DRAFT OF SPEECH BY ADMIRAL TURNER BEFORE THE BUSINESS COUNCIL MEETING IN DENVER, OCTOBER 1977

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80B01554R002700220001-2
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 99
• Document Creation Date: December 12, 2016
• Document Release Date: October 19, 2001
• Sequence Number: 1
• Publication Date: September 29, 1977
• Content Type: SPEECH

STATI NTL
25X1A
Approved For Release 2001/11/22 : CIA-RDP80601554R002
Draft of speech by Admiral Turner before the
Business Council meeting in Denver, October 1977
29 September 1977
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
ILLEGIB
ILLEGIB
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
I. For over 25 years, CIA has been the major producer of
economic intelligence in the US government.
A. In the 1950s and 1960s, we concentrated mainly on
the Communist economies. We now devote substantial
analytical resources to non-Communist countries as
well -- both developed and less developed.
B. We produce intelligence using a regional approach
West European countries, the USSR, Japan, South
Africa, Indiafetc. -- and a functional approach --
energy, world food production, the North-South dialogue,
multilateral trade negotiations, and others.
II. The Soviet economy has been a unique concern of CIA
from the beginning, but our emphasis has changed over the
years, largely as a function of evolving national security
perceptions:
A. Until the late 1960s, we concentrated our resources
on analyzing the ability of the Soviet economy to
support military programs.
B. Since then, because of US concern with improvement
of US-USSR economic relations, more resources have
been devoted to research on East-West trade matters.
C. Because of renewed concern about Soviet military
programs and indications of growing Soviet economic
difficulties, we recently have supplemented our
analytical resources.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
III. Research on the Soviet economy poses special analytical
problems because of the relative paucity and poor quality
of the data. We try to overcome this problem by:
A. Carefully combing all relevant open source materials,
including two dozen Soviet newspapers, more than a
25X1A hundred Soviet periodicals, all Soviet official statis-
tical publications, and numerous Western specialized
and general publications.
B. Using information collected through unique intelli-
gence sources.
C. Developing more sophisticated techniques of analysis,
including the latest econometric methods.
IV. We have recently completed a major review of the Soviet
economy. The thrust of this study is that the economic
outlook is more bleak and the prospects for policy choices
more uncertain than at any time since Stalin's death.
A. The USSR will soon enter a period of reduced growth
potential with possible bottlenecks in key commodities,
especially oil, which could reduce growth even further.
B. The basic problem is that the formula for growth
used over the last 25 years -- maximizing crude inputs
of labor and capital -- will no longer work.
C. Moscow also will be confronted with a new set of
difficult policy problems, especially involving energy
use, imports from the West, relations with Eastern
Europe, and the size of their armed forces.
2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
V. The reasons for poor Soviet economic prospects include
the following:
A. The number of new entrants into the labor force will
become much smaller in the 1980s -- the result of
reduced birth rates in the 1960s.
B. Productivity gains have been slowing for years and
new problems likely will depress productivity.
C. The Soviets also are going to face an energy crisis.
They are not finding and developing new oil deposits
rapidly enough to offset declines in older fields. As a
result, production will begin to fall in the late 1970s
or early 1980s. Fol- example, we expect oil production
by 1985 to be between 8 and 10 million barrels per day
far below what we estimate to be the maximum potential
of 11-12 million barrels per day.
1. The Soviets will need US-made high capacity
submersible oumps to stave off or slow the expected
fall in production even temporarily.
2. Beyond the mid-1980s, the USSR is countinT:on
developing large new supplies of energy -- includ-
ing coal, natural gas, hydroelectric power as well
as oil -- most of which are located in remote
areas of the country.
3
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
3. The development of these energy sources, however,
will not prevent the rate of growth of energy output
from falling sharply in 1981-85.
VI. If the USSR does not have sufficient energy to support
desired levels of economic growth, then it will face a turn-
around from its present net energy.:expart position to a net
iriport position,. However, the longer the USSR delays
adoption of a top-priority energy program, the greater will
be the economic impact in the 1980s.
VII. A marked reduction in the rate of economic growth in
the 1980s seems inevitable.
A. A plausible forecast is a growth of GNP of about
4 percent a year through 1980, and roughly 3 percent
in 1981-85. By comparison, growth averaged 4-1/2 per-
cent in the past decade.
B. Economic growth could be further constrained by
an energy shortage if the output of oil falls to
the lower end of the expected range as noted above.
C. The reduced growth potential means that the Soviet
consumer will fare poorly during the next five to ten
years relative to recent gains.
VIII. There are a number of important implications to be
drawn from what I have recounted above.
4
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
A. The slowdown in economic growth is likely to
trigger intense debate in Moscow over the future levels
and patterns of military expenditures.- Although
military programs have great momentum and powerful
political and bureaucratic support, ways to reduce the
growth of defense expenditures should become increas-
ingly attractive to major elements of the Soviet leader-
ship.
B. Moscow's economic problems in the 1980s will
strongly affect its relations with the West, especially
the US.
1. Oil accounts for one-half of the USSR's hard
currency earnings. With the projected decline in
oil available for export, Soviet ability to import
frOm the West In the 1980s will almost certainly
suffer.
2. Moscow, therefore, may ask for long-term credit,
especially to develop energy resources. A great
deal of advanced US technology will be needed to
do this rapidly.
C. Eastern Europe may be hit hard by Soviet decisions
in Oil.
1. Soviet commitments call for Eastern Europe to
get 1.6 million b/d by 1980, a diversion of about
$7 billion in potential Soviet earnings.
Approved For Release 2001/11/22 : aA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
2. There will be strong pressure to force Eastern
Europe to share the burden of the Soviet oil
shortage, but a substantial cut in Oil strophes
to Eastern Europe would worsen its already difficult
economic situation and may threaten political
stability there.
D. Soviet and East European demands for oil imports in.
the 1980s could impact adversely on the world oil market-.
1. Increased Communist demand will coincide with
both rising oil prices and insufficient OPEC
capacity to meet Free World demand.
2. This could advance the timing of the projected
world oil supply crunch and exacerbate the price
run-up required to bring world supply and demand
into balance.
E. Soviet responses to economic problems will be com-
plicated severely by the uncertainties surrounding the
inevitable Change in leadership in the next few years.
Not until a new and vigorous leadership is in power is it
likely that the Politburo will come to grips with the
difficult problems of the Soviet economy.
IX. The USSR as well as Eastern Europe are already experi-
encing economic difficulties. These problems are reflected
in their hard currency balance of payments.
6
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
A. For a number of reasons, including the need to
import grain and poor performance in Western export
markets, the USSR and Eastern Europe have run Up large
hard currency trade deficits.
B. In 1976, their combined deficits were about $12 billion,
of which the USSR accounted for approximately $5 billion,
Poland about $3 billion, and East Germany roughly
$1 billion.
C. These countries have borrowed heavily in the West
to finance their deficits. The Soviet and East
European debt more than doubled in two years to about
$40 billion at yearend 1976. ( See table, page 9).
1. Roughly one-half of the outstanding debt derives
from Western government-backed credits extended at
subsidized interest rates; the remainder was borrowed
from banks at market rates.
2. At the end of 1976, the USSR had amassed a
hard currency debt of $14 billion, followed by
Poland with more than $10 billion and East Germany
almost $5 billion.
D. Western governments have been eager to offer credits
to the USSR and Eastern Europe to expand their export
markets.
7
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
1. As of the end of 1976, France had committed
more government-backed export credits than any
other country -- $6.8 billion -- followed closely
by West Germany. The United Kingdom and Italy
are also major lenders. The United States ranks
well down the list of creditors because of restric-
tions on Eximbank lending. Total US commitments
are less than $1 billion, split roughly between
the USSR and Poland.
2. Growing Western concern about credit-worthiness
of the USSR and Eastern Europe has helped bring
about the so-called "Gentleman's Agreement" among
major Western governments. This accord sets repay-
ment terms in order to avoid credit competition
among lenders.
8
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
USSR and Eastern Europe: Net Hard Currency Debt*
End
Total net debt
of Year,
1973
(Billions of Dollars)
1974 1975
1976
12.5
18.1
29.1
39.6
USSR
4.0
5.0
10.0
14.0
Poland
1.9
3.9
6.9
10.2
East Germany
2.1
2.8
3.8
4.9
Romania
2.0
2.6
3.0
3.3
Hungary
0.9
1.5
2.1
2.8
Czechoslovakia
0.8
1.1
1.5
2.1
Bulgaria
0.8
1.2
1.8
2.3
* Net debt refers to actual drawings less repayments of principal
and interest. Excludes credit committed but not yet drawn down.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
9
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
REDRAFT OF TALK AT THE BUSINESS COUNCIL
HOT SPRINGS, VIRGINIA
October 1977
I. We have recently completed a major review of the Soviet economy.
The thrust of this study is that the economic outlook is more bleak
and the prospects for policy choices more uncertain than at any time
since Stalin's death.
A. The USSR will soon enter a period of reduced growth potential
with possible bottlenecks in key commodities, especially oil,
which could reduce growth even further.
B. The basic problem is that the formula for growth used for
over the last 25 years -- maximizing crude inputs of labor and
capital -- will no longer work.
C.Moscow also will be confronted with a new set of difficult
policy problems, especially involving energy use, imports from
the West, relations with Eastern Europe, and the size of their
armed forces.
D. These difficult policy issues may very well arise at a time
of changing leadership inside the Soviet Union.
II. The reasons for poor Soviet economic prospects include the fol-
lowing:
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
A. Labor input will be down. Soviet labor forces has been
growing at a rate of 1.7 percent a year for the last years.
project that by the early 1980s it will be growing at only
a rate of about 1/2 percent a year. This is a result of reduced
birth rates in the 1960s, and anticipate this condition will
persist through
A .
B. Capital Inputs. Capital inputs will also be down for a
number of reasons:
1. Raw materials are simply becoming more expensive and
difficult to obtain because the Soviets are having to reach
further and further into the remote areas.
a. The Soviets also are going to face an energy crisis.
They are not finding and developing new oil deposits
rapidly enough to offset declines in older fields. As
a result, production will begin to fall in the late
1970s or early 1980s. For example, we expect oil pro-
duction by 1985 to be between 8 and 10 million barrels
per day -- far below what we estimate to be the maximum
potential of 11-12 million barrels per day.
(1) The Soviets will need US-made high capacity
submersible purps to stave off or slow the expected
fall in production even temporarily.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
-3--
(2) Beyond the mid-1980s, the USSR is counting
on developing large new supplies of energy --
including coal, natural gas, hydroelectric power
as well as oil -- most of which are located in
remote areas of the country.
(3) The development of these energy sources,
however, will not prevent the rate of growth of
energy output from falling sharply in 1981-85.
(4) If the USSR delays adopting a top priority
energy conservation program, the rate of growth
of energy output will not match that of demand.
The Soviet Union could even face a turn-around
from its present net energy export position to
a net import position. This is not to say the
Soviets will actually end up being an importer
of energy, simply that they will find themselves
constrained to take any one of a number of alternatives
to finding the hard currency to import energy.
2. The demands of modern technology are particularly onerous
for the Soviet economy and slow down the rate of capital input.
C. The Soviets' own five-year plan acknowledges a reduction in
the input of labor and of capital, but at the same time predicts
an increase in overall productivity. We feel this is highly
unlikely. There is no indication that their past record of
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/411/22 : CIA-RDP80601554R002700220001-2
inefficient economic management is likely to be rectified,
let alone improved enough to compensate for the reductions in
labor and capital inputs. Moreover, we feel it unlikely that
they would ideologically be able to accohmndate a major change
in their approach to management of their economy.
III. A marked reduction in the rate of economic growth in the 1980s
seems inevitable.
A. A plausible forecast is a growth of GNP of about 4 percent
a year through 1980, and roughly 3 percent in 1981-85. By
comparison, growth averaged 4-1/2 percent in the past decade.
B. The reduced growth potential means that the Soviet consumer
will fare poorly during the next five to ten years relative to
recent gains.
