About strategic reserves and stabilization stocks
The idea of forming either reserves or stocks of either crude oil or petrol cannot be considered as new – it has been actively discussed since the late 1990s. But today, fifteen years later, not only politicians and journalists, but also analysts and experts have no clear idea what to buy, and where, how much to store, and where, when to use it, and in what way, and where the difference between strategic reserves and stabilization stocks lies. If a reserve is aimed at solving operational problems, its volume should be at between 300,000 – 500,000 tonnes. If it is strategic, it should be ten times higher. As the Energy and Coal Industry Ministry claims, the first respective decisions on this issue could be taken in the near future.
Imperfect terminology very often translates into the confusion of the notions «strategic reserve» and «stabilization stock.» This leads to mistakes in the formation and implementation of state policy in that sector. First of all, one has to clearly define the terms. According to the author of this article:
- a state reserve of crude oil and petrol is designed to meet Ukraine’s demand during a special period (a mobilization reserve); to ensure priority work can be done during the response to an emergency; to provide humanitarian aid; or to provide state support to certain branches of the economy in order to stabilize the national economy;
- a strategic reserve of crude oil and fuel is designed to ensure the country’s energy security and reduce the impact of a crisis on the world market during the import of large quantities of crude oil or petrol;
- a stabilization stock of crude oil is designed to curb the growth of oil prices during a sharp increase in demand (in particular, during a boom) and/or during a shortage on the domestic market;
- an operational (production) stock of fuel is designed for use by oil refineries during scheduled (or emergency) halts for modernization, renovation, repairs and retooling;
- an operational (process) stock of crude oil and fuel is intended to fill up oil pipelines, depots at seaports and oil storage depots (including the amount of fuel which cannot be pumped from tanks for technological reasons).
The formation of strategic reserve of crude oil and fuel in Ukraine, in keeping with European standards, is a long and costly process. For example, Hungary needed four years to create a 60-day stock, while Romania took five years.
According to the author’s estimates, expenses on this are close to the following numbers: $2 billion in capital expenditure and $50 million in operating costs per year will be needed to form a three-month stock of crude oil «from scratch.» To form a similar reserve of oil products, one would need $100-200 million to create the required infrastructure, $400-600 million to form the stock itself, and $20-40 million per year to ensure needed conditions for storage and replenishment. If the funds are available, the creation of the reserve could take from four to six years, and its formation will require up to 1.5% of the outlays of the national budget and about half of the assets allocated for the development of the entire domestic industry and the construction sector. Unfortunately, the modern history of Ukraine does not allow us to hope for the successful implementation of such a large-scale project.
You can read full article in journal «Terminal: Oil Review» №15 (601) 16 Apr 2012
