Soviet Oil Prospects
LCiA HISTORICAL REVIEWRELEASE AS SANITIZED
iiprtparcd by II
This repori updates ihe CIA study of Apr7 on the Sovkl oilhat study concluded that Sovkt oil product ton would peak, possibly as earlynd certainly not later than Ihe. We luithcr noted that ihe maximum ootpui reached would probably be betweenillion andillion barrels pcrdayitydland would probaWy not be maintained for lone. Finally.concluded lhatS output would Tallillion and.
We arc in the process of an intensive review and updateTesiimaie. All Of the problems that we foresaw the Sovieis facing; are emerging, although output in ihe near term may be .omewhai higher lhannuci-paledhis report summaries the results of our research thus far. Il has been prepared because of the criiical natureof the Sovkt oil problem (or energy policy worldwide and because of its potential impact on Soviet policy and East-Weil relations.
Thc central finding is lhal. despite extremely cosily e( lor ss. Soutput, at most, it lifcdy lo remain at about thc present level ofor one lothrecyearsandihenbcgipiodecline. Wc eiiimate ouipui5 betweenillion and.urther decline lonly the rapid discovery of very laige amounts of new oil can averi this outcome.
If oil produciion Tails by theo Ihe levels we ex peel, ihc Soviet Unkm will be unable to satisfy'mmm evil requirements and lo maintain exportss client states and Ihe West. Moscow, therefore, will have to make painful chokes in allocating scarce oil supplies between mtciine its domesiicneeds and ihose or Eastern Europe and in maintaining enough hard currency cjporls lo finance higb-priotity imporis. The Communist countriesroup are alrcndy fast losing iheir net export position and probably will be net importcri'-
' ThcennclmloMOf lhat studyhighly sonItovcitliIII Ihe llmr.Sirec Ihtn. however.
more aad more spceUlisti onSovlei energyome to ihire ourviews set forth here art siiS notto either within iBe government or among outside
r^rnparuairulorbic'ven.. for tu moat, talesmoit Oplimittie view of Soncl oil prtnpoctl.
SOVICt Otl Pi il
The Sovici oil industry is in serious trouble. There ire twoois of ihe problem;
nvestrncel while- im -ir, output. Ihc Soviets havetheir largeii and best deposits. Their peoductOo strategy leads to rapid reserve ohaustion and sharp declines in output once produeiion peaks in any iodiwiml field.
The strategy worked well (or the Soviets at lone as they were finding enouih large fields to replace those ia decline. No such fields have beep found in the past tia years.
Thc problem caught the Soviets off guard. They had anticipated more discoveries and had substantially overestimaiedount of oil iney would recover at eimine fields.
Thc Soviets have attempted to compensate for these problems end lo keep production rising by greally increasing investment in recovery and drilling. They are installing pumps and other arlifieial lift equipmentastly increased scale, while at the same lime attempting to drill and develop large numbers of smaller,ields. TV*ushed up the share of ihe oil industry and supporting infrastructure in total rulional investment. Moreover, costs will mount rapidly in Ihe not few years because the decline of production in older fields is accelerating and average production (torn ne- wells in smaller deposits is low.
In short, the Soviet oil industry is on an acceleraiing treadmill. Ptodueiion no- totalsillion barrels per dayhe largest in the world. Simply maintaining thi level of production, however, requires developmentn new capacity each year. In ihe past, large new capacity requirements were relatively easy to meet b,ew wells in highly productive fields. Now, drilling requirements are massive because of the deteriorating qpalily of known reserves. In the. for eaamplc. the Sovieis added new capae.
ilyofler yurm WestSibeatafby drillingew prcdLciion wells thaiach) to raise national.1 they plan to add new capacity ofer year in West Siberia (by drillingew wells thatach) to raise national production lessb/d.
