INTELLIGENCE MEMORANDUM
INDICATIONSLANNED SHIFT IN THE FUEL ENERGY BALANCE OF THE USSR
CIA/RR5
WARM NO
MATERIALEFENSE OF THE UKITBD ESPIONAGESWSSlQIl-en""REVEUTIOT( OF WH3?
[KG THE NATIONAL THE MEANINC OF THE, THENY MANNER TO AN
PERSON IS PROHIBITED BY
CENTRAL INTELLIGENCE AGENCY Office of Research and Reports
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FOREWORD
The purpose or this memorandum Is to examine the implications of recent Soviet developments that may affect the position of petroleum in the fuel energy balance of the USSR. The memorandum is in noull analysis of the Soviet fuel energy balance. It is concerned with the relative shares of petroleum and solid fuels; it mentions hydroelectric power only incidentally and does not discuss atomic energy for peucetime use.
This memorandum has been coordinated within CIA but not with Dthcr IAC agencies.
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^51
Summary and
I. Introduction
II.
A. Policy and the Fuel Energy Balance,
B- Postwar Investment In the Petroleum and Coal
'
III. Current Developments
A. Developments in the Petroleum and Coal Industries,
January to5
D. Possible Indicationslanned Shift in the Fuel
Energy Balance
IV. Possible Underlying Causes
Appendix
Source References
CIA/KR
IRDICATIOHSLAKWKD SHUT IU THE fUE^ ENERGY BALANCE
OF
Summary nod Conclusions
On ik5 an article In Pruvda sharply criticized thesmall share of petroleum in the fuel energy balance of5 there was announced the appointmentf the Petroleum Industryeading petroleumchairman of the newly organized long-range planningdevelopments suggest that the share of petroleum in theenergy balance will rise more rapidly than it has duringFive Yearnd that the share of solid fuels
As determined by Soviet policy lo the past, coal has had aand rising share in the fuel energy balance, and petroleum hasmall and declining share. That trend has been arrested during the period of the Fifth Five Year Plan. Becauseigher level or annual investment in the petroleum Industry relative to that in the coal Industry, production of petroleum has increasedaster rate than production of coal. The new position on the fuel energy balance, as outlined in the Pravda article, may anticipate significant changes in Soviet planning.
The recent emergence of the Ural-Volga regionetroleum area more Important than Baku has reduced costs of transportation ofproducts to most parts of the USSR. This reduction may have been so significant that the emphasis on greater utilization of lesslocal fuels is no longer justified on either economic or autarchic grounds.
Tile estimates and conclusions contained In this memorandumthe best Judgment of ORR as of
It Is also possible that for the past several years Soviet planners have seriously underestimated fuel The upward revision of the plan for investment in coal and petroleum ineriod, the hydroelectric program of thes, and the numerous appeals
and directives to reduce consumption oi petroleum suggest recognition Of the fact that energy requirements exceeded original estimates-Production of petroleum con be expanded more rapidly than production of solid fuels,harp increase in petroleum production may be planned to meet these energy requirements sooner and vith greater assurance. The relative availability of petroleum reserves and coal reserves may also affect such planning-
It is also possible that anticipated requirements largely exclude fuels other than petroleumequirements, for example, imposed by the recently revived program for dicscllzation of the railroads and by the apparent planned expansion of automotive production during the Sixth Five Year.
The Pravda article stated that the cost of productionetric ton* of standard fuel in the petroleum industry vus one-half that in the coal industry and that labor productivity in the petroleum industry was double that in the coal industry. Such stress on purely economic factors Suggests that the controversy over the relative shares Of petroleum and solid fuels may be partarger problemthat of allocating resources,reater degree than in the past, on the basis Of relutivc costs. Economic considerations, however, have Often been subordinated to sociopolitical considerations in the USSRIn the regional autarchy policy, for examplend economic factors may not be the governing ones.
