India plans to use its strategic petroleum reserves to offset oil-price volatility, a move that could create friction with the U.S. over how best to use government crude reserves.
"The strategic reserves would be put to good use, with its stocks being used as a price stabilizer," Indian Petroleum Secretary M.S. Srinivasan said. "It would help us take care of short-term spikes."
If India were to use its strategic stocks to ease the impact of price fluctuations, it could be a cause for concern in Washington. U.S. officials have already advised countries building strategic oil reserves not to use them to offset price jumps.
In mid-September, Karen Harbert, assistant secretary for the Office of Policy and International Affairs at the U.S. Department of Energy, discussed with Chinese officials Beijing's plans to soon start filling its strategic-petroleum-reserve tanks. "They have no oil in there yet, but they need to put in place the governance for laws and regulations that would lead them to use this only in cases of supply disruption, not in situations of price fluctuation or for market manipulation," she said.
India will start building its first strategic crude-oil storage facility in January 2007 at Vizag in the southern state of Andhra Pradesh. The facility will have capacity to store one million metric tons of crude oil. A crude-oil storage facility with a capacity of 2.5 million tons will be built at Padru in Karnataka state, while another capable of holding 1.5 million tons will be built at Mangalore, also in Karnataka.
"By April-May 2010, the facilities will get ready," Mr. Srinivasan said. "In them, we'll store three to four varieties of crude, as we want to ensure the refineries don't go dry in case of a supply disruption."
He said India's oil-import bill in the fiscal year ending in March is estimated to rise to $62 billion from $43 billion a year earlier. "Oil prices until about mid-September were unusually high," Mr. Srinivasan said. "It's bound to have a bearing on our import bill."
In terms of volume, Mr. Srinivasan said the country is set to import 104.5 million tons of crude oil this fiscal year, up from 101.2 million tons last year. He said that by March 2007, India's crude output is expected to rise to 650,000 barrels a day. India imports 76% of the crude oil it processes. The annual domestic consumption of oil products is 112 million tons.