Created: 3/1/1970

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Developments_in_the Fuels Industries 2. The USSR leads the world In the production of coal and ranks second to the US in output of crude oil and natural gas. The rate of growth In production of fuels In the USSR, however, has been declining for several years and without substantial increases in investment is unlikely to improve in the near future. verage annual growth in output of major fuels wasercent, compared withercent annually. The unfavorable performance of the fuels Industries in recent years results from the failure to solve several chronic problems related to the allocation.of investment and the management of investment programs. Growing demand for fuel coupled with depletion of resources in older producing

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areas, many of them remote from centers of consumption and affected by severe extremes of climate. Some of the exploration and productionand equipment now employed are not suited to the changing geologic and climatic conditions. esult substantial capital investment for modernization and reea.uipment will be required. In the recent past, however, increases in production per unit of additional investment have been growing smaller, at least in part because more output has come from remote, high-cost areas.

2. The record of plan fulfillment in the Soviet fuels Industries8 was the worst in recent years. Only the goal for production of crude oilillion tonswas achieved, while the output of gas was

underfill filled byillion cubic meters. Production of coal not only failed to meet plan, but actually declined for the first timel. There was sora improvement, however,9 when coal production rose sharply,bove plan. Crude oil output met plan, tut the percentageas the smallest in the postwar period. failed to reach the goal byillion cubic meters. (See The achievements In oil and coal production9 were significant, considering that output in the first half of the year was behind that in the same period8 because of the severe winter weather in

3- Annual goals for production of crude oil0 have generallyulfilled, and at times overfulfilled. owever, the rate of increase in annual output has fallen steadily, and9 it reached the lowest level of the postwar period,, despite the record productionillion tons. The plan0 calls for production ofillion tons of crude oil, aboutillion tons more than9 and an increasefll. This goal, although somewhat optimistic, can be achieved if production difficulties in Vest Siberia can be overcome.

1). Output of natural gas has failed to meet annual goals during the past decade because of inadequate investment in producing and consuming equipment and in pipeline facilities. roduction of natural gas reachedillion cubicillion cubic meters below plan, and an increase of* he lowest rate of Increase2

whan this branch of the petroleum industry vas still insignificant. The goal tor production0 was lowered9illion cubic meters toillion, and even the reduced level may be difficult to achieve unless further progress is made in solving the problems of providing adequate pipelines and producing and consuming equipment.

5. Construction of gas pipelines has been given priority in the Soviet Union because natural gasow cost, clean, and efficient source of energy that can be transported economically, only by pipeline, esult of the lover priority given to building oil pipelines, about Uo* of all oil moved in the USSR is transported by railostimes that of pipeline transport. The USSR leads the world in the use of largo-diameter

steadily and has not kept pace with plans because of shortages of equipnent, such as valves, compressors, and pumps, and because of difficult supply-problems in remote areas, especially In Western Siberia. For example,nlyilometers of gas linesilometers of oil lines were built, the lowest annual totalowever, one of the best completion records was achievedilometers of gas pipelinesilometers of oil pipelines. With the erraticof pipeline construction, it is doubtful that0 goal for construction of oil pipelines can be achieved, whereas that for gas pipelines could be with anothen outstanding year of construction. At the endhe length of the gas pipeline system was more than

ilometers, end the goal00 kilometers. The oilnetwork amounted to0 kilometers at the end To reach the goal0 kilometers by the end0 moreilometers of oil lines would have to he built in one year, on achievement not previously attained in oil pipeline construction.

Soviet demands for high quality petroleum products are increasing but much of the specialized refining equipment required to produce theseis not being installed as rapidly as needed, or when completed is not operated at design capacity. Expansion of existing refineries has not been completed on schedule and the proper mix of products to meet seasonal and regional demands has not been provided. ingle new oil refinery was rttrttil?f? 6? ave not as yet reached the blueprint stage.

Production of oil industry equipment, primarily refining equipment, has fluctuated within wide limits during the pastearsow of0 tons5igh ofons Irregular delivery of equipment probably has contributed to the failure to complete refinery construction or. schedule. utput of oil equipment amounted toons,ons less than00 tons leas than Not6 has output of oil equipment fulfilled the planned goals.