Changed strategic conditions also may underlie the indicatedIn the share of petroleum in the Soviet fuel energy balance-Dependence upon the vulnerable Baku urearedominant part Of the nation's supply of petroleum may havetrategicon Soviet reliance upon petroleum- The 3hift to the relatively secure Ural-Volga areaajor source of supply may have removed this limitation. Soviet strategists may feel that the changeddistribution of the petroleum industry now makes possible effective defense of the petroleum Industry In time of war.
* Tonnages arc given in metric tons throughout this memorandum.
2 -
I- Introduction.
A Pravda article of Ikharply criticized the fuel energy balance of the USSR and called for an increased share for petroleum in this balance. To implement thisharp increase in the production of crude oil and nutural gas was advocated. If acted upon, this proposal would effect substantial changes in the levels of production and consumption of petroleum products and in investment in the petroleum industry. Tills memorandum provides a
background against which to evaluate the possibilityhange in policy regarding the fuel energy, balance of the USSR and examines current developments as they may affect that energy balance.
Policy and the Fuel Energy.
A clear statement of prewar Soviet policy on developingsources of energy is attributed to the XVT PartyOne of the most important tasks of socialist development, according to tho statement,aximum increuse in the production andof local fuels (peat, shale, coal, and natural gas),them wherever possible for fuel hauled over long distances. 2/
The Party position on the role of petroleum in the fuelbalance is reported to have been voiced9e.uel economist. He is alleged to have stated that "if an eight- orincrease in the production of petroleum were required, this would be not only practically unattainable, but also would be undesirable from tho point of view of the national/
21 the share of coal in the Soviet fuel energy balance increased, and that of petroleum decreased. Accordingoviet source, kj the percentage of shares of fuel (in terms of standard fuel) in tho USSR wou oe follows:
Plan
Wood Peat
Crude oil Natural gas Shale
0
0.1
9-7
For serially numbered source references, see the appendix.
On the oavls or available data. It is not possible to extend the foregoing tabulation. Ou the basis of known .production ofproducts und coal and known production or production trends for the remaining types of fuel, however, It seems probable that Ineriod the relative share of petroleum products was rising moderately while the relative share of coal remained stable.
As indicated In the tabulation above, "the decisiveof the fuel balance /the sharp rise in the relative share of hards the principal feature of the development of the fuel Industry. 5/ This feature of the Soviet fuel energy balance is in sharp contrast to the trend In the Free World.
The first Important postwar announcement by the Russianswas made in6 when Stalin announcedoears) for0 million tons) andmillion/ In6 the Fourth Five Year Planfor0 million tons) andillion tons)approximately the same ratioos indicated byaims of the Fourth Five Year Plan included intensivecoal from local fields and the substitution of local fuels forsupplies. 8/ Also planned was large-scale development ofand manufactured gas.
The Soviet policy of Increasing the share of local andfuels in the fuel energy balance is reflected in severalthat appeared during-'the period of the Fourth Five rominent petroleuma member of the Academy of Sciences of theviews which supported development of local, low-qualityexpansion of production of synthetic fuels, primarily forof avoiding long hauls of natural fuels imilar view was voiced9 articleSaving ofost Important Task for the13/ This article was an appeal to reduce consumptionin all sectors of the economy, chiefly by themazut of fuels such as pulverized coal, generator gas,associated gas, dry gas, and
""* The term iiard coal is used here in the European sense and Includes anthracite and bituminous coal.
** Mazutoviet zerm for viscous liquids, principally residual fuel oils, road oils, and bituminous tars.
The Fifth Five Year Plan calledpercent increase In the production of coal0 andpercent increase In the production of Other objectives of the announced Plan included "improvement in the geographical distribution of industrial enterprises7 bringing industry still closer to the sources of raw materials and fuel with the object of eliminating irrational and excessively long shipments." The objectives for the petroleum industry included the development of production of synthetic liquid fuel. The gas industry was to be developed further, with the production of natural gas, coal gas, and shale gas "to increase by approximatelyercent in three years." Consumption of gas by households and automotive vehicles was to be expanded. Production of peat was to increase byercent, and further development of local coal deposits was to be Production of synthetic liquid fuel from shale in the Estonian SSR was to be increased by approximatelyercent.
