The Soviet Energy Plight: Runaway Investment or Energy Shortfalls
CW HISTORICAL REVIEW PROGRAM RELEASE AS9
Smki
The Soviet Energy Plight: Runaway Investment or Energy Shortfalls
n iiWdlijenc*
This paper wu prepared bj
. OtBee of Soviei Analysis, wilh conuiboiioos by
.SOVA.queries are welcome and may be directed
Tbe Sotiel Energy Plight: Runaway Intestrncitt or Energy Shortfalls'
lodgments
Informationnet'IS Drmmbrrkll eipnel.
iapidly rising costs of energy production snd (he need to boost energy exports, (he Soviet economy remains addicted loxnergy. Vast nnd heretofore easily exploitable eneriry resources have firmly embedded (he impression of cheap, plentiful energy in Ibe minds of Soviei energy consumers. Waste remains pervasive in both factories and households. If our estimates hold true, energy-associated problems will ultimatelyajor barrier to the sustained economic growth thai Gorbachev wants and badly needs.
Soviet Union has become Ihc worlds largest producer of energy, but costs of energy produciion have accelerated over the last decade. More important, the share of total investment going to energy would have Io more than double'should Moscow pursue current energy policies to boost energy output aboutercent by ihe
Maintaining oil produciion will be increasingly costly because new fields are deeper, less productive, geotogkally more complex, or in distant areas wiih more severe environments.
Natural gas has excellent prospects for growth, bul maintaining this -growih will depend on expanding lhc gas pipeline network and gas storage facilities, and oo converting customers from oil to gas.
Utilizing coal reserves in ibc eastern USSR requires sizable inveslmenl lo develop and implement technology for using low-quality coal and transmittirig power over long distances.
- Getting the nuclear program back on track in the wake of the Chernobyl" accident requires increased spending on safely and an intensive public education effort lo regain acccptoncc of nuclear energy. If energy were to soakrowing share of investment resources. Gorbachev's rnedernixalion and consumer welfare goals would be out of reach. Energy shortages Memmingailure to meet production taraets. however, would be equally devastating to regime growth objectives.
Tbe Soviet Union Is severely hampered in lis ability lo dodge this "investment bullet" by emulating tLe gains in energy efficiency thai have characterized Western experience since lhc oil shockJ. Doing so would require substantially higher energy prices ihat reflect changing demand and extraction costs, along with radical changes in the economic system to ensure ihai Ihese prices lead to energy conservation:
sortt-ieooi
9
Gorbachevs reform program will probably not proceed far enough io provide inceativcs for energy conservation in (he; In any event, the regime can ill afford the degree and nature of economic disruptions experienced by the West in its transition to higher priced energy.
Meeting conservation needs also would require the development of new industry to manufacture energy moniioring and regulating equipment, as wellong-term investment program to retool industry with more efficient machinery.
We expect Moscow to reformulate its energy policies as the inexorable nature of the investment burden becomes clear. We believerowing consensus among his energyendorse the following initiatives to limit ihe rise in the share of investrncnl going to energy, while sustaining growth in energy production:
Allow oil output to decline somewhat while continuing to boost natural gas production.
PcBlpone large increases in coal oulpul while concentrating on solving technical problemstrarssporiing and burning low-quality coal.
onsensus thai nuclear energy is safe and reliable and move ahead nuclear power plant construction.
Stress energy conservation, but stop short of impkmenting the necessary measures to produce substantial gains.
The regime may hope to keep its modernization and consumer welfare goals on track aod still meet the increase in investment required for thisprogram. Even if everything goes ashighly unlikelya production-oriented approach to energy policy would be inadequate. Moscow would have insufficient energy ino support Gorbachev's economic goals:
Unless there are major improvements in energy efficiency, ihe USSR will be hard (tressed to support moreercent average raie of economic growth over theshort ofercent target.
Addressing (his domestic shortfall by culling oil exports wouldthe economic foundation of Soviei trade with Eastern Europe and severely crimp Moscow's ability to import from the West.
iv
arfti
arge oil discovery that could be easily lappedharp increase in world energyhighlyface an energy dilemma in. They will probablyeries of half measures to make the bestad situation;
Tight energy supplies will probably force some rationing and require occasional curtailment of ddiverics to keyEastern Europe The shortfalls, moreover, will worsen if safety and ermron mental concerns further disrupt tbc nuclear and coal programs. If tbc gas distribution system does not expand as quickly as planned, or if oil production declines more rapidly than we anticipate.
Moscow will try to diminish oil's share of Soviet exports by offering more gas nnd by trying to Hep up nonenergy exports. Only small gains arebecause Moscow confronts limited markets for its products and the danger of destabilizing oil-dependent client states.
Moscow will probably seek increased imports of Western equipment to support oil extraction, gas distribution, and energy conservation. SV* imports, of course, will strain already tight bard currency reserves, t
Snaret
Contents
Pott
Key Judgments
Now
Soviet Economy: Addicted to Energy
the Addict
Ever More Expensive
nding New Customers
vav-ZVivmrn rViit Jfil RamiU
II
RevKahnng the Nuclear Energy Prograni
Substitution: Stretching Oil Supplies
Modernizing and Motivatiog Energy CeoMnen
Mearut and Enda
Energy Policy
forifficult Decade Under Any Ccetdltkes
With Disruptions in Dorneslac Energy Supplies
the Critical Role of Oil in Energy Exports
Energy More Efficiently; Import More Western Technology
on Energy Produciion and Investment
"i
Scopepaper assesses prospects for the USSR't energy supply in.
analyzes thortcomtnes of Moscow's Long-Terrn Energy Program, and projecti probable new initiatives in energy policy. It relics on previous in-depth studies oo Soviet energy production, conservation, investment, and demand:
A*C
Dl Research PaperC-
Jlrctic Petroleum Development; Westernand Soviet Seeds.
Dl Research Paper
The: Soviet Nuclear Power Program ,lfier Ihe Oiernobyl' Accident.
c
Research Paperaturalfor.
Hank
Soviet Energy Plight: Runaway Investment ot Energy Shortfalls
Soviet Economy: Adeicled tu Energy
The Sovietlutton for energy. The Sovieu require about one Bait of tuncUrd fuel to pecduee the ecnxrvaleat of SI hi aaiicnalomparable figures for ibe US end Japanesearc.nii of standard fuel. Scene of the diKerence can be captained by tbe harth, cold Soviet climate, which increases bcatlnf costs. Scene can be explained by the dominance of etvergy-iaicauve beavy Induatry, accounting forerceni of aatiooal output at compared with roughlyercent ia the USut moil ef the difference can be explained by ibe Soviei economic tyttem, which fails lo reflect ibc truefull) cott of energy rotourcct, thereby encouraging greatly uneconomic production and romumptlon.