Exports of oil from the USSR8 increased aboutbove thosehereas9 such exports did not increase. Annual rates of

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increase in exportsowever, averaged

In_ for th0 flrat tjjm slnceamn th8 sovlet union

et exporter of oilxports of oil to the Free World declined, byillion tons (see Oil exports to the Free World havelargest single source of foreign exchange for the USSR during the past several years. Hard currency earnings from such exports amounted to0 million Early. Shashin, Minister of the Petroleum Extraction Industry, stated that Soviet exports of oil will not increase significantly in the future because of rising domestic demands for oil. He said that the Soviet Union willigh level of exports to Eastern Europe, but doubted that exports to the West will continue to increase

9. The USSR evidently Is committed to supply larger amounts of oil to meet the rapidly rising needs of Eastern Europe. To provide this oil the Friendship crude oil pipeline system between the USSR and Poland, East Germany, Czechoslovakia, and Hungary is being paralleled. esult, Soviet exports to the Free World may continue to decline, along with earnings of hard currency from such exports. To enable the USSR to provide the petroleum needed by Eastern Europe, most of the East European countries have agreed to invest in the development of Soviet petroleum and other industrial resources- Within the past year or so. Eastern European countries that are heavily dependent on Soviet oil have signed agreements with Middle East countries to import supplemental quantities of Middle East crude oil in exchange for commercial


In the latter part9 the USSR signed agreements to export natural gas to West Germany and Italy in exchange for large-diameter pipe. The imported pipe will he deliverednd will facilitateof Soviet gas and oil pipeline systems. These gas exports eventually will earn foreign exchange and thus may compensateecline Jr. oilto the Free World. Until thes, however, the USSR willet importer of gas, as imports from Afghanistan and Iran will exceed total exports.

The Soviet coal industryB9 showed sharply different production results. utput wasmillion tons,illion toss Iczz than, tin firs*1 only if. the postwar period. Commissioning of additional mining capacity also lagged badlymounting to onlyillion tons, compared with an average of more thanillion tons per year owever,of coal amounted toillion tons,ore than plan. million ton increase was the largest5 when output roseillion tons. The program for modernizing and re-equiping the older underground mines, which has been underway for atears and which has lagged behind schedule, may now be starting to pay off. With this indication of improved output,O goal of 6l8 million tons seems readily attainable.

Most of the capital investment in the coal industry lias been allocated to the development of high cost underground mining areas, such as

the Donets Basin. In the extension of mining to greater depths, unforeseen and difficult geologies! conditions were encountered that led to higher unit costs. Nevertheless, greater attention is being given to the production of coxing coal, as there is no adequate substitute for coke in the manufacture of iron and steel. Huge deposits of low-cost, low-quality coal in the eastern region have not been doveloped as expected because of the lack of consumers in the area. , investment in the coal industryhole rose at an average annual rate ofwhile coal production increased at an average ofear.

13. Soviet exports of coal and cokeemainedat aboutillion tons per year. Of this total, almost 9itillion,rtcf. *hc

industrialized countries of the Free World.

Ik. Although the USSR is the world's leading producer of coal,oil and gas have accountedarger share of total fuelthe expense of coal. rude oil surpassed coal for theas the major fuel produced in tho Soviet Union (see Incoal will be consumed mainly In those sectors of the economycannot be replaced or where it Is cheaper than oil or gas. Increasesoutput will dependarge degree or. expanding production ofuse in the metallurgical industries and on the use of coal as athermal


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a/ Data dYrivcd from official Soviet trade statistics (Ministry of Foreign Trade, Vncshnqy*

Torgovlya Soyuz/ Because of rounding, components may not adl to total shovn. 5/ Preliminary estimate.

Tabic Share of fuels in nationalin percent)




Pre lininary estinatc.

1/ Data derived free official Soviet statistics of output of fuel, expressed in units of standard fuel, Central Statistical Administration, Harodnaye

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