Can India build a strategic fuel system? | Explained
India's government is evaluating a strategic-fuel programme that would expand crude oil, LNG and LPG storage capacity well beyond the existing strategic petroleum reserve system
The proposal follows disruptions linked to conflict in the Gulf region and the Strait of Hormuz, which exposed vulnerabilities in India's energy supply chain
Estimated additional storage needs over the next decade: about 28 million metric tonnes of crude oil, 9 million tonnes of LNG, and 4 million tonnes of LPG capacity
Officials note that building storage capacity alone will not guarantee energy security — the system depends on the ability to move fuel through ships, pipelines and distribution networks, alongside clear rules on ownership, financing and replenishment
A funding model under consideration would have LPG and natural gas storage financed through consumer levies, while crude oil and other strategic reserves continue to be funded by the central government
India's Existing Strategic Petroleum Reserve (SPR) System and ISPRL
Indian Strategic Petroleum Reserves Limited (ISPRL) is a public-sector special purpose vehicle, a wholly owned subsidiary of the Oil Industry Development Board, functioning under the administrative control of the Ministry of Petroleum and Natural Gas. It maintains India's emergency crude oil reserves in underground rock caverns, distinct from the working/commercial inventories held by oil marketing companies.
Key Details
- Phase I SPR facilities (operational): underground rock caverns at Visakhapatnam (1.33 MMT), Mangaluru (1.5 MMT), and Padur, Karnataka (2.5 MMT) — total 5.33 MMT of crude, providing roughly 9-10 days of import cover on their own
- Phase II expansion, approved in 2021: two additional commercial-cum-strategic facilities — Chandikhol, Odisha (4 MMT) and an expansion at Padur (2.5 MMT), totalling 6.5 MMT of added capacity
- Underground rock caverns are used because they are considered the safest and most cost-effective method for large-scale crude storage
- Combining ISPRL's strategic reserves with oil marketing companies' commercial stocks, India's total cover is reported at around 74 days of net imports
The new strategic-fuel programme being weighed is explicitly designed to go beyond this existing ISPRL crude-only model by adding dedicated LNG and LPG reserves for the first time — addressing gaps the current system does not cover.
IEA 90-Day Stockholding Norm and India's Associate Membership
The International Energy Agency requires its full member countries to maintain oil stocks equivalent to at least 90 days of the previous year's net oil imports, and to be ready to participate in coordinated stock releases during global supply disruptions. India is not a full IEA member but an Associate Member, meaning it is not bound by this stockholding obligation, though it aspires toward comparable resilience.
Key Details
- The 90-day benchmark is based on average daily net imports of the previous calendar year
- India's current combined cover (~74 days, per official figures) remains below the IEA's 90-day member benchmark
- India has previously coordinated voluntary releases from its SPR alongside IEA members during global disruptions (e.g., in response to the Russia-Ukraine conflict), despite not being obligated to
- India imports close to 90% of its crude oil requirement, making stockholding adequacy a recurring energy-security concern, distinct from countries with domestic production cushions
The push to add crude, LNG and LPG capacity is partly framed around closing the gap to the internationally recognised 90-day resilience benchmark, even though India faces no binding IEA obligation to do so.
Financing and Governance Models for Strategic Reserves
Strategic reserve systems require clarity on three governance questions: who owns the stock (government vs. commercial entities), who finances construction and replenishment (budgetary allocation vs. user levies vs. public-private participation), and under what conditions stock can be released or drawn down (market intervention vs. genuine supply-disruption triggers). India's SPR-I facilities are wholly government-funded and government-owned; SPR-II (Chandikhol, Padur expansion) follows a commercial-cum-strategic model involving private/public oil companies filling and using a share of the capacity commercially, in exchange for building and maintaining the strategic reserve.
Key Details
- Reported proposal: a levy on LPG (around Rs 1.29 per kg) and on natural gas users to fund new gas-sector storage, potentially raising roughly $1.5 billion annually
- Crude oil and core strategic reserves would continue to be centrally funded from the government budget, unlike the levy-funded gas-sector storage
- The commercial-cum-strategic model (used for Phase II SPR) allows private participants to store and trade a portion of the capacity, improving capital efficiency versus a purely strategic (idle) reserve
- Distribution infrastructure — pipelines, LNG regasification terminals, LPG bottling plants and coastal shipping capacity — is flagged as the binding constraint, since storage without movement capacity cannot be deployed quickly during a crisis
The article's core argument — that storage capacity alone will not guarantee energy security — maps directly onto this financing/governance framework: without settled rules on who pays, who owns, and how fuel is moved and replenished, added storage tonnage does not by itself translate into usable strategic buffer.
- Existing ISPRL Phase I crude storage: 5.33 MMT across Visakhapatnam, Mangaluru and Padur (about 9-10 days of import cover)
- Phase II SPR expansion (approved 2021): 6.5 MMT additional capacity at Chandikhol (4 MMT) and Padur (2.5 MMT)
- India's combined strategic + commercial oil cover: reported around 74 days of net imports
- IEA full-member stockholding requirement: 90 days of net imports; India holds Associate (not full) Membership
- Proposed additional storage needs over the next decade: ~28 MMT crude oil, ~9 MMT LNG, ~4 MMT LPG
- India's crude oil import dependence: close to 90% of domestic requirement
- Reported proposed LPG levy to fund gas-sector storage: about Rs 1.29 per kg, potentially raising ~$1.5 billion annually