India's oil contingency plan ready in case of Iraq war: Naik

With war looming in the oil-rich Middle East, governments across Asia are stepping up emergency measures to protect energy-hungry economies from a possible crude price spike which would sap the region's fast growth.

Allaying fears of disruption in crude oil supplies in the event of a US-led war against Iraq, the government on Wednesday said it had put in place a contingency plan to meet any eventuality.

"We are ready to meet any situation. We are keeping our tanks full. The stockpile of crude and products is sufficient to meet country's demand for two months," Petroleum Minister Ram Naik said in New Delhi.

Oil companies have stockpiled over 40 days of petroleum products and 15 days of crude oil supplies.

Sources said Kuwait, a major crude oil supplier to India which is likely to be affected in case of conflict in Iraq, has assured safe delivery by converting Kuwaiti flag vessels to US flag ones.

Besides, enough supplies have been contracted to meet the country's demand in the near future.

Asserting that government had a contingency plan ready to meet any eventuality, Naik said enough supplies have been contracted from countries beyond the conflict zone.

"We import only 1.4 million tonnes of crude oil from Iraq. In the event of a war only these supplies could be affected," sources indicated.

Naik, however, felt that United Nations' say would prevail over that of US in keeping peace in the region.

Sources said a blueprint for building strategic reserves of crude oil is being prepared, which will be implemented in phased manner as it involves huge amount of investment in constructing tankages and maintaining the stockpile.

The country at present has tankages to provide for 45 days cover of petroleum products. Besides, the total crude oil storage capacity with domestic refineries is 19 days (5.7 million tonne).

The government is mulling building storage tankages at Rajkot, Mangalore and Vizag to stock 5 million tonnes of crude oil reserves enough to meet country's 15 days requirement.

Of the proposed tankage, 2.5 million tonnes will be at Rajkot, 1.5 million tonnes at Mangalore and one million tones at Vizag, they added.

"Disruption in supplies is not a very high possibility," Naik said.

With benchmark crude prices hovering close to 26-month peaks over $35 a barrel, import-dependent Asia, which has little by way of emergency stocks, is gearing up to safeguard supplies by stockpiling or enforcing measures to limit consumption.

South Korea, China, the Philippines and Thailand announced concrete emergency measures this week, while India, Bangladesh have been steadily extending inventories.

Unexpected events such as the eight-week opposition strike in Venezuela, which has strangled sales from the world's fifth biggest exporter, and the possibility of war disrupting crude flows from the Middle East have reinforced Asia's vulnerability.

"For the last two to three months three factors have been supporting the market: the Venezuelan strike, Iraq and Asian buying," said Sarah Emerson, managing director at Energy Security Analysis (ESAI) in Boston.

"Asian governments and refiners tend to build inventory in a crisis, whereas Western countries don't have that kind of speculative buying pre-crisis, they have stocks," she said.

About 60 per cent of Asia's daily crude requirement of 21 million barrels is shipped in from other continents, with roughly 10 million barrels a day coming from Middle East producers.

Only Japan and South Korea, which import virtually all their energy needs, have built appreciable state emergency reserves exceeding the minimum standard of 90 days of consumption set by the West's energy watchdog, the International Energy Agency.

Without that buffer, regional economies would be hard hit by soaring energy bills.

Since the 1997 financial crisis, Asia has been trying to boost domestic consumption as a cushion against external economic shocks. An oil price surge may hit consumer spending and corporate investment making Asia more reliant on exports.

The 10 ASEAN nations agreed at an unprecedented meeting with China, Japan and South Korea in Osaka, Japan, in September that concerted action was needed to step up energy security through cooperation and coordination of emergency policy.

ASEAN comprises Thailand, the Philippines, Brunei, Malaysia, Cambodia, Indonesia, Vietnam, Laos, Singapore and Myanmar.

Analysts say the huge cost of building and maintaining inventory gives emerging economies little incentive to stockpile fuel.

"China is most likely to build strategic stocks as it still has fast growing demand growth. It is enormously dependent on Middle East crude and it can foot the bill," said ESAI's Emerson.

"India may be able to one day, but only if the oil companies bear the brunt of the cost. Frankly, Southeast Asian nations will talk about regional reserves but they just cannot afford it."

Following are measures announced in January by Asian governments:

• India said on January 7 that state refiners had raised oil products inventories to meet demand for 35-40 days and had enough crude to keep refineries running for one month.
• China said on January 29 it would start to build this year a reserve of 150 million barrels of crude.
• The Philippines said on January 29 refiners must hold a minimum 30-day inventory of crude and oil products by February 3. Bulk oil suppliers must hold a minimum 15-day inventory and all players were required to have a minimum seven days of supply of liquefied petroleum gas.
• South Korea said on January 28 it may partially release oil stocks if Middle East benchmark Dubai crude hits $33 a barrel. It said it would cut import tariffs and local taxes on oil products and limit some business energy use if Dubai crude went into the range $29-$33. If Dubai topped $35, it said it would release more reserve oil, deepen tax cuts, set a ceiling price for local oil products and use funds set aside to subsidise refiners' oil imports and cut oil products exports.
• Thailand said on January 28 it had drawn up a contingency plan in the event of war including a stop to oil products exports and special crude imports from Malaysia, Indonesia and Brunei. Bangkok has kept strategic oil stocks of 50 days of consumption since the September 11, 2001, attacks on the United States.
• Bangladesh said on January 7 it had 340,000 tonnes of oil products and 175,000 tonnes of crude in stock to meet demand for 20-25 days. It also said it was seeking emergency oil imports from Malaysia, Thailand and Brunei.

Additional inputs: PTI