IV. The Soviet decision-makers will have to face a number of difficult
and sometimes unpleasant alternatives:
A. Although military programs have great momentum and powerful
political bureaucratic support, pressures to reduce the growth
of defense expenditures should become increasingly attractive
in major elements of the Soviet leadership.
B. Eastern Europe may he hit hard by Soviet decisions in oil.
1. Soviet commitments call for Eastern Europe to get 1.6
million b/d by 1980, a diversion of about $7 billion in
potential Soviet earnings.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
2. There will be strong pressure to force Eastern Europe
to share the burden of the Soviet oil shortage, but a sub-
stantial cut in oil supplies to Eastern Europe would worsen
its already difficult economic situation and may threaten
political stability there.
C. Soviet and East European demands for oil hiports in the 1980s
could impact adversely on the world oil market.
D. Moscow's economic problems in the 1980s will strongly affect
its relations with the West, especially the US.
V. Soviet responses to economic problems will be complicated severely
by the uncertainties surrounding the inevitable change in leadership
in the next few years. Not until a new and vigorous leadership is in
power is it likely that the Politburo will come to grips with the
difficult problems of the Soviet economy.
VI. The USSR as well as Eastern Europe are already experiencing economic
difficulties. These problems are reflected in their hard currency
balance of payments.
For a nuMber of reasons, including the need to import grain
and poor performance in Western export markets, the USSR and
Eastern Europe have run up large hard currency trade deficits.
B. In 1976, their combined deficits were about $12 billion, of
which the USSR accounted for approximately SS billion, Poland about
53 billion, and Fast Germany roughly $1 billion.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 200161-1/22 : CIA-RDP80601554R002700220001-2
C. These countries have borrowed heavily in the West to finance
their deficits. The Soviet and East European debt more than
doubled in two years to about $40 billion at year end 197b.
(See Table, page 7.)
1. Roughly one-half of the outstanding debt derives from
Western government-backed credits extended at subsidized
interest rates; the remainder was borrowed from banks at
market rates.
2. At the end of 1976, the USSR had amassed a hard currency
debt of $14 billion, followed by Poland with more than $10
billion and East Germany almost $5 billion.
D. Western governments have been eager to offer credits to the
USSR and Eastern Europe to expand their export markets.
1. As of the end of 1976, France had committed more govern-
ment-backed export credits than any other country -- $6.8 billion
followed closely by West Germany. The United Kingdom and Italy
are also major lenders. The United States ranks well down the
list of creditors because of restrictions on Eximbank lending.
Total US commitments are less than $1 billion, split roughly
between the USSR and Poland.
2. Growing Western concern about credit-worthiness of the
USSR and. Eastern Eurone has helped bring about the so-called
"Gentleman's Agreement" among major Western governments.
This accord sets repayment teints in order to avoid credit
competition among lenders.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001111/22 : CIA-RDP80601554R002700220001-2
USSR and Eastern Europe: Net Hard Currency Debt*
End
of Year,
1973
(Billions of Dollars)
1974 1975
1976
Total net debt
12.5
18.1
29.1
39.6
USSR
4.0
5.0
10.0
14.0
Poland
1.9
3.9
6.9
10.2
East Germany
2.1
2.8
3.8
4.9
Romania
2.0
2.6
3.0
3.3
Hungary
0.9
1.5
2.1
2.8
Czechoslovakia
0.8
1.1
1.5
2.1
Bulgaria
0.8
1.2
1.8
2.3
* Net debt refers to actual drawings less repayments of principal
and interest. Excludes credit committed but not yet drawn down.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
SENDER WILL. CI-41
ApPr-IPAM
?
Form 160c
3-6'5
TER
(13)
u:ILLAnnir mu - -...ecol,s-Ax.a.,1. A-g,Lx, - - i- - - - c - -.3r.A..11, r, I s
OFFICIAL ROUTING SLIP
TO
NAME AND ADDRESS
DATE
INITIALS
_
Nhurlce brnst, D/OER
I
2
3
4
5
Return to DCI
ACTION
DIRECT REPLY
PREPARE REPLY
APPROVAL
DISPATCH
RECOMMENDATION
COMMENT
FILE
RETURN
i
CONCURRENCE
INFORMATION
SIGNATURE
Remarks:
I
1 1. Please fill in the blanks and check
over. Also, may I have anything
more to read about paragraph IX of
old draft about the current problems
in the Eastern Bloc.
I
(NO1E: DCI departing for Hot Springs
at 1600 on 13 October.)
Q,.............?..,
FOLD HERE TO RETURN TO SENDER
FROM: NAl...F.. ADDRESS AND PHONE NO.
DATE
DCT
12 Oct 77
1 1 UNCLASSIFIED I CONFIDENTIAL I
SECRET
--------1
--
P80601554R002700220001-2
7041,1,10. 007
tis,pf apreeverel For Release 2001/11/22 CIA-RDP80601554R002700220001-2
-67
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
REDRAFT OF TALK AT THE BUSINESS COUNCIL
HOT SPRINGS, VIRGINIA
October 1977
I. We have recently completed a major review of the Soviet economy.
The thrust of this study is that the economic outlook is more bleak
and the prospects for policy choices more uncertain than at any time
since Stalin's death.
A. The USSR will soon enter a period of reduced growth potential
with possible bottlenecks in key conmndities, especially oil,
which could reduce growth even further.
B. The basic problem is that the formula for growth used for
over the last 25 years -- maximizing crude inputs of labor and
capital -- will no longer work.
C. bscow also will be confronted with a new set of difficult
policy problems, especially involving energy use, imports from
the West, relations with Eastern Europe, and the size of their
armed forces.
D. These difficult policy issues may very well arise at a time
of changing leadership inside the Soviet Union.
II. The reasons for poor Soviet economic prospects include the fol-
lowing:
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
-2-
A. Labor input will be down. Soviet labor force, has been
/
growing at a rate of percent a year for the last :Oyears.
We project that by the early 1980s it will be growing at only
a rate of about 1/2 percent a year. This is a result of reduced
birth rates in the 1960s, and anticipate this condition will
persist throughvit
,
B. Capital Inputs. Capital inputs will also be down for a
number of reasons:
1. Raw materials are simply becoming more expensive and
difficult to obtain because the Soviets are having to reach
further and further into the remote areas.
a. The Soviets also are going to face an energy crisis.
They are not finding and developing new oil deposits
rapidly enough to offset declines in older fields. As
a result, production will begin to fall in the late
1970s or early 1980s. For example, we expect oil pro-
duction by 1985 to be between 8 and 10 million barrels
per day -- far below what we estimate to be the maximum
potential of 11-12 million barrels per day.
(1) The Soviets will need US-made high capacity
submersible pumps to stave off or slow the expected
fall in production even temporarily.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
-3-
(2) Beyond the mid-1980s, the USSR is counting
on developing large new supplies of energy
including coal, natural gas, hydroelectric power
as well as oil -- most of which are located in
remote areas of the country.
(3) The development of these energy sources,
however, will not prevent the rate of growth of
energy output from falling sharply in 1981-85.
4. Even if the USSR delays adopting a top priority
energy conservation program, the rate of growth
of energy output will not match that of demand.
The Soviet Union consequently will have to reduce
its energy exports. Depending on how energy
supplies are divided between domestic and foreign
users, the USSR could even face a turn-around from
its present net energy export position to a net
import position.
2. The demands of modern technology are particularly onerous
for the Soviet economy and slow down the rate of capital input.
C. The Soviets' own five-year plan acknowledges a reduction in
the input of labor and of capital, but at the saw time predicts
an increase in overall productivity. We feel this is highly
unlikely. There is no indication that their past record of
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/41/22 : CIA-RDP80601554R002700220001-2
inefficient economic management is likely to be rectified,
let alone improved enough to compensate for the reductions in
labor and capital inputs. Moreover, we feel it unlikely that
they would ideologically be able to accommodate a major change
in their approach to management of their economy.
III. A marked reduction in the rate of economic growth in the 1980s
seems inevitable.
A. A plausible forecast is a growth of GNP of about 4 percent
a year through 1980, and roughly 3 percent in 1981-85. By
comparison, growth averaged 4-1/2 percent in the past decade.
B. The reduced growth potential means that the Soviet consumer
will fare poorly during the next five to ten years relative to
recent gains.
IV. The Soviet decision-makers will have to face a number of difficult
and sometimes unpleasant alternatives:
A. Although military programs have great momentum and powerful
political bureaucratic support, pressaareckg,-4o,r,oatAce tne growth
of defense expenditures should become increasingly attractive
An,,major elements of the Soviet leadership.
B. Eastern Europe may be hit hard by Soviet decisions in oil.
1. Soviet commitments call for Eastern Europe to get 1.6
million b/d by 1980, a diversion of about $7 billion in
potential Soviet earnings.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
2. There will be strong pressure to force Eastern Europe
to share the burden of the Soviet oil shortage, but a sub-
stantial cut in oil supplies to Eastern Europe would worsen
its already difficult economic situation and may threaten
political stability there.
C. Soviet and East European demands for oil imports in the 1980s
could impact adversely on the world oil market.
D. Moscow's economic problems in the 1980s will strongly
affect its relations with the West, especially the US.
1. Oil accounts for one-half of the USSR's hard currency
earnings. With the projected decline in oil
available for export, Soviet ability to import from
the West in the 1980s will almost certainly suffer.
2. Moscow, therefore may ask for long-term credit,
especially to develop energy resources. A great
deal of advanced US technology will be needed to
this rapidly.
V. Soviet responses to economic problems will be complicated severely
by the uncertainties surrounding the inevitable change in leadership
in the next few years. Not until a new and vigorous leadership is in
power is it likely that the Politburo will come to grips with the
difficult problems of the Soviet economy.
Approved For Release 2001/11/22: CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : 4ek-RDP80601554R002700220001-2
VI. The problems of fewer resources at higher costs already are
beginning to take their toll.
A. The pace of the Soviet economy, which slowed sharply
last year, is continuing to drop despite a second relatively
good year for agriculture.
1111. We estimate Soviet 1977 GNP to grow by only
3-1/2 percent, compared with a 4 percent growth in
1976.
It. Industrial growth last year -- 3-1/2 percent --
was the slowest since World War II. The industrial
sector remains hobbled by deficiencies in materials
production, most notably a stagnation in ferrous
metals output and a slowdown in the production of
some chemical products.
VII. Soviet officials seem increasingly aware of the
potentital dangers of their looming energy and manpower
problems.
r)(_10.44.:1Lek3d
A. Theyr1;aFitmrEe==emaimisplio4. that their fuel industry
could be seriously affected soon by the failure since
1975 to meet plans for increasing oil reserves in the
key West Siberian basin.
_
cil Tr mil /..42.t. th)4-1tj -p71-et: Ai( f c
3 ? ..(;pot -aiterr-t-aeje-E-434-4-lae-1 ---a-r-e--9-tovetiter--up--+rr-er?fruffiLer
rkkt o giee4S,cgcs Aoki Acel`tv.
of -timat 4.4.ft.J?eew- tatif,pt-?itg rn "Ct:r
strinaent fuel allocation practices.
C. A number of recent Soviet articles indicate that
the leadership is considering raising the retirement
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : ClaDP80601554R002700220001-2
ages to help offset the impending labor shortage.
Such an action, however, would provide only a one-
time boost to labor force growth, and would at best
only dampen the projected slowdown in growth in
the 1980s.
VIII. In recent years the East European economies also have
been experiencing serious problems, particularly in consumer
welfare.
A. The long drought of 1976 together with 1977 flooding
in some countries has worsened the area's already difficult
food supply situation, especially in Czechoslovakia, East
Germany and Poland.
B. Polish officials have shown the greatest concern about
consumer unrest--a necessity after the worker violence ensuing
from the 1976 attempt to sharply raise food price4TheEl-
of-,--e
diat.refus harvAa this year will hinder the government's
A
efforts to deal with chronic meat shortages, Wip....41AMW;=tNIV
* ?
C. Shortages of coal and electricity also have added to
consumer woes in Czechoslovakia, East Germany and Poland.
1. Priority allocation to industry, distribution bottle-
necks, and,in the case of Poland, export commitments have
resulted in L.e=3:5
coal for home consumption.
