If initially the main purpose of the strategic oil reserves (SOR) has been the maintenance of economic activity in times of oil supply crisis through the use of reserves, now the major countries are considering the SOR as a lever of influence on the adjustment of oil prices. Recent experience has shown that the crisis decrease oil supply to 3.5-4% led to increase of its price in 1.5-2 times, but the intervention of oil from the SOR to the world market to inhibit prices growth. As the experience of the International Energy Agency (IEA) shows, the sale of a part of strategic reserve during the energy crisis – an effective lever of influence on the pricing policies of OPEC and world oil prices in general.

Notably, strategic stocks initially created only on those countries that are heavily dependent on external supplies of oil, but the new function of the SOR has become to attract attention oil-exporting countries. The formation of the SOR has already initiated such oil-producing states like Malaysia, Kuwait and Jordan. In order to strengthen its energy security many countries in the world regardless of their structure of fuel and energy complex have been seriously thinking about creating the SOR. For example, Russia – one of the world energy market «giant» producing and exporting oil – has recently announced the establishment of its oil reserves. This trend is fundamentally changing the classic picture of the SOR that the term may have a significant impact to reformation of the world oil market.

Before turning to the prospects for the establishment of the SOR in other countries, it is believed to hold back in the already existing expertise in this area in such countries as EU, USA and Japan. Of particular interest is also emerging at the present time the SOR in China which on the scale of Chinese consumption of oil will be one of the largest in the world.

European Union

The system of government strategic reserves of oil in the EU was formed in 1968 to require the formation of the SOR in the equivalent of at least 90 days of oil consumption. However, this obligation does not extend to the net oil exporting countries such as Norway.

European SOR is also based on documents of the IEA, which was established in 1974 as opposed to OPEC. According to the IEA, the availability of 3-month reserve can effectively resist the short-term interruptions of oil supplies and sharp price increases.

In the past, the IEA has already applied a joint action to tap oil reserves at the beginning of hostilities in the Persian Gulf (“Desert Storm” operation). The IEA has stepped up emergency plan on Jan. 17, 1991, which included the allocation of more than 340,000 tons of oil per day by decreasing consumption of oil at 45,200 tons, and the involvement of the reserves of 285,800 tons, however, short of war is not allowed to identify the full effectiveness of «oil counter weapon». The IEA also supply oil to the world market from their reserves during the destabilization of oil production in the Gulf of Mexico due to hurricanes «Katrina», «Gustav» and etc. This helps reduce the shortage of oil and curb rising prices for it in these times.
In September, 2002 the European Commission proposed a set of measures to raise the level of energy security by increasing the SOR of up to 120 days and creation of strategic gas reserves for 60 days. For the first time, officially invited to use the reserves to regulate the energy market.

As a result of freezing at the beginning of 2009 by the Ukrainian side the gas transit from Russia to Europe, the last is grasped that despite the high level of economic integration, they should substantially increase the level of energy security, including through the development of state energy reserves.

In this connection, it can be assumed that the European energy sector will be increase the storage capacity of strategic energy resources, including those focusing on strengthening the energy security of natural gas supply.

Japan

Land of Rising Sun is one of the world «pioneers» and leaders in the establishment of strategic oil reserves. Japan as a net importer of oil, devoid of any deposits of hydrocarbons, was obliged to create reserves of oil even during the World War II, but it was more tactical in nature to ensure that the army needed fuel.

After the war Japan, which as a result of «economic breakthrough» began to consume large amounts of oil, in 1970-ies has created a system of SOR, which has become a major emergency measure in the Doctrine of energy security.

In 1975 a law was passed on the oil reserves of Japan, providing for the formation of state and commercial (industrial) emergency reserves of oil. Currently, state oil reserves of Japan accounted for some 320 million barrels (equivalent to 90-100 days of consumption), are the responsibility of state-owned Japan National Oil Corporation (JNOC) and distributed to 10 stores. In addition, Japanese companies are also obliged to maintain an industrial reserve in amount is sufficient at 70 days of consumption, including crude oil and petroleum products. Accordingly, both state and commercial reserves of Japan could provide consumption for 5 months period. As a result, Japan ranks first in the world by providing strategic reserves of energy.

