Abu Dhabi National Oil Company hires India's strategic oil storage in Padur, Karnataka

New Delhi: India on Monday signed an initial pact to lease out a part of its underground strategic oil storage at Padur in Karnataka to Abu Dhabi National Oil Co (ADNOC) for storing crude oil, the second such deal with the UAE firm this year, Oil Minister Dharmendra Pradhan said.

#ADNOC signs MoU with the Indian Strategic Petroleum Reserves Ltd (ISPRL), to explore storage of of Crude Oil at Padur Underground Facility in Karnataka, which has a 2.5 million tonne (~17 million barrels) capacity pic.twitter.com/Yq3urXdMah

— ADNOC Group (@ADNOCGroup) November 12, 2018

India has built 5.33 million tonne (MT) of emergency storage—enough to meet its oil needs for 9.5 days, in underground rock caverns in Mangalore and Padur in Karnataka and Visakhapatnam in Andhra Pradesh. It has allowed foreign oil companies to store oil in the storages on condition that the stockpile can be used by New Delhi in case of an emergency. ADNOC had in February this year signed a pact to fill half of the 1.5 MT strategic oil storage at Mangalore. India will have the right over 65 percent of 6 million barrels of crude oil that ADNOC will store at the country’s maiden strategic storage at Mangalore. ADNOC will send three large ships carrying crude oil beginning April to fill half of the 1.5 million tonnes strategic oil reserves that India has built at Mangalore, a senior government official said. Out of the crude stored, 35 percent can be used by ADNOC for commercial purposes, i.e trading or selling to refiners whenever it wants. The remaining 65 percent would be for strategic purpose of meeting India’s oil need during a contingency like supply disruption, he said. “ADNOC will of course be paid for the oil if India were to draw from the reserves,” a PTI report said quoting senior officials. On Monday, India signed a similar pact for Padur. “ISPRL (Strategic Petroleum Reserve entity of India) and ADNOC of UAE signed MoU to explore possibilities of ADNOC investment in filling up of crude oil in Padur strategic reserve in Karnataka,” Pradhan, who is in Abu Dhabi for the agreement signing, tweeted. The agreement allows ADNOC to sell or trade crude oil storage in the storages to local refiners but give Indian government the first right to the oil in case of an emergency. The UEA firm tweeted the news development:

H.E. @dpradhanbjp: the MoU with #ADNOC will allow ISPRL to explore opportunities related to the possible storage of ADNOC crude at Padur, which would help to significantly strengthen the country’s strategic petroleum reserves

— ADNOC Group (@ADNOCGroup) November 12, 2018

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Official sources said the pact followed the Cabinet’s last week decision of approving filling up of the underground strategic oil storage at Padur by foreign oil companies. While a third of the Visakhapatnam facility has been hired by Hindustan Petroleum Corp Ltd (HPCL), ADNOC and government of India filled the storage at Mangalore. The 2.5 MT Padur facility remained empty. Allowing foreign companies to use the storage for storing crude oil helps the government save on the cost of filling the reserves. Law and IT Minister Ravi Shankar Prasad had after the Cabinet meeting on November 8 said that allowing foreign companies to store oil in Padur would help the government save Rs 10,000 crore. [caption id=“attachment_4623851” align=“alignleft” width=“380”]  File image of Oil minister Dharmendra Pradhan. Image courtesy: PIB[/caption] UAE Oil Minister Sultan al-Jaber said:“India is an important oil market and the agreement with ISPRL underscores the strategic energy partnership between the UAE and India that leverages the UAE and ADNOC’s expertise and oil resources.” ADNOC in another tweet quoted Pradhan as saying that “the MoU with ADNOC will allow ISPRL to explore opportunities related to the possible storage of ADNOC crude at Padur, which would help to significantly strengthen the country’s strategic petroleum reserves.” The ISPRL has constructed and commissioned underground rock caverns for storage of total 5.33 MT(around 39 million barrels) of crude oil at three locations—Vishakhapatnam (1.33 MT), Mangalore (1.5 MT) and Padur (2.5 MT). Padur storage has four compartments of 0.625 MT each and ADNOC may use half of the storage capacity for stocking its oil. The total 5.33 MT capacity under Phase-I of the Strategic Petroleum Reserve (SPR) programme is estimated to supply about 9.5 days of India’s crude requirement. In Mangalore, it had agreed to stock 5.86 million barrels of 0.75 MT of oil. In Phase-II, India plans to build an additional 6.5 MT facilities at Chandikhol in Odisha and Padur, which is expected to augment the emergency cover against any supply disruption by another 11.5 days. Sources said oil firms like ADNOC could use the Padur storage to stock their oil and sell it to refineries in the region on commercial terms. India, which meets 83 percent of its oil needs through imports, will have the right of first refusal to buy the crude oil stored in the facilities in case of an emergency, they said. Indian refiners maintain 65 days of crude storage, and when added to the storage planned and achieved by ISPRL, the Indian crude storage tally goes up to about 87 days. This is very close to the storage of 90 days mandated by IEA for member countries. ADNOC had last year given up its crude storage lease in South Korea and instead agreed to store oil at Mangalore in a bid to establish a ground presence in the world’s third-largest oil consuming nation. Out of the crude stored, a part would be used for commercial purposes by ADNOC, while a major part would be purely for strategic purposes. The Visakhapatnam facility can meet two-and-half days need while Mangalore can meet 2.8 days requirement. Padur can meet 4.7 days requirement. The SPR at Mangalore consists of two compartments with a total storage capacity of 1.5 MT (11 million barrels). While one compartment has been filled with crude oil through funds made available by the government, the other compartment will be filled with crude supplied by ADNOC. ADNOC hired the Mangalore storage just as it ended a contract to store 6 million barrels of crude oil at Korea National Oil Corp’s Yeosu facility in the country’s southwest coast. –With PTI inputs