5.33 million MT maintains 9.5 days of reserve and the storage in Indian refineries have
65 days of crude storage which is adequate for approximately 75 days only.

o Practically, a bigger oil reserve may be required, considering that the lockdown, coupled with panic
buying of essential commodities, may affect the demand and supply of oil as well. IEA had
recommended for 90 days of storage, and since India is one of the highest consumers of crude oil, even
after the inclusion of reserve facility at the refineries in India, the requirement falls short of IEA’s
recommendation.

o Given that ISPRL’s ongoing Phase II storage facilities’ construction to

hold 12.5 MMT more crude oil has suffered delays due to which India may have lost the chance to tank
up on oil at low prices. However, SPRs are an opportunistic step at a time when the global economy is
plummeting and supply chains are weakened, and these oil reserves may serve their purpose in case of
 energy shortages.

o Since the oil consumption is likely to remain depressed across the globe and any major recovery is
expected to take at least a year. Hence, India should consider spot buying or a hybrid model
instead of long-term contracts to make maximum gains from the downturn in the market.

o The current economic position of India will be dependent on lower crude oil prices, which may become
a boon if tapped effectively. The radical fall in the crude oil price may act as a cushion for the
government as 20 per cent of India’s merchandise imports consist of crude oil import.

o More caverns can be built through collaboration between the state governments and ISPRL. States with
geological advantage, hilly areas such as Jammu and Kashmir, Himachal Pradesh, and Uttarakhand can
be tapped to build these caverns. For other states, pioneering methods can be devised to develop more
reserves quickly.

o a unique blend of innovation and technology are required in the Oil and Gas industry to benefit
from the current oil prices and store oil for future sales when the demand curve surges back to
positive.