In 2006, the Ministry of Economy and Industry of Japan announced an increase of 40% of emergency supplies to 450 million barrels of oil in order to strengthen its energy security. According to the report, increasing the oil reserves of Japan, made the first time since 1989, associated with an increased risk of destabilization of energy supply on the background of high world prices and unstable political situation in some exporting countries. Experts estimate that the increasing volumes of Japan SOR will take at least 10 years and at current prices would cost the state more than $ 9 billion. The volume of reserves that are required to have a private oil companies will be reduced by 10-15%.

Notable is that in the history of Japan SOR has not yet been cases of oil out of the state reserve. In case of the deterioration of the situation in the energy sector primarily sold commercial reserves – stocks of fuel and energy sector companies. There were three periods when Japan resorted to this measure: from March 1979 to August 1980 (the height of the second oil crisis), from January to March 1991 (Iraq's seizure of Kuwait and «Desert Storm» operation) and September to December 2005 (the effects of the hurricane in the U.S.).

Operational aspect of the implementation of the strategic oil reserves is how quickly the oil may be delivered from storage facilities to the refineries. The period of state stocks realization ranging from two weeks to two months depending on the type of design. While for the implementation of oil stored by private companies, the period of several days.

In January 2002, the «Law on the oil reserves» made an important amendment, which gives authorities the right to use accrued state oil reserves to counter a sharp rise in prices, whereas previously it is allowed to use only to cover the physical oil deficit threatens to stop the production and distribution of the deficit on the food chain.

The system of Japan SOR continues to evolve. Currently, the Japanese Government's attention is directed not at increasing the volume of oil reserves in physical terms, but to build a truly effective scheme of the reserves implementation.

In particular, in the framework of new energy strategy, Japan is planning to create state reserve of petroleum products and liquefied gas. Prolonged storage of liquefied natural gas (LNG) is expensive and fraught with a number of technical difficulties, so the main object of attention in this case – the liquefied petroleum gas (LPG). According to the Government's program to establish a strategic stockpile of LPG should give the system of state reserve greater efficiency through diversification of resources and speed of reserves release in case of emergencies.

The system of LPG strategic reserve is similar to the SOR system: part of the reserves is the status of a state reserve, part – necessarily accumulate fuel and energy sector enterprises. Government plans to bring the level of state stocks to 1.5 million tons. Despite the high cost, the program is well under way: the three bases are already operating. Two other bases are built, they planned to enter service in 2010-2012. As of November 2007, the country has reserves of LPG for 83 days of normal consumption, including state reserve of 0.61 million tons (18 days), the stocks of private companies – 2.15 million tons (65 days).

In general, analyzing the Japanese experience, we can conclude that Japan is a world leader in innovative approaches and technologies to create not only the largest but also the effective strategic reserves of energy.

United States

United States of absolute figures have the largest strategic oil reserves in the world which contains more than 700 million barrels (about 100 million tons) of oil. The uniqueness of American oil reserves is that they are kept in natural underground vaults – the salt layers in Louisiana and Texas. Together, the construction and establishment of reserves of crude oil has been expended over $ 20 billion (including the cost of equipment and the raw material).

Strategic oil reserves have been established since the world energy crisis in the 70-ies of the last century for the new emergency cases. But actually decide to establish an oil reserve has forced the oil embargo in 1973-1974. Termination of the oil flows to the United States from many Arab countries shook the American economy. As a result, in 1975 in the United States was adopted «Law on Energy Policy and Energy Saving» which stipulated the establishment of the SOR as a separate state agency.

United States have formed a strategic reserve in order to reduce the vulnerability of the nation and the economy to disruptions in oil supplies, the consequences of maintaining the economic and national security and conducting of foreign policy. Over the entire period of the SOR, Washington a few times used the oil from the emergency supplies – in 1991 during the Gulf War, and in 2007 – after the effects of Hurricane «Katrina». Partial use of oil from the SOR, in conjunction with a coordinated international response helped to overcome the deficit and restore balance to the world oil markets.