The Sovicu bave relied on mataive exploilaUon of their vast energy wealth to taatnin ccoaonaie growth al hotnc and. increasingly, fat iheir client ttaice. Until tbe, Moscow wet encouraged by suoceaatve discoveries of easily accessible energy depot lu,It to act low energy prices. Thb price policy, coupled wilh rapidly rising energy production during tbe hurtears, has created and sustained an impression ef cheap, plentiful energy ia tbe miadi of Soviet energy conxomera
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Thus, unlike Western economies, tbe Soviet economy hat not provided lacentivetncourage household! and enterprises to conserve energy throughenu ut management, wort ha bin, aadcale expeneHlaret en Utcalatioa aad eqeipaicat-
Durtng. Ibe Sovicu taw bule need io raise prions because price ejanab from world markcu Ihat energy was becoming more cosily did not reflect Ibe experience of the domestic energy industry. Indeed, the Soviet presa blamed ihe "oil rxxsopolies" and Western consuroerum for tbe energy price hikes and boasxed that steady tatrgy [rices at the USSResultuperior acrxtomk system.
When ii became clear In thehai Soviet energy production coals were rblng, the centrally planned economic tyttem proved unable to direct efficient decisions oa the choice of ahnraatirc feeb for dcvclopavent or to encourage energy cornervaliou. Energy prodactioa tniauatnet receive btveataaeaton ihe basis of prior tllocatioai tad on what it lakes to meet production targets not at rcbtkas to production coats. Plannen have fell Utile pressure to reduce ibe Inflatedamouai of energy required lonit of oatgovern energy allocations lo industrial enterprises, taterprisc managers do not want to jeopardize fulfillment of their plan Urgctt by culling energy ate. They paytidi red. aad generally fixed pnees for energy, incur only smallcoo-somptioncredx allotments, and can readily past on ibe higher energy costs by raising ihe prices cf their final products. One manager Interviewedin ibe Soviet press reported thai natural gat supplies accounted forercent of kit plan ft operaiing cost and ctaiatcd thaiourfoldcreate would act eaase muchhange ha the attitude toward saving energy (figure Ik- Soviet lead-ert and ihe rants regularly exhort ntduauict and ertirens lo use energy efficiently, baierra-sjve (see inset on page 4)
the oil price shockestern economies underwent several years af painful adjustmentsenergy efficiency Improved substantially.energy-saving products and redesigningequipmentlow process.
During the transition period, higher energy prices and shortages of energy adversely affected the economies of many Industrialised nations:Higher
pertcni boost In gasolineto
Inflation.
Initially, some firms closed or reduced business hours and shifted work to night hours to take advantage of cheaper electricity.
Economic growth in some Western countries was negative or lessercent. In pari because of energy shortages
The Soviets are confronted with prospects of atransition period.
Id Otr Ills
mi-ioo
Oil to GNP MW
2
USSR: Hard Curreocy7
Fipri I. Sovirl ronoiai lailriiliaj i
$m' vtlXrrrl tuUmdttarrtf roaitrvo-Itoa
uh In relation to groat national product hai not improved lime tnend. Indeed,urn for tbe wots* In tho. Soviet energy experts claimed6 narked the end of the economy'! addiction to energy became demand grew leuercent while the economyealthy expansion. Much of the economic growth, however, wu accounted for by bscrrased agricultural production, sustained by better weather, aot byreated energy atari racy. Tan crJebrabon wu abort bred because7 energy demand tnrrrascrlercent while the economy languished If energy aae were tooe to grow propnrtioaalc with the oeoooray. Gorbacbev won Id hava to lacreaae dornestie rnergy ruppuearrcenl by the0 to meet bat goalerccel annul cconomk growth.
Cheap Soviet energy and strong world demand alao encouraged Soviet reliance onource of hard currency earnings and to cement relations with economically weak client Hales. Innd
, net energy exports grew by almostercent
annually:
Cumnl us dathii.
oviei natural gas exports to the West have increased SO percent in volumeillion in revenuesbecollapse in world oil prices in6 undermined Moscow'sbut energyornerstone of hardtrade (figure 2%
'u njUuIa Iti sit riconb, am^rttt ot MtSiii Fill aLaOulnnl mowly In ocluaii lor SoAa trmi Uatoaw ammli milawa-it el kg hart currency SH ula from loiiail coat-rutia abtwiucuti eT loul Soviet oilkrcc War Forepran cuironxn nanMoi lor mrrtyarent
of hml owrrm* nlaIW-Wen Girmin. IBS taUte* cubic mom (ocml Fot a. as boo; ateem
Oil remains the linchpin of Soviet trade with Ihe West, accounting for about one-half of the value of total exports for hard currency through most of the
Tte Soviet Pirnire
resldtncts...
Heat provided by ctnirolliid bailen Itlat miatulily rate Ie charred regardless of mart. Slortei abound of overheated apartments cooltd by open windows In the winter because of ike laek of controls.
So-let appliances, which reportedly consumeerceni of ,oial tdtetrletty output,0erceni more energy than comparable WesternTms reprtstnti an extra annual txpendtture ofarrels per day of fuel.
In tkethree to five limes mare energy Is needed loetric ton of grain, milk, or meow lhan In ihe West.ercent increase In ihe Soviet harvetlrrcml Increase In energy
Farms are accused of careless storing af Oil products, poor accounting practices, and Insufficient energy monitoring. Farm vehicles are oflenfilled with motor fuels using buckets, with much fuel spillage. Poor nuslnsenanct and roughshod handling reportedly cause many tractors lo use SO perceni moreoil lhan ojulciftsird by designers.
In
Tkerati, and tmtrrwtry aceomntfor more thanercent cf freight Waste and inttJuSent use In autotnoblle and truck transport nonetheirsi cut Into light supplies of eructalfuels:
Aboul cnur-fourtk of all Soviet roads art mvpererd. lowering fuel efficiency by aboutercent.
Piunwraus villages and regional centers areany kilometers from ihe closest fillinglarge auaattiy af motor fuel Is used simply to make Ihe round trip.
Tht pumps at some gas nations deliver only preset volumes. Customers who want to fill up mustigher setting than needed, so excess fuel overflows the tanks.
Host Sovitt trucksoad cxtpaeityons. Because many freight cargoes are lessr martons, trucks may travel uruialoaded orelivery runs.
In Industry...
Few rnitrprlsts arr even eavJpptd to accurately measure and control energy at the point of use:
out af eight plants using natural gas has no meters at all. Cos suppliers, in turn, are rewarded according lo volumes delivered, so ihey penalise customers for using less than planned amounts. Thus toushion for when thesystem Is stmekrd. tome customers routinely either pay for gas ihey never use or accept surplus deliveries and flare ihem
eornt reviewactories. It was found thai onlyercent af the tsatrprisa had developed or
t
but flesibility lo cut. exports lo clientEulcrn Europe depends on Soviet oil Totthanercent of Its tout oil imporu and about BO percent of Us oil consumption.ercent o( Soviet oil exports to to Cuba andando to Afghanistan.
Angola. Ethiopia, Mcnmbtqac, Nicaragua, and Southart of eeonomie aid. Client stales have"Wnn| hard currency to buy oil elae--hert-
<ix AoVlti
Soviet primary cowry production haa more than tripledeachlni an alltlme Ughillion totu SF tnmore thanIn the United Statca (figureOvererceni of thii oulpul wai used lo general, electricity and to provide heat, while the remainder went directly to endIndustry,nd ibe bouse-heJd-rnunkipal aector. energy oalpat crewillion loni SF while domestic demand grewillion too* l'c if* export growih aceauMed for ibe balance.
