Just a day after details emerged of India’s plans to expand strategic crude oil storage, new reports claim New Delhi is considering a new funding mechanism that would shift part of the cost of a far larger, $42-billion strategic fuel reserve program onto gas consumers.
According to Business Standard, the government is considering levies on both liquefied petroleum gas (LPG) and natural gas consumption that would raise about $1.5 billion annually to finance new storage infrastructure.
The proposal includes a levy of 1.29 rupees ($0.0136) per kilogram of LPG, expected to generate roughly $460 million a year, and another of 1.43 rupees per standard cubic meter of natural gas, raising about $1 billion annually at current consumption levels.
Unlike India’s existing strategic petroleum reserve system, the new plan would create dedicated emergency stockpiles for liquefied natural gas (LNG) and LPG alongside additional crude oil storage. The decade-long program foresees having enough capacity to cover roughly two months of crude oil and LNG demand and about six weeks of LPG consumption.
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The proceeds from the proposed levies would primarily fund LNG and LPG storage facilities, while strategic crude reserves would continue to be financed directly by the federal government. The proposal remains under discussion across multiple ministries and has not yet received cabinet approval.
If adopted, the levies would increase household gas bills by about 2%, making the proposal politically sensitive for Prime Minister Narendra Modi’s government. However, Modi has previously pushed through fuel subsidy reforms and LPG pricing changes that were considerably larger.
India estimates it will require an additional 28 million metric tons of crude oil storage capacity, 9 million metric tons of LNG storage, and 4 million metric tons of LPG storage over the next decade. More than half of the estimated $42 billion cost would be allocated to building storage infrastructure, with the remainder used to acquire fuel inventories.
India currently has 5.33 million metric tons of government-owned strategic crude storage capacity, with another 6.5 million metric tons under construction. However, the country has no dedicated strategic reserves for LNG or LPG, and its existing emergency fuel reserves cover less than 10 days of demand, while by comparison, Japan and South Korea maintain around 100 days of reserves, according to Reuters.
By Charles Kennedy for Oilprice.com
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