Indian Government to Lease its Natural Cave Systems for Oil Storage

The Government of India has disclosed plans to lease out space in underground rock caverns that were originally meant for the storage of hydrocarbons as part of the nation's strategic petroleum reserve. This decision was taken following a shift in strategy in response to recent changes in the global oil markets and the need to maximise the effectiveness of the existing infrastructure in order to guarantee energy security.

According to the announcement, which PTI reported, a request for an expression of interest to lease the storage facilities would be made soon. Originally built by India Strategic Petroleum Reserve Ltd., these underground storage facilities are strategically positioned in three southern Indian cities: Visakhapatnam, Mangalore, and Padur in Karnataka. Their primary purpose is to store 5.33 million tonnes of oil for contingencies such as war or disruptions in the supply chain.

The move to lease out these caverns underscores India's adaptability to changing market dynamics and its efforts to bolster energy security. With the deferral of plans to fill the caverns with crude oil, as outlined in the Union Budget 2023-24, the government aims to leverage these assets to meet evolving energy needs and promote commercial utilization.

Presently, the National Oil Company (Adnoc) from Abu Dhabi has already secured leasing rights for half of the storage capacity at Padur and 1.5 million tonnes at Mangalore. However, significant storage space remains available, including 0.75 million tonnes at Mangalore and the vacant portion in Visakhapatnam, which will be made available for leasing, as confirmed by LR Jain, CEO and Managing Director of Indian Strategic Petroleum Reserves Limited (ISPRL).

Importantly, Jain stressed that although foreign firms such as Adnoc can store oil in these reserves, India will have first dibs on the stored oil, guaranteeing preparedness in case of emergency. This clause demonstrates the government's dedication to maintaining the country's energy security and resilience in the face of unforeseen difficulties.

India, the third-largest oil importer and consumer in the world, has made a strategic shift in its energy management approach with the decision to lease out these caverns. India wants to reduce risks related to fluctuations in the global energy market and improve its energy resilience. To this end, it is working with foreign partners and optimising its current infrastructure. Such strategic initiatives are essential to securing the country's energy future as it pursues sustainable economic growth.