Strategic Oil Reserve Idea Gathers Pace

The Kremlin this week expects to receive a plan outlining the goals of a strategic oil reserve, the possible creation of which has ignited a debate in Russia far different from the one fought out in the United States three decades ago.

The United States created its own reserve in the mid-1970s on the heels of the oil crisis of 1973, when oil prices skyrocketed as a result of an embargo declared by Organization of the Petroleum Exporting Countries, or OPEC.

Now, as part of a newfound energy partnership, Washington, which is currently topping up its own strategic petroleum reserve to its full capacity of 700 million barrels, is eager to share its experience and know-how with Moscow -- and reap some of the benefits.

A U.S. Energy Department spokesman said in Osaka, Japan, on Saturday that Russia had asked for U.S. guidance and suggestions on creating the emergency reserve, adding, "We have been happy to give it," news agencies reported.

A U.S. delegation, led by Energy Secretary Spencer Abraham, is in Osaka for the International Energy Forum of oil producing and consuming nations, also attended by Russia.

Officials and experts in Moscow, however, point out that Russia is an oil exporter, while the United States imports 60 percent of its needs. So what use would an oil reserve have for Russia, which in February held the title of the world's No. 1 oil producer?

"We could use it to create optimal conditions for Russia's oil industry against a background of severe price volatility," said Alexei Alexandrov, deputy head of the oil extraction and processing department at the Energy Ministry.

Alexandrov said, however, that bureaucratic infighting over the details of the strategic reserve could delay its creation and that it was unlikely the federal committee responsible for drafting the conceptual framework would meet its Wednesday deadline.

While the Soviet Union did not maintain a reserve to influence oil prices, it did keep crude on hand for the military.

The idea of a strategic reserve is not a new one, said Vera Yakutseni, a professor at the National Geological Exploration Research Institute. The State Duma began considering one in the early 1990s but lost interest after the swift privatization of state oil assets.

"Now we have to start everything from square one," Yakutseni said.

The debate over the reserve was resurrected in January, when oil companies were suffering from an oversupply on the domestic market caused by the government's export curbs. At that point, industry watchers recommended that the government exploit the opportunity to buy cheap oil and then sell it later at a profit while supporting demand at the same time.

On May 4, Sergei Bogdanichkov, president of the state-owned Rosneft oil company, chimed in, asking President Vladimir Putin to give the oil firm responsibility for organizing and managing the venture.

The reserve's creation was brought to the top of the agenda during Abraham's visit to Moscow in August. At a meeting of a bilateral working group on energy, which was created during the U.S.-Russia summit earlier this year, Abraham said the United States would be willing to send its own specialists to help in the project.

Russia is also taking a cue from other major consumers, such as the European Union and the Association of Southeast Asian Nations, which are both pursuing the creation of common reserves that would augment the oil stored by individual countries.

Energy Minister Igor Yusufov, who is expected to discuss the issue at the U.S.-Russian energy summit in Houston next month, has said Russia needs a reserve of 50 million tons. Infrastructure construction and filling the reserve will cost an estimated $20 billion to $25 billion.

"I don't think anyone has doubts about the need for one," LUKoil vice president Vladislav Bazhenov said. "No one seems to agree on how it would work. LUKoil would be happy to cooperate as long as the law is formulated clearly enough so the tax inspectors don't think we're pulling a fast one on them."