In recent yean these imprcwr Increase* In energy production have been achieved at very high cnaC Investmcni in the energy aector haa soared, and. more ominonriy,crrmeotm needed to ivstain growth in production haa also risen. for eiample.ercent average anosal increase la energy eat put was accomplishederccat annaal growth Inhe share of energy investment lo total investment rose from an average ofercenio roaghly IS percent'lavcstnaeat now aerxsnnu for mom ihaaercent of ind mi rial investment. Tables la the appendixdau oa Soviet energy production and investment.
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Despite5 lUlemeni calling fortbe share of Investment for energy,lan called for investment in the fuel and energy complex to grow by ISaster lhan thepercent increase of overallThis inveslmenl is to support an increase in energy ouipul of aboutercent,rend of diminishing returns to energy Investment. Analysts of Soviet investment plans and production targetsndicates thai the oil and gas industries are again tbe main recipients. Both developmenl and exploration drilling in the principal oil region (West Siberia) arc to double, compared with drilling. Investment in infrastructure io support tbc production effort is also slatedig increase. The targets for gas production and gas pipelinesuggest thai Investment in ihe gas sectorill probably grow by one-loird
Oil: E'er More Ex pens ire
oviei oil and gas condersate ptoduciion has riseno more than, nuking Ibe USSR the world's largest oilProm thearge, productive oilfields la the Volga-Urals region sustainedgrowth. Production In Ibis region peakedul developmenl of prolific gianl oilfields in West Siberia allowed national output to show0, however, tbe rate of growtb of Soviet oil output slowed lo lessercent per year.4S, despite Intensive efforts to stabilize oil output, national production fell, respectively. Oil production rose6ut we believe lhal the USSR cannot sustain this growtb for long because many of tho factors responsible for ihe upturn arehort-term nature.'
' We oilman llial Mosoj"illion rabka on cotrrj dorinf Ilacrca cm otai "bier abcte iheeach ptiancd io.li la,
'The IWrtrt UeMprcdiKxk* nsalMd Irom in Inmate ia feu Siberian eutpal. rallied b) itcainas idleand remains litem
H> tffoducuji.eplied pampitf. roaipawm orrimary CStue ice od outpu lion Wed Siberia IB Ul lor lac fifu laneor
eismple. iW Soviei prat icimo' Ikal one ia ihret wells ai ihe
n-r, r' Somntlot <tililrM wn tdlrd by yuroftd
ibe Sovieu dfccatcMd hundrcdi o* ttto-fBrtC* briaadei from ecker earn el UK ooaaaty lo Won Slbeila. Tin naaabct ofl> aa* reduced, aad iiiii "create In caracUy.nitvimlypace of drilling and *el tDmpleuoos aad baprowd in-lift eecraiions alerii"tli'irti nifirth
UtaiwaMly lolnttumroan* in on mdaeiUe
ere I
-Sev^t
otlshcre ind high-sulfur onshore oilfteids ii e'owir.g. Reiutn* lo oilfield drilling bave dropped sharply (figure 8J. According lo Vladimir Doigikfa, former pany secreury for heavy Induslry and energy, the COSUon of new oil-producing capacity rose fromubles In theoubles0 Ihese cosu arc expected loubles.
Ou" now absorbs ooe-half of energy iovestmeni.one-thirdnd has aaappetite.orcreate latest me at aa unprececertedwbik oil prod action was stated to grow4 pereeru These risingery difficult for Moscow lolo ttabilsrc oil prediction whilecomniitmenU io other energy and
Despite worsening conditions and rising costs, Ibe Soviets are continuing efforts to increase oilla Wett Siberia. Plans for oil nrcductshow that output in West Siberia ts tuppcaed to grow byillion toes SPhile aggregate ouipul from Ibe otber oil-producing regions fails by aboutnttnon tons SF. la total, tbc Soviets will replaceillioo tone SF of capacityecause of dcraJctiaa.
Tbe Soviets are planning io step up tbe addition of proved reserves by doubling explorationnd alto by extensively using enhanced oil recovery (EOR) met bod* to continue ptoduciion at depleted and low-pressure fields. Although doubling oil exploration drilling will probably Improve the situation somewhat, we believe ibat new capacity la West Siberia will have to come from Beads lhal are mere complicated geologically, more remote, smaller, and less productiveoscow's past record
A aaajar nat >aaatky fa>arta| Waaa Bkn <ar aaaaat
krwer utitmttc oil rc&yftty Recent iwnt dtbale tt oxbirmr *acnt Stmn adeoaaev of lama for fasarx
lueirn attic* jun ioeady deehac In oil
hate iibunltiBy overealiaaaUxl mervn
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Kltmre 8
USSR; Decreaslug Relunst to Oilfield Drilllne
Itia-iai
in ut il iring EOR technology, furtherrnore, is not promising: production from EOR methods reachedillion ions of oil in2 million above1 levelillion loos- For each Ion of new oil-production capacity, additional drilling, equipment, and infrastructure will be needed and oil industry cosu will invariably ritr
By Ibe, oil production ia WestUSSR's largest producinglikely to be declining. Without subsiantial ouipulew. highly productive oil region, Soviei oil ouipul could fall belowy thehe North Caspian region appears to be ibe nvost promising of all the prospective new regions
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Frani.ii.Oc. oo anJUHUly etWonS* num.
Sovjcu arc counting on lhc development of lhc oil sodpotential of Ihe deep, high-pressure, blgh-teaiperaiurc formations in the North Caspian basin as the nest major source of cdL But their petroleumoefully inadequate for theseThe Soviets will need to Import large volumes of Western oilfield equipmeni lo develop this region. Even with tbese imports,ikely io be slow, and production from the North Caspian in the, under the best of drctimsUnces, will not fully offset decline* in ouimttthe Wesi Siberian and Volga-Urals regions.,
Tbe Soviels have been conducting esploration drilling in ihe Barents Seand ceir analysis indicates that It Ll'a promising oil-bearing region. They have also begun exploration of ihe adjacent Kara Sea. No commercial offshore oilfield has yet been discovered.-and the hatsh environmentalice, cold temperatures, and high
willautious and wvjl-engioeeredto development. The Soviets have been trying to aconite Western technology and help foroilfields in somewhat similar eondiiions oflIsland5 but have not yet found willing Western partners. Published Soviet analysis of the complex geology of eastern Siberia suggests that only limited oil reserves have been discovered.will be difbeuh and costly because of the distance io industrialized centers, the cornplcxiiy and small air- of the reservoirs, and the severe climate and terrain, i
Nstnral Car: Finding Nrw
Among the major fuels, only gas production has
Hibsumially In recent yean, increasing byercent0uring this period.
