The Telegraph
Since 1st March, 1999
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Oil companies on alert

Calcutta, Sept. 19: The government has asked public sector oil companies to top up tankages — amass a fuel stockpile — amid the threat of a war in the Gulf.

Orders have also been sent to bolster crude reserves so that the country can cope with possible supply disruptions that may be caused by a US strike on Iraq.

Industry sources say a high-level committee with representatives of oil companies has been constituted, and Indian Oil (IOC), the largest of them all, has been asked to co-ordinate efforts to hold maximum possible stocks.

The government fears shipments of crude from West Asia could be thrown out of gear if America chooses to ignore Baghdad’s decision to let in UN arms inspectors and carry out its threat to attack the country.

“The international crude market has turned volatile and prices are increasing by the day. Current reserve capacities do not leave India comfortable because demand is picking up. Hence, topping up tankages is important until new capacities come up,” sources said.

Doing what the government wants them to means oil majors will have to invest heavily in storage facilities and maintain high inventory levels to absorb shocks. Using 75 per cent of the existing tankage capacity gives them a 38-day buffer. Topping up, or using 100 per cent of storage, will see them through 45 days, provided the current level of demand does not change.

At the same time, refiners are finalising plans to raise tankage capacity to meet growing demand. By 2007, greater capacity to hold fuel and higher demand for petroleum products would offer a 35-day cover, sources said.

Seventeen refineries pumping out 2.3 million barrels daily fall a little short in meeting a demand of 2.5 million barrels. However, the government feels demand will grow over the next few years, which will not only call for higher refining capacity but more storage.

For crude terminals, the government has a long-term plan to raise capacity to 110 million barrels over five years. That would cost more than $ 2.3 billion on a conservative estimate, and would guarantee a 45-day cover.

“Since India depends heavily on crude imports, it must strike purchase deals at the right time and price. This can be done only if there is strong storage back-up,” they said.

Sources say the government plans new underground tankage facilities for petro products and crude to deal with shortage of fuel in times of a war. A committee to spot strategic locations where new storage facilities can be built is likely to be formed soon.

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