How India uses underground caves to store crude oil for crisis

India Today

4 hours ago

It is feared that Iran might attempt to disrupt the Strait of Hormuz amid the ongoing conflict with Israel and the US. This could result in supply shortages and a surge in oil prices, and impact India, the world's top crude importer, like other buyers. Amid fears of a wider conflict following Israeli and US strikes on Iran, gas and crude prices have already soared. However, India is not exactly losing sleep over the fluctuations.advertisementAs Petroleum and Natural Gas Minister Hardeep Singh Puri noted, India's diversified crude supply sources and the fact that a significant portion does not pass through the Strait of Hormuz offer a level of cushion. What Puri didn't refer to is that India's comfort is further bolstered by its strategic crude oil reserves, stored in underground rock caverns at three key locations.India maintains several million metric tonnes of crude oil as part of its Strategic Petroleum Reserves (SPR) in rock caves or caverns in Andhra Pradesh, Karnataka, and Tamil Nadu.
Two more such sites for SPR are coming up in Odisha and Karnataka.This is how any escalation in the crisis in the Middle East could choke oil supply, and how India is prepared to deal with it.IRAN'S HORMUZ CHOKE WARNING, AS TENSIONS WITH ISRAEL DRIVE UP CRUDE PRICESadvertisementThe escalating conflict between Iran and Israel, already in its 12th day, has injected volatility into global oil markets. That's largely attributed to the region's geography.Iran, one of the world's top oil exporters, sits on the Strait of Hormuz. Several other Persian Gulf nations, just east of the strategic chokepoint, including Saudi Arabia, Kuwait, and Iraq, rely on this narrow passage, just 33 kilometres wide at its narrowest, to ship the bulk of their crude exports.The same applies to major natural gas too. Gulf nations like Iran, Saudi Arabia, and Iraq are among the key exporters of gas globally.With Iran's Parliament (the Majlis) approving the closure of the Strait of Hormuz on Sunday in response to US attacks, the threat has undeniably intensified concerns over potential supply disruptions, including for India.India, the world's third-largest oil importer and consumer, relies on imports for about 80% of its crude oil needs. And, India is showing a steady rise in demand.
The Strait of Hormuz, located between Iran and Oman, is a narrow chokepoint through which a significant portion of the world's oil and gas exports pass. (Image: India Today)
Brent crude prices, one of the two global benchmarks, surged to $78.93 a barrel, with analysts like Goldman Sachs and JP Morgan warning of potential spikes of up to $140 if the Strait was blocked. However, Brent has since cooled to $71.48 a barrel, as has the other benchmark, the US' West Texas Intermediate (WTI) crude.These two benchmarks, Brent and WTI, are widely used to set global oil prices, and they reflect supply-demand trends in international markets. Brent is used mostly as crude traded in Europe, Asia, and Africa, making it more relevant to India, whose oil purchases largely pass through the Strait of Hormuz, while WTI is primarily used in the US.HOW INDIA SHIELDS ITSELF FROM OIL SUPPLY SHOCKSHowever, despite the odds, India remains somewhat resilient in navigating these challenges, with Petroleum Minister Hardeep Singh Puri citing the nation's critical shield against price shocks and supply constraints.India, which heavily relies on imports, has significantly diversified its crude oil imports over the years to mitigate risks from the volatile Middle East (West Asia).The United States, Nigeria, Angola, and Brazil have emerged as viable suppliers, even as shipments from here involve navigating longer sea routes through the Suez Canal, Panama Canal, or around the Cape of Good Hope, adding to transportation time and expense.advertisementThis diversification of imports has also helped India bypass the Strait of Hormuz.India, which has continued purchasing oil from Russia despite Western sanctions, is now likely to increase its imports to a two-year high of 2.2 million barrels per day. That will surpass India's combined purchases from Saudi Arabia and Iraq, according to data by global trade analytics firm Kpler.Although tensions have disrupted traffic in the Strait of Hormuz, it has never been fully closed during past wars and conflicts in the region.
As of 2024, India had 10 Public Sector Undertaking (PSU) refineries, three private-sector refineries, and one joint-venture refinery. The country's refining capacity increased from 215.066 million metric tonnes per annum (MMTPA) in April 2014 to 256.816 MMTPA in April 2024. (Image: Ministry of Petroleum and Natural Gas)