The Oil Productive Potential af tie North Carta* Bain
Recent preu report. Indicate that Soviet geologisis believe that the North Caspian depression willthe USSR's next major oil-producing region. Some reports state that the USSR plans for annual output toillion barrels per day by the turn of the century. Much af Mi optimism Is derived from preliminary estimates of the oil reserves of the Tengii oilfield, which range up toillionequaling the USSR's largest oil discoveries to dale.
Commercial exploitation In the North Caspian, basin, however, will be difficult and expensive. Well drilling, both In the exploration and development phases. Is proving difficult because of problems associated with ihe great depth of producing formations, abnormally high pressures, and the preserve of 'sour"(toxic and corrosive) gat. Western technology and equipment are needed for many operations, and the Soviets are making large purchases of hardware for the drilling and completion of wells and for processing output. However, both Increased acquisition and betterof Western technology are essential If exploration and development of ihls basin are to be
So far, exploitation of this area has been slow. Startup of the first oil treatment plant at Tengit Is aiear behind schedule. The press rrportt lhal releases of loxle hydrogen lulfide gases have caused fatalltlet. Many of ihe wells at Tengii are taking three to four years lo complete, compared with about six months for comparable wells In the United Slates (In West Siberia, wells toeters are completed In roughly twourthermore, one well at Tengiz blew outS and was out of control foronths
ining lhae ouipul increases will require dcvclopencni at one or (wo new cosfrom bate reserve* in Westfive years.lan appears feasible.
Maintaining steady growth in gas supply, however, will depend largely on ihe ability of ihc Soviet economy to absorb tbe increases thai tbc gas induitry can provide. Greater use of ins will require further expansion of the transmission, lateral, and local gas pipeline net works. Moscow must also build more storage facilities to overcome tbe reluctance ofta rely more heavily on gu became of fears thai Iheir supply may be interrupted during peak demand periods in the winter
Expansion of gat production thus far bas largely supported onepower industry. It waa able to absorboercent of tbe annualin gat outputong-delayed program to tubetltate natural gat for fuel oil finally produced results. Over one-half of the gat used by power pltnt* went to replace oil and low-quality coal wilh the remainder used by new plants.bouierceni of power plant fuel needs were supplied
Sustaining ibis effort will be increasingly difficult. Much of ibc gas-far-oil substitution thai hot already occurred has been bated on the availability of power planis equipped io bum cither fuel Using more gas In the industry will mean constructing new plants,gas to areas not now supplied, and eliminaiing delays in extending lateral pipelinesower planis currently under conslruction. Energy planner! will be looking gas customers outside ibe power industry, bul no other potential customer hat this Industry's fuel demand or can wield tbe bureaucratic clout necessary lo coordinate ibc connection to ibe gat distribution system. Expanding gas use in other industries will require faster construction of small, local pipelines and the use of more gas-fired equipmeni snd appli-
accounted rocercent of tbe increase in primary energy. Because of Ibe country'i vast natural gas reserves and tbe gas industry's established record of boosting ouipul. we believe ihai gas production willan0een by lhc
ui producers also face riling cosls in. As ihe center of West Siberian iu production activiiy shifts fanner north above ihe Arctic Circle and encounters even more extreme environmental conditions, the investment casta per unit of new capacity will increase. Tapping these reserves will involve higher costs because of the difficult drilling, logistic, and transportation problems. For example, we estimate that invesimentill be about one-third higher than investmentoran equivalent increment in gu production. In addition, the development of the West Siberian fields has required an immense gu pipeline intern that,inillion rubles.
Nevertheless, we believe that the gu industry**will be met because gu affords ahigh return to investment. Although Ibeuse of labor and invesiment appears relatively inefficient compared with these in the West,gu production will continue to be the most cost-effective way to boost energy output. Indeed, as gasrowing share of Soviet energy, Ibe gu industryecreasing share of total Soviet investment in energy production. Moreover, the planned leveling oil in gu production In theld drastically reduce investment requirements.
CoatQunBty Output From Disum Basins
Cool production from most major Soviet basins hat been stagnant during much of the past decade.In tbe Donetscountry's largest producer of high-qualitydeclining despite repeated efforts lo maintain output. Similar prospects hold for most other basins in the European USSR, where underground mining predominates and reserves havenWileted after many years of mine
Tbe Soviets'are counting on the development of selected basins in the easternKansk-Achinsk, andmove coal back to ihe forefront of energy production. Bui before ihis can occur, the Sovieu must solve two key technological problems:
qualilye eoal. Most of theare low in energy value, comprisingwith high moisture content) origh ash content. These coalsapproaches to mining..
T
Tbe major coal deposiu that Ihe Soviets want to develop arc thousands of kilometers from ihe industries and population centers most in need of the energy. Consequently, low-cost energyis essential tn the viability of any coal-dcvelopmcni scheme.
We believe that,arge infusion ofaod research and development (RAD) resources, Moscow will noi succeed in raising coal production to ibeillion ions of raw coal in tbe0 (output7illionhe SovieU have to dale made little progress in the development of the required coal-use and energy-transfercity lignite-fired boilers, coal-slurry pipelines, ultra-high-voltage (UHV) electricity transmission systems, and syafud planu. Mastering these technologies will requireplanned,nd sizable capiul nntUvs, very Utile of which hu been forthcoming.
Development of technologies for UHV uansmission and synfucls aroirtual sUndstiD; the ligniio-fired boilers arc being builtnail's pace, and those at Karoi-Achinsk are only now being testedommercial scale; the Soviet RAD program for oool-ahirry pipeline technology went virtually cow here, and Moscow wu forced to purchase Italian technology for the construction of the prototype dairy eapelinc In the Kuznetsk coal basin. Failure to fully develop the Kansk-Achinsk buin according to plans and less-than-stellar growth at Ibe Kuznetsk and Etibaatuz. haains would probably result in coal productionarour-'million tons for the remainder of the century.
Problems In Burning y Coal From Siberia and Kazakhstan
Tke lam- heatint value cfeooli UJillion it leu lories far metric ton) make them un economical to thlp moreThey mutt be burned In minr-mouth power plaini wiih the elrxtrieitj trammelled trrer long-dlltanee perwerilnes to consumers. The low healing
lio meant that much more eoal mull be burned to produce tke lame amount of electric power. Increasing tke requirements for coal mining and handling. The heating value lendi to vary, making It difficult to control the combustion proeeti well enough to prevent boiler fouling and reduce poll ul Ion The high mot it ure content ISO toercent) af Kstrtsk-Achlnsk cool Increaiet handling problems and robs the coal of some of Ils heating rtdur as the matrr Is vaporised during combustion.