The Plan objectives to increase the production and consumption of local and synthetic fuels were reflected in an article inV This article stated that the XIX Partyhat because the available supply of liquid fuel was inadequate to meet the demands of all consumers, the use of substitutes (solid fuel and gas) for liquid fuel In all sectors of the economy be The article singled out the automobile and tractor park, stating that it could be converted to the use of both naturalhusarge quantity of gasoline for other uses.
B. Postwar Investment in the Petroleum and Coal Industries -
According to availablehe average annual investment in the petroleum industry during the Fourth Five Year Planillionn increaseillion rubles in loJt6illion rubles Average annual investment in the coal industry in the same periodillion rubles, an increaseore moderateillion rubles6illion rubles
* All ruble values are given in terms5 prices.
illion-ruble Investment In the petroleum industry0 apparentlyurning point in the level of annualin the coal industry. Accordingovietin the petroleum industry during the Fifth Five Year Plan was to be7 billionimes the total Investment rode
during the Fourth Five Year Flan. If this level of investment is achieved, the average annual investment in the petroleum Industry during the Fifth Five Year plan would beillion rubles. Available dutu Indicate that this level of Investment would be either slightly less or slightly more than that for the coal/ Thus the gap between relative levels of Investment In the coal and petroleum Industries has been narrowed considerably, has been closed, or bos shifted In favor of the petroleum Industry.
Ineriod, estimated annual Investment per million-ton increase in output was rising sharply In both the petroleumand the cool Industry. This average annual investment wasfour times greater in the petroleum Industry than In the cool industry. If the Fifth Five Year Plan levels of Investment In the petroleum and coal Industries arc realized, this ratio would be somevhat Increased. Because the colorific value of petroleum products is higher than that of coal, in terms of standard fuel equivalents, the capital-output ratio woizld not be quite so divergent (probably more on the order The recent sharp increases In investment in the petroleum Industry undoubtedlyeflection of increasing demand for light fractions in the output of petroleum products.
Because standard fuel equivalent comparisonurelymeasure, it is not completely satisfactory. One hundred-percent substitutablllty between petroleum and coal is not possible. In certain sectors of the economyhe automotive and agricultural machinery-tractor park, for exampleany significant degree of substitution Is precluded, except In wartime emergency conditions, on the basis of economic and technical considerations. The above comparisons,are only crude approximations at best.
HI. Current Developments.
A. Developments in the Petroleum and Coal Industries, January to
At the begtnnlDg5 there was no evidence ofIn the USSR with either the level of production of petroleum or the share vhich petroleum held in the fuel energy balance. In5 the Minister Of the Petroleum Industry reported that the plan for
production or petroleum had been fulfilled ahead or schedule. The Minister also stated that tremendous sums had bees allocated to the petroleum industry and that there were available, all ofurther increase in petroleum reserves and for ngrowth in the production and refining of
Another indication that in5 there wuu noof increasing the share of petroleum in the Soviet fuel energy balance come with the announcement in that month that the coal production goal5 had been raisedillionain of aboutmillion tons This increase was the result of an upward revision ofillion toillion tons In the5 coalurther change in the coal industry occurred- Zosyadko was dismissed as Minister of the Coal Industry and replaced. Zademldko. Zasyadko's dismissal, reportedly, was for unsatisfactory
Inappeared the first significant Indication ofwith on Important aspect of the Soviet petroleum industry. In the leading article of the April issue of Heftyanoyc khoy.ynystvo, the journal of the Mlulstry of the Petroleum Industry, "thcra was severe criticism of tin* Soviet natural gas industry. The article stated that natural gas was the cheapest of fuels but that, along with associated gas and manufactured gas, it had not been delivered to the national economy in sufficient quantities. Current rates of development of the gas industry were described as extremely unsatisfactory. It wasthat the directives of the XEC Party Congress on the Fifth Five year Plan, which called for an increase of aboutercent in the production of natural gas, associated gas, and synthetic gas, were not being fulfilled. Exploration for natural gas in theears was said to have been carried out on toocale, and production of gas in theears was reported to have grownate far from
It may be or significance that the article by A. Solodkoin5 cited the prohibitive cost of production ofgas, and the April article complains of on insufficient level of production ror all types of gas, including synthetic gns. Tills would seem to indicate that as late us5 the new point ofhat presented by Solodkoon the relative merits of fuels hod not crystallized.
