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Russian Group Adds Details to Oil Storage Proposal

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The Russian Gas Society (RGO) has provided more details about its proposal for a national oil storage system that could help Russia stabilize its output during periods of low demand or when the country is taking part in joint production cuts. The idea has found scant support among oil companies and other market players so far, but the energy ministry has previously said that it is looking into the proposal to store oil in man-made salt caverns (IOD May19'20). The US Strategic Petroleum Reserve also uses salt caverns to store oil, although it was set up in the 1970s for a different reason -- as a safeguard against a disruption of oil imports. It currently holds more than 650 million barrels. The RGO has proposed four variants in which the volume of oil stored ranges from 220 million to 880 million barrels of oil. That equates to about 5% to 20% of Russia's annual production, based on a daily rate of 11 million barrels per day. The industry group estimates the cost of creating the storage system at about $1.5 billion to $3 billion, depending on its capacity. It says the funding would come from public sources, including the country's "rainy day" National Welfare Fund, and from private investors. Russia's oil storage capacity is not publicly disclosed and while pipeline operator Transneft has reported storage capacity of about 150 million barrels, that figure includes the capacity of its 70,000 kilometer pipeline system, as well as true storage facilities at various points along that system (IOD Apr.24'20). The idea of creating a national storage system for crude oil and refined products has been discussed in Russia at various times over the last 20 years or so, but has never really made much progress. However, the RGO believes this is a good time to revive the discussion, with the Covid-19 pandemic causing a sharp fall in global oil demand and forcing Russia and other members of the Opec-plus alliance to implement massive production cuts to prop up prices.

Topics:
Oil Demand, Oil Inventories, Oil Supply
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