In addition, in 1996-1997 the United States sold about 4 million tones of oil from its strategic reserves totaling approximately $ 550 million which have an indirect influence on the regulation of domestic prices as well as to cover part of SOR maintenance cost.

Summing up the American experience in the field of strategic oil reserves as a key component of national energy security it should be noted that the United States to a greater extent use the SOR in order to stabilize domestic prices, although their volumes are able to affect the world oil market. However, Washington has preferred to use other levers of influence on the price of world oil market.

China

China is the second (after USA) world's largest oil consumer, about half of which covered by import, in early 2000 decided to establish a national system for strategic reserves. Their original purpose was to secure oil in case of sudden interruption of external supplies, but in recent years, the Government of China has also seen the SOR in order to stabilize the domestic oil market in the period of sharp price shocks and fluctuations in world markets.

Construction of the first oil storages was launched in 2004 in the cities of Dalian (Liaoning province), Qingdao (Shandong province), Ningbo and Zhoushan (Zhejiang province). Currently, the volume of accumulated reserves estimated at 5 million tons. According to the plans, by 2010 the strategic oil reserves in China have to reach 12-15 million tones – equivalent to one month oil imports, and by 2020 Chinese SOR will have capacity to the level of 3 months of imports.

In addition, in 2008 CNPC announced the start of construction of oil reserve storage of a commercial nature up to 1 million m3 in Shanshan county of Xinjiang Uygur Autonomous Region. It is anticipated that this facility will contribute to the sustainable development of regional economy of China. Thus, it is clear that China has decided to use the experience of Japan to establish a two-level system of the SOR – government and commercial stocks.

Notably, the Chinese authorities are considering policy of raw materials buying for the storage is nothing but a gradual shift from financial assets to real. In March of this year Premier Wen Jiabao officially announced that his country would benefit from lower prices for resources, and buy them, thereby increasing its own reserves.

In the first quarter of 2009 the volume of Chinese demand for oil has reached nearly 4 million barrels per day. Only during the April 2009 SOR grew by 1 million tons. According to Chinese data, at present all of China's oil storage facilities are filled and due to Chinese authorities the construction of new SOR infrastructure will begin in the foreseeable future. Thus, China is temporarily stopping the purchase of oil for storage in SOR.

Many countries have accused China of creating tension in the world oil market. Some experts believe the growing demand for oil in China one of the factors of growth in world prices in recent months. It is possible that the increased recent demand from China for oil is partly due to the filling in 2008 the strategic reserves. Experts predict that through the procurement of the oil reserve of China, world prices will be maintained at a relatively high level.

In doing so, it should be noted that in the face of continuing global economic crisis this trend is favorable. Since, during the world recession and oil demand decrease only China is a «locomotive» of commodities market, continuing to buy large quantities of oil for its rapidly growing economy as well as to replenish its SOR.

Russia

Discussions around the possibility and the need for the SOR in Russia are conducted at the expert-analytical level since 2000, however, last year the idea of creating an oil reserve was announced at the official level. In December 2008, Russian Vice Prime Minister Igor Sechin at a meeting of oil alliance in Algiers said that Moscow may decide to establish its own oil reserves. In particular, he noted that «the pressure from the market» could be withdrawn through the reservation or purchase oil surplus. The volume of purchases could reach 16 million tons. At present, such a surplus of "black gold" is in the tankers and marine terminals – there are not enough tanks in Russia to store them.

In this regard, the Government of the Russian Federation in early 2009 has instructed the Ministry of Energy to develop the concept of the formation of strategic oil reserves, the ultimate purpose of which will stabilize the price for oil and oil products in the domestic market, and strengthening, thus, Russia's energy security. Head of Rosrezerv (Russian State Reserve) A.Grigorev repeatedly stated that his department would be able to control and impact on market prices if the SOR capacity will be not less than 5 million tons of oil.

