• Nyayshastram

Storage of Oil for a Self-Reliant India

Updated: Sep 23

Divyanshu Dubey, Nyayshastram


Why Do We Need To Store Oil?

“No one saves us but ourselves - no one can and no one may. We ourselves must walk the path.” - Lord Budha

Imagine this: It is a warm, cosy day. You walk to your kitchen in the hopes of devouring two sunny-side ups, but you find no cooking oil left. You get your car keys for a quick drive to the supermarket, but the fuel tank is empty. Tired, and angry, with this rotten start of a day, you take a long walk to the nearest store but, they have stopped selling any oil bottles since fuel is costlier than platinum. Realization dawns upon you - the world is on the verge of having no fuel.


Crude oil, a raw component of this usable resource becomes limited on Earth. In times of such a crisis, the fuel prices have skyrocketed, owing to scare availability of stored oil. Thus, efficient and expanding storage of oil becomes an essential factor that influences the short term versatility of the prices[1]. The State must establish the reserves for maintaining the constant supply of usable oil even in the situation of crisis, mainly like wars. In India, the government has taken several policies and legislation to execute massive storage capacities over time. However, the most severe issue is that the country has a low capacity of storage due to which it relies on double-priced reserve expenditures on countries like the USA, Japan South Korea, who are having much bigger oil reserves. The present storage capacity of oil is 50mn Bl[2], which is a minimal unit for a 7th largest and second most populated country in the world. It becomes a gloomier issue, especially at the time of a pandemic. Therefore, formulating specific legislation regarding the storage capacity of oil reserves could help the government to regulate the oil store.


Regulatory Bodies That Execute Oil Reserving

In India, several regulatory bodies established under individual legislations that owe the responsibility of not just storing oil but also to regulate the proper oil supply. These bodies are formed by the Government of India assigned them with all the powers and responsibility regarding oil and gas. The Brief description regarding some has been given below:


(i) The Petroleum and Natural Gas Regulatory Board


The Petroleum and Natural gas regulatory board came out of an Act of parliament named as Petroleum and Natural Gas Regulatory Board Act, 2006. The function of this board is not just limited to storing of oil but several other functions as refining, processing, transportation, distribution and sale of petroleum, petroleum products and natural gas. This could have been avoided as the single body has to deal with these many functions. A separate regulatory body for each of the function could have been the more efficient way to deal with several issues like storing capacity.


(ii) Oil Industry Development Board


This regulatory body came into existence through the Oil Industry Act, 1974. The primary function of this board is to provide financial assistance to the industries that are involved in the production, distribution and the storage of oil. The board was established in response to the increasing international price of oil in the year 1974.


(iii) Directorate General of Hydrocarbons


This body was established under the regulation of the Ministry of PNG. The role of the body is to regulate the sustainable extraction and storage of hydrocarbons which is the raw material for the production of oil. The ultimate aim behind the establishment of this body was to regulate the extraction, transportation and storage of oil in such a manner that it does not harm the environment.

Existing Legal Framework

There are separate legislations that affect the oil and natural gas industries in India. This provision deals with the analysis of the laws that are affecting the storage of oil. The legislation with regards to the same is as follows:


(i) The Petroleum Act, 1934


The predominant objective of this Act is to control the production, supply and storage of the petroleum oil and it was enacted as the socio-economic legislation to secure the national interest by controlling the production, storage and supply[3]. Several provisions are relevant to the subject matter of the article. Section 4 of this Act, expresses the rules regarding production, refinement and storage of oil, it says that if the Industry is dealing with class ‘A’ petroleum goods and performing the function of refining, production and storage of oil then, it is required to acquire the license regarding the same[4]. There is Section 7 which provides the exception for class ‘B’ and Class ‘C’ goods. The industries that are involved in the storage and production of specific quantities of class B and class C petroleum goods; then, it is not mandatory to have a license[5].


(ii) The Petroleum and Natural Gas Act, 2006


As stated above, this Act gave birth to a regulatory body called the petroleum and natural gas board whose primary job was to regulate the production, refinement and the storage of oil products(except the production of crude oil and Natural gas). Section 11 of this Act expressly mentions the functions of this board and assigns the numerous responsibilities to this single body. The sub-clause (a) (iii) states that it shall be the duty of this board to establish the faculties to store the oil and natural gas; exceeding the capacity may be specified through the legislation[6]. This is inferable that the Act provides the board with a discretionary power to this board to exceed the capacity of the storage through the regulation but, there is a severe point that has been ignored is that in India the system of governance is very complex and burdens with the lots of responsibilities on the single body. Thereby, the board shall be authorized with the power to delegate, so that may delegate its responsibilities and get burden-free. Further, the qualification for the appointment of the chairperson of the board has been mentioned in Section 4 of the Act. The essential criteria are that first, the person shall be qualified to be the high court judge and second, he shall be a member of Indian Legal Service[7]. The issue is whether the knowledge of the law is applicable in the field of oil; the general answer will be ‘No’. Therefore the chairperson shall be the professional in the field of oil resources and who knows the oil requirement of the country and may adjust the storage system accordingly.


Conclusion

The oil sector of India needs more investment and reformation in all three aspects - social, economic and legal. The investment to maximize the storage capacity shall be the primary step because, the oil crisis is unpredictable, and it may arise without any sense of time and place. Thereby, more capacity will be ensuring the self-reliance of India not only in the times of crisis but, also in the day-to-day activities. As per the present situation in India, the article infers that the legislations and the policies need to be reviewed and reframed accordingly as the present framework is not efficient enough to make India self-reliant.

[1] Darren Unalmis, On oil price shocks: The role of storage, 60 IMF economic review 505, 506(2012). [2] S Dinaker, Indian crude storage at full capacity, Argus media,https://www.argusmedia.com/en/news/2102076-indian-crude-storage-at-full-capacity-government#:~:text=India%20has%20filled%20all%20its,oil%20minister%20Dharmendra%20Pradhan%20said., last seen on 4/05/2020. [3] K. Ramanathan v. State of Tamil Nadu, AIR 1985 SC 660. [4] S 4, The petroleum act 1934(India). [5] S 7, The petroleum act 1934(India). [6] S 11, The Petroleum and Natural gas act 2006(India). [7] S 4, The petroleum and Natural gas act 2006(India).

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