Abstract: A gas storage system for storing compressed gas, and method for constructing the system, are described. The system includes a borehole having a first borehole portion and a second borehole portion. An inflatable balloon is arranged within the second borehole portion. An upper support member, mounted on top of the inflatable balloon, is configured for anchoring the inflatable balloon to a sealing material filling the first borehole portion. A lower support member is arranged at the bottom of the inflatable balloon. The system includes an inlet gas pipe for filling the inflatable balloon from the gas compressing system and an outlet gas pipe for releasing the compressed gas. A compacted filling material is placed within a gap formed between the inflatable balloon, the upper support member, the lower support member, and an inner surface of the second borehole portion. One or more filling material pipes extend along the borehole to the gap for providing a filling material thereto.