The combuition of suck masilvef coal produces corretpotmtlngij large quantities of ash that must be cleaned from the flue gases before ihey can be discharged Into tke air. Increasing the burden on pollution comtrol equipment. Tke ash ht Kansk-Achinsk eoal contains large amounts af alkali meiali that melt during combuition and foul tke keat-esxkange surfaces of boilers. Power plant boilers must be designed la prevent fouling by using tall bolter compartments, root-removal systems, and carefully controlled cornbusilon temperatures, all of which IncrxoM ikeU coat. Tke very high ask conlrni of Eklbostus0 percent)bro-sire. causing rapid wear and frequent maintenance of all coal-handlingrulrerl.-en. boiler feed lubes, and the Inside surfaces of the boiler Itself
Dretrfdtyt RevltaLUing the Nsrfear Energy Program
Expansion possibilities for hydroelectric power In the European USSR are now limited because most water resources are already exploited. Hydroelectric plants In the European USSR are viewed as the primary suppliers of eleesrieily during peak daily and seasonal demand. There are vast reserves in eastern
Sibciii, bul tapping these river* will not beuntil iheir icmore regions become developedbreakthroughs are achieved io thecou-ent (in* ol" verHoas^iiUBCc power
Nnclesrdacataled lb growapid rate so thai its share ot toul energy would expand from lessercent7 to more thanercent by thehis would require the nuclear program to grow0 nsagawalts. whichoega wallsailed to producerillion
iII ViUlS.!
Before tbe Chernobyl" accidento already aasentioas goals, the nuclear program had been dogged by atsortfaUs of material andlack of tkilled labor, holdups of design approval, and coatsuwetie* delays. The rxassbiaauonublic reaction to ibe accident and the new freedom to publicise even acme opposing views in lbs Soviet media made an amino clear lobby possible. The Soviet aatiaacicsTorginrrrri. geographically dispersed,ross section of the public andhai successfully challenged ibe USSR's nudearprogram.so delays and even callbacks ia contract km.
A leading Soviet nuclear scientist judged lhat the nuclear power industry bas been act back by "two xWrcar31 Wc cati-mate lhai IbeaecrJlatHMS reselling from the regime's response lo the aaiiaiackar lobby will undercut Diana for electricity supply in the. Together with the anach Larger impact of standard bottlenecks, the expansion of nuclear power will be besd io0 m* a* watts, which should genera tr-CO billion biownit-houn la tha.
Gntiag the niKlcer power program back on Hack -ill rcqUrr increased spending oa safety and as intensiveeducation rflort to regain acceptance ot nwese-ar cacrgy. Sovirl specialnU are stilt assessing the
The Nuclear Power Controversy
needs the energy contribution from nuclear power so lhal production of Increasingly cosily fossil fuels can be reduced. Clilsen opposition to nuclear energy, however, has become more vocal and effective under gtunost. Critics have broadened their attacks on nuclear energy projects from Initial focus on cancellation iff construction ol Chernobyl'-type plants to challenges about the suitability of locations for future plants of nearly all types. Recently, protesters for Ihe first timeromise that an operating
Armenian nuclear powerbe closed. The regime cannot afford to give up on nuclear energy by yielding to all af tbe demands of the critics, nor can Moscow risk an unacceptable level of social unrest by pushing nuclear energy projects and Ignoring local objections. This controversy will Influence decisionsey period of energy policy formulation and will probably affectto new nuclear conslruction ands well as haw much to rely on fossil fuels
cosU of safetylthough nuclear energy rcrruint an eccoonrical source Tor electricitymany influential Soviei dtiien* are criiical of Ihe nuclear indutry,n uphill battle for publle support likely.
lit of oel sotojuortloo: SlrrtehUg OH Sapptf* Since ibehe Soviets have cooudeted interfile! *ub*tilutlon at one ofmportant loob in rcdudng oil use The initial efforu aimed solely at svritciiiag power plants froen fad oilatural gas failed, and power plant oil use continued to rrow. By IMS, however, power industry oil ase drained. ccenpared0 rrumimirion. Such progress In gas-for-otl *ab*tltution has en* bled the Sovieu to hold their total oil cor.sauaptioa frsnatant. oca though deroaad for light ptoducu bas been grewiag
The Soviet* bow want to expand thii program to substitute gas. coal, and nuclear energy forexpensive oil. Tho Long-Term Energy Program call* for continued substitution of natural gu for some of tho heavier oil products, mainly fuel oil. By thencreased output from nuclear plants is expected to help stop growth In Ihe use of fossil fuels. While auccraa In meeting Ihese goals would not greatly Increase the overall fitcrgy efficiency of tbeould. In the abort run. allow Mcncow to increase supplies of light petroleum productsroenartionate increase La oil output In the longer run, success in ioterfuel substitution would reduce demand for oil. allowing Moscow to abaft resources to other energy and economic program*
Meeting iaierfad substitution goals for the next decade requires investment outlay* to connect power planu to gas networks, construct nuclear power plants, build coal-cleaning plaaU to improve coal qualily. expand gu distribution and storage facilities, and upgrade oil refineries to Ir. urease the yield of light prcducu. Projects are uncle, way in every area, including caps ration of cat* lytic crackingefineries. Meal of these projects would offer higher returns lo investment than would conllnned cITorU to expand oil output. For example, Soviet petroleum experts estimate lhai Incicating production of light product*erceni from new cracking capacily
1
wouldillion rubles Achieving this increase from more dl output and primary rcftning, on Ihe other hand, would reportedly cost anillion ruble*
f orn-Tvatto.t Modvatiag Energy
The Sovieu havevert growing demand ind bave made few efforu to stretch available energy supplies. Energy conservation targeta have been sped Really included In live-year plans ai least, bul goal* have been modest Inlan, for example, the
Secret
conservation foil wai lomeroral of planned loinl energy supply inSoviet consumer! fell short of the urget for savings by JO pcroenl. lotal meat allocation* have flighted energy ramxrvaiion. and the Soviei economy is rxeanwlypafed lo make rapid progress fan conservation.*1
i
Not much conservation equipment Is produced ia theauooiide program of intensive energy eoattervalion would require either major equipment imperii or ibe esubtithnsent of new plants to produce such equipment.
Large-scale energy conservation requires iboosands of imeU-acale actions that cannot be managed from Moacnw because meaturet are often pUni-speeific, relying heavily on Individual Initiative.
Retention of obsolete equipment makes conservation difficult. Retirement rates have beea especially knv in tome of the mosi energy-Intensive industries (electricity, ferrous metals, machine building, snd eieroicali)
Moscow's current plan for energy conservation reveats continucd low cspeculions The conservation Urgetink- tons SF is set lower than the target. Three-Qusners of this lower target is to be achieved by Introducing new nchnolog.es in cncrgy-iaicnsivr industries, retiring obsolete equipment, and putting lo work some of the beat energy that now goes up snveatesuets al power ptanu and factories While Ihis program wouldmajor investment, returns would behigher thaa those of new investment in energy prodisction Soviet wriien repeatedly it rest that the investment required to boost net energy production is
- SUnoHtti la Ik* mounnM at it*wn-ey lira canMbaU aait*tl1 lorMcaliWawS I* lerma at muomI|NI, Iwrad ef"Ih* ON* aaaw -tally aaad la Ik* Waal. UVcauM Mlinr oanuui amova aelrriir nnd Ukrnfar* tfomKam-nwa olarairyafmihia wKti lemallyo*miiI
USSR: fael I
.
Install mew energy effhelrm leehnalaty SO
Reduce iraaspotmtlcm leates mad mse 20
Reflate obsolete
Reclaim waste
Moke general reductions
lightening)
two io three limes ai groti at ihat needed to coruerve an equivalent amount of energy.
