THE IMPENDING SOVIET OIL CRISIS (ER 77-10147)

Created: 3/1/1977

OCR scan of the original document, errors are possible

Intelligence Memorandum

The Impending Soviet Oil Crisis

NATIONAL SECURITY INFORMATION

The Impending Soviei Oil Crisis

The Soviet oiln trouble. Sovfetjoil production will soon peak.

possibly is early as next year and certainly not later than the. The

maximum level of outputikely to be betweenndillion barrels

per dayup from6 level4. Maximum levels nrc

not likely to be maintained for long, however, and the decline, when it comes.

will be

"

The Soviets have two basic problems: one of reserves and one of production. Barring an extremely unlikely discoveryassive new field close to on existing field, new deposits will not be found rapidly enough to maintain acceptable reserves-to-production ralios. and those fields that account for the bulk of Soviet production are experiencing severe water encroachment.esult, increasingly large quantities of water must be lifted for each barrel of oil produced, and high-capacity submersible pumps-obtainable only from the Unilcd States-will be required if production declines arc to be staved off even temporarily.

During the next decado. the USSR may well find Itself nol only unable to supply oil to Eastern Europe and the Wcsl on the present scale, but also having to compete for OPEC oil for its own use. This wouldarked change from the current situation, in which exports of oil to lhc West annually provideciccnl of total Soviet hard currency earnings. The USSR has large reserves of' coal and natural gas, but those scheduled for exploitation over the next decade arc cast of lhc Urals, far from consuming centers in the western USSR. Distance, climate, andin will make exploitation and transport difficult and expensive. Exports of gas will increase, but will not compensate for the loss of earnings from ihe export of oil. Although some substitulion of cool and gas for oil in domeslic use will bo possible in the long run. Ilio effect of such substitution will be minimal

Note: Commc"queries regarding this memorandum are welcome. Theydirected lo

the Office of Economic Research

The Problem

I. Unlike the United States, which has long restricted produclion for reasons of conservation and profit, the USSRorced draft approach. Short-term production goals are considered floors, not ceilings, and rewards are given fot exceeding them with little regard to productivity over the longer term.hese conditions, Soviet production has expanded much more rapidly In the lastears than that of the United States.

he Soviet slakhanovitc approach has led lo (a) an emphasis on development drilling ovcrexploralion. with the result that new discoveries are failing to keep pace with output growth: (b) overproduction of existing wells and fields through rapid water injection and other methods, with the result that less of the oil In place is ultimately recovered; and (c) new capacity-requircmcnts that soon will run far beyond the Soviet oil Industry's capability. Efforts to further increase production-such us arc demanded by the goals of the recentlycar plan-can only worsen the situation and muke tho eventual downward slide more rapid.

T

USSR: Produclion of Crudey Region

Million flnnflifwr Da>

Estimates

Peak Out put

region and Urals

Tartar

Volga

and Arkhangei'ik

region

9

Siberia

Asia

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s tho ratio of reserves to output has fallen. Ihe bulk of Soviet output has come Increasingly from fields approaching exhaustion. Tho result has been an acceleration of drilling requirements, which will level off or decline only when-andcry largo new additions uro mode to the producing reserve base. Tlie Soviets SKnk of this problem In terms of the depletion offset-the amount of new capuoity required to offset depletion of old capacity Incnr plan period.

t

lan period,illionyear) of capacity had lo be replaced.er ycur) of replacement capacity was required bccutue of rapidIn another way. aboutercent0 capucity had to bethe endhe target forlanillionmillion tons per ycarj.of newqual topercent of lhc capacity on linelno offset depletion.more rapid than the Soviets expect-and. based on' their "past record. Itbe-considerably more of5 capacity will have to be replaced.

Reserves

There is uncertainty about the size of the USSR's reserves, because of definitional problems as well as Soviet secrecy. Our best estimate is that Soviet proved reservesillion barrels, roughly comparable with those of the United States. There is no doubt that Russian proved reserves have been falling In recent years, and there is very little chance that enough new oil will be discovered during the next few years to appreciably improve the rcscrvcs-to-producticm ratio. Indeed, despite major efforts it will probably deteriorate further.

Although the USSR has abundant potential reserves in Arctic, East Siberian, and offshore areas, development of such reserves is atecade away. Thus, during the0 years, almost all Soviet output will have to come from existing fields and from new fields instlng producing regions.

The Outlook for Output from Existing Production Regions

From World Warhe growth In Soviet oil output came either from the Caspian fields or, after the, from large fields In the Urals-Volga region.early all output growth has come from West Siberia, primarily from the giant Samotlor field. Current Soviet plans call for holding aggregate output nearly constant west of the Urals, whllt, doubling production in West Siberia. Becauseariety or problems, wo believe that output went of the Urals will decline, while that of West Siberia will fall far short of doubling.

Production from fields In tho western port of the country Is coming increasingly from greater depths and from In-flH drilling which allows more Intensive exploitation of already topped reservoirs. All growth In output0 will

USSR: Additions to OH Producing2

BARRELS OF OIL PER DAY

flip

... 1 i

OfFSET

plin

COM from West Siberia, where Ihe Inhospitable climate, difficult terrain, nnd vast distances greatly compl'cutc operations.pproximatelyercent of West Siberian ourpul and roughly one-fifth of national production canu fromt Samotlor field on the middle Ob'.Soviet sources indicate that this field will reach peak production In the next year or so and will hold peak levels for no moreears. It Is already experiencing rapid water Incursion. The water cut reachedercentnd increasing quantitiesfluid (water plus oil) must be lifted to recover any given quantity of oil. Although new" fields arc being discovered In West Siberia, no giant fields comparable to Samotlor have been found.

