India’s Strategic Fuel System

India’s Strategic Fuel System and Energy Security will require coordinated shipping, distribution and financial regulations. Read here to learn more.

Recent disruptions linked to West Asia have highlighted India’s vulnerability arising from its heavy dependence on imported crude oil, LNG and LPG.

This has renewed focus on Phase-II of India’s Strategic Petroleum Reserve (SPR) programme and the proposed expansion towards a broader Strategic Fuel System.

The emerging approach seeks to move beyond crude-oil storage towards an integrated framework covering crude oil, natural gas, LPG, alternative fuels, diversified sourcing and resilient energy infrastructure.

What is a Strategic Fuel System?

A traditional Strategic Petroleum Reserve (SPR) is an emergency stockpile of crude oil maintained to deal with severe supply disruptions.

A Strategic Fuel System, however, is broader and can include:

• Crude oil reserves: underground rock caverns.
• Gas reserves: LNG and LPG storage infrastructure.
• Alternative fuels: ethanol, compressed biogas and other biofuels.
• Diversified energy sources: reducing dependence on particular countries or regions.
• Resilient logistics: pipelines, ports, shipping and distribution networks.

SPR is the emergency crude storage, and the Strategic Fuel System is an integrated energy-security architecture

India’s Existing Strategic Petroleum Reserves

India’s strategic reserves are managed by Indian Strategic Petroleum Reserves Limited (ISPRL) under the Ministry of Petroleum and Natural Gas.

Phase-I

India established 5.33 million metric tonnes (MMT) of underground crude-oil storage capacity at:

1. Visakhapatnam (Andhra Pradesh)
2. Mangaluru (Karnataka)
3. Padur (Karnataka)

These reserves provide only limited days of national consumption coverage.

Phase-II

The next phase aims to add approximately 6.5 MMT:

• Chandikhol, Odisha- 4 MMT
• Padur, Karnataka- 2.5 MMT

The proposed model involves a Public-Private Partnership (PPP) with Viability Gap Funding (VGF) support.

Why Does India Need a Comprehensive Strategic Fuel System?

1. High Import Dependence

India imports:

• More than 85% of its crude-oil requirements
• Nearly 50% of its natural-gas requirements

Therefore, international disruptions can rapidly affect the Energy supply, Import bill, Inflation, current account deficit (CAD) and eventually Economic growth.

India imported 60.48 million tonnes of crude oil worth USD 49.66 billion in Q1 FY27, demonstrating the scale of its external energy dependence.

2. Geopolitical Vulnerability

India’s energy imports are heavily dependent on maritime routes and strategic chokepoints such as:

• Strait of Hormuz
• Red Sea

Conflict, blockade, piracy or disruption around these routes can increase:

• Freight costs
• Insurance premiums
• Transit time
• Crude and LNG prices

Therefore, energy security is closely linked with maritime security.

3. Protecting the Balance of Payments

A sudden rise in international crude prices can cause:

• Higher oil prices
• Higher import bill
• Wider CAD
• Rupee pressure
• Imported inflation

Strategic reserves can provide a buffer against sudden supply disruptions and price shocks.

4. Supporting India’s Gas-Based Economy

India aims to increase the share of natural gas in its energy mix from approximately 6% to 15% by 2030.

However, India currently lacks an operational underground natural-gas storage facility.

Developing gas storage is therefore important for ensuring uninterrupted supplies to priority sectors such as:

• Fertiliser
• Power
• City gas distribution
• Industry

Strategic Fuel System: Beyond Storage

Storage alone does not equal energy security.

• A reserve becomes meaningful only when fuel can be withdrawn, transported and delivered during a crisis.
• Therefore, India needs Storage, Pipelines, Ports, Shipping, Regasification, and distribution
• This creates an integrated energy-resilience chain.

Major Challenges

High Financial Cost

The proposed expansion could involve approximately USD 42 billion.

The challenge is not limited to construction. Strategic reserves also require:

• Inventory financing
• Maintenance
• Replenishment
• Emergency-release mechanisms

Replenishing reserves after a crisis can be particularly expensive because global fuel and freight prices may simultaneously be elevated.

Project-Execution Delays

Strategic storage projects can face:

• Land-acquisition issues
• Geological constraints
• PPP negotiations
• Financing difficulties
• Environmental and regulatory clearances

Thus, planned capacity does not imply operational capacity.

Lack of Underground Natural-Gas Storage

India has experience with underground crude-oil storage and LPG caverns but lacks operational underground natural-gas storage.

Potential options include:

• Depleted oil and gas reservoirs
• Salt caverns

However, suitable sites require detailed assessment of:

• Cap-rock integrity
• Reservoir characteristics
• Pressure behaviour
• Existing wells
• Cushion-gas requirements
• Pipeline connectivity

Storage-Deliverability Gap

• A reserve’s physical capacity does not necessarily represent its usable emergency capacity.
• What matters is how much fuel is actually stored, how quickly it can be withdrawn, and whether it can reach consumers.
• If one link is inadequate, the strategic reserve cannot provide its full security benefit.

Different Fuels Require Different Technologies

Fuel	Storage challenge
Crude oil	Underground rock caverns
LPG	Underground/surface storage and distribution infrastructure
LNG	Cryogenic storage at around -162°C
Natural gas	Suitable geological formations or salt caverns

Therefore, India cannot adopt a one-size-fits-all storage strategy.

Measures to Strengthen India’s Strategic Fuel System

1. Develop Underground Gas Storage

India should assess:

• Depleted reservoirs
• Salt caverns
• Suitable geological formations

This can complement surface LNG infrastructure.

2. Expand Salt-Cavern Storage

• Salt caverns offer relatively rapid injection and withdrawal and can therefore be useful for short-duration supply balancing.

3. Promote PPP-Based Commercial-Cum-Strategic Storage

• Private investment can reduce the fiscal burden while government access during emergencies can be protected through clear contractual arrangements.

4. Strengthen Downstream Connectivity

• Investment should focus on Storage, Pipeline, Refinery/Bottling Plant, Distribution, and consumers rather than storage facilities in isolation.

5. Diversify Import Sources

• India has already expanded its crude-oil sourcing from 27 countries to 41 countries and LNG sourcing from 6 to 15 countries.
• Further diversification can reduce dependence on individual suppliers and geopolitical regions.

6. Strengthen Domestic Shipping

Energy security also requires adequate:

• Tanker capacity
• Port infrastructure
• Maritime insurance
• Alternative shipping routes

7. Promote Alternative Fuels

Structurally reduce dependence on imported fossil fuels by increasing use of:

• Ethanol
• Compressed Biogas
• Other biofuels

Conclusion

India’s energy security requires a shift from “stockpiling fuel” to “building an energy-resilient system.” Strategic reserves must therefore be integrated with storage, transportation, diversified sourcing, alternative fuels and emergency-response mechanisms. Such an approach can protect India’s economy from geopolitical shocks while supporting the broader objective of Viksit Bharat.