Success with these irrvcttmem-intrsttm ooaaervaiioa strategic* ultimately dependi on progrtaa iaBtoocratrauon rarogram. which ts lo provide industry wMh energy-etSciea: machinery and equip-rnent as wdl as to supply the energy industries with increasingly sophisticated hardware, much ofow imported.'1 In the ibort run, boa ever, rnodcrnlta-lion will probably add to toe energy bill because of its emphaali on growth of the energy-intensive machine-building and nveulworking sector. Before thocan benefit from new energy-saving technology, It must patsransition period when the eooncuny uses ntore energy io Increase oatpul of more efluncni asaeauoory.
' AawaCaag MSaial rangyaa lawcanarrraUea aaalH aavMa BH Sn*t> of rMpmc, rwkad ia UM Waa.aavh ike eBcwaey of IhrUoavaaadyil Ml |mSock*ryka Wwtt earrcmlyM UM IMUad Sum* aad
in Ot i'D fwMrkt MaMOpwcam cai In rnway
dmand
t
i reiult* IIIOf.lhal
more productive and less resource intensive,will be saved. Fuiihermore. sizable energy tarings could be accomplished,(be* were ia ibe West, by modernisation lhal thl Its ihe composition of Industrial ouipul to induitries Ihtl utc leas energy. Butroceeding slowly, and even aggressive in raiment in rwrji-s;qcipmenl would lake lime to produce result!.
Tbe Sovieu also have nyttontwitlci lo improve energy efficiency by nun thai require alnvatt ao sddrUocul investment. Such means bxtwde turtnng etT eqtup-ntent when not la tnc, better monitoring and central of energy ate, and unpeoremenu in nwaagenvent of induitry thai focus on maximum not of production capacity and avoidance of frequent slopping and Halting of machinery. Insplccncuiing ihese nearly cost-free measures require* snore monitoringbreaking of bottlenecks in supply of rawand parts lhal prevent efflcteai utilization of machinery, and additional tkiUed worken
The. effectiveness of these measures, however, depends mainly on whether the Soviets can introduce real inoeulivea for conaevvnllon. Soviet orTWsU admit ihat large price Increase* areo "destroy ibe illusion" that energy resources are cheap and toes-hansuble and to create Lhe necessary incentive* for the design, production, and tpolkatiori of reteoree-taving equiproeci
e*aT prices wiB rite byeroral" as partholesale price reform thai win begin9 enterprises arc lo be capers (ing oa abasis, wherein Ihey arc la cover eD coats from iheir own revenues
These measures will help, but they ore onliltely to yield suable and sustained gains lo conservation or loatb for economically rational choices among tlternttfvc fuelt. New fixed rxriccs will be set administratively, la link relation to demand, and will increasingly diverge from costs over lime. Despite self-financing,littlebo able to pass on higher cosu to their
custcenert. Sharp increases ia energy prices2 provided only small and transitory gains In conservation. Soviet economic reforms do not promise io go fir enough during (he next five years lo establish the precondition* for realpricesompetitive market.
Rreowcibng Mraot and End,
Moscow* long Ierm Energy Program aad other pton docuoienti call for energy so tykes lo lactcaae fromillioa loos SF5 toilbo ions in theas sad aacfcar energy an to account for more lhan nor half of earrgy prodactionhile oil'sxpert ed lo drop to one-quartcr. All of these Increases arce accomplished withllgtt Increase in energy's share cf invealmenL Finally, tbe Long-Term Energy Program stepped up conservation urgets, calling for energy savings to cut energy demand0 by as much atercent
Ahhoagb lb* Soviets have yet ucoaae to grip* with Ibt* lanbteaa. maintaining ibts hugely reodaesjoa-orieared energy policy would force Moscow to moke difliculi decisions iao balance Iheoeedi of tbc energy sector with other important program* tucfa at the campaigns to mode mireand Improve consumer welfare. Indeed, energy productionunning behind planned levels. To roughly sketch tbe trade-offs involved, we contrail two extreme Investment scenarios for tbeinvmunent rise to ensure Ihat energy goals are atiaioed and. alternatively, holding energy'* share ofconstant, even at ibe risk of failare to moat rxodactsoa targets. Both toonsshould be considered crude benchmarks bocauic ihey do act socooni for policy correction* that Moscow would moat likely make during. aor do they reflect ibe change* in overall economic growth that would occur if either scenario were Impternerrted.
Moscow's effort! io deal with new ckallenget In energy policy are reflected In the Long-Term Energy Program, publishedhich defined the USSR't energy goals to ihto atpect of the energy lector was neglected In ihli policywhich appeared toompromise antong the various advocates of conservation. Interfurl tubsillu-llon, and crtcrgy-prvdudrs Industries.
Theoals for oil production were slated In vagueastable, high level of oil output" andIncrease In Uouldensured conllnued priority for resource allocation, but ore difficult lo translate Into oulpul targets. Natural gas was touted as the growth fuel until the, when oulpul was scheduled lo plateau at an unspecified maximum. Nuclear energy, coal, and hydroeduced role) were slatedeet all growth In energy demand beginning In the. Conservation targets, allhough significant, seemed to imply that most savings would come In theather lhan growing throughout the period. Fuel substitution wasart in the transitions from oil to gas end later from gat lo coal.
USSK: Cel. it Intrts
OUMr 4J
1
Cod IU
Oil H
Total UOO mimom tans of siratiard fori
ercent into more than one-third" If tbi* policy were actually implemented, industrial modrrrarabcai tab wouhl be largely forfeited and overall econcirrwc growth would, at beat, stagnaie and probably tura negative.
Changing Fawrgy Policy
Tba enearnsoas lures invent burden of itnuairnug energy production end the poor prospects for conservation ore likely lo push the Soviets toew energy
" Inama intinaua inUaata dtt-fd 'torn UMnMiliaiyj talaara toerif mdacttaa indM0 Tar prwiqim an hued at Ike aiMaua-laataai^laaatwvpal^eaaalT
d-on* IKIt) rt. nrlana katwSttar
lo laniatataHnrr doplnkra nf
rl-tmiot aa lovraM ol ibtto addiihaaf
in lb*wc asuuoe thai Sonet pouey-maken follow through on the prransba to head energy'* share ef investment essentially coastaai between now and tba year KMX. thereby enabling sustained growth of iswestsnent far other prcajrana such ns moderrJra -lion and consumer welfare. Under our atmnipuons, annual growth in energy investment would fall fromercent faso lessercent In, la tbii event, energy production probabli would actually decline between now andaa much aslhc Soviets uubbornly pursued oi) prconetion targets and did not reallocaie Invctt-aaeat toward more onst-eaTactrn; natural gas.energy prcdueiion would force rationing, aad severe energy ihorUgea would stall economic growth.
CHitpitl foi UM It nllmited.
In Ibeatiume Uial Soviet poll.-.
