Who needs Russia's oil reserves?

Who Needs Russia's Oil Reserves?

Author: Olga Samofalova

Russia's first underground oil reserve has been built. Previously, Russia has never constructed an oil reserve, and all extracted oil has been directly input into pipelines. However, the pandemic in 2020 and sanctions in 2022 sparked discussions in Russia about whether it needs to establish a strategic oil reserve similar to that of the United States. Does Russia need a strategic oil reserve?

Nina Yerofeyeva, head of the Department of Petroleum and Natural Gas Geology, Groundwater, and Facilities Management at the Federal Mineral Resources Agency, stated that Russia's first underground oil reserve in the Krasnoyarsk Krai is ready for trial operations. The Federal Mineral Resources Agency approved the project in September 2023. This marks an unusual period in Russian history because our country has never built an oil reserve before.

Yerofeyeva explained, "Russia has never had an oil reserve before; oil has always been transported through pipelines. Considering recent events and the lack of infrastructure in some Arctic regions, it is necessary to establish oil reserves. Correspondingly, oil will be stored in these reserves to avoid being burned during test production."

In 2020, after the pandemic caused a plunge in oil demand and prices, Russia began discussing the construction of underground oil reserves. Oil prices first dropped to $30 per barrel, and in April of the same year, the oil market experienced a historic unique event - the price of black gold fell to -$40 per barrel. Crude oil became so undesirable that sellers had to pay buyers to take it away. Global reserves were full, and there was nowhere to store fuel.

In March 2022, when the U.S. announced a ban on purchasing Russian energy resources, including oil, discussions on this topic resurfaced. At that time, Europe had not yet implemented an embargo, but European companies were already concerned about purchasing Russian oil, ultimately leading to a sharp drop in our country's oil demand. Russia gradually redirected its oil flows toward Asia, but negotiating supply terms and logistics took several months, during which Russia's oil exports declined, forcing them to reduce extraction volumes.

At that time, supporters of building oil reserves argued that if Russia had oil reserves, they would not have needed to reduce extraction volumes.

Previously, experts from the Russian Gas Association suggested that the optimal reserve volume might be 10%-20% of annual oil production. Based on the oil production level in 2019, this equates to approximately 55 million to 100 million tons. They estimated that building such reserves from scratch would take 10-12 years, but if done on depleted oil fields, it could be completed in 3-5 years.

Why has Russia never established an oil reserve system like the United States? Igor Yushkov, an expert from the Financial University under the Government of Russia and the National Energy Security Fund, stated, "Traditionally, oil reserves are built by importing countries because they need reserves in case of external supply disruptions to ensure their own fuel supply when solving problems. In exporting countries, the role of an oil reserve system is fulfilled by the oil fields themselves."

If Russia's oil is already underground and does not depend on external supplies, why should we store oil? If more fuel is needed, we just need to increase production.

As for the first underground oil reserve in the Krasnoyarsk Territory, the initial idea was that this was a project for temporary oil storage rather than a strategic reserve. Such reserves are standard practice. Russia has an oil storage system, but it is temporary, used to address non-strategic temporary tasks. These are located near refineries, ports, and along oil pipelines.

Yushkov explained, "Refineries always have a certain amount of oil reserves to prevent supply interruptions due to various reasons. Continuous operation and uninterrupted process flow are crucial for refineries, as this is a place requiring precise adjustments. Ideally, the plant load should remain consistent."

He added that ports also have reserves for balancing unloading. For example, when storms occur and tankers cannot load oil, or when oil pipelines stop running, or when the volume of oil being transported through the pipeline changes. There are also containers along oil pipelines for temporary oil storage in case of maintenance, etc.

The United States established a strategic petroleum reserve system as early as 1975 to address the 1973-1974 OPEC oil embargo. In other words, what the U.S. feared happened: external suppliers cut off America's fuel supply. The U.S. strategic petroleum reserve is located in four natural underground reserves - salt domes - along the Gulf Coast.

Igor Yushkov said, "The U.S. did not build oil reserves to manipulate markets and global oil prices. The U.S. established this reserve to protect itself as a net oil importer with no signs of increased domestic production. The shale revolution came much later. Even now, the U.S. remains a net oil importer and still needs these reserves."

On one hand, the U.S. has become one of the largest oil producers, alongside Russia and Saudi Arabia, and exports oil. On the other hand, the U.S. exports light shale oil, while its consumption requires heavy oil. Since U.S. refineries are configured for heavy oil, and domestic heavy oil production is insufficient, the U.S. must buy it from Canada. Prior to sanctions, it also purchased from Venezuela and Russia.

In recent years, the U.S. has begun using oil reserves to lower domestic fuel prices. For example, in 2022, then U.S. President Joe Biden announced the release of a total of 180 million barrels of oil from strategic reserves to lower domestic gasoline prices. He faced criticism from political opponents for depleting reserves without an emergency.

In general, since 2021, U.S. strategic petroleum reserves have been continuously declining, but starting in early 2024, the U.S. Department of Energy began purchasing oil to replenish reserves. Typically, U.S. reserves are sufficient for about a month. As of May 9, 2025, the reserve stood at approximately 400 million barrels, equivalent to 19 to 47 days of oil based on consumption levels.

Yushkov said, "Russia is a net oil exporter and does not rely on imports. Usually, even if extraction decreases, the stability of oil production is not a major problem and will not cause any crisis, nor is it a top priority."

"On the other hand, there is the issue of funding. Who will build the strategic reserve system? Who will pay for it? Should oil companies fund the construction themselves? Then how can they recoup these investments through higher domestic fuel prices? It is unclear who needs this. Oil companies are satisfied with the current situation, and those proposing the construction of reserves are usually experts. First, we need to address the question of whether such reserves are necessary for us and calculate who will bear the cost." Experts from the National Energy Security Fund pointed out.

Original Source: https://www.toutiao.com/article/7505725287293583910/

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