Can India Build a Strategic Fuel System?

02 Sep 2026

Tags: Economy   Infrastructure   Energy Sector

Source: The Hindu

Context: Recent disruptions linked to West Asia have highlighted India’s vulnerability to prolonged interruptions in energy supplies.

• India has substantial capacity to import crude oil, Liquefied Natural Gas (LNG) and Liquefied Petroleum Gas (LPG), but its ability to store, transport, withdraw and distribute these fuels during a prolonged crisis differs significantly.
• The government is considering a decade-long strategic-fuel programme proposing around 28 million tonnes (MT) of crude-oil storage, 9 MT of LNG storage and 4 MT of LPG storage.
• The proposal reportedly aims at nearly two months of crude and LNG demand and about six weeks of LPG demand, but these remain proposed targets, not committed capacity.

India’s Existing Strategic Storage

Fuel	Present position	Proposed expansion
Crude oil	5.33 MT underground capacity; ~3.37 MT currently stored	+6.5 MT under Phase II
LPG	~0.14 MT underground capacity	4 MT strategic reserve
Natural gas	No operational underground storage	9 MT LNG strategic inventory

• Crude: Phase I of the Strategic Petroleum Reserve (SPR) has underground facilities at Visakhapatnam, Mangaluru and Padur, with utilisation of about 63–64%; another 6.5 MT has been approved at Chandikhol and Padur.
• The Chandikhol project has faced prolonged delays because of land acquisition and finalisation of commercial Public-Private Partnership (PPP) arrangements.
• LPG: The Visakhapatnam and Mangaluru underground caverns together hold only about 0.14 MT; a 4 MT reserve would therefore represent roughly a 30-fold expansion.
• Natural gas: India has no operational underground gas-storage facility and currently relies on domestic production, LNG imports, import terminals, commercial inventories and pipelines.

Storage Capacity and Available Inventory

• Storage capacity refers to the maximum physical quantity a facility can hold, whereas inventory refers to the fuel actually stored.
• Not all stored fuel may be immediately withdrawable; therefore, energy security depends on available inventory + withdrawal rate + transportation connectivity, rather than storage capacity alone.

What Does 9 MT of LNG Storage Mean?

• LNG is stored as a cryogenic liquid at around –162°C, requiring specialised insulated tanks and systems to manage boil-off gas.
• An LNG regasification terminal converts imported LNG into natural gas but its regasification capacity does not itself constitute strategic inventory.
• The PNGRB–ICF study examined a specific 2030 stress scenario in which priority consumers would need supplies for 20 days; it estimated an additional requirement of about 0.56–0.6 MT LNG equivalent, involving roughly eight additional LNG tanks and about $1 billion in tank + inventory costs.
• This 0.6 MT estimate is scenario-specific, not India’s overall strategic LNG requirement.
• The proposed 9 MT inventory is much larger; against an estimated 58 MT of annual LNG imports, it represents roughly 56 days of imports, or around two months of import cover—not two months of India’s total gas consumption.

LNG Tanks vs Underground Gas Storage

• India can maintain strategic gas stocks through a combination of surface LNG tanks and underground natural-gas storage.
• Additional LNG tanks could be created at import terminals; a Ministry of Petroleum and Natural Gas proposal seeks to require terminals to maintain 10% additional storage capacity above normal operating requirements for government use during supply or price disruptions.
• For longer-duration storage, depleted oil and gas reservoirs can offer large storage volumes; globally, such reservoirs account for around 74% of working gas storage volume.
• Salt caverns can support faster injection and withdrawal and frequent inventory cycling, making them potentially useful for shorter-duration balancing.

Challenges in Underground Gas Storage

• A depleted field cannot automatically be converted into a gas-storage facility; cap-rock integrity, reservoir characteristics, pressure behaviour, existing wells, cushion-gas requirements and pipeline connectivity must be assessed.
• Potential Indian locations include sedimentary basins such as Krishna-Godavari, Cambay, Mumbai Offshore and Rajasthan, but geological potential must be followed by site investigation, engineering, construction, testing, filling and pipeline integration.
• Salt-cavern development also requires assessment of depth, thickness, purity, geometry, groundwater and mechanical properties; Rajasthan’s salt-bearing formations have been investigated for this purpose.

Scaling Up Crude and LPG Storage

1. Crude Oil

• Crude is India’s most mature strategic-storage component, with existing underground caverns and associated engineering capabilities.
• The U.S. Strategic Petroleum Reserve demonstrates the potential scale of underground storage, with authorised capacity of 714 million barrels across 60 caverns.
• Its effectiveness, however, comes from integration of caverns, pipelines, marine terminals and refineries, showing that strategic storage is an infrastructure network rather than merely underground space.

2. LPG

• India has experience with underground LPG storage, but scaling it to 4 MT would require extensive new caverns/storage facilities along with import terminals, pipelines, pumping systems and bottling infrastructure.
• Underground cavern construction requires geological and hydrogeological studies, rock-mechanics assessment and groundwater management.
• Scaling up would require sustained expertise in geophysics, geomechanics, tunnelling, reservoir engineering and project execution.

Energy Security Begins Before the Fuel Reaches Storage

• India remains heavily dependent on maritime energy transportation, exposing supplies to disruptions at chokepoints such as the Strait of Hormuz and long-distance shipping routes.
• India is therefore diversifying both import sources and shipping capacity.
• State-owned oil refiners and the Shipping Corporation of India plan a joint venture involving $1.5–2 billion investment in 59 ships, aimed at reducing dependence on foreign vessels.
• Indian Oil is also diversifying supplies through 2027 agreements with Algeria and increased purchases from the U.S., while exploring direct stakes in Very Large Gas Carriers (VLGCs) to strengthen control over the supply chain.

Pipelines: The Critical Delivery Link

• Strategic reserves are useful only if fuel can be transported from storage/import terminals to consumers.
• The Petroleum and Natural Gas Regulatory Board (PNGRB) has authorised around 1,800 km of new LPG pipelines across six States, involving about $0.7 billion investment.
• LPG pipelines can improve inland connectivity and reduce dependence on road transport, but do not themselves create strategic storage; their importance lies in improving deliverability.
• Similarly, underground gas storage requires sufficient pipeline connectivity and injection/withdrawal capacity to integrate with the national gas grid.

Financing and Governance Challenges

• The reported $42-billion programme remains unconfirmed by the government and combines infrastructure capital expenditure with the cost of purchasing and maintaining fuel inventories.
• More than half of the reported expenditure could go towards storage infrastructure, with the remainder used to purchase and fill reserves.
• The government has rejected reports that a cess would be imposed to finance the programme.
• The major financial challenge extends beyond construction because stocks released during a crisis must be replenished, potentially when oil, gas and freight prices are high.
• A workable system therefore requires clear rules on ownership of inventory, financing, minimum stock obligations, emergency-release authority, replenishment responsibility and price risk.
• A commercial-cum-strategic model could reduce the fiscal burden if commercially used capacity remains available to the government during emergencies.

Strategic Fuel System: The Bigger Picture

• Building the proposed 41 MT combined storage capacity is only one component of energy security.
• Reserves provide time; ships bring fresh supplies; pipelines transport fuel inland; distribution networks reach consumers; and governance determines how quickly the system responds during a crisis.
• India’s strategic-fuel programme will therefore succeed only if storage, shipping, pipelines, distribution infrastructure, financing and emergency governance function as one integrated system.