Solodko nextumber of arguments supporting his position on increasing the share of petroleum in the Soviet fuel energy balance. First, he referred to the efficiency of crude oil and natural
gas as sources of thermal energy. Second, he stated that the coston of standard fuel obtained from mazut was one-half the cost of a
ton of standard fuel obtained from coal. Third, he affirmed thatof labor per ton of standard fuel for workers engaged in production of petroleum was double that of workers engaged in coal mining. Fourth, he declared that the construction of an oilfieldtakesears andoal mine of equal capacityears.
The coston of standard fuel derived from natural gas, according to Solodko, is one-fifth the coston of standard fuel obtained from coal. The time and capital investment required for the constructionas field and necessary trunk pipelines, he said, is several tines less than the time and capital required for constructionoal mine of equal capacity. Solodko stated that despite the fact that the USSR had large reserves of natural gas, production was not large and that natural gas did not hold its proper place in the Soviet fuel energy balance.
Turning to consumption, Solodko stated that the use offuels in railroad transport was very advantageous. He notediesel locomotive was four times more efficientteamand that the lifeiesel locomotive was almost twice thatteam locomotive.
Solodko devoted most of the balance of the article to placing the blame for what he termed an Insufficient Increase in production of petroleum resources. Re attributed the failure partly to anby certain scientists of the potentialities of the USSR to develop the production of crude oil and natural gas. This, heresulted from ignoring economic factors in planning theof the fuel industry.
Two fuele. Probst. Nikolayevskiy, were singled out for attack. Probst was attacked for saying, among other things, that an eightfold or tenfold increase in tne production of petroleum was practically unattainable and also was undesirable from the point of view of the national economy. Probst was also attacked for insisting on the "widespread" introduction of substitutes for petroleum fuel and forore important place for synthetic
fuels in the* economy. Solodko pointed out that the coston of gasoline produced from coal was six times llmt ofroduced from natural crude oil and that the cost of gas produced from solid fuel was three to four times that of natural gas."
N.M- Nlkolayevskly, describedoctor of economic sciences working in the petroleum Industry, was attacked for includingumber of long-rangeecrease in consumption of petroleum fuels by railroad transport by conversion to locally available, low-quality types of fuel and the Introduction of substitutes such as synthetic gasoline for petroleum fuels.**
Solodko also attacked "certain workers of the Soviet StateCommission" for having subscribed to the theoryubstantial growth in the production of petroleum was undesirable. Solodkothat workers of the Commission had notufficient rate of growth of the share of petroleum in the Soviet fuel energy balance Solodko said further that the level of capital Investment in the development of the petroleum Industry clearly hud been . Shchedrin, Deputy Chairman of the State Planningalso was attacked indirectlySolodko named him as the editor of one of Probst's books.
Solodko concluded by stating that the USSR had the greatest natural resourced of petroleum in the world. He remarkedharp Increase in the production of crude oil and natural gasinimum investment of money and time would permit the USSR to make extremely advantageous changes in the structure of the fuel energy balancechanges which would result in the conversionumber ofsectors of the national economy from solid fuels to the more economic and effective liquid and gaseous fuels.