2. Higher industrial demand in Poland and the failurem
to expand new capacity in Czechoslovakia have led to frequent
power shortages in these countries.
Approved For Release 2001/11/22: CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
IX. The USSR's current economic difficulties as well as
those of Eastern Europe also are reflected in their hard
currency balance of payments problems.
A. For a number of reasons, including the need to import grain
and poor performance in Western export markets, the USSR and
Eastern Europe have run up large hard currency trade deficits.
B. In 1976, their combined deficits were aboutl billion, of
which the USSR accounted for approximately $5 billion, Poland about
$3 billion, and East Germany roughly $1 billion.
Approved For Release 2001/11/22: CIA-RDP80601554R002700220001-2
Approved For Release 2001W/22 ,IA-RDP80601554R002700220001-2
C. These countries have borrowed heavily in the West to finance
their deficits. The Soviet and East European debt more than
doubled in two years to about $40 billion at year end 1976.
(See Table, page 74
(4 0 (2,117
1. Roughly be-halflof Oe outstanding debt derives from
Westergovernment-backed credits extended at subsidized
interest rates; the remainder was borrowed from banks at
market rates.
2. At the end of 1976, the USSR had amassed a hard currency
debt of $14 billion, followed by Poland with more than $10
billion and East Gelmany almost $5 billion.
D. Western governments have been eager to offer credits to the
USSR and Eastern Europe to expand their export markets.
1. As of the end of 1976, France had committed more govern-
ment-backed export credits than any other country -- $6.8 billion
followed closely by West Germany. The United Kingdom and Italy
are also major lenders. The United States ranks well down the
list of creditors because of restrictions on Eximbank lending.
Total US commitments are less than $1 billion, split roughly
between the USSR and Poland.
2. Growing Western concern about credit-worthiness of the
USSR and Eastern Europe has helped bring about the so-called
"Gentleman's Agreement" among major Western governments.
This accord sets repayment terms in order to avoid credit
competition among lenders.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : 91A-RDP80601554R002700220001-2
USSR and Eastern Europe: Net Hard Currency Debt*
End
Total net debt
of Year,
1973
(Billions of Dollars)
1974 1975
1976
12.5
18.1
29.1
39.6
USSR
4.0
5.0
10.0
14.0
Poland
1.9
3.9
6.9
10.2
East Germany
2.1
2.8
3.8
4.9
Romania
2.0
2.6
3.0
3.3
Hungary
0.9
1.5
2.1
2.3
Czechoslovakia
0.8
1.1
1.5
2.1
Bulgaria
0.8
1.2
1.8
2.3
* Net debt refers to actual drawings less repayments of principal
and interest. Excludes credit committed but not yet drawn down.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
STATI NTL
Cassette 19
Side A, 2 1/8 - 3 7/8
Approved For For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
TALK AT THE BUSINESS COUNCIL
HOT SPRINGS, VIRGINIA
October 1977
I. We have recently completed a major review of the Soviet
economy. The thrust of this study is that the economic
outlook is more bleak and the prospects for policy choices
more uncertain than at any time since Stalin's death.
A. The USSR will soon enter a period of reduced
growth potential with possible bottlenecks in key
commodities, especially oil, which could reduce
growth even further.
B. The basic problem is that the formula for growth
used for over the last 25 years -- maximizing crude
inputs of labor and capital -- will no longer work.
C. Moscow also will be confronted with a new set of
difficult policy problems, especially involving
energy use, imports from the West, relations with
Eastern Europe, and the size of their armed forces.
D. These difficult policy issues may very well
arise at a time of changing leadership inside the
Soviet Union.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/1122 : CIA-RDP80601554R002700220001-2
The reasons for poor Soviet economic prospects include
the following:
A. Labor input will be down. Soviet labor force has
been growing at a rate of 1-1/2 percent a year for the
last 10 years. We project that by the early 1980s, it
will be growing at only a rate of about 1/2 percent a
year. This is a result of reduced birth rates in the
1960s, and anticipate this condition will persist
throughout the 1980s.
B. Capital inputs. Capital inputs will also be down
for a number of reasons:
1. Raw materials are simply becoming more
expensive and difficult to obtain because the
Soviets are having to reach further and further
into the remote areas.
a. The Soviets also are going to face an
energy crisis. They are not finding and
developing new oil deposits rapidly enough to
offset declines in older fields. As a result,
production will begin to fall in the late
1970s or early 1980s. For example, we expect
oil production by 1985 to be between 8 and 10
million barrels per day -- far below what we
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
estimate to to be the maximum potential
of 11 to 12 million barrels per day.
(1) The Soviets will need US-made,
high-capacity submerisble pumps to
stave off or slow the expected fall
in production even temporarily.
(2) Beyond the mid-1980s, the USSR
is counting on developing large new
supplies of energy -- including coal,
natural gas, hydroelectric power as
well as oil -- most of which are
located in remote areas of the country.
(3) The development of these energy
sources, however, will not prevent the
rate of growth of energy ouput from
falling sharply in 1981-85.
(4) Even if the USSR delays adopting
a top-priority conservation program, the
rate of growth of energy output will not
match that of demand. The Soviet Union
consequently will have to reduce its
energy exports. Depending on how energy
supplies are divided between domestic and
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/422 : CIA-RDP80601554R002700220001-2
foreign users, the USSR could even
face a turn-around from its present
net energy export position to a net
import position.
2. The demands of modern technology are particularly
onerous for the Soviet economy and slow down the
rate of capital input.
C. The Soviets' own five-year plan acknowledges a
reduction in the input of labor and of capital, but at
the same time predicts an increase in overall
productivity. We feel this is highly unlikely. There
is no indication that their past record of inefficient
economic management is likely to be rectified, let alone
improved enough to compensate for the reductions in
labor and capital inputs. Moreover, we feel it unlikely
that they would ideologically be able to accommodate
a major change in their approach to management of their
economy.
III. A marked reduction in the rate of economic growth in the
1980s seems inevitable.
A. A plausible forecast is a growth of GNP of about
4 percent a year through 1980, and roughly 3 percent
in 1981-85. By comparison, growth averaged 4-1/2
percent in the past decade.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
-5-
B. The reduced growth potential means that the
Soviet consumer will fare poorly during the next
five to ten years relative to recent gains.
IV. The Soviet decision-makers will have to face a number
of difficult and sometimes unpleasant alternatives:
A. Although military programs have great momentum and
powerful political bureaucratic support, reducing the
growth of defense expenditures should become increasingly
attractive to major elements of the Soviet leadership.
B. Eastern Europe may be hit hard by Soviet decisions
in oil.
1. Soviet commitments call for Eastern Europe to
get 1.6 million b/d by 1980, a diversion of about
$7 billion in potential Soviet earnings.
2. There will be strong pressure to force Eastern
Europe to share the burden of the Soviet oil
shortage, but a substantial cut in oil supplies
to Eastern Europe would worsen its already difficult
economic situation and may threaten political
stability there.
C. Soviet and East European demands for oil imports in
the 1980s could impact adversely on the world oil market.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/172 : CIA-RDP80601554R002700220001-2
D. Moscow's economic problems in the 1980s will
strongly affect its relations with the West, especially
the US.
1. Oil accounts for one-half of the USSR's
hard currency earnings. With the projected
decline in oil available for export, Soviet
ability to import from the West in the 1980s
will almost certainly suffer.
2. Moscow therefore may ask for long-term
credit, especially to develop energy resources.
A great deal of advanced US technology will be
needed to do this rapidly.
V. Soviet responses to economic problems will be complicated
severely by the uncertainties surrounding the inevitable
change in leadership in the next few years. Not until a new
and vigorous leadership is in power is it likely that the
Politburo will come to grips with the difficult problems of
the Soviet economy.
VI. The problems of fewer resources at higher costs already
are beginning to take their toll.
A. The pace of the Soviet economy, which slowed sharply
last year, is continuing to drop despite a second
relatively good year for agriculture.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
-7-
B. We estimate Soviet 1977 GNP to grow by only
3-1/2 percent, compared with a 4 percent growth in
1976.
C. Industrial growth last year -- 3-1/2 percent --
was the slowest since World War II. The industrial
sector remains hobbled by deficiencies in materials
production, most notably a stagnation in ferrous
metals output and a slowdown in the production of
some chemical products.
VII. Soviet officials seem increasingly aware of the potential
dangers of their looming energy and manpower problems.
A. They have acknowledged that their fuel industry
could be seriously affected soon by the failure since
1975 to meet plans for increasing oil reserves in the
key West Siberian basin.
B. Indications are that the Soviets are increasing
fuel conservation measures and may be considering more
stringent fuel allocation practices.
C. A number of recent Soviet articles indicate that
the leadership is considering raising the retirement
age to help offset the impending labor shortage. Such
action, however, would provide only a one-time boost
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11422 : CIA-RDP80601554R002700220001-2
to labor force growth, and would at best only dampen
the projected slowdown in growth in the 1980s.
VIII. In recent years, the East European economies also have
been experiencing serious problems, particularly in consumer
welfare.
A. The long drought of 1976, together with the 1977
flooding in some countries, has worsened the area's
already difficult food supply situation, especially in
Czechoslovakia, East Germany, and Poland.
B. Polish officials have shown the greatest concern
about consumer unrest -- a necessity after the worker
violence ensuing from the 1976 attempt to sharply
raise food prices. Moreover, the poor harvest this
year will hinder the government's efforts to deal
with chronic meat shortages.
C. Shortages of coal and electricity also have added
to consumer woes in Czechoslovakia, East Germany, and
Poland.
1. Priority allocation to industry, distribution
bottlenecks, and, in the case of Poland, export
commitments have resulted in less coal for home
consumption.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11622 : CIA-RDP80601554R002700220001-2
2. Higher industrial demand in Poland and the
failure to expand new capacity in Czechoslovakia
have led to frequent power shortages in these
countries.
IX. The USSR's current economic difficulties as well as those
of Eastern Europe also are reflected in their hard currency
balance of payments problems.
A. For a number of reasons, including the need to import
grain and poor performance in Western export markets,
the USSR and Eastern Europe have run up large hard
currency trade deficits.
B. By 1976, their combined deficits were about
$11 billion, of which the USSR accounted for
approximately $5 billion, Poland about $3 billion,
and East Germany roughly $1 billion.
C. These countries have borrowed heavily in the West to
finance their deficits. The Soviet and East European
debt more than doubled in two years, to about $40 billion
at year end 1976. (See Table, page 11.)
1. Roughly 40 percent of the outstanding debt
derives from Western-government and government-
backed credits extended at subsidized interest
rates; the remainder was borrowed from banks at
market rates.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/111622 : CIA-RDP80601554R002700220001-2
2. At the end of 1976, the USSR had amassed a
hard currency debt of $14 billion, followed by
Poland with more than $10 billion, and East
Germany almost $5 billion.
D. Western governments have been eager to offer credits
to the USSR and Eastern Europe to expand their export
markets.
1. As of the end of 1976, France had committed more
government-backed credits than any other country --
$6.8 billion -- followed closely by West Germany.
The United Kingdom and Italy also are major lenders.
The United States ranks well down the list of
creditors because of restrictions on Eximbank lending.
Total US commitments are less than $1 billion, split
roughly between the USSR and Poland.
2. Growing Western concern about credit-worthiness
of the USSR and Eastern Europe has helped bring
about the so-called "Gentleman's Agreement" among
major Western governments. This accord sets
repayment terms in order to avoid credit competition
among lenders.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/111/22 : CIA-RDP80601554R002700220001-2
USSR and Eastern Europe: Net Hard Currency Debt*
End of Year
1973
Total net debt 12.5
USSR 4.0
Poland 1.9
East Germany 2.1
Romania 2.0
Hungary 0.9
Czechoslovakia 0.8
Bulgaria 0.8
Billion US$
1974
1975
1976
18.1
29.1
39.6
5.0
10.0
14.0
3.9
6.9
10.2
2.8
3.8
4.9
2.6
3.0
3.3
1.5
2.1
2.8
1.1
1.5
2.1
1.2
1.8
2.3
* Net debt refers to actual drawings less repay-
ments of principal and interest. Excludes credit
committed but not yet drawn down.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approve or Rel Se- 00114412-rMA-ROMB81454R002700220001-2
ar
dy
Czechoslovakia
a Retail Price Increases
Czechoslovakia has broken its seven-
year freeze on retail prices but has
avoided raising prices of politically sen-
sitive bask foodstuffs. There will be some
grumbling over the increases but signif-
icant public unrest is not likely. (C)
The price increases, announced on July
22, were applied primarily to goods
produced from imports of Western raw
materials. They cover eight categories, in-
cluding chocolate (33-percent increase),
coffee (50 percent), and cotton and wool
products (34 percent). Prices were reduced
on several categories of goods, such as
color televisions (26-percent reduction),
pocket calculators (40 percent), and syn-
thetics (28 percent) that are produced
domestically or in allied countries.
