By Rakteem Katakey
Feb. 10 (Bloomberg) -- India is building terminals to stockpile crude oil and has offered Iraq the use of some of the space as part of negotiations to secure supplies from the holder of the world’s third-largest reserves.
Iraq is offering to increase supply to Indian refiners via long-term contracts, the South Asian nation’s oil ministry said in a statement in New Delhi today. India will complete its first storage terminal by the middle of 2011 and add two more by 2012, Oil Secretary S. Sundareshan said in an interview yesterday.
India, which imports 77 percent of its oil needs, is emulating programs in the U.S., Japan and China to build an emergency stockpile. Iraq is offering to increase sales to India by as much as 60 percent, said an oil ministry official who was at the meeting between Oil Minister Murli Deora and Iraq’s Industry and Minerals Minister Fawzi Hariri in New Delhi today.
Iraqi officials “told us they would be ready to offer us longer contracts after five years,” Sarthak Behuria, chairman of state-run refiner Indian Oil Corp., said by telephone today. “They have the reserves and they have plans to raise output significantly.”
India’s second-biggest refiner, currently buys about 11 metric million tons, or about 220,000 barrels a day, of Iraqi crude, said Behuria, who was present at the meeting between the two ministers today.
Storage Tanks
Iraq is awarding fields to oil companies around the world as it seeks to rebuild its war-ravaged infrastructure and increase oil output fivefold to 12 million barrels a day over the next six years. Indian refiners are raising capacity to meet growing demand and seeking long-term contracts where the cost of buying the oil is cheaper than purchases from the spot market.
India is building storage tanks near its refineries. The first terminal will be built at Visakhapatnam on the east coast and have a capacity of 1.33 million metric tons, according to Oil Secretary Sundareshan. The nation’s storage capability will rise to 5 million tons when two more terminals are built at Mangalore on the west coast by 2012, he said. That’s equal to two weeks of current imports.
Crude declined from a record $147.27 a barrel in July 2008 as demand fell following the worst global recession since World War II. Prices have gained 96 percent in the past year as economies recover.
“Given the volatility in crude prices, the storage terminals are intended as a buffer for the economy,” said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd., the local unit of Standard & Poor’s. “This should ideally have been done when oil prices were at their lows.”
Construction Cost
Spending to build three storage terminals was estimated at 24 billion rupees ($514 million) in 2005, excluding the cost of filling the underground caverns with crude, according to the Web site of Indian Strategic Petroleum Reserves Ltd., the government company overseeing the construction.
India has approved an emergency oil storage capacity of 15 million tons to be built in phases, Oil Minister Deora told parliament in April 2008.
China plans to build oil reserves equal to 100 days of net imports before 2020, China Petrochemical Corp., the nation’s largest refiner, said in September. The country is building the second phase of reserves after completing the first stage, which can hold about 30 days of net imports.
Indian refineries are expanding capacity to meet demand in the world’s second-fastest growing major economy. Mangalore Refinery and Petrochemicals Ltd. plans to process 15 million tons of crude a year by 2012 from the current 9.69 million tons.
Iraq Imports
Indian Oil is building a 15 million ton-a-year project in the eastern state of Orissa and Bharat Petroleum Corp. and Oman Oil Co. are jointly setting up a 6 million ton-a-year plant in Madhya Pradesh state.
Crude futures in New York may reach $85 a barrel in 2011, according to the median estimate of 26 analysts compiled by Bloomberg. Crude oil for March delivery was 14 cents higher at $73.89 a barrel in electronic trading on the New York Mercantile Exchange at 11:52 a.m. in London.
India imported 109.32 million tons of oil in the nine months ended Dec. 31, a 12 percent increase from a year earlier, according to the oil ministry’s Petroleum Planning and Analysis Cell.
--With assistance from Gaurav Singh and Bibhudatta Pradhan in New Delhi. Editors: Amit Prakash, Abhay Singh
To contact the reporter on this story: Rakteem Katakey in New Delhi at +91-11-4179-2013 or rkatakey@bloomberg.net.
To contact the editor responsible for this story: Amit Prakash at +65-6212-1167 or aprakash1@bloomberg.net