Steps Towards Strengthening the Indian Oil Fleet

Context

As the world's third-largest crude oil importer, India faces a heavy dependence on foreign vessels to meet its energy needs. To address this challenge, the Shipping Corporation of India (SCI) has signed a Memorandum of Understanding (MoU) with Indian Oil Corporation (IOCL), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL).

About the MoU between SCI and PSUs

• This agreement is a strategic partnership between SCI and three major oil marketing companies (OMCs) – IOCL, BPCL, and HPCL.
• Its objective is to develop a joint fleet for international trade and coastal transportation of oil, petroleum products, petrochemicals, and hydrocarbon cargo.
• Driven by the initiative of the Ministry of Ports, Shipping and Waterways and the Ministry of Petroleum and Natural Gas, this MoU focuses on enhancing India's shipping capacity and promoting self-reliance.

Key Points

• It aims to strengthen India's energy security and reduce dependence on foreign vessels.
• This partnership will help achieve the country's target of increasing its refining capacity from 250 million tonnes to 450 million tonnes by 2030.
• The companies will jointly acquire new vessels, which will be used for international trade and coastal transportation.
• SCI and OMCs will jointly own, operate, and maintain the vessels.

Impact of the Agreement

• This MoU will play a key role in doubling India's shipping capacity and strengthening its energy security.
• It will reduce dependence on foreign vessels, preventing supply disruptions during global geopolitical tensions (such as the Russia-Ukraine conflict).
• Economically, it will revive the domestic shipbuilding industry, create millions of jobs, and boost exports.
• Environmentally, the new ships will be equipped with eco-friendly technologies that comply with IMO 2020 standards.
• Overall, this could reduce energy import costs by 20-30% and support refining expansion.

Current Status of India's Oil Fleet

• India's oil fleet is currently inadequate and outdated. The country has a total of 112 crude oil tankers, but most of the ships currently operated by OMCs are on foreign charter and are over 20 years old.
• The share of Indian-built tankers is only 5%, while more than 95% of imports depend on foreign vessels.
• SCI has approximately 55 ships, some of which are crude oil tankers, but the total capacity is insufficient to handle 250 million tonnes of refining.
• The government plans to invest $10 billion (approximately Rs 85,000 crore) by 2040, including 79 ships (30 medium-range) in the first phase.
• The target is to increase the indigenously built share to 7% by 2030 and 69% by 2047.

Need to Expand the Oil Fleet

• Expanding the oil fleet is crucial for India's energy security, as the country imports 85% of its crude oil and consumes 5.5 million barrels daily.
• This fleet will provide a buffer against global supply disruptions (such as the blockage in the Strait of Hormuz), where 1.5-2 million barrels pass through India daily.
• Furthermore, it will promote self-reliance, strengthen the shipbuilding industry, and save foreign exchange.
• Strategically, it will help in playing the role of a net security provider in the Indian Ocean region. Additionally, green shipping will meet environmental goals.

Challenges

• Aging fleet: Most ships are over 20 years old, with high maintenance costs and low efficiency.
• High construction costs: Expensive due to customs duties on steel, raw materials, and imported equipment.
• Environmental compliance: Challenges of adopting IMO standards and green fuels (LNG, hydrogen).
• Financial constraints: Inadequate insurance plans and lack of maritime financing.
• Geopolitical risks: EU/US sanctions lead to reliance on the "dark fleet," as in the case of Nayara Energy.
• Human resources: Lack of skilled labor and development of supporting industries.

Way forward

• SCI and oil companies should continue to invest and collaborate on equal terms in fleet construction and operation.
• Developing sustainable and energy-efficient ships
• Ensuring safety, efficiency, and reliability in international and coastal trade
• Innovation and capacity expansion through collaboration with government and industry