"We will export as much oil as possible, but we need a strategic reserve"

Alexey Gromov, Principal Director on Energy studies at the Institute for Energy and Finance, gave a wide-ranging commentary to the Khimagregaty magazine on the feasibility of creating a strategic oil reserve in Russia.

— Does Russia need state oil reserves?

— Now our oil is in high demand on the world market due to the crisis in the Strait of Hormuz. Of course, we will export as much oil as possible, wherever we want, in order to sell it, that is, to monetize what we produce. But we understand that the situation with the Strait of Hormuz will not last forever, and the market as a whole is in an unstable state. As soon as the crisis in the Middle East is eliminated, the market will return to a state of equilibrium fairly quickly within a year or a year and a half. In this case, the presence of a strategic oil reserve will help us respond to the volatility of supply and demand by accumulating excess production in the form of a strategic reserve.

— The discussion about whether or not to invest in new infrastructure has been going on for several years. Opponents say that it is expensive to build such tankers, and now it is also dangerous due to drone attacks. What's the way out?

— Back in 2020, our institute, together with the Russian Gas Society, officially proposed building a system of the strategic oil reserve of the Russian Federation, based on the experience of underground gas storage facilities. The fact is that the most cost–effective way is to store in natural underground caves, when salt solutions are washed out and oil and petroleum products can be stored there with a low level of losses as a result of infiltration into the surrounding rock. We talked about this quite a long time ago, when in 2020 there was a crisis related to covid, a sharp decline in oil demand, when we were forced to reduce production within OPEC+. Moreover, we immediately reduced production by 50 million tons per year. This is a huge amount for Russia, as we have not yet returned to the 2019 level of 560 million tons. At that time, this tool was needed in order not to reduce production, but in case of a reduction in consumption in the markets, to accumulate its oil in the strategic oil reserve without reducing production.

— Now, when almost all refineries in the European part of the country are under attack, we need not oil storage facilities, but a fuel reserve. How much to keep "in reserve"?

I would venture to assume that for gasoline and diesel fuel, the required volume, which will be sufficient to stop crisis phenomena, is up to 10-15 million tons. I don't think it's more than that. It's quite expensive. And if we talk about oil, then it is optimal to store about 10% of production in storage facilities. If we assume that Russian production is 510-515 million tons per year, then the storage facilities should be 50-55 million tons.

— Should the storage facilities be public or private?

— The fundamental issue that caused this idea to fail is related to who will build it, who will pay for it, at what tariffs and under what conditions it will be stored. The oil companies themselves do not want to invest in something that does not bring quick profits. Rosneft stands apart, they have a technological need. I must say that before Vostok Oil, Rosneft was the main opponent of the construction of strategic oil storage facilities in Russia. Therefore, in general, our oil companies will not build such storage facilities unless there is a technological need. This means that the state must take up this task. This is a state task.