The government will probably place the
blame for the increases on Western infla-
tion. Recent Czechoslovak press reports
have stressed the familiar theme that
Czechoslovakia is a manufacturing coun-
try that has had to pay increasingly higher
prices for its raw material imports from
the West. The government also will
emphasize that the price freeze on basic
foodstuffs can only be maintained by in-
creasing the prices of nonessential goods.
The US embassy reports that the in-
creases had been rumored for some time,
sparking a last-minute run on supplies of
coffee, chocolate, and sugar. The price of
sugar apparently was not increased.
The end of the price freeze is another
signal to the Czechoslovak public that the
government is no longer willing, or able,
to subsidize all consumer goods. Last
year, party leader Husak stated that
stable prices on basic foodstuffs depended
on improved economic productivity.
Despite the official price freeze since
1970, there has been substantial hidden
price inflation through such techniques as
repackaging old products and selling them
at higher prices. There have also been
seasonal fluctuations?sometimes
dramatic?in official food prices, re-
flecting changes in supply. For example,
ootato shortages caused prices to triple
ast autumn. Such changes are only tern-
vorary and, as supplies improve, prices
ire returned to fixed base levels. (C)
Approved Far Release 2001/11/22: QIA-RDP80B015 R002700220001-2
25X1X
25X1X
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
2_
\ EASTERN EUROPE
/Poland: Financial Troubles
New information indicates that the
Polish request for large concessionary
US credits to finance agricultural
purchases, reported in the Daily yester-
day, stemmed in part from a Soviet
refusal to supply Poland with additional
grain and from pressing hard-currency
problems. These problems also have
reportedly led Polish offidals to con-
sider rescheduling Poland's Western
debt. (S NF/ OC)
Warsaw recently ap-
proached Moscow for above-plan
shipments of grain under the normal
clearing arrangement. Above-plan
shipments of Soviet grain and strategic
raw materials to CEMA partners are
usually paid for with hard-currency--or
with goods that are marketable in the
West.
The Soviets rejected the request, claim-
ing that their excellent harvest was not ex-
pected to be a record one and that they
could not provide grain in excess of the
planned deliveries of I million to 1.5
million tons.
Poland's agricultural problems and
bard-currency difficulties have led it to
request a S500-million to S600-million
credit from the US to finance purchases
of agricultural imports through 30 June
1978. Most of the credit would be used to
buy 4 million to 5 million tons of US
grain.
Poland is also seeking credits of $400
million to $500 million annually for the
next several years to finance agricultural
purchases in the US. Ultimately, Warsaw
would like to negotiate a long-term agree-
ment with the US that would provide
more generous credit terms, including a
grace period and a lower interest rate,
than those granted by the US Commod-
ity Credit Corporation.
The Polish leadership is seriously con-
cerned about the hard-currency debt. The
reduction in hard-currency imports-5
percent in the first six months of this
year?has been at great cost, according to
the source. Imports of raw materials are
being substantially cut, and output in
some import-dependent industries is
declining.
The leadership has discussed the option
of debt rescheduling but considered it?as
do the Soviets?unacceptable.
Nevertheless, some high Polish of-
ficials?Chairman of the Planning Corn.
mission Wrzaszczyk and the Ministers of
the Machine and Chemical Industries, in
particular?privately are still considering
the possibility of rescheduling Poland's
Western debts. (S NF/OC) -CIA, DIA,
NSA-
?
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
'Oland
The US Embassy in Poland reports that
there were some shortages of flour in Warsaw
and Poznan last week, but it notes that many
stores appear well-stocked and people stand-
ing in line seem no more disgruntled than
usual. The onset of good weather?after
seven straight weeks of rain?probably has
helped curb any inclination toward hoarding.
The government has apparently brought
additional stocks onto the market both to
demonstrate its ability to satisfy demand and
to nip in the bud any potential hoarding.
Moreover, the regime continues to press its
message that despite the bad weather,
supplies of foodstuffs?except for meat?will
be sufficient. Serious shortages of meat and
other foodstuffs still exist, however, and the
regime will have to monitor the public
mood carefully. (C) -CIA, DIA, NSA-
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
THURSDAY 1 SEPTEMBER 1977
Poland: Signs of Consumers Panic Buying
Harvest shortfalls ceased by Hsi&
bare resulted is hoard* af Soar, rice,
art groats by Polish consumers, sad
serious shortages of these maples could
develop. The regime has toid the pshlk
that sepplies will be safficient to meet
ifiesisod, but such assursaces will sot
satisfy commuters sac: they see dicey
shelves, (Cl
Twice last week the Warsaw daily
Zycie il'arszavy published stories of
"panicky" consumers who had been buy-
ing up available stocks of flour "for a
rainy day." The papa admitted that
"many" stores had run out of supplies.
We do not know bow widespread the
hoarding is, but the fact that this sensitive
subject has been raised publicly is in-
dicative of high-level concern. In recent
years Polish consumers have been prone
to board at the first sign or rumor of a
shortage. Once a hoarding cycle begins, it
I difficult to halt.
Last summer, consumers were con-
vinced that there was a shortage of sugar,
and the government finally had to impose
rationing in order to assure equitable dis-
tribution. If it cannot quash the rumen or
keep local stores supplied with grain
staples this month, it could be forced to
adopt another rationing plats.
The regime had beim counting on a
good harvest to help boost livestock
production and thus curb discontent over
continuing meat and other food shortages.
This, the third successive inadequate grain
harvest, will assure that discontent re-
mains high and could exacerbate polit-
ical infighting within the leadership. (C)
?
?
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
POLAND: GLOOMIER AGRICULTURAL OUTLOOK
Unfavorable weather has further dampened Poland's harvest outlook, raising
official fears of renewed panic buying of flour, rice, and cereals. A recent speech by
Polish Premier Jaroszewicz reportedly was edited to substitute a categorical
assurance of adequate food supplies for a vague pledge of government action. To
make up for the likely shortfall in the harvest of grain and potatoes, Warsaw
probably will press Moscow for more grain and seek additional US grain on credit.
Officials Worry About Consumer Reactions
Shortfalls are likely this autumn in the output of grain, fruit, vegetables, and
potatoes because of the continued cool, cloudy, and rainy weather in Poland. Late
in August, reports of harvest problems caused by rains and floods set off a buying
spree, which cleared the shelves of staples in many stores. Although Polish officials
contend that supplies of foodstuffs will be adequate, they complain of difficulty in
allaying consumer doubts. Officials are fearful that continued reports about a poor
harvest will cause another run on the stores and turn an uneasy economic balance
into a political crisis.
Grain and Potato Harvests Down
We estimate that 1977 grain output wil1,15e about 20 million tons?nearly 2
million tons less than. Polish officials had anticipated and almost 1 million tons less
than last year's output. The milling and breadmaking quality of some of the grain
has been adversely affected by the vet harvesting conditions. The wet weather also
has hit the potato crop (an important source of feed for hogs) particularly -hard,
fostering the spread of blight; in past years, blight has reduced the potato crop
between 10 and 30 percent.
Imports of Grain and Fodder Up
Because of the unfavorable harvest outlook, we expect grain import needs in
the fiscal year ending 30 June 1978 to be between 6 million and 7 million tons,
compared with imports of about 6 million tons last year. Imports of oilseed meal
may exceed last year's purchases of about 1.1 million tons. Aside from bread-quality
wheat, the composition of imports of grain and fodder for livestock will be
determined largely by relative prices and availability of credits.
Polish officials are confident that the USSR will supply 1 million to 1.5 million
tons of grain; they will probably press for more: According to the Polish
Ambassador to the United States, Poland's purchases of US grain may total 4 million
tons. Warsaw has applied for $300 million in Commodity Credit Corporation credits,
22 September 1977 15
Approved For Release 2001/11/22 : CIA-RDP80-130-1554R002700
?-4
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
. .
which would cover 3 million tons. So far $150 million in credits have been
spproved, including $135 million for about 1.5 million tons of grain. Purchases of
grain on credit are also expected. from Canada and France.
Meat Will Remain Scarce
Record imports of grain and feed are needed if the government is to prevent
setbacks to its livestock program. Warsaw has been rebuilding animal holdings since
livestock numbers tumbled in early 1976. Meat, nonetheless, remains scarce; even
with substantial importss of feed grains, increased supplies of meat are not expected
before mid-1978. Meanwhile, planned meat imports will not be sufficient to offset
IDwer production, and per capita consumption will fall below last year's level.
Shortages of fruit, vegetables, and potatoes will compound consumer dissatisfaction
over meat shortages. (Confidential)
L(.1
(1-?
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80B01554R002700220001-2
East Germany /44,
Fuel Restrictions
The East German Government has
reportedly instituted nationwide
measures to reduce motor fuel coo-
sensing. The restrictions inay be
related to East Germany's bard-curren-
cy payments problems. (SS)
So far, we have only scattered reports
on the impact of the conservation
measures. Truckers in the Potsdam area
reportedly received less than half their
normal fuel allotment for August. Re-
duced diesel fuel allocations evidently
threatened to shut down road construc-
tion in that area.
Use of vehicles for commercial trips
reportedly has been sharply curtailed, and
some private motorists are faced with
long lines at gas stations. We have no
evidence yet of any impact on industry or
agriculture.
Whatever the motivation for these
restrictions, they clearly were not
prompted by temporary difficulties in
transportation or distribution. A regime
directive calls for the reduction of gas-
oline and diesel fuel consumption by at
least 5 percent in 1978.
The fuel cutbacks may be attributable
to East Germany's hard-currency
payments difficulties. Huge hard-curren-
cy trade deficits in the past few years have
led to an attempt to reduce imports of
high-cost oil from the Organization of
Petroleum Exporting Countries. Existing
Soviet East German oil agreements call
for deliveries to grow much more slowly
during 1976-80 than in the previous
five-year period. (SS)
Approved For Release 2001/11/22: CIA-RDP80B01554R002700220001-2
?
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
07-?-
Romania: Work Stoppage tvif N
Romanian President Ceausescu
reportedly was forced to intervene per-
sonally two weeks ago when a number
of Romanian coal miners stopped work
for several days to protest a new pen-
sion law. Work stoppages have been in-
frequent in Romania, but Ceausescu
has interceded in the past when the
situation has threatened to get out of
hand. The incident was caused by the
government's inept handling of a revised
pension law, which fails to increase
worker benefits as expected and post-
pones retirement eligibility for five
years. (Ci
The workers reportedly refused to dis-
cuss a settlement except with Ceausescu,
who interrupted his vacation and was
received b.v a shouting, fist-waving crowd
of people who complained that life had
been "better under capitalism." The
miners returned to work after Ceausescu
promised to review the pension changes.
Several local officials are likely to become
scapegoat.
The pension changes were the latest
government effort to spur worker produc-
tivity and increase the size of the labor
force. Men will now be required to work
30 years and women 25 years before
they become eligible for retirement
benefits.
Earlier.
Ceausescu had lowered the
government's goal for increased social
services between 1976 and 1980 and raised
the growth target for labor productivity
from 9 percent to 10.4 percent annually.
Romania's five-year plan calls for the
construction of over one million new
apartments?but only if the ambitious
productivity target is reached.