In February of this year after the meeting in the Ministry of Energy devoted on preparation of proposals for the formation of SOR, it was noted that the ability to create them in Russia are exist. But still not resolved the question of how to store significant amounts of such oil: while the tank infrastructure in the country is missing. To this is added the problem of oil storage in the condition of Russian climate. Experts also talk about the legal mechanism for the establishment and operation of the SOR in Russia.

Some experts pessimistic look at the creation of the SOR in Russia referring to the lack of urgent need, high cost of their formation and maintenance. In particular, a specialist of the Ministry of Energy believes that during the world crisis the construction of oil storage tanks for oil reserves may prove too costly. Therefore they suggested to reserve not the oil, but to establish a fund of strategic explored deposits ready for the extraction and transmission to the certain companies.

It is notable that the decision to include in the SOR not extracted oil, but only deposits of undistributed fund could say that the primary objective of price regulation went into the background. The vast majority of sites proposed for State reserve not ready for rapid industrial development which means that authorities will not be able to obtain the necessary quantities of oil for intervention in the market.

However, Vice Prime Minister V.Khristenko believes that Russia needs not oil, but fuel reserve. The choice of storage of crude oil or petroleum products depends on many economic and geopolitical factors. In doing so, it may be noted that the benefits of crude oil as a strategic reserve is reduced storage costs and greater flexibility in managing the situation - in terms of processing capabilities into the desired product.

In general, it seems that Russia no less than any other state needs to be protected from all kinds of possible threats to its energy independence and security caused by uncontrollable natural processes and ongoing activity of international terrorism. Russia as well as other major energy power is interested in establishing own mechanisms for the regulation of prices, both domestically and on the world oil market. In this regard, no doubt that SOR, in one form or another, be sure to set up in Russia.

Conclusions

The role of strategic reserves of hydrocarbons increased in recent years due to increased volatility and speculative in world markets. SOR can neutralize the threat energy security of short-term nature, but in the case of protracted and lengthy interruptions of supply, it is clear that while OPEC is practically sovereign master of the oil market.

Nevertheless, many states including major producers and exporters of oil to make plans to build their own SOR, the massive nature of which can theoretically lead to a temporary, but a substantial shortfall of oil on the world market. However, given the fact that the establishment of appropriate infrastructure for the SOR and the filling of oil is a very expensive project, which can afford only the big rich countries, this scenario seems unlikely.

In doing so, it should be noted that the use of the SOR in order to stabilize and lower oil prices in world markets through the partial sale of its benefits to all importing countries. States not having the SOR does not bear the cost of their creation and maintenance, but benefited from the intervention of the reserves to market, lowering their costs of purchasing cheap oil.

However, it is necessary to point out that many international experts have come to the conclusion that the country's energy security could be provided by commercial reserves without resorting to the use of state reserves. This assumption is confirmed by the findings that were made in 2005, when Hurricane «Katrina» paralyzed the U.S. oil refining industry, traffic and infrastructure, concentrated near the coasts of the Gulf of Mexico. To realize the storage of strategic oil reserve, located in the hurricane-affected areas at a time when the need arose, was impossible.

The events of this period revealed the weaknesses of the U.S. strategic petroleum reserve which was the reason for the synthesis of important conclusions:
• extensive and/or long natural disasters can make a strategic oil reserve of any country futile;
• the efforts of individual countries to establish the SOR can not provide complete energy security of the country and oil consuming countries should be coordinated to form the national reserves of oil.

It is obvious that progress in this area is impossible without international and regional cooperation. This was observed in 2006 in the outcomes of the St. Petersburg summit of G8. In particular, the Summit noted that the coordination of the planning of strategic stocks should be one of the main principles of the joint activities of the leading countries in the world to ensure global energy security.

In this regard, it is appropriate to note the intention of the Government of Japan in the approaches to the creation of a collective energy security in the Asia-Pacific region. For Tokyo, it is important that a coordinated system of an oil reserve countries involved with the growing energy consumption, including India and China. Japan has already concluded agreements on cooperation in the SOR with New Zealand, the Republic of Korea, etc.

Ashraf KHODJAEV
 Center for Political Studies