Jwe %uA ike eeeaornk tujrllaeuunweaor -
ka tanlint thowt in-uttslpereeaiW-MOJ. aUhIn total In^nmoa
tranl-
maker* allcealc "beleverecessary lo achieveperceal iacreaae In energy product ioa teheduled between now and theoreover, il it assumed that ihey provide all wvestraeot neeea-snry to meet the Energy Program goal ol keeping oil production from falling below can eatecante of (he raereuslng costs of newto lopply must ofliet depletion of eiaiing production capacity, and new energy *ocrce* will cost more loeVanand for Urrcttmcct would ca-pleasehe share of iavcsimcnt needed lo meel energy production goal* would rise from aboui
Figure 12
USSR: The Energy Program'* Dilemmi-
Staggering Growtb of Investment or Devastating Cuts In Production
ICO
Im
nergy Output
PtvfKilooo isisdIi i'titi lond'dloo ir Metes* Ulid to leeo tmoo'i il>ir< of laxilntonlm
for. So far tbe Gorbachev regime ha* endorsed, with lew changes, the Brcihncv-cra energy goals (or lhc remainder of themandating both conservation and production-Gorbachev hasirm intention to cmphaiiie conservation and otherstrategies for energy snd other raw materials. His speeches reveal understanding of Ihc link between such strategic* and the need lo conserve scarceresources. Senior Sovietmost recently, lhc Minister of the Petroleumhave highlighted the Impending crunch
On ihc basis of these and other such staiementi, wc believe that energy polky will be revised to limit energy's growing share of inveslmenl. further shift energy produciion away from oil and toward more
abundant natural gas. and moderate energy demand through fuel substitution and conservation. Moscow'sa growing consensus among Soviet energynrobsbry endorse the following kinds of milUlives!
Cut costs by retreating from the earlier goal lo keep oil ouipulhigh and stableoreduction ofo IS percent In crude output could permit substantial reduction* in oil induilry investment in theseveral lens of billions of rabies. In fact, If Moscow succeeds withnow in place io reduce fuel oil utc and process "saved" fuel oil into light products, the Soviets could lower oil production and slill meet domestic demand and export requirements.
Gtwimckev's Penonal Mark oa Eaergy polity
Thuifar. Gorbochc hasiddle pound between endorsing much of ihe energy policy choices of Ike Breihnev era while Installing newe key estergy management positions. An early statement of policy In the so-called science and technology speech InS lent support for Breihntvg concentration on energy production, but alsoconcern about the Invesiment coil of Ihe West Siberian oil and natural gas development and the hope to reduce this burden with Improvements In ike technology of energy use.
Various speeches have made ll clear lhat Gorbachev views conservallon of energy as tke key io long-term goals of improved economic efficiency. He has quoted ikose Soviei energy experts whose studies havelhat Ii would cost the USSR several times less to save oil and gas than ll would to produce ihese fuels. Moreover. Gorbachev links gains Indirectlyeduction In tmergy's claim on scarce Invesiment resources
During his first year as General Secretory. Gorbachev hlghllghled his views on energyucktrip to West Siberia. He used the occasion to affirm the continued importance of the oil andgas production In West Siberia to the country's
lotal energy program. Gorbachev also reiterated the theme that.ustify large Investments. Westenergy must generate high yields.
Gorbachev's speech to7 June plenum,the scope of reform, covered tke role cf prices. He calledajor price revision, raising the prices of fuels and raw materials relative to those forgoods. In Ihe process, most subsidies weree eliminated. For energy, however, reform of the price-setting mechanism was put off; tkese prices would continue to be centrally set
The only far-rtaching change ikat Gorbachev has made tn energy policy has been In the personnel department. All of tht ministers In the major energy production bureaucracies have been replaced, and several new organisations were activated to cope wilh changes In nuclear energy (Ministry of Atomic Energylate Committee for Nuclear Safely) and In oversight of energy technology utveltxmtnl and ihe resolution of imrandnlsterial conflicts (the Fuel and Energyhit new team has yet to distinguish Itself from Itspolicy Is lacking.
Sustainatural gaa production to the end of the century, instead of allowing gas production to level off in the. Gas would then account for moreercent of the likely increase in energy supplies In. The successolicy to rely more heavily on gas depends on keeping down costs lor production and transportation while stepping up efforts to convert user* from fed oil to gas. Continued growth in gas oulpul will beuntil nuclear energy and coal achieve cipansion targets.
Overcome technical hurdles in burningaliiy coal and postpone largein coal output until coal can be efficiently processed
onsensus that nuclear energy i* safe, reliable, and cosi effective. Officials will probably need to move In several directions: upgrading safety, confronting vocal critics, and educating the public on risks and benefits of nudear power.
Suck energy cooserriiioo without making those changes In incentives or Investment policy needed loat near-term gains.orboettev'imoil Soviet energy spcclaltiU continue lohe* substitution of gsi foe oil is the main demxodnururccnert tool. Tbey conilder induslrinl will yield morelhc source at
While gains in energy tonservailon theoreticallyan escape from ihiiiioaiion.real progress in conservation, however, would force Soviet leaders to make radical changes in tbe economic system and, ai la Ihe West, loong, disruptive us wit ion period:
"The SovieU would have to live consumers real
i to save energy. This would entailag energy .nee. aebsUauaUy for both industrial asm aad the popaUiion. and
for rbe* IMr Any CnrrfUwwi
Althoughreused energy progrnm would mitigate Moscow's lrrvesin>eni-product ion bind. It will not come anywhere dene to solving the problem. The new initiatives might enable Ihe Sovieu to meet energy production targeU for theui energy's share of investment would still rise enough lo cripple the Industrial modernkation and consumer goodstop economic priorities.Iherforcutastancra. therefore, we espect either energy shortfalls or energy's investmentto hold down aan.il cronomic growth. In effect. Gorbachev can avoid aa energy constraint only by failing iiuwiatilj inreas of has acowoenic rrvttalintjou program.
Tbe new iailiatives, nsovoover. might not all pan out because the tranrilion lo the new energy regime would have lo be itaJraoidinarily well timed. Deemnhaslring coal developrnent mighl stall rcsearcb'at Ihe current lUge, while putting the unclear program back on track could predptuie social unrest In regionsfor new nuclear power pUnta. Tho decline In output from older oilfields would have to be iisoderat-cd until production from the North Caapiaa atarU to pndty to to be in place
tnctoaasebyth. Energy caporU could not grow ia domestic od demand is embed, because nearly all increased outr-it would be needed by the domestic economy.
supplies at the basis of prices and coats. Tbe Sovieu planecentralize centrol over some economic activity, but thboving forward slowly and. In any case, evidently does not yet catend to tbe energy sector.entralized energywillerceni of oil oulpul andercent of nataral gai production.
The SovieU would bave to crate new industries lo produce equipmeni to monitor aad centrol energy ate. (When tbe oil crbb ofit. Western rodmiria producing eaergy-etUeat ecrerpnentei rued and wen able to eapaad.)
Despite Wesiern economic Ineniivra and suppcrting utduairica, energy eflWlency did not improve much until three in four years after ihe oil price shocks. The slow pace of economic reform and induitrial deedvirtually rule nut major Soviet conservation gains. i
In the absenceudden, urw.ticlpnted. Urge oll
i increase In world energy prices'^-each highly unlikdy-the SovieU thuseean-iesuaaa ha. We cuedrem ledet cf equallyf nteaaares to navigate the energy dlriaaaa .