The government's latest measures
reflect Ceausescu's continued push for
rapid economic growth despite growing
constraints on labor, investment, and
energy. The industrial labor force, which
increased by more than 6 percent yearly
between 1971 and 1975, probably will
grow by only 3 to 3.5 percent annually
between 1976 and 1980. In June,
Ceausescu stated that 50,000 teachers and
bureaucrats soon would be shifted into
labor-short industry, with more large
shifts to follow. (C)
1.1
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
1/41
Bulgaria: Growing Public Dissatisfaction
Public dissatisfaction evidently is explained, and there are now four vacan-
growing in Bulgaria as rumors spread cies on the I2-man Politburo. There are
questioning the stability of the party also rumors that party secretary Aleksan-
leadership and as the economy worsens. dur Lilov, a protege of party leader
Several fires in Sofia in recent weeks, Zhivkov, is seriously ill.
including one in the oMce of the Com- The US embassy believes that Zhivkov
munist Party's newspaper, may have has not filled the vacancies on the Polit-
been due to sabotage. (C) buro because he is unwilling to bring p0-
According to the US embassy, rumors tential rivals to the forefront.
are circulating in Sofia that an anti- Economic growth has slowed since
Zhivkov slogan appeared last week on 1975 largely due to Bulgarian attempts to
one of the central bridges of the capital improve its hard-currency balance-of-
and Kds hastily removed by the payments position. Saddled with the
authorities. This is the first such display of heaviest debt burden in Eastern Europe,
antiregime sentiment in recent years. the Bulgarians have sharply cut their im-
There appears to be widespread pop- ports from the developed West while
ular uncertainty in Bulgaria over the boosting exports at the expense of the
status of the leadership. The real reasons domestic market. In the first half of 1977,
behind the firing of the regime's industrial production rose only 7.7 per-
number-two man in May have not been cent, well below the plan of 9.2 percent for
the year. Agricultural production also got
off to a poor start because of a spring'
drought and some frost damage to fruits
and vegetables.
Gains for the Bulgarian
sumer?already one of the poorest in
Eastern Europe?have further slowed this
year. Plans to boost services substantially
have fallen flat, and apparently the regime
has not made much headway in providing
a better quality or selection of goods. The
recent drought and frost damage to fruit
and vegetables will aggravate the situa-
tion: the regime probably will divert much
of these important hard-currency earners
to the foreign market. Consumer grum-
bling is growing, but there is little likeli-
hood that dissatisfaction will mushroom
into widespread antiregime demonstra-
tions. (C) -CIA, DIA, NSA-
con-
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Prospects for Soviet Oil Production
A Supplemental Analysis
ER 77-10425
July 1977
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
This publication is prepared for the use of U.S. Government
officials. The format, coverage and contents of the publication are
designed to meet the specific requirements of those users. U.S.
Government officials may obtain additional copies of this document
directly or through liaison channels from the Central Intelligence
Agency.
Non-U.S. Government users may obtain this along with similar
CIA publications on a subscription basis by addressing inquiries to:
Document Expediting (DOCEX) Project
Exchange and Gift Division
Library of Congress
Washington, D.C. 20540
Non-U.S. Government users not interested in the DOCEX
Project subscription service may purchase reproductions of specific
publications on an individual basis from:
Photoduplication Service
Library of Congress
Washington, D.C. 20540
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Prospects for Soviet Oil Production
A Supplemental Analysis
Central Intelligence Agency
Directorate of Intelligence
July 1977
Overview
This report is a compilation of some of the data and analysis employed
in the recent CIA study on the Soviet oil industry. The study concluded
that Soviet oil production will soon peak, possibly as early as next year
and certainly not later than the early 1980s. The maximum output reached
is likely to be between 11 and 12 million barrels per day (b/d)?up from
the 1976 level of 10.4 million b/d. Maximum levels are not likely to be
maintained for long, however.
The Soviet Government is certainly aware of problems in increasing
and sustaining oil production. Its own analysis emphasizes that the costs
of finding and developing oil are rising dramatically. The Soviets apparently
believe that they can avoid the downturn we predict. We disagree. We believe
that even though great efforts will provide them with considerable oil, they
cannot prevent the downturn.
Soviet efforts to solve the oil problem are reflected in the rapid increase
in purchases of oil equipment abroad. Since 1971, Soviet orders for Western
oil and gas equipment have totaled about $3.1 billion. An additional $4
billion worth of steel pipe has been bought. Plans to convert the giant
Samotlor field as well as smaller West Siberian fields to gas-lift production
could sharply escalate Soviet equipment purchases. The Samotlor project
alone would require at least $1 billion in imported equipment.
Imported equipment can only slow the rate of decline in oil production
once it begins. In large measure this reflects the deeply rooted nature of
the oil problem. The forced-draft approach to achieving production targets,
for example, has been expensive in terms of exploration and of recovery
rates in producing fields. As a result, proved reserves have stagnated since
the early 1970s, and no large finds have been made since the Samotlor
Note: This memorandum provides a supplemental analysis for the CIA
publication Prospects for Soviet Oil Production, April 1977, Unclassified.
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22: CIA-RDP80601554R002700220001-2
field was located in 1965. Only by working this field harder than any other
major oilfield in the world have the Soviets been able to come close to
their production targets.
At this point the Soviet Union has opted to continue its past approach.
Any shift to exploration drilling would entail drilling fewer production wells
and an immediate and sharp fall-off in current production. Indeed, the
pressure to focus more heavily on development drilling will intensify because
of the large capacity additions needed to offset depletion of old oil fields
and to provide for planned increases in production. By the Soviets' own
calculations, depletion offsets alone in 1976-80 will equal total capacity
additions during 1971-75. To add the capacity needed to meet 1980
production goals, the Soviets will have to increase their rate of development
drilling 50 percent between 1976 and 1980.
The Soviets are examining a variety of techniques to forestall the
production decline. The prospects of such methods having more than an
insignificant impact during the time period of our analysis are negligible,
however. Soviet production practices make it difficult to implement tertiary
recovery procedures, because their massive water flood techniques adversely
affect oil-reservoir permeability. Given the widespread damage inflicted on
major oil reservoirs, the Soviets will find it difficult to increase recovery
rates more than a few percentage points over the long term with tertiary
methods.
The difficulties the Soviets face on the oil front do not stern from
any lack of resource commitment on their part. Indeed, measured by the
resource cost in terms of material and manpower, the USSR may expend
as much effort on producing oil as all Free World countries combined.
Because of the low productivity of this effort, however, the results are
only a fraction of those in the West. For example, US firms drilled five
times as much meterage as did the Soviet Oil Ministry with about the same
number of rigs. For 1976, the Soviet Oil Ministry required some 800,000
employees to produce 10.4 million b/d of oil.
Plans and Plan Fulfillment
From World War 11 until the early 1970s, the Soviet record in oil
production was enviable. Plan production goals were consistently met or
exceeded at only a small cost in additional effort. Production in 1970 was
350 million tons (7 million b/d), more than nine times the 38 million tons
(760,000 b/d) output of 1950. This great increase in production was
accomplished without anything like a commensurate increase in inputs. Over
the 20-year period, the amount of drilling rose only about 210 percent
and the number of rigs in active use only 57 percent, from 1,119 to 1,760.
Approved For Release 2001/11/22: CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
This rapid growth in oil industry productivity was made possible only
by the discovery of extremely rich and accessible oil deposits in the
Urals-Volga region, where output grew from 5 million tons (100,000 b/d)
in 1950 to 210 million tons (4.2 million b/d) in 1970. During 1937-55,
the Soviets found and developed several of the world's largest and richest
fields in this region. Two of them--Romashkino and Arlan?contained as
much recoverable oil (19 billion barrels or 2.5 billion tons) as the combined
total of the 10 largest fields ever discovered in the lower 48 states of the
United States. At its peak in 1970, Romashkino produced 82 million tons
(1.63 million b/d), 23 percent of total Soviet output in that year. Since
that time, Romashkino's output has been maintained at about 80 million
tons (1.6 million b/d).
Since the mid-1950s the size of discoveries in the Urals-Volga has fallen
off sharply. Growth in output from this region slowed dramatically in the
early 1970s, as all of the large fields found in the 1940s and 1950s had
been fully developed.
During 1972-75 original output goals were not met. In 1975, despite
the largest absolute annual increase in oil production (including gas
condensate) ever achieved, total Soviet oil output fell short of the original
target by about 14 million tons (280,000 b/d), or 2.8 percent. The average
annual rate of growth rate in oil production planned for 1971-75 was 7.4
percent, but the actual growth rate was only 6.8 percent. The four-year
trend of underfulfillment apparently continued in 1976 with a slight
shortfall, although detailed data have not been reported.
During this period of oil production shortfalls, several of the older
producing regions--the Ukraine, North Caucasus, and Azerbaydzhan--
registered declines in output, and production in the Urals-Volga levelled off.
Only by overfulfilling production goals in West Siberia was the USSR able to
come close to the national targets during 1972-75. Original plans called for
West Siberia to produce 120-125 million tons (2.4-2.5 million b/d) in 1975;
actual output was 148 million tons, almost 3 million b/d.
A large share of the overfulfillment in West Siberia was provided by
the rapid development of the Samotlor field. This giant field, roughly
comparable in size to Romashkino, has accounted for 24-26 million tons
(480,000-520,000 b/d) of the 30-million-ton-per-year (600,000 b/d) annual
increase in national production during the past four years. In 1976, Samotlor
produced 110 million tons (2.2 million b/d), nearly 35 percent more than
Romashkino's greatest annual output. It is scheduled to peak at 130 million
tons (2.6 million b/d) in 1977-78, and no new fields even remotely
comparable in size have been discovered to maintain production increases.
3
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
USSR: Oil Production Plans and Fulfillment
1971
Crude Oil
Crude Oil and Gas Condensate
Million
Tons
Million
b/d
Million
Tons
Million
b/d
Plan
371
7.42
N.A.
N.A.
Actual
371.8
7.44
377.1
754
1972
Plan
395
7.90
N.A.
N.A.
Actual
393.8
7.88
400.4
8.01
1973
Plan
429
8.58
N.A.
N.A.
Actual
421.4
8.43
429.0
858
1974
Plan
461
9.22
N.A.
N.A.
Actual
450.6
9.01
458.9
9.18
1975
Plan
496
9.92
505
10.10
Actual
481.8
9.64
490.8
9.82
1976
Plan
510.6
1021
520.6
10.41
Actual
N.A.
N.A.
519.7
10.39
1977
Plan
N.A.
N.A.
550
11.0
Projected
540-550
10.8-11.0
1980
Plan
N.A.
N.A.
640
12.8
Projected
550-600
11-12
For the next decade at least, any growth in output, including that needed
to offset declines in older fields (including Samotlor after 1980), must come
from many smaller West Siberian fields.
The 1976-80 plan, as originally proposed, called for oil production
to reach 620-640 million tons (12.4-12.8 million b/d) in 1980. West Siberia's
4
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For 'Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Million b/d
1971
1972
1973
1974
1975
19761
19771
19801
573396 7-77
USSR: Oil Production Plans and Fulfillment
PLAN
ACTUAL
7.42
7.44
7.90
7.88
a58
8.43
9.22
9.01
9.92
9.64
10.41
10.39
11.0
11.0
llncluding gas condensate.
5
12.8
11-12
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
goal-300-310 million tons (6.0-6.2 million b/d)?is almost half of that for
total national output in 1980. Despite increasingly apparent problems in
the oil industry?oil fields approaching exhaustion, inadequate exploration
drilling, no new giant discoveries since Sam otlor in 1965, and growing need
for modern Western exploration and production equipment and
technology?the 1980 goal was cited as 640 million tons (12.8 million b/d)
in October 1976 by the Deputy Chairman of the Council of Ministers.
Why this goal was set at the upper end of the original range, when
the many difficulties confronting the industry would seem to dictate a lower
figure, remains a mystery. Perhaps the hierarchy believes that the higher
goal will spur the oil industry to greater efforts. At any rate, for the reasons
stated in the discussion of regional production, it seems unlikely that the
goal can be attained.
The Soviets recognize that long-range prospects for oil production have
dimmed during the past decade. In 1967, Soviet sources projected oil
production in the year 2000 at 1-1.15 billion tons (20-23 million b/d).
