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UPDATE 2-Russia to build state fuel stocks to ease shortages
July 13, 2011 / 9:56 AM / 6 years ago

UPDATE 2-Russia to build state fuel stocks to ease shortages

* Companies to start accumulating reserves in July-Aug

* State-owned Rosneftegaz holding to buy fuel from companies

(Adds details, comments, background)

By Vladimir Soldatkin

MOSCOW, July 13 (Reuters) - Russia will build a strategic reserve of refined oil products to stave off future shortages and high prices, parallel to stocks in the West supervised by the International Energy Agency.

Its energy minister said on Wednesday that Russian oil companies will put up to 2 million tonnes of fuel into reserves for use in market interventions.

Several regions suffered severe fuel shortatges in spring after heavy exports triggered by domestic price caps.

Insufficient high-grade gasoline refining capacity also contributed to the shortage, a political headache for the government prior to parliamentary elections in December and a presidential poll next spring.

Last week, Prime Minister Vladimir Putin outlined several ways to reform Russia’s downstream sector, including the possible creation of emergency fuel reserves.

“The real action to accumulate reserves will start in July-August,” Sergei Shmatko told a news conference, adding that the reserves would amount to 2 million tonnes comparing to Russia’s annual production of around 250 million tonnes.

Average monthly gasoline demand is 2.5 million tonnes but consumption soars in the summer when Russians travel to country cottages.

He said that during the fuel crisis in Russia in April, “a few thousands tonnes” would have covered the shortage. Exports for the first three months of the year were up by 600,000 tonnes of gasoline, with production flat.

Russia, still the world’s largest oil producer despite higher Saudi Arabian production, has been fighting rising prices through soft price caps and protective gasoline export tariffs.

The IEA, by contrast, orchestrated the release of emergency reserves, adding supply to cushion struggling economies from the effects of high prices caused by the loss of Libyan exports.

Russia’s move “is undoing the IEA stock release, which hardly had any effect anyway. They’ll just hold production behind,” a European gasoline trader said.

INTERVENTIONS

Shmatko said interventions would take place when prices started to rise excessively or when a region began to suffer shortages of fuel, particularly diesel, gasoline and jet fuel.

He didn’t give a breakdown of the volumes for each type of fuel the state is expected to set aside for the proposed fund.

“The Rosneftegaz holding will buy (fuel from companies)... Several companies have already signed deals,” Shmatko said, referring to the state-owned holding company that owns Russia’s top oil producer Rosneft .

But traders said the start of physical sales could be postponed until the peak summer driving season is over.

“I guess it could be postponed till autumn or winter,” a trader said.

The minister also told the news conference that the fuel in reserve would be stored at companies’ own refineries, facilities owned by Transnefteproduct, a subsidiary of oil pipeline monopoly Transneft (TRNF_p.MM), or at state reserves facilities.

Reporting by Vladimir Soldatkin; additional reporting by Jessica Donati in London; editing by William Hardy

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