Coptagla Doratstk lotto
Soviet energy iupc4iet will be lighl regardless cf how energyeformulated. Rationing,nd otber coruoquenee* of ilraim in the energy lector that we have wiinested during ihe pan decade arc likely lo continue, and possibly intensify:
Whether the Soviets can meet growing demand for dectririty suppUca depends crucially on progress in ihe coal aod nnciear Industries. The SovieU will be bard pressed to offset declines in European coal with Siberian coal, and efforts lo do so eoaU well taa rail Iranaport and aggravate growing popular ecological consciousness. Nnciear power proems even greater concerns, yet the SovieU have little choice bat to proceed. Tbey arc likely to make frequent tactics! policy adjasUncal* a* ihey aavigaie irchairal.aad social bardke. and they will probably have io hve with culectricity to keyincluding Pattern Europe, as wefl as with social Barest.
Natural gas looks like Ihe anawer. bai thb industry win probablyrapped to shoulder more of the burden rapidly enough io acoommodate declines elsewhere. Gas duiribuiion will continue to be ihe weak link-In particular, pipeline turbines. Industry must supply turbines to an expanding network, replace hundred, of aging compressors installed during, andiowingburden. If gas dbtributisrupted, major consumers will attempt to switchad ofl. Bottleneck. In moving gas would then endanger an already fragile balance between oil supply and demand. Moree-er.oply -HI risk atraadiag key industrial or even hrairhnlt users, forcing authorities lo make lough Awncuic aUocattoc drrUioos or to curtail expxts.
Durlag. Moscow abo will face considerable technical aad chaUcageS la earcfuDyradual decline in oil raxduetioa. Moscow would probably need lo cut oil production in the Volga-Urab and Azerbaijan ndds and become more .elective, about high cent Adds In West Siberia In order to gala potential investment savings of billions of rubles. Such cutback* will be difficull to control, so both ibe volume of Ibe production cut and the amount
of invcsinMiu savings will be problem. Lie Moreover, lhc impact of the cuts would depend on the pace ai which they could be offset byl.ii. panicularly lhc North Caspian basin. If either of these programsoscow will be faced with very unpabubka precipitousil-pioduciion orrash investmem raograra to restore production. Any unduly large decline in oil produclion would reverberate throughout thefor transportation aad agriculture, consumer* of tight prod Id likewise threaten hard cutrency earnings.
Finally, tbe eaergy sector could >dl become the Achina' hod efOcrtukaW* enure reoooancAa slaaeet crrtala rise I*hare of irrounewt wingoab lor ecoooouc growth and im provemcnt ktwelfare, therebyter dbpuie* ia. Moreover, bottleneck.enerxy production or in the traasiticcew energy policy arc likdy lo tempt peaacyuuken io return to their earlier rosea as strong centraleastreform agenda, i
Diialabb the Critical Rosa of Oil la Eaergy Export.
The Sovieu will probably try to substitute gas for dl la their eaergy eaporu to tbe West and Eastern
Europe:
We eipecl overall West European use of Soviet gas to Increase Irom aboul I) percent7 toercent of totalheest European gasikdy to grow at an annual rale ofercent ha. If, however, environmental concern*weUom est Earopean ccaatrie* to rescindgainst u* of ga* fer electrk-Ity generation, demaad fur ga* could increase as mack a*oas above carreat cstuiattes for tnehe Soviet share of the Wotaurkel win depend oo capacity anHable In ga* plpdkaca, gaa contract* la force,he ffcctivencM of competition from Norway, the NetheiUnds, and Algeria.
Eiurope i> willing lo accept more aais.nlartial tuUiliuic (or Increased oil deliveries, but il li refuting Soviet demands that it share the com of natural gal deveJocoicnt- especially the cooalruciionew gai irunktino from Yamburg to Easternast European demand for naiaral gas, moreover, will be conuralaed by ihe pace wilh whkh Industry can be converted from oil and coal to gas. whkh hn tarn will be held down by
East Ixnraii cc-KKiuc problems
'i
s
Soviets will reap unaains by reducing oil eiport cornmiimeau in Cube aad Vietnam. Sy lhcoviet-dcxigaed awdear power ptant in Cuba should replace JOf fuel oil. while capons toruaalag aibeo-sandprobably decline after impkrnenU-lionctflt vcnlarc wilh Hanoi lo develop
ffshore oil Industry "
The success ol* these efforts depends crucially onbility to wean client states from oil with-out prccipiuiing economic disruption and toange of viable substitutes fot oil at the prop of Soviet hard currency earnings, Tbe fragile economics of Easternconsumingf Sovietbe undermined by an abrupt decline in deliveries, probably forcing tbe Soviets to maintain exhort* dene to current levels through ihe end of the century i"
OO will not be rccaaced ashard eatrrcney earner,rxmbiruiioa ef initiative* could reduce the prcsiure to maintain oil capons. Moscow could:
Increase aoaeaergypart, by promoting joint ventures with Western firm* lhal improve tbe compctilrvencsa cf Soviet products. We estimate (hat annual hard currency earning* from nooenergy export* may Increase as much is S3 billion in lhc. Earning* from arm* sales are also likely to register only modest growth, mainly be-cause low oil prices will continue to (lifte repayment ofstern aim* debthe USSR.
./vC
Borrow more from Ihe West. Although reluctantncrease hard currency debt. Moscow'i ardli tiand-Ing would probably not suffer from an increase in debt of SIOotalise,would provide, alemporary respite, laaimoch a* il increases ibc need for (mure hard currency eiport earnings.
Make do with lea*gambling thai modem-iratian of tbe Soviet economy reduces ibc need for Western imports end accepting ibc hkdy slowdown in import-dependent industries and agriculture.
I.mIi additional billion doUort of hard currencyfrom other sources could ensbk Moscow lo reduce oil exports. at SIT lo Sll per barrel orerceni of tbc current hard currency oa. capon level
Prxaswce Energy Mere FAckntrr Inxpon Mar* Wextern Irehaology
The Soviet* will probably want to rdy more heavily on Wcsiern lupplks of cauipmcnt and technology for energyuccessfuli program. Useful and, in somerucial imports would Include:
Urge-diameter pipe and be*tpo-layerx for laying ibe major transcontinental gas trunklincs. essential lo continued expansion of gas
raoductaon.
- Weaiera drilling, wefl-conipktion, aad process.ag equipment for developing ihe "tour" oilfield* of Ihe North Caspian, necessary if Moscow ite sny hope of Hireling iu production goal* for thl* region.
energy-efficient equipment for industry and, particularly, Instrumentation lo monitor and control energy use.
Paying for Increasedf coarse, potcatially coaOkti with Ihc goal of rcelacing oil production aad oil eiporti Tab dikxntna flmitr* tes Ihcnergy policyneed more coerr>in order to make do with Icsi touterraw jj
inSOV
m. VSSK Ct**m il- "Wlw i.wvrwi
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Original document.
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