Indian refineries allow them to adapt swiftly to supply disruptions. Long-term agreements with countries like Saudi Arabia, Iraq, and Russia further ensure stable supplies, reducing India's vulnerability to geopolitical equations.advertisementUNDERGROUND ROCK CAVERNS: INDIA'S STRATEGIC OIL LIFELINEAnd while dodging these volatility-driven disruptions, it is a convention among oil-importing companies, including those in India, to time their crude purchases strategically, given the transactions involve spending of valuable foreign exchange. This is where India's Strategic Petroleum Reserves (SPR), stored in underground rock caverns, come into play.India's Strategic Petroleum Reserves (SPR), managed by the Indian Strategic Petroleum Reserves Limited (ISPRL) under the Ministry of Petroleum and Natural Gas, form the cornerstone of the country's energy security. At present, there are three underground rock caverns, located 90 metres below the surface and stretching up to a kilometre in length, with a height equivalent to a 10-storey building.
A map showing India's strategic crude oil storage: existing underground caverns and upcoming reserve facilities. (Image: Vashu Sharma/India Today)
India's LPG cavern in Visakhapatnam, reaching 196 metres below mean sea level, is one of the deepest underground fuel storage facilities in the world.advertisementThe three facilities hold a total of 5.33 million metric tonnes (MMT) of crude oil, roughly equivalent to India's daily consumption of about 5 million barrels.Apart from these three, work is also underway to build additional storage sites.In 2021, the Centre approved the establishment of two more commercial-cum-strategic petroleum reserve facilities with a total storage capacity of 6.5 MMT at Chandikhol (4 MMT) in Odisha and Padur (2.5 MMT) in Karnataka, to be developed under the Public-Private Partnership (PPP) mode, says ministry press release.HOW LONG CAN INDIA'S BUFFER OIL STOCK LAST?India's reserves presently store 5.33 million tonnes of crude oil, which translates to roughly 38 million barrels.This stockpile is sufficient to cover about 10 days of the country's total crude oil consumption at 2019-2020 levels. Once Phase II is complete, India's overall crude stash is expected to rise enough to meet up to 22 days of national demand.The oil in caverns isn't the only reserve that India has. The stock with oil marketing companies can further boost this buffer stock."India currently consumes around 5 million barrels of oil per day. So, this reserve is enough to meet about 9 to 10 days of crude demand if there are no imports. Of course, commercial stocks with oil marketing companies can extend this buffer further, up to around 74 days when combined. But if imports stop completely, we cannot run the country for long," Sumit Pokharna, vice president at Kotak Securities told Fortune India.This combination places India in a relatively comfortable position amid global supply uncertainties.These reserves act like shock absorbers.In 2020, when oil prices plunged sharply during the Covid-19 pandemic, India used the crisis to buy crude and store it in its underground rock caverns. It saved approximately Rs 5,000 crore, the ministry said.WHY INDIA STORES STRATEGIC OIL RESERVES IN CAVERSCaverns are the best when it comes to securing strategic crude reserves.In a densely populated and geopolitically sensitive country like India, underground rock caverns provide a secure, space-efficient, and cost-effective solution for storing strategic crude oil. They are naturally shielded from aerial attacks, sabotage, and natural disasters, unlike above-ground tanks. Caverns also minimise evaporation losses and reduce environmental risks.The underground rock caverns are sealed and equipped with monitoring systems to prevent oil from seeping out or getting contaminated by water or other elements. They also have emergency protocols in place to detect and tackle any potential leaks.The concept of storing crude in caverns, originally developed in Sweden as a wartime safeguard, was later adopted by countries like Finland, Japan, and South Korea.The use of underground rock caverns for crude began taking shape in India in 1998 under PM Atal Bihari Vajpayee. It was driven by hard lessons from the 1990 Gulf War.Today, India continues to assess new sites for expanding its strategic reserves, a process that remains ongoing until the country's dependence on fossil fuels, something the petroleum ministry now prioritises reducing, is significantly lowered.- EndsMust Watch