Record to Dale
From World War I)1 be Soviet record in oil produciion was enviable. Produciion goals were consit-tcnily mei or exceeded at small additional oast. Annual production gains have slowed sharply in the last ftyears. Irom5 to onlyheconomic plan called for productionctual outputuain ofver ihc previous year. Thc plan1 calls for production to increase by only one-half of0 increment
no- stagnating or declining in all major Sovsel rail-producing regions except Komi and West Siberia. Urals-Volga produciion. for caample, hat de-elinedince output peakedropping he decline to-flccis the near collapse of Output ia the rcgioa'a largest producing field. Production in other traditional producingNorth Caucasus, the Ukraine. Cen Iral Asia, andalso declining. Al-together, oil production ia these areas, plot ibe Utah-Volga has .lipped by0 Ihe decline was. Moscow had not anticipated this decline; ihelan called (or outputete areas lo remain aboul constant
Almost all of the growth in Sovici oil produetionthe last decade has come from West Siberia.at Siberian product .on reached. up0illionboul half of the total comes fromergiawSamotlor field. Becawie of its high-qualily
R MiI"JtJC ptlAloi-
lion gains f'omili relatively until rum ben of driller* and oilier oilfield workers. Tehetp compensate for production shortfalls else-hcre. the Soviets have -orlcd Samottor harder than any major fleld in ihc -arid.csuli. ihc field it about lo decline afte'ev. year* near peak output. Most of Ihc otherarge West Siberian fields lhal account for thc remainder of ihc rcaion't output hate already peaked or nrc in decline, accordincoviet Industry opens
Thcieeentl,ive-Year Plan calls for only small Increases in total oil production. Output is plannedite an averagennually,ven the low end of the ranee depends on West-here ouipui is targeted to increase by. reachinghe SovkUctpect oulputin traditional producing areas io declineS.
The Reserve Problem
To achieve even ihe low end of the planned rangehe Sovicit rn.ll find new. high-quality reserves soon. Since Moscow keeps reserve data secret,of reserves must be made on the basis of incomplete and Indirect evidence. Moreover, ihc Soviet reserve classification system is completely different from Western concepts, complicating comparisons.i* ditfacrvoc* rreooe-tlyin what ii beingin place versus recoverablecrves. for caamptc. Difference! like thilplaia why some estimates place reserves alillion barrels or more white others areillion barrels or lest.
We estimate that the volume of remaining recoverableprobable, andFields appTOairnateillion battels. This is bated on tn intensive review of Soviet technical literature, wtikh contains large amounts of scattered data on discovery rates, individual Field reserves, as wdl as tlaiemenu regarding thequnliiyof reserves. Weet-tlmatc that developed reserves io culling producing areas total ubotuillion barrels. Since this fie-ie includes some viteous oil and reaerves with low flow ratcs. ihc siOCk Of high-qua lily reserves thai can be
prmtucta. luiriyie i. >uO>luiilialiyt)
This reserve bate it insulTieieni lotusuin SovieTout-put atevel, for very long Withillion barrels the reserve-to-productionlready declining sharply. The ratio of total discovered (cloves lo produce ion has dropped ton lhe case of drilled reserves in eaisilng producing areas. Ihe niliois. not much better lhan in ihc United States, deluding Alaska. Mweover. ihe ratio is declining ia West Siberia.as well astradltlonal producing areas, becauieharp decline in discovery raies.
FalCng Discovery Rales
The odd: on finding major new detsotitt that could be brought into production quickly appear to be shrink-ing. In ihe USSR, as elsewhere in ihe world, giant fieldi accoum for most of reserves and output, la Ihe older prcdueing neat of the Sovaci Union. Isowcvec. Only five giant ficldi have been round in the last JO years. And in (he newer region. Wesi Siberia, no giant Field hat been located since the Khc*rnogor field -at Toundey Indication ofthe erosion in thc quality of West Siberian reserves is the projectedin -ellvolume of oil (hat each new well canlhe net! fiveccording in .Soviet luccia.isli. well prod uctlviiy wit! decline byercent$ compared with the previous five-year period.