In 1977, a high-level Soviet economist stated that projections for oil
production at the end of the century have been scaled down to 800-900
million tons (16-18 million b/d). This reduction probably was prompted
in part by a reassessment of available oil reserves and in part by difficult
production and transport problems in the regions from which future
production growth must come.
Oil Production and Development of Fields
Throughout its history the Soviet petroleum industry has depended
heavily on a single region?in some cases on a single large field such as
Romashkino or Samotlor--for growth in production. From World War II
through 1970, the increase in Soviet oil output came first from the old
fields around the Caspian Sea (near Baku in Azerbaydzhan SSR), and
beginning in the 1950s, from large fields in the Tatar and Bashkir ASSRs
and in Kuybyshev Oblast of the Urals-Volga region. Since 1970, nearly all
output growth has come from West Siberia, primarily from the giant
Samotlor field. Thus far, no new large successor has been found to ensure
future growth.
The Impending Decline of the Urals-Volga
The Urals-Volga region still is the leading producer of oil in the USSR
but will be surpassed by West Siberia in 1977 or 1978. In the mid-1960s
the Urals-Volga accounted for about 70 percent of total Soviet oil output.
Major fields in this region have been producing for more than 25 years
and are rapidly approaching depletion.
6
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
USSR: Crude Oil' Production, by Region
Million barrels per day
Region
1965
1970
1971
1972
1973
1974
1975
19762
Total USSR
4.86
7.06
7.54
8.01
8.58
9.18
9.82
10.39
Western region and Urals
4.51
5.80
5.90
5.97
5.98
5.97
6.00
5.89
Urals-Volga
3.48
4.17
4.23
4.31
4.40
4.44
4.50
4.48
Tatar
1.53
2.01
2.02
2.04
2.06
2.07
2.07
2.05
Bashkir
0.88
0.81
0.80
0.80
0.81
0.80
0.81
0.80
Kuybyshev
0.67
0.70
0.71
0.71
0.71
0.70
0.69
0.67
Perm'
0.20
0.32
0.34
0.36
0.39
0.41
0.44
0.46
Orenburg
0.05
0.15
0.17
0.19
0.21
0.23
0.24
0.25
Lower Volga
0.12
0.14
0.15
0.15
0.15
0.14
0.14
0.14
Udmurt
0
0.01
0.01
0.03
0.04
0.05
0.07
0.08
Saratov
0.03
0.03
0.03
0.03
0.03
0.03
0.03
0.03
Komi
0.04
0.11
0.12
0.13
0.13
0.14
0.14
0.17
Belorussia
Negl
0.08
0.11
0.12
0.14
0.16
0.16
0.17
North Caucasus
0.41
0.68
0.72
0.69
0.59
0.53
0.47
0.40
Azerbaydzhan
0.43
0.40
0.38
0.37
0.36
0.36
0.34
0.33
Ukraine
0.15
0.27
0.28
0.28
0.27
0.25
0.23
0.23
Other3
Negl
0.09
0.06
0.07
0.09
0.09
0.16
0.11
Eastern region
0.35
1.26
1.64
2.04
2.60
3.21
3.82
4.50
West Siberia
0.02
0.63
0.90
1.25
1.75
2.33
2.96
3.63
Central Asia
0.28
0.58
0.66
0.71
0.76
0.79
0.81
0.80
Mangyshlak
0.04
0.21
0.26
0.30
0.34
0.38
0.40
0.40
Emba
Negl
0.05
0.06
0.06
0.06
0.07
0.07
0.07
Turkmen
0.19
0.29
0.31
0.32
0.32
0.31
0.31
0.30
Other
0.05
0.03
0.03
0.03
0.03
0.03
0.03
0.03
Sakhalin
0.05
0.05
0.05
0.05
0.05
0.05
0.04
0.04
Other3
Negl
0.05
0.03
0.03
0.04
0.04
0.01
0.03
1. Including gas condensate.
2. Preliminary estimate.
3. Chiefly gas condensate produced by the Ministry of the Gas Industry.
Waterflooding has been used since the initiation of production in most
of these fields--as is common practice in the USSR--to maintain and/or
increase formation pressure and to increase well flows. In a number of fields,
large volumes of water have been injected at high pressures, damaging
reservoirs and reducing the amount of recoverable oil. In the mid-1960s
the water cut in total fluid recovery began to rise substantially and use
of pumps became necessary to increase fluid flow and to maintain oil
output. In the late 1960s output began to decline in Bashkir and threatened
7
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
to do likewise in the other parts of the Urals-Volga. In 1971, however,
the US removed trade controls on high-capacity submersible pumps, and
since then the USSR has imported from US firms 1,000 pumps with a
total fluid lifting capacity of more than 3 million b/d. These pumps
stabilized oil production in the Urals-Volga, but, as the water cut in total
fluid increases, oil production will decline unless there is a comparable
increase in the capacity of fluid lifting equipment. Such an increase in lifting
capacity seems unlikely, given competing demands on the limited capacity
of equipment producers.
In some newer producing areas of the Urals-Volga, such as Orenburg
and Udmurt, oil output will rise, but not nearly enough to offset the
probable decline in the large, older fields. Optimistically, output in the three
major producing areas of the Urals-Volga--Tatar, Bashkir, and
Kuybyshev--will fall by only the 36 million tons (720,000 b/d) called for
in the 1980 plan when compared with 1975. Depending upon how fast
the water cut rises, Urals-Volga production in 1980 probably will range
somewhere between 175 and 200 million tons (3.5 and 4 million b/d)
compared with 225 million tons (4.5 million b/d) in 1975.
The Tatar SSR accounts for roughly half of the oil output of the
Urals-Volga region. Despite the development of many small fields in the
past decade, about 80 million tons (1.6 million b/d) of the total output
of about 105 million tons (2.1 million b/d) comes from the supergiant
Romashkino field. Water injection in this field has been increasing steadily,
reaching a total of almost 150 million tons (3 million b/d) in 1975. As
a result, the total volume of fluid that must be lifted to produce any given
quantity of oil has also been increasing. The average oil output per producing
well declined from almost 23,000 tons (460 b/d) in 1970 to roughly 10,000
tons (208 b/d) in 1975. Over the past eight years production from the
field has been maintained at a constant level by in-fill drilling and narrow
spacing of producing and injection wells combined with the use of
surfactants and other chemicals in conjunction with waterflooding.
The Rise of West Siberia
Since the early 1970s the bulk of the increase in crude oil production
has come from West Siberia, where commercial output began in 1964.
Sizable production increases were expected from the oilfields in the
Mangyshlak Peninsula in western Kazakhstan, but output there has not risen
nearly as fast as anticipated because of improper waterflooding procedures
and complicated drilling problems.
West Siberia is crucial to the Soviet effort to continue raising oil
output. All of the increase in Soviet production planned for 1980 is to
come from West Siberia, where output is to rise from almost 150 million
8
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Million b/d
3
2
1
4
3
2
USSR: Crude Oil Production: by Major Field
WESTERN REGION AND URALS
BASHKIR
KUYBYSHEV
PERM
1
EASTERN REGION
WEST SIBERIA
1965
573394 7-77
1966 1967 1968 1969 1970 1971 1972
'Including gas condensate.
2 Estimated.
9
CENTRAL ASIA
1973
1974
1975
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
19762
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
USSR: Distribution of Crude Oil Production'
1970
EASTERN REGION
18%
WESTERN REGION
82%
WESTERN REGION
570/0
573393 7.77
7.06 Million b/d
1976
EASTERN REGION
43%
West Siberia
3500
lincluding gas condensate.
10.39 million b/d
10
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
tons (3 million b/d) in 1975 to 300-310 million tons (6.0-6.2 million b/d)
in 1980. This goal is considerably higher than an earlier target of 230-260
million tons (4.6-5.2 million b/d). During 1977-80, increases in oil
production will depend on rapidly developing many smaller new fields while
maintaining peak output at the Samotlor field. Available Soviet data on
West Siberian oilfields scheduled for production by 1980 indicate that
maximum regional production would approximate 290 million tons to (5.8
million b/d) if all fields were to reach their maximums at the same time.
However, some of West Siberian fields have already peaked and are now
on the decline; others will peak before or after 1980. The Shaim fields,
which began production in 1964, are well past their peak and have water
cuts exceeding 50 percent. Ust-Balyk, the second largest West Siberian field,
is also declining, but development of a new producing zone may prolong
its life.
Although new fields are being discovered in West Siberia, no giant
fields have been found comparable to Samotlor, which has a production
capacity of about 130 million tons (2.6 million b/d) that probably will
be reached in 1977-78. Present development plans call for Samotlor to
maintain maximum output for four years. These plans, however, depend
on the use of high-capacity submersible pumps and on drilling a large
number of additional wells to maintain production at its maximum.
In general, West Siberian fields appear to respond poorly to production
techniques that worked well in the Urals-Volga region. At Romashkino,
it took 18 years before the water cut rose to 10 percent; at Samotlor this
share of water in total fluid produced was reached in about 3 years. In
the Urals-Volga, submersible pumps last up to a year without service; at
Samotlor, because of silt and salt in the oil and water, they must be replaced
after only 60 days of operation. In recent months the USSR has begun
to negotiate with US and other Western firms to undertake an extensive
gas-lift program to cope with rising fluid lifting requirements and to extend
the producing life of the Samotlor field.
The ambitious plans for West Siberia in 1980 do not appear attainable
because of the extensive drilling that will be required--30 million meters
during 1976-80 compared with 9.5 million in 1971-75--and the need to
place six to eight new oil deposits in production each year of the current
five-year plan. West Siberian oil production in 1980 is more likely to be
on the order of 250-260 million tons (5.0 to 5.2 million b/d) rather than
the 300-310 million tons (6.0-6.2 million b/d) planned.
Frontier Zones for Oil Production
Geological conditions favorable to large future discoveries of oil exist
over much of the Arctic offshore regions (Barents, Kara, East Siberian, and
11
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Chukchi Sea basins), in the East Siberian lowlands, in deep structures in
the Caspian Sea, and perhaps off Kamchatka and Sakhalin in the Sea of
Okhotsk. Production from most of these areas, however, is at least a decade
away. The technology to cope with pack ice such as will be encountered
in the offshore Arctic seas has not been developed as yet, even in the West.
Thus, development of these areas is unlikely before the end of the 1980s
at the earliest.
Operating conditions are more favorable in the East Siberian lowlands
than in Arctic offshore areas, but the severe climate, extensive permafrost,
great distance from energy consuming centers in the western USSR, and
difficult transport problems will restrict the pace of development when oil
is found. To date no commercial-scale discoveries of oil have been made.
In the offshore area around Sakhalin, Japanese firms are working on
a cooperative venture with the Soviets to explore for and develop oil
deposits. The exploration program is at least one year behind schedule,
and potential oil production does not appear to be as promising as the
Soviets originally estimated. Weather and ice conditions in this area are
harsher than in the North Sea, where development of commercial-scale
production took about 10 years. Significant production from the Sakhalin
area is unlikely before the mid-1980s.
Soviet Production Methods
Over the past 20 years the Soviet Union has consistently claimed that,
because of advanced practices, it recovers a much higher percentage of the
original oil in place than does the United States or other Western oil
producing countries. The Soviets attribute their high recovery rates to their
production practices, especially the early employment of high-pressure water
injection. Now that many of the Soviet fields have been in production for
20 years or more, it is becoming apparent to them that recovery will be
much less than originally estimated. In the Urals-Volga area, for example,
Soviet engineers cut their recovery estimates from 51 percent in 1960 to
44 percent in 1970. Further revisions downward probably will be made.
Water-Injection Pressure Maintenance
The most important Soviet oil production technique in recent years
has been the widespread use of water injection to maintain a rapid flow
of oil through the reservoir to the producing wells. Since World War H,
the Soviets have begun water injection in new fields soon after oil
production starts and continue the practice throughout the life of these
fields. Water-injected fields accounted for more than half the oil produced
in the USSR as early as 1955, more than 66 percent in 1960, and more
than 80 percent in 1976.
12
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
The water-injection program has enabled the Soviets to minimize their
initial oil field investment. By using forced water injection they can obtain
a much higher initial level of output per well than would be possible under
Western practice. The higher output per well means that, at least initially,
the Soviets need fewer producing wells to achieve a given level of output.
