Visakhapatnam crude-oil storage set to be commissioned in September

India's first underground crude-oil storage is set to be commissioned in September in the southern port city of Visakhapatnam, a top executive involved in the project said.

Rajan Pillai, CEO of India Strategic Petroleum Reserves Ltd (ISPRL), the state-run company which is building the storage, said the Visakhapatnam project has a capacity of 1.33 million tonnes, or 9.75 million barrels, of crude oil. "We are expecting to receive the first shipment in November," he said.

The storage would be a 7.5-km-long tunnel with several caverns to store various grades of crude. The roof of these caverns would be 162 meters below the sea level. "We have to balance out the level of gases, especially oxygen, in these tunnels, before filling in the oil," Pillai said.

ISPRL is building strategic storage capacities that can hold reserves equivalent to 90 days of crude oil imports by 2020. To put that in perspective, India imported roughly 3.7 million barrels of crude oil a day in 2012/13. ISPRL is working on two other storage tanks -one in Mangalore and the other at Pudur near Udipi, both in Karnataka.

By the end of 2015, India will have a total capacity of 5.3 million tonnes, or 39 million barrels, in these three storage units. "The other storage cravens are also ready. The process to build a pipeline is on at Mangalore," said Pillai.

The project is already delayed by two years because of geological issues, and ISPRL officials say costs have escalated by 65 per cent. The ground breaking of the Visakhapatnam project happened in January 2008, and commissioning was envisaged for 2012.

According to the petroleum ministry's submission to a parliamentary committee, the revised estimate of all storage units is $635 million. "But if we compare it with the risk and cost involved in storage of crude in floating barrages, this is still a viable option," says a ministry official.

Once up and running, these capacities would cushion India from any supply disruption and help hedge crude oil prices. "India can buy enough crude when prices are low and can use it when the global market is surging. Ninety days is a decent time to hedge price volatility in the short term," an analyst says.

India's planned storage is far short of the capacities in China and Japan. Media reports suggest China is expanding its storage capacity from 160 million barrels to 500 million barrels by 2020. Japan has a capacity to store 600 million barrels. Petroleum ministry officials say the government has started the process for the second phase of crude-oil storage capacity of another 12.5 million tonnes. These storage units will come up in Bikaner, Rajasthan; Rajkot, Gujarat, Chandikhol, Orissa and at Pudur, Karnataka.