India starts planning its first strategic gas storage after Hormuz supply shock
New Delhi's Petroleum Ministry committee is weighing salt caverns and cryogenic LNG tanks after the Strait of Hormuz closure severed nearly half of India's LNG supply.
India's Petroleum Ministry has constituted a committee to evaluate the country's first strategic natural gas storage system, with state-run oil companies examining underground salt caverns and above-ground cryogenic LNG tanks as competing options. The committee was formed after the West Asia conflict, according to sources familiar with the discussions.2
The trigger is concrete. The closure of the Strait of Hormuz severed nearly half of India's LNG imports from the Middle East, and the damage to demand has been severe enough that Indian gas consumption is now expected to fall roughly 8% year-on-year in 2026, with the fertilizer sector facing the steepest cuts.5
A source told The Hindu BusinessLine that cryogenic overground tanks are being worked out alongside the salt caverns, which remain the preferred long-term solution for large volumes. Salt caverns take years to develop. If India wants a buffer before the next disruption, the faster but more expensive cryogenic option may have to come first.2
The gas storage review sits alongside a broader push on crude reserves. ONGC's board has approved adding 1.75 million tons of capacity — equal to 12.8 million barrels — at Mangaluru, Karnataka, according to a company filing. The investment is estimated at $1.6 billion, and the government asked ONGC to build and fill the site last month.4,31
India currently holds strategic crude reserves of 5.33 million tons, or about 39 million barrels, across three southern sites — roughly eight days of consumption for the world's third-largest oil importer. New Delhi has further plans for two additional facilities, one with 4 million tons of capacity and another with 2.5 million tons, though no timeline was given.3,1
The Gulf war backdrop makes all of this live rather than theoretical. The United States launched airstrikes on Iran on July 7 (2026) after Iranian attacks on vessels transiting the Strait of Hormuz, and suspended a Treasury Department license that had authorized Iranian oil sales for sixty days. Tanker transit through the strait remains disrupted.6
Dubai crude, the regional benchmark most exposed to that disruption, closed Friday (2026-08-01) at $76.65 per barrel, a $14.39 discount to ICE Brent front-month at $91.04 per barrel. That spread suggests the market is pricing in some demand destruction alongside the supply shock — Indian buyers unable to lift their usual Middle Eastern volumes have shrunk the pool of competing bids for Gulf barrels. [LIVE PRICES]
The JKM Asian LNG benchmark closed Friday (2026-08-01) at $21.45 per MMBtu, reflecting a tight market where any demand-side flexibility has real option value. A strategic gas storage system that allows India to buy when spot prices are soft and draw when they spike would create trading optionality the country has never had. That is the Chinese model the ministry sources reference.2 [LIVE PRICES]
The commercial angle is unresolved. Sources said a central debate inside the committee is how much of any buffer should be reserved for strategic purposes and how much should be available for commercial trading — storage that can monetise arbitrage opportunities, as China does with its crude stockpile. The answer will shape whether the facility ends up as an insurance policy or a merchant operation.2
India is not bearing the full cost alone. During Prime Minister Modi's visit to the UAE, the UAE's national oil and gas company said it plans to increase the crude it stores in India to 30 million barrels. That arrangement gives India a larger buffer without paying the entire capital cost itself.3
The demand picture complicates the investment logic. Building strategic storage into a contracting market — gas demand falling 8% this year — means sizing infrastructure against a trough. But the same reasoning that drove the crude reserve expansion applies: the buffer's value is measured not against normal conditions but against the next closure of the strait.5
The committee's recommendation on storage type will be the first concrete signal of how fast India can actually move. Salt caverns versus cryogenic tanks is not only a technical choice; it sets the timeline and the cost structure for the entire programme.2