The failure (odiscover any giant fields in Wet! Siberiaas substantially lowered Ihe rate or finding reserves. Thai rale fell fromarrels per esploraiory fool drilled in thcn Ihe6ndn the last five years.esult. Soviet specialists ateconcerned abotn the lac* of good discoveries and falling reserves in West Siberia. Because of ihe sharp increase in production in recent years and (he fall in discoveryreserve-lo-product ion ratio in Weil Siberia may bedeclir-ing faster than in any other producing area
, lannul Itocuul theufimg- net
fields inlherwiio.f.hor: ciicntauns ofonshoir
producingin* Caspian. Bai.nti.Of ihe<e. dnowcTKs in the deepof
heUhely lo be brought oo urcam tefoc
butdociioo it (tot batty. [acvelopmcnl la other ariai trill email long lead lima Thc Arctic, for ciample.onlyciptored. Although Arctic onshore andhore potential it considerable, tiplora lion and development will require itchncdonr that is not now available cither in the USSR or In thc Wctt. At things now Hand. scUmiclmsrialioni binder Soviel caploraiion tn per mi (roilelow lalt layers, and generally alvuert
To3 tMargets. Ibe Soviciwill have to add mote lhancapaciiy to olftct ihe depletion officiosproducing areata) well at Wen Siberia. VYuhof high-quality reserves availingwill hate lo increase much falter lhan injuil lo mainiain nutpul. Sovici plannersproblem, and current plans call for total drillingthanive years,} Moat of thelannedSiberia, where developatcrt drilling ittriple ihc present effect, loillionflam call for this drtilingIIanesrn in
be prrviouicii period. These diilling targets probably will not be achieved.
In addition to vastly increasing Ihc drilling effort the Sovieti simultaneously will have lo put large numbers of persona el in place io service old went, pumps, and other artificial lifi otuipmcat. Sibcriaa working coa-ditmrit arc difficult, mainly because of thc climate boi alto because tfcrpang requirements for equipment, well caimg. personnel, housing, and food overload ihc- II .ii ayttcm. Poorly sorted aad tuoacly contolirUtci) leditncnts add to Ihe problems; drilling is more difficult, and submersible pumps wear outew months
. Inc Sovitis arc now in tne pemeu oi shii'ting
rom traditional prndueing areas tn
because new veJlthough faC
hat ply- rthei lhan in theOtdcf producing
areat Th* tfci't protnKy will re salt in ttctpei pweVuC-lionhe Utah Volga area and clsewheie than ihc Soviets now etprctey are able to train new crews andgt rapidly enough lodrilling in ihe oh) area*hey were unable iu replace shifted rigs and crews, and we rloubi Ihey will be able lo do so in the fulorc because of lam ceoccniritffl of the" efTe-'i on West Siberia
While the Sen nii iccognirc IM need for mataiveIhc scope of ibc prolilcm has caught them hy 1'"r one thing, ihey did noteipect Ihc finding rale for giant fields to drop al suddenly as it did la addition, during. Soviet cal experts had to revueere estimates of Ihc percentage of ihe original eat in the ground thai could be eiiractcd wilh eurre nt techniques byercent per year0 These unforeseen rrvisionicqualr loa write-off of estimates of high-quality reserves on ihe order ofillionequivalent of Us to eighti of output ai turrtni rates. Before these downward revisions began la the, thewere countingecovery rate of mote thanercent nationwide, cranna red with onlyercent lor Ibc llmled ill Its.
