The oil tank: pros and cons

Alexey Gromov, Principal Director on Energy studies at the Institute for Energy and Finance, commented to the Monocle business magazine on the feasibility of creating a strategic oil reserve in Russia.

"I am a staunch advocate of creating a strategic oil reserve in Russia and have been actively promoting this idea for almost ten years," Alexey Gromov says, "and the reason is not that we can save our oil by simply leaving it in the depths. The reason is that the availability of reserves increases the market flexibility of the industry, which in this case can manage the supply of hydrocarbons without limiting their production."

Alexey Gromov cites the experience of 2020 as an example: then, as part of an operation to save the global oil market, against the background of collapsing energy demand amid the COVID-19 pandemic, Russia immediately reduced production by 10% — by 50 million tons. This not only required the freezing of investments in new oil production projects, but also forced the shutdown of a number of existing wells.

"Due to the high waterlogging, they were never restored in 2021-2022. In two years, the country was able to increase production by only 22 million tons, bringing it from 512 to 534 million, which did not compensate for the previous decrease, Gromov said. This might not have happened if we had the opportunity to send part of the oil produced to strategic storage with the possibility of subsequent sale on the world market under more favorable price conditions."

"If we consider the creation and operation of the strategic oil reserve system as a market instrument for balancing energy supply, then its volume should be about 10 percent of the average level of oil production in the country. In our case, we are talking about 50 million tons," Alexey Gromov believes.