The Drilling Problem

l '

he USSR does not have the drilling capability to pursue adequate development and exploration prognimssimultancously.The Soviets havective rigs, about the same as the Untied States. In terms of meters drilled, however, the Soviet effort amounts to only about one-fifth that of the United States., the Soviet Ministry of the Oil Industryotal of aboutillion meters.5 alone, the United Slates drilledillion meters withigs. We estimate that, evenaximum effort, the Soviets will not be able to come close to drilling0 theillion meters called for by theirear plan.

poor Soviet drilling record Is in part the result of the fact thatof their drilling is done with turbodrilling rigs that arc highlydeep drilling or for use in soft formations. Greater access to advancedand rotary drilling equipment could help alleviate the Soviet

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The Fluid Lifting Problem

, when wells Inis-Volga region began to stoptho Soviets were forced to begin pumping, .aj that time,equipment was in short supply. Tolowdown in thjoil output, the Soviets adopted the practice of massive water Injectionalong the edges of each field. If. enough water Is forced Into araises reservoir pressures so that wells once again flow without pumping.system differs from the standard Western secondary recovery technique of

b/d. The Soviels had0 of these pumpsnd their need for such equipment is increasing rapidly as water encroachmentroblem in more and morelthough some West European nations und the USSR itselfower capacity version of these pumps, the Soviets recognize that tho only pumps adequate to deal with their lifting problem arc made in the United States.umps already purchased from the United Statesigher total lifting capacity than the ll.OOO-pumps of domestic-Origin. Even In the United States, such pumps are manufactured by-only-two companies and are in short supply. As an alternative to high-capacity submersible pumps, at least in some fields, the Soviets are considering wider use of gas-lift equipment. The kind of projects they have in mind would require large-scale imports of US technology and long lead times.

The Longer Term Outlook

The Initial falloff. whcnlt comes, will olmost certainly be sharp; thereafter output may continue to fall sharply, level off, or perhaps even increase as new fields are brought into production in frontier areas. There Is no question that new fields-some quite turge-will eventually be discovered. Given the rapid rate of depletion of existing fields and the technical difficulties associated with exploration and exploitation In frontier areas, however, wc doubt that the new discoveries will come on stream rapidly enough to do more thur. temporarily arrest the rapid slide of Soviet

As we staled earlier, only small amounts of Soviet production during the next decade will come from outside existing producing areas. In theew offshore Caspian reserves may make some small contribution to output, us will new discoveries on the Mangyshlak Peninsula on the east shore rn the Caspian and In the Pechora region west of the Urals. The Soviets also hope to find oil in deep structures In the northern part of West Siberia's Tyumen' Oblast. Limited exploration in this region, however, has so far yielded mainly natural gas and

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conditions favorable to large future discoveries exist overthe Arctic offshore regions (especially in the Barents and KaranSiberian lowlands, In deep structures In the Caspian area,erhapsand Sakhtln in the Sea of Okhotsk. Production from most ofhowever, Is atecade away. In the offshore Arctic, environmental

conditions arc much more pevere than In the North Sea; technology for exploration and product len In this region docs nol yet cubit, even In the West. Although conditions arc more favorable near Sakhalin and in the Eosl Siberian lowlands, production and transportation,ake it doubtful that significant production could take place untilearsajor discovcry-which has yet to be made. The lead lime would be shorter for production from deep wells in the Caspian region; the USSR, however, lacks the equipment and experience necessary toeep drilling program without cxfchsivtrWestcrn help.

Economic Implications

oil production slops growing, and perhaps even before,will be felt on the domestic economy of the USSR and oneconomic relations. The extent of such repercussions can beat without farther research.inimum, the USSR will find Itto continue to simultaneously meet its own requirements and (hoseEurope while exporting to non-Communist countries on the presentpessimistically, the USSR will itself become an oil importer.

. These are Important considerations for the Soviet Union, ll now supplies three-fourths of the oil required by the Communist countries of Eastern Europe, ond it undoubtedly wishes lo retain Ihe political and economic leverage that goes with being' their principal supplier. For many years the export of oil to non-Communist countries, mainly in Western Europe,n the USSR's largest single source of hard currency.

i In the long run, considerable substitution for oil will be possible domestically and perhaps in export markets as well. The USSR has large reserves of coal and natural gas. Development of these reserves wilt take time and large capital Investments. The cost of Soviet energy almost certainly will Increase. The largest known gai reserves are In permafrost zones of Siberia where production and transportation will be difficult. Deposits ofcheduled for exploitation In the next decade are also cast of (he Urals; considerable investment In transport facilities and on-site thermal jwwcrplants and other coal-using Indiislrln. facilities will be required

power from hydroelectric arid nuclear powcrplants will makesmall contribution for many yean, to come.:Although there are vastIn Eastorn regions of the USSR, the technical problems of long-distance

transmission must be solved before such resources can be fully exploited. TV Soviets consider nuclear power to be the best source of new electric power in Europeanrogram for constructing nuclear uowerplants Is under way, but It will be quite some time before these plants can have an Important effect on the power base.5 nuclear powerercent of total power production, and It will reach onlyercent

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