We doubt that the So.-si can mod theirbecause of ihc lack of high quality reservesdifficulty they wint having theirIo meet these imote m- -
serves than we think they have, or more discover tea lhan we think Ihey will make We eapccl Soviet oil output lo remain at about present levels for one lo three years and iheo begin to declineuipul will probably b* betweenillion and. dcebaaat;0 Oil output could remain at abouty if the Soviet) quickly find Urge, tatily produciblein aiteoiblc areas. The odds on thit happening are poor.
paOycCICV ranges lo* SO"el OH prOUMilur arc
bated onoptimulie and iiettliniiiicn ihc lira of llic leieiveie rtte ol dttrovciy jlicier" i. Ihc decline in ihe productive rapacityieldi. and Ihc i1 Jivilopmcnt drillingupalinvolve lacioii affecting production incfia Wuh rapedhc rest O* Ihc country.re only lligkaly marc penihan ibc Sonets ihcimcKcl
Although the oeil arc planning outputbove ihoseelieve likelyhcie is lillie doubt lhal Ihc Soviet Government understand* itcrtoui oil problem. There arc many indication! thai senior planner! and party officii Ii arrool the shunting reserve bait ihc growing prodoe-lion pro**mi. and Ibc rnaitrvc intmiiia lhccoi< of dcvclopinf Oal and gas. vvaocfc it slrtady cuttle* sc-verely in lo other investment programs Thc Soviet Government iita effort io ilr-elop tad find oil. la hoping for ihc boil, and ii trailing to luck Thil strategy makes good politkal sense, given lhe likely brief remaining duration of ihe Brclhntv leiderihip. Unlet! lhe Sovicti arc very luekly indeed, theirwill sooner or later makeroUtmt ihey produce their reserves finer in theaeai few year-i. the tubteejacai decline inoanpol win be greater.
If Soviet oil production toon begin! io decline at wc
cipccl. Mot cow will have lo make difficult decisions
how wmeetmoi andoi
Eu'ope without turninget eiporter toihe West loa nrloil importer. We do not etprel the USSR iocteal imporicr by IMS iopart hecanciu
ccorvomac growth will bellow. Theroup, however.iim, laaing latir net eiport petition and probably will be aei uraportcri by IMS.
The So*tctt wall attempt lodcal wiih ilower growth in total energy production by tubililuling nlhcr energy sources for oil and by cutting energy uie through conservation Wilh coal production ilagnating and nu-
clear powri inaiimaii uul growingric. Mcmxiw muti depend ond natural gsito tubstilolendloeo.tr incrcatcs in
energy consumpton Most ol ihc iner'eaietn gaiou'put ihrougb Ihc ravas-l'SOt -ill obi notgrowth indomestic oil aeedi because gai will be used in nc- (Xaruiiad ta^aipeneal lhat caK'-ne would hat consumed oilrge abacaW redactoil rcetuircnvcats through convenioaof existing captlil stock to gas wall not occur until aa eiieosirc. cosily network of gai distil but aon pipelines is conil ratted.
Energy eonseoation. raoreovti. via be very difficult Most energy iiconiunnd in heavy industry; houtc-holds use lillleenoigy, and energy use in transportation is already ouiic efficient. Tlve USSR hasigh-priority energy conservation policy lor the last three yearsies mainly on central directives and ei
hortalions. but energy.to
more rap-Sty than eccuaoarne activity Uadesi lubstaMial rcfarmi are made ia management systems and overall bane praoriuet. energyill probably eonurain Soviet economic growth daring
Ouring Ihc neat few yean. Memo- can cushion the effect by cutting in oilporta to the West. Eventually, the| have loalance between Ihe need loctport energy to pay for hlgk-riiority impods
and the direct requirement! for energy in their dnmtt-
ticer natively, Mowow could cut eiporis to Eaitern Europe, but only al lhe list of worsening a
highly amiable Maatieav
The West can probably do little toaal decline inoil prodnse of
Such Western coaacancat at pvmpa. drill bits, and gai
lifl equipment eoaU help to moderate the decline somewhat. In the longer term. Urge-wale access io thc
best Western technology and adnce Coald be of great
help to tlw Sovietsiptoeing for andfieldi.deep depotill. andfreldi inOriginal document.