In some fields the Soviets have used water flooding to raise the pressure
in the reservoir enough to make the oil flow to the surface when it otherwise
would not. This practice also temporarily eliminates the need for costly
pumping equipment.
While these practices yield high production rates in the early years
of an oil field's life, problems develop as the fields age. Injected water
breaks through the oil-bearing formations into the producing wells. When
this happens, additional wells must be drilled (in-fill drilling) to locate the
oil, or expensive pumps must be installed to lift the large volumes of fluid
(water and oil) needed to maintain oil production.
Soviet reservoir engineers first used this approach to waterflooding in
1948 at Tuimazy in the Bashkir ASSR. Water was injected not only along
the edges of the oil pool but also through interior rows of injector wells
that paralleled and crisscrossed the field. Since 1967, a thin network of
wells located on 100 hectare blocks has been used for most new field
development. The water volumes injected often exceed the void space of
the oil produced, and the injection pressures raise normal formation
pressures.
In recent years, submersible (Reda-type) centrifugal high-volume pumps
have been used to maintain the oil flow from water-injected fields. Although
oil is quickly removed from highly permeable rock as the waterflood sweeps
through, considerable amounts of oil are left behind in less permeable
"pillars." The use of submersible pumps combined with water injection
eventually causes coning, i.e., fingers of water break through to the
producing wells, bypassing much oil.
When the water cut of the fluid produced from the original network
of wells becomes excessive, the field usually has to be redrilled. Smaller
well spacing patterns of 50 hectares, 25 hectares, 12 hectares, and six
hectares are used for each successive development stage. The Romashkino
field has been redrilled four times, and in each phase a smaller well spacing
pattern was used to capture the bypassed oil.
The total impact of these practices on oil recovery in the larger
Urals-Volga and West Siberian fields before 1974 cannot be fully assessed
because of limited data. In 1974, however, several prominent Soviet leaders
and reservoir experts admitted that many mistakes were made at Tuimazy
13
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
and at numerous other fields where the same exploitation methods were
applied. These fields were not uniform in terms of porosity, permeability,
and rock composition, and the Soviet engineers were late to recognize the
importance of these factors in designing waterflood operations. As a
consequence much oil has been lost. Soviet methods definitely led to
premature coning and water break-throughs at Samotlor in 1972 and at
six or seven other large West Siberian fields. How much of the decline
in expected recovery rates stems from this kind of damage is uncertain;
the original estimates for recovery appeared overly optimistic even with
ideal reservoir management.
Failure to treat ground water and surface water used in most
waterflood projects has also created reservoir problems. Bottom-hole
temperatures and the oil recovery factors were lowered by injecting cold
surface water into the Uzen-Zhetibay reservoirs of the Mangfyshlak Peninsula,
as well as those at Samotlor and Ust Balyk in West Siberia. Injection of
untreated water has led to excessive salt formation in well bores and
downhole pumping equipment in West Siberia. Organic material and
dissolved gases in untreated surface waters injected into hot oil reservoirs
has also caused prolific bacteria growth that reduces rock porosity.
Oil Recovery
In the 1950s and early 1960s, Soviet engineers believed that their
practices would result in much higher recovery rates than were prevalent
in the West. As late as 1960 they still believed that they would recover
nearly 50 percent of the original oil in place in the Urals-Volga region.
These beliefs are now in question.
The average rate of recovery in the US remains at 32-33 percent,
despite great improvements in technology and equipment in recent years.
Soviet planners apparently began to question planned recovery factors after
the Oil Ministry requested increased imports of US technology and
equipment after 1971.
In 1974, N. K. Baibakov, V. D. Shashin, A. P. Krilov, and other ranking
officials spoke out on the oil recovery problem underscoring that "it lies
at the heart of the reserve issue." A Soviet study on changing oil recovery
rates for A+B+Cl reserves in 1960-70 noted that the average annual rate
of decline in the expected recovery factor was four-tenths of a percentage
point during 1960-65, but it increased sharply to nine-tenths of a percentage
point during 1966-70. The Soviets now admit that many large fields,
including Samotlor, will not reach their planned recovery rates.
14
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Some Soviet analysts ascribe the problems to a poor understanding
of the reservoirs at the time development plans are made. Poor seismic
and well-logging equipment often prohibits the collection of good data.
Similarly, the amount of damage from water breakthroughs in the largest
reservoirs is not known precisely even by the Soviets; scattered published
data suggest that they perceive the problem to be very widespread and
increasing. Water production accounted for almost 50 percent of total fluid
output in 1975, according to several Soviet sources.
A. P. Krilov stated in 1974 that extension of the basic development
plan pioneered at Tuimazy in 1948 to other fields was affecting these
deposits in the later stages of their development. Several problems
experienced at Tuimazy reoccurred at Romashkino, which is now producing
55.5 percent water, as well as at several Kuybyshev and West Siberian fields.
Tuimazy is now producing 86 percent water from the main Devonian zones.
According to the originator of the development plan, Tuimazy was not
developed in the best possible way.
Another Soviet expert raised the point that 1970 crude oil production
of 348 million tons (7 million b/d) was accompanied by 273 million tons
of water (5 million b/d)--i.e., a 43 percent water cut. By 1974, the
nationwide average water cut exceeded 47.3 percent, and the water ratio
is expected to increase rapidly due to the age of most of the largest fields.
Other experts indicate that water breakthrough between the seventh and
11th years of oil production increases the water cut from 15 percent to
30 percent at younger deposits. These observations were probably based
on experience in West Siberia. Other sources note that the Shaim deposits,
with stable oil production of 5.6 million tons annually (110,000 b/d) since
1972, were 46 percent water cut after 9 years of exploitation.
A 1972 study of 102 wells in certain Samotlor zones showed water
cuts of 12 to 14 percent; the water production was attributed to coning
and not to bad cement jobs as had been suspected. Water appeared in oil
production soon after waterflooding began at the Shaim, Surgut, and
Nizhnevartovsk fields of West Siberia?the only major fields opened since
1965.
A table in a Soviet study notes water produced in all the major
producing regions of the USSR in 1961 and 1965.
15
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
USSR: Regional Production of Water
as a Percent of Liquids Recovered
Region
1961
1965
Urals-Volga
11.5
24.0
Trans Caucasus
77.0
75.0
North Caucasus
56.4
48.8
Ukraine
17.5
12.0
Central Asia and
Kazakhstan
73.8
77.2
Average (presumably
weighted) 43.0 44.0
More recent statements of the water problem appeared in 1974-75
with water production estimated at 43.8 percent in 1970, 47.3 percent
in 1974, and 46.4 percent in 1975. These statements appear inconsistent
with the earlier data. The age of the fields, the advanced state of depletion,
and Soviet studies indicating that 80 percent of the oil is recovered in 18
years at the larger Urals-Volga fields suggest that the water problem is much
greater than the above figures indicate.
The Soviets are receiving temporary relief by redrilling most fields two
to four times using closer well spacing. Since new wells initially produce
largely oil, this has the effect of reducing the average water cut for the
entire field. For example, at Romashkino, the central sector of the field
produced 80 percent water in 1968-69. Altogether Romashkino has been
redrilled four times, which reduced the water cut to as low as 48 percent
in the early 1970s. The average water cut, however, is once again rising,
reaching approximately 55 percent in 1976.
Fluid Production and Pumping Requirements
Realization of 1980 production goals of 300-310 million tons (6-6.2
million b/d) in West Siberia is critical to meeting the national target of
640 million tons (12.8 million b/d). Nationwide, the production of water
was roughly equal to total oil recovery in 1975. In-fill drilling both at the
old depleted fields of the Urals-Volga and at the newer West Siberian fields
is requiring an increasing share of the total Soviet drilling effort. In 1976,
10 million meters of the 12 million drilled by the Soviet Oil Ministry were
allocated to development wells. Limitation on the Soviet ability to drill
new wells means that total fluid lifting requirements will nearly double
over the current five-year plan. Producing anything near 600 million tons
16
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
(12 million b/d) of oil in 1980 with only a 3 percentage point annual
increase in the water ratio implies an annual increment approaching 200
million tons (4 million b/d) of fluid in absolute terms in 1976-80. With
a 6 percentage point rise, annual increments in fluid lifting would reach
roughly 400 million tons (8 million b/d).
The primary Soviet strategy for dealing with increasing water cuts is
the use of electric submersible pumps. The total Soviet inventory of these
pumps on 1 January 1975 was 11,950, of which 8,700 were in service
and the remainder were undergoing repair or in reserve. These pumps
accounted for 200 million tons (4 million b/d) or nearly 40 percent of
total oil output in 1976. To meet plan goals for output in the Urals-Volga,
a great increase in the number of pumps will be required. A recent article
said that 470-500 new pumps would be needed each year in Bashkir ASSR
just to stabilize output.
USSR: Planned Crude Oil Production
and Estimated Total Fluid Output
Case A
Oil
Water
Total Fluid
Million
Tons
Million
b/d
Million
Tons
Million
b/d
Million
Tons
Million
b/d
1975
491
9.8
491
9.8
982
19.6
1976
520
10.4
586
11.7
1,106
22.1
1977
550
11.0
700
14.0
1,250
25.0
1978
580
11.6
834
16.7
1,414
28.3
1979
610
12.2
995
19.9
1,605
32.1
1980
640
12.8
1,188
23.8
1,828
36.6
Case B
1975
491
9.8
491
9.8
982
19.6
1976
520
10.4
662
13.2
1,182
23.6
1977
550
11.0
897
17.9
1,447
28.9
1978
580
11.6
1,233
24.7
1,813
36.3
1979
610
12.2
1,736
34.7
2,346
46.9
1980
640
12.8
2,560
51.2
3,200
64.0
Case A assumes 50 percent oil and 50 percent water in 1975 and water cut increases 3 percentage
points annually.
Case B assumes 50 percent oil and 50 percent water in 1975 and water cut increases 6 percentage
points annually.
17
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
In May 1975, the Soviets noted that electric submersible downhole
pumps provided the chief means of automating oil production at Samotlor.
This article also made reference to the use of imported high-volume US-made
Reda and BJ pumps, which lift up to 1,000 tons (7,300 barrels) of fluid
per day. About 1,025 US pumps have been delivered and about 1,210 will
have been shipped by yearend 1977, on the basis of present orders.
Approximately 2,000 of these pumps are made each year in the West, all
in the US, and delivery to the USSR presently is restricted to about 30
pumps per month because of limited capacity, backorders, and long lead
times. Present Soviet-made submersible pumps have lower capacities and
require more maintenance than their US counterparts.
Soviet reports indicate that the operating life of many of the Reda
type pumps now in use at Samotlor is as short as 60 to 90 days. The
high maintenance required on pumps used at Samotlor is due to the presence
of fine silt and sand grains in the oil, salt formation on the pumps, lack
of heat-resistant electric cable, and frequent power outages that burn out
the motors.
Last year, the Oil Ministry, in a major change in production policy,
decided to adopt gas-lift development at Samotlor and Federovo at a cost
of $600 million to $1.1 billion. Excessive maintenance costs may have
prompted the Soviets to acquire US gas-lift equipment as a substitute for
electric downhole pumps. Gas-lift units are cheaper to operate and much
easier to maintain with wire line tools from the surface. This is the largest
project of its kind in the world to date. Long lead times are expected,
however, before delivery can be made.
New Capacity and Drilling Requirements
To meet planned production targets the Soviet oil industry will have
to increase productive capacity sharply in the years ahead. Large capacity
additions will be needed to offset the sharply declining productivity of
existing wells. Still more new wells will be needed to provide for growth
in output. To achieve the necessary capacity additions, maintain maximum
output from existing fields, and discover and prove up new reserves will
require a massive increase in the Soviet drilling effort. Whether the industry
can meet these requirements is far from certain, given the present level
of Soviet drilling technology and practice.
