India to Create its First Overseas Oil Stockpile in US

India is moving to store oil in the US, the first time world’s third-largest oil guzzler is creating an emergency reserve abroad to take advantage of low prices and guard against possible supply disruptions.

“We have signed a MoU to begin co-operation on strategic petroleum reserves. We are also in an advanced stage of discussion for storing crude oil in US strategic petroleum reserve to increase India’s strategic oil stockpile,” oil minister Dharmendra Pradhan said after co-chairing the second India-US strategic energy partnership talks with his US energy secretary Dan Brouillette on Friday.

The move comes amid India’s deadly border standoff with China in Ladakh and signals New Delhi and Washington deepening their strategic bonding beyond defence. The US has emerged as India’s sixth-largest oil supplier since the first US crude shipment reached Paradip in Odisha in October 2017.

There are two options on the table. First one is to lease caverns with crude stockpile for a specific period of time when prices are low. The second one is to lease capacity and buy oil separately as and when prices drop to a level expected to yield handsome arbitrage later.

The issue of who or how much oil will be brought for storage is still open. State-run refiners such as IndianOil, which has term contract for US oil, could buy the oil. Alternatively, the government can pay for the oil as it did while filling up the underground strategic storages when oil prices began sliding in March.

India's daily oil consumption stood at 4.5 million barrels/day before the Coronavirus pandemic hit demand. It has strategic underground storage of over 5 million tonne, or about 38 million barrels, good enough for 9-10 days at current consumption rate. In comparison, the US has the world’s largest storage at 714 million barrels.

The stored oil can be sold at a profit when prices rise or brought to India for refining, depending upon what makes more economic sense or will reduce the cost of crude for India. “It will all depend on the commercial terms that are finalised. It could be a mix of the two (options),” one official said, adding that the overseas storage will cushion India’s oil supplies from disruptions till the expansion of domestic storage capacity is completed.

The two sides also signed a slew of MoUs ranging from emerging fuels such as hydrogen as well as energy efficiency and smart grid. According to the joint statement, the MoUs are:

* MoU between the US Department of Energy and the Indian Ministry of Petroleum and Natural Gas concerning cooperation on Strategic Petroleum Reserves.

* MoU between the US Agency for International Development (USAID) with Indian Society of Heating Refrigeration and Air Conditioners (ISHRAE) for professional skill development for practitioners on energy-efficient design of air conditioning systems.

* MoU between EESL, NTPC, and USAID for retrofit of buildings to improve indoor air quality, safety, and efficiency.

* USAID announced partnership with Power System Operation Corporation (POSOCO) to develop India’s National Open Access Registry (NOAR).

* Statement of Intent between the US Department of State and India’s Ministry of Power under the Flexible Resources Initiative of the US-India Clean Energy Finance Task Force to enhance the flexibility and robustness of India's grid to support the country's energy transition and mobilize the private investment to deliver reliable, low-cost power for the people of India.

* The Federal Energy Regulatory Commission (USA) and the Central Electricity Regulatory Commission in India are working to conclude an agreement to share best practices for regulating electricity and developing electricity markets.

* The US Department of Commerce launched an Energy Industry Working Group for India under the Asia EDGE initiative to facilitate private sector connections and ideas for US-India energy cooperation, including on innovative and disruptive technologies.

* USTDA is supporting energy access and efficiency in India through recently funded projects to implement virtual pipeline infrastructure with Arush Gas Technology Services (AGTS) and carbon capture and utilization technologies in refineries with Indian Oil Corporation Limited (IOCL).

* Release of a “Strategic Roadmap of Smart Grid Knowledge Centre to become a “Global Centre of Excellence in Smart Grids” at an industry round table held on the sidelines of the Power and Energy Efficiency pillar meeting, sponsored by the Ministry of Power of India and USAID.

Under the US-India Gas Task Force:

* MoU between the Federal Energy Regulatory Commission (FERC) and Petroleum Natural Gas Regulatory Board (PNGRB) on information exchange in oil & gas regulatory frameworks.

* MoU between Bloom Energy and Indian Oil on fuel cell technology.

* Letter of Cooperation among ExxonMobil, Chart Industries IOCL on stimulating LNG demand through a virtual pipeline network and manufacturing and use of ISO containers in India.

* MoU between Agility Fuel Solutions LLC and Indrapastha Gas Limited (IGL) to explore the viability, usefulness, and feasibility of advanced clean fuel systems including Type IV cylinders in India.

* MoU between Gasway USA, Inc and Indrapastha Gas Limited (IGL) to explore the feasibility of a pilot virtual gas pipeline project.

* ExxonMobil and GAIL have made significant progress on the MOU they signed in 2019 to enhance India’s natural gas access and are engaged in a commercial dialogue to advance LNG as fuel in heavy commercial vehicles.