Issue
Vol 23.1 Jan-Mar2008 | Date : 29 Dec , 2010
The two SPVs that are being proposed are:
- The Petroleum reserve SPV …. 600 million Bbls (built in 3 phases) + Marine evacuation system
- The Transportation system SPV … 2500 Km of crude oil pipelines + 2400 Km of multiproduct, bi–directionally flowing pipelines
Petroleum Reserve SPV
SPV1 will consist of the petroleum reserve and will be wholly owned by the GCC states and any other supplier country which wants to participate. The Indian government will take a token equity stake in this project company to provide comfort to investors.
A unique feature of the reserve would be that it could help increase availability of Brazilian / Mexican and African crudes to Asia as producers in these countries could store crude oil in India in times of slack demand, and ship it out to consumers in Asia at short notice.
There are a few defining features for this reserve:
- It will be owned by the national oil companies of the Gulf Cooperation Council plus any other producer country that they invite to join them … The reserve however will be operated by a local arm (Indian entity) set up specifically for the purpose. The entire reserve, for Tax purposes can be treated as an SEZ or a bonded warehouse where no Indian taxes will be payable.
- The main objective of the reserve for the GCC states would be to stabilise their revenues from oil sales, and allow them to sell oil to their customers even when the Persian Gulf is closed to traffic for any reason. The first phase of the project will be accelerated and will be commissioned by 2014 with 300 million Barrels in its tanks.
- The reserve will also provide security of supply to refiners around the world. It will put in place an effective price cap on oil price at a level acceptable to GCC / OPEC and its constituents (say $ 60 / Bbl). Such a cap will help maintain OPEC market share which is bound to get eroded at prices in excess of $ 60 / Bbl crude (it is well known that at this level almost all alternate energy sources become viable).
- The arrangement while meeting GCC country needs must not compromise Indian energy security. There should be a clear understanding that oil from the reserve will be supplied to Indian refineries / oil companies in the event of a national emergency at market prices. On the occurrence of specified events, the arrangement should provide a mechanism which results in shared ownership rights to the government of India for the specific period of the disruption, or till the Force Majure continues.
- The reserve will serve as a stabilizer of last resort in the event of a major market upset. In this regard, the reserve could function like the International Bank of Settlements, in that one crude producer may borrow oil from another producer and supply crude from that producer’s tanks, provided API gravity and sulphur content / TAN are compatible with their client refiners needs.
- A unique feature of the reserve would be that it could help increase availability of Brazilian / Mexican and African crudes to Asia as producers in these countries could store crude oil in India in times of slack demand, and ship it out to consumers in Asia at short notice. The reserve will also help to even out the fluctuations in the Light – Heavy differentials.
- The reserve could be filled by member states utilising their spare capacity, and also by others, at times when global demand dips as in the 2nd quarter of every year. Member countries will also have the option of pumping at full capacity all year round as long as there is capacity in the tanks to accommodate their crude oil. The reserve can also be augmented when there is a fall in demand triggered by a possible coming off of the US housing market and other such causes. This could result in the reserve getting filled up very quickly.
- Project site will be spread over 30,000 – 45,000 acres. Preferred location is degraded forest land with natural gullies / small valleys. Once constructed, a lush forest cover will be built above the tanks using modern forest management methods.
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