It would appear that Solodko has presented only that evidence which would support his argument that Probst bad underestimated the role of petroleum In the economy. For example, the first statement attributed to Probst appeared9 publication. In addition, Probst'sconcerning widespread introduction of substitutes for petroleum fuels was partarger doctrine which advocated self-sufficiency for individual economic regions. This positioneflection of Party directives.
** Nlkolayevskly'a position also was in line with the doctrinesolI'-sufflclency for individual economic regions.
On igays after the publication of the Solodko article, Pravdapeech delivered by Khrushchev, the Party Secretury, to the Ail-Union Conference of Industrial Workers wherein he indicated that long-range planning for energy was being considered at the highest level. In this speech, Khrushchev discussed the planned split of the State Planning Commissionor long-range planningor current planning. Speaking of the long-range planning body, Khrushchev said, "It is necessary to have long-range ^lterally,lansumber of branches /of thend especially for energy production* over the course of fromoJ>/
Onay thereurther development which suggested that the USSR might be preparing to reorient its views on the development of primary sources of energy. On that date it was announced. Baybakov had been released as Minister of the Petroleum Industry and had been appointed chairman of the newly organized State Planning Commission (for long-range Baybakov is perhaps the outstanding petroleum expert in the
IV. Possible Underlying
The content of Solodko's Pravda article clearly indicates afuel controversy (perhaps, moreetroleum--cool controversy) and suggests the possibility of basic changes in the Soviet concept of the fuel energy balance. These changes may be affectedumber of factors, probably in combination and indegrees of influence.
* The terra used here was energetika, which-is the generic concept that covers the production of both energy fuel and electric power.
The USSR has proved reserves of petroleum adequate toharp increase in the production of petroleum and naturalast reliance upon the Baku arearedominant share of the petroleum supply, however, resulted in highnd in some casesprohibitiveransportationituation whichconsumption- By the shift to the Ural-Volga area (popularly known as "Seconds the most important petroleum-producinghe length of haul of petroleum products to most parts of the USSR, especially to the petroleum-deficit regions of Siberia,
has been reduced. It is possible that this reduction has sochanged the burden of transportation that the emphasis on greater substitution of local, and even synthetic, fuels is no longer justifiable on economic grounds.
It Is also possible that during the past several years, Soviet planners have sharply underestimated fuel energy requirements. An apparent revision of the plan for investment In coal and petroleum innd the hydroelectric program of theuggest recognition of the fact that energy requirements exceeded original estimates. In addition,the numerous appeals andurging or directing conservation of petroleum products (by measures ranging from more careful handling to substitution with lov-quality fuels) in order to assure supply to more important consumers suggest that petroleum requirements have been greater than anticipated. Those requirements may be met soonerharp Increase in production of petroleum than by increases in production of coal or other solid fuels. As stated in Solodko's article, expansion of the rate of production can be achieved in petroleum in about half the timein coal.
It is possible that anticipated requirements largely preclude the use of fuels other than petroleum. For example, the USSR hasdelayed plans for dleselization of the railroads. The diesel-ization program has been revivednd meeting the planned goal willreater supply of petroleum. ubstantial expansion of automotive production is apparently being planned for the Sixth Five Year/ and such an expansion would place andegree of reliance upon petroleum.
Changed strategic considerations also my underlie an increase in the share of petroleum in the Soviet fuel energy balance. Dependence upon the vulnerable Baku area may have imposed strategic limitations upon that areaegular source of supply, with the result that petroleum production and consumption were restricted arbitrarily. The shift to "Second Baku"ore secure locationand expansion or both production and consumption of petroleum products may now be considered strategically sound. The USSR may now feel able to defend the petroleum Industry in time of war.
Another factor in the new Soviet position on the fuel energy balance mayigher level of technology that makes possibleproduction of both petroleum products and petroleum-coneuming equipment. Such an advance in technology would generate greater requirements for petroleum. For example, advances in petroleummay make possible greater production of desired lighter This, in turn, would make possible and desirable higher levels of consumption. Advances in internal combustion equipment would demand higher levels of production for the industrial and transport sectors of the economy.
In support of its position on the share of petroleum in the Soviet fuel energy balance, Solodko's article stated that the coston of standard fuel in petroleum was one-half that in cool and that labor productivity in the petroleum Industry was twice that In the coal Industry. Resort to purely economic considerations for aupport in the problem suggests that the controversy involving petroleum and solid fuels may be partarger problem, that of allocating resources more in accordance with relative cost than has been done in the past.
In determining policy, however, economic factors have often been subordinated to sociopolitical considerations In the USSR. For example, the drive to achieve regional autarchy resulted in many regions in an arbitrary exclusion of petroleum supply and the substitution of local, lov-quallty fuelsoften despite prohibitive costs. Economic . factors, therefore, may not be the decisive ones in determining the share of petroleum in the fuel energy balance of the USSR.
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SOURCE REFERENCES
Information
Evaluations, following the classification entry and designatedave the following significance;
Source of Information
Doe
- Documentary
Confirmed by other sources
-
reliable
Probably true
-
reliable
Possibly true
-
reliable
Doubtful
-
usually reliable
Probably false
-
reliable
Cannot be Judged
-
be judged
Evaluations not otherwise designated are those apoearl.ig on the cited document; those designated "RR" are by the author or this report. No "RR" evaluation is given when the author agrees with the evaluation on the cited document.
I. SclodXO, A. "Protiv nedootsenkiazafkoiiomikc
st.-ar.y" (An Argument against the Undervaluation of Crude Oil and Natural Gas in the Economy of theravda, lh Hay 5U, p.. Bval. RR 2.
2. e. Sotslalisticlifiskoye razmcshcheniyeotreblenlyaSSR (Socialist Distribution Of Production and Consumption of Fuel in theoscow,. Eval. RR 2.
3- bove).
4. . Slatistlka matcrlul'no-tekhnicheskogo snabzheniya (Statistics of Material-Technicaloscow,, U- Eval. RR 2.
5- Ibid.
6. . Osnovnyye itogl vypolncnlya pervoy
poslevoyennoy stalinskoy pyatlletki (Principal Results of the Fulfillment of the First Postwar Stalin Five Yearoscow,. Eval. RR 2.
7- yutlletnem planeazvitiya
narodnoao khozyaysUa SSSRg. (Tlic" Law on the Five Year Plan for the Restoration and Development of the National Economy of the. Eval. Doc.
8.
9- . Ekonomlha ruzrabotki neftyanykh
meatoroshdeniy (The Economics of Exploiting Petroleumoscow,, u. Eval. RR 2.
11. bove).
3 "The Saving of Mazut -Important Task for the NationalFFRRtr of cd Inkonomiyu topliva,. Eval. RR 2)
. Eval. RR 2.
Summary,,Data on USSR Petroleum
, C- Rtr from traktoraaya groayshlennost'.
16. . Ocherki po razmeshchenlyu promyshlcnnostl SSSB (Essays on the Distribution of Industry in the. Eval. RR 2.
esults4 and Tasks of
. :' .< Y.
RRtraybakov. Neftyanoye khozyayatvo,
Pally Report (USSR and Eastern3 Jan
. Eval. RR 2.
. CC-1, Kval. RR 2.
"Bystrcye raivlvat* gazovuyu proayshlcnnost'" (Develop
the Gas Industry Moreeftyanoyc khOEyaystvo, no V,, U- Eval. RH 2-
bove).
23- . Energy In the Future, Newl,. Eval. RR 1.
Bureau of Mines. Mineralsol 2,
..
-. Eval. RRSpeech of
Kliruehchev to the All-Union Conference of Industrial Workers)
Dally Report (USSR and Eastern.R 1.
27- Bol'shaya sovetskaya entsiklopedlya,d, vol U,
I95O, U. Evnl. KR , above).
Dally Report (USSR and Eastern
.R 1.
Daily Report (USSR and Eastern,
-R 1.
9-R 1.
Original document.
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