Capacity Requirements
The major element causing the sharp rise in new capacity requirements
is the extremely rapid increase in new capacity needed to offset depletion
in older areas. During 1961-65, for example, the USSR required only 68
million tons (1.4 million b/d) of new capacity to offset depletion; by
18
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
1971-75 they required nearly 260 million tons (5.2 million b/d). The plan
for 1976-80 anticipates that as much as 390-400 million tons (7.8-8 million
b/d) of new capacity will be required just for depletion offset. Developments
in Bashkir ASSR highlight the nature of the offset problem. The 1976-80
plan anticipates some decline in Bashkir output, currently 40 million tons
per year (800,000 b/d), and to moderate this decline the Baskhir Oil Trust
believes that it will need to add new capacity at the rate of 10-12 million
tons per year (200,000-240,000 b/d) during 1976-80.
Tatar ASSR, the largest oil producing region in the Urals-Volga, faces
a situation similar to that of Bashkir. In Tatar, during 1966-70, new capacity
was added at the rate of 10-12 million tons annually (200,000-240,000
b/d), and about half of the new capacity resulted in increased output. During
1971-75, Tatar added new capacity at the rate of 13-14 million tons per
year (260,000-280,000 b/d), but all of this new capacity went to offset
the depletion of old capacity. In 1976 output declined in Tatar for the
first time since production began. A simple extrapolation of trends over
the past 10 years suggests that capacity in Tatar will be depleted at the
rate of about 20 million tons per year (400,000 b/d) during the 1976-80
period.
The situation in Kuybyshev is quite similar. The problem of achieving
new capacity additions in all of these Urals-Volga regions is compounded
because the water cut is rising at an extremely rapid rate and the need
for lifting equipment is becoming critical. In a recent Pravda article the
Bashkir Oil Trust said that "simply to maintain a high level of output,"
it will be necessary to install 470-500 submersible pumps each year in
Bashkir alone. Without the pumps the drilling requirements for new capacity
would be much higher.
The sharp rise in the rate of capacity depletion has caught the USSR
by surprise, probably because of the unrealistically high oil recovery rates
they anticipated at older fields. In 1970, when the 1975 plan goals were
first announced, the Oil Ministry expected that only about 160 million
tons (3.2 million b/d) of new capacity would be required to offset depletion
during 1971-75. As the plan period progressed, they were forced to revise
this estimate four times, and by the time the plan was completed, 258
million tons (5.2 million b/d) of new capacity had been required to offset
depletion. Although actual new capacity additions far exceeded originally
planned levels (392 million tons vs 300 million tons or 7.8 million b/d
vs 6 million b/d), production fell 14 million tons (280,000 b/d) short of
the goal. The same thing appears to be happening now. In 1975, the Soviet
Oil Minister announced that 450 million tons (9 million b/d) of new capacity
would be needed during 1976-80 to produce 620-640 million tons
19
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
(12.4-12.8 million b/d) of output. By mid-1976, this goal was revised
upward to 530-540 million tons (10.6-10.8 million b/d).
Although the USSR added more than 390 million tons (7.8 million
b/d) of new capacity during the 1971-75 period, it still fell short of its
original production goals. The shortfall was minimized thanks to the giant
new Samotlor field, where the Soviets were able to add more than 80 million
tons (1.6 million b/d) of new capacity. In doing so, however, they pushed
the field much harder and faster than originally planned. As late as 1973,
planned peak output at Samotlor had been only 100 million tons (2 million
b/d). Now the planned peak is to be reached in 1977/78 at 130 million
tons (2.6 million b/d). In any event, 60 percent of the increase in total
Soviet oil output of 138 million tons (2.8 million b/d) during 1971-75
came from Samotlor.
During 1976-80 Samotlor will provide a production increase of only
about 43 million tons (860,000 b/d), if it reaches output of 130 million
tons (2.6 million b/d) this year. To maintain Samotlor production at this
level, however, the USSR will have to greatly increase its drilling effort
there to offset the rapid rate of well depletion. Viewed in this way, every
new well at Samotlor after this year will be for depletion offset. During
1976-80 the Soviets will have to add new wells at a much higher rate (about
500 per year compared with 250 annually in 1970-75). Beyond 1980,
output at Samotlor will begin to decline despite increasing additions of
new capacity.
After 1977 all growth in Soviet output will have to come from a
number of much smaller fields in West Siberia, where well productivity
rates are lower than at Samotlor and where the task of providing
infrastructure will be much more difficult. If Soviet engineers attempt to
meet 1978 plan goals by pushing Samotlor's output higher than the
presently planned peak of 130 million tons (2.6 million b/d), production
from this field will almost certainly begin to slump before 1980. As it
is, Samotlor output this year will be 60 percent higher than the peak rate
achieved at Romashkino--a similar-sized field--where peak output levels were
maintained for nine years-1967 through 1975.
Drilling Requirements Escalate
The Soviet Oil Ministry is faced with steadily rising drilling
requirements. The dual needs of finding new reserves and adding new
producing capacity at existing fields to sustain planned rates of output
growth have strained drilling capacity since the mid-1960s. Depletion of
existing reserves meant that more and more rigs had to be allocated to
development drilling so that new wells in old fields could help compensate
for declining output per well. During this period, exploratory drilling
20
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
stagnated. Now, not only are development drilling requirements continuing
to rise rapidly, but exploratory drilling must be increased sharply to locate
and prove up reserves to support production in the 1980s. By that time,
output in the old Urals-Volga fields will be falling rapidly, and production
at Samotlor and other major West Siberian fields will have begun to decline.
At the same time, however, the limitations of Soviet drilling equipment
are becoming increasingly apparent. As long as most Soviet drilling was
at shallow depths, evolutionary improvements in turbo-drill design allowed
steady improvements in rig productivity. Between 1946 and 1960, when
most exploration was occurring in the Urals-Volga regions, exploratory rigs
were able to improve their monthly average drilling speeds from less than
180 meters per rig per month in 1946 to 400 in 1960. In development
drilling they did still better, going from 370 meters per rig per month in
1946 to more than 1,100 by the late 1960s.
With the move to West Siberia and the need to drill to greater depths
in nearly all regions in the USSR, commercial drilling speed of exploratory
rigs has fallen by 15 percent since 1960. The same indicator for rigs engaged
in shallower development drilling has continued to rise, however. The Soviets
have been working on improved versions of the turbo-drill that they claim
will allow them to drill efficiently at depths of up to 3,500 meters. We
doubt that this can be done unless the Soviets can make a quantum
improvement in the quality of their drilling bits and of the steel used for
rigs and drill pipe.
Because of the decline in rig productivity, the USSR will have to boost
its active rig park to meet future drilling needs. In fact, the decline in
the rig productivity should accelerate as a larger and larger share of total
drilling takes place in Siberia, where wells are substantially deeper than
in the old Urals-Volga fields and rig transport between wells is more costly
and time consuming.
No evidence is available, however, to show that the Soviets have
planned for or have the capacity to sharply boost their rig supply. As late
as 1976, Oil Minister Shashin said that, to meet 1980 plan goals, rig
productivity would have to rise by 42 percent during the plan period. Given
recent trends, this task appears to be nearly impossible. Even if the USSR
decided to massively reequip its drilling sector with Western equipment,
adequate supplies would not be available for many years, in part because
of order backlogs by Western buyers.
21
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Selected Data on Soviet Drilling Activity
1946
1950
1955 1960
Thousand
1965
1970
1975
Meters drilled'
1,003
3,534
4,763 6,740
9,261
10,972
15,116
Exploratory
383
1,449
2,540 3,200
4,752
4,604
5,418
Development
620
2,085
2,223 3,540
4,509
6,368
9,698
Number
Wells completed
950
2,893
3,320 3,892
4,903
5,311
6,0622
Exploratory
342
1,074
1,394 1,660
2,165
1,711
1,9352
Development
(including
water injec-
tion wells)
608
1,819
1,926 2,232
2,738
3,600
4,1272
Meters
Average well
depth
Exploratory
1,120
1,349
1,822 1,928
2,195
2,691
2,8002
Development
1,020
1,146
1,154 1,586
1,647
1,769
2,3502
Rubles per Meter
Average cost
Exploratory
87.6
118.2
124.0 111.9
148.7
238.8
2803
Development
47.7
45.6
48.5 49.4
65.5
84.5
1003
Units
Number of rigs
operating
430
1,119
852 1,130
1,624
1,760
1,8003
Meters per Rig per Month
Commercial drilling
speed
Exploratory
177
209
306 401
377
337
3402
Development
372
629
893 993
1,090
1,154
1,4502
1. These figures include drilling of all types: oil, gas, core holes (possibly for other minerals), and slim-hole
stratigraphic tests by the Geology Ministry.
2. Estimated, based on 1974 data.
3. Estimated.
22
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Drilling Plans
The Soviets plan to increase total drilling (presumably by the Oil
Ministry) to 75 million meters in 1976-80.* Drilling in West Siberia is to
increase from 9.5 million meters in 1971-75 to 30 million in 1976-80, a
formidable undertaking. The Oil Ministry drilled 52 million meters of
exploratory and development drilling in 1971-75, compared with a plan
goal of 56 million. Drilling by the Oil Ministry in 1976 totaled 12 million
meters; only 2 million were for exploration, while 10 million went for
development.
Drilling of more than 70 million meters in each five year plan since
1965 has been considered essential by planners, but this goal has never
been realized, mainly because of the failure of rig productivity to reach
planned levels. Plans for 1976-80 call for 30,000 well completions, compared
with 20,000 or so completions in 1971-75 and about 80,000 total well
completions since 1950.
Goals of the Soviets for total drilling and well completion can be
achieved only if they devote an even larger share of their drilling effort
to development drilling. Rigs engaged in development drilling are roughly
four times as productive as those used for exploration since depths are
less, less time is spent moving between locations, and support infrastructure
is better. If this shift continues, they may come closer to meeting plan
goals during 1977-80, but they will pay a high price in the early 1980s.
Meeting for both exploratory and development drilling goals would require
increasing the number of active rigs by nearly 50 percent.
Exploratory Drilling
To replace reserves scheduled to be produced during 1976-80, the
Soviets must find 21 billion barrels (2.9 billion tons), an amount that
exceeds estimated gross discoveries during 1971-75 by roughly 50 percent.
If production is to go on rising during the early 1980s, still more reserves
will have to be located and proved up. The Soviets must find the equivalent
of a new Samotlor or Prudhoe Bay field every two years or so.
Development Drilling
Soviet plans for 1976-80 call for 30,000 new producing well
completions nationwide. During 1976, the Oil Ministry completed 4,800
wells and added a reported 87 million tons (1.7 million b/d) of new capacity.
If the goal for new wells is to be reached, completions will have to average
6,300 per year during 1977-80 despite the increasing depth of the wells.
*In 1971-75, drilling of all types totaled 68 million meters. This figure includes both oil and gas
wells, as well as core drilling for other types of minerals and slim-hole stratigraphic testing by the
Geology Ministry.
23
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
The meterage drilled for development wells will have to rise by at least
50 percent--to 15 million meters?to reach this goal by 1980. Average new
development well depths now run 2,350 meters; 30,000 well completions
would require 70 million meters of development drilling even if all wells
were successful. Given a success rate of about 90 percent, development
drilling alone would require nearly all of the drilling called for in the plan.
Soviet Oil Equipment Supplies
The Soviet effort to find and produce oil is already enormous. In terms
of material and manpower, the USSR probably expends as much or more
effort on producing drilling rigs, bits, and associated equipment than do
all the Free World countries combined. However, because of inferior quality
and design, the productivity of most Soviet equipment is quite low, and
the results obtained are only a fraction of those of the West. As a
consequence, imports of Western technology and equipment are becoming
increasingly necessary for the industry's growth. For the foreseeable future,
the USSR will have to rely on the West for much of the equipment and
know-how to realize its oil production potential, especially as exploration
and development requires deeper drilling or takes place offshore, in East
Siberia, or in the Arctic regions.
Soviet Oil Equipment
During most of the post war period the Soviet oilfield equipment
industry produced a range of equipment and supplies that allowed rapid
gains in oil output. The Soviet success was due in large part to the fact
that oil operations centered on development of large fields in the Urals-Volga
region where relatively shallow (2,000 meters or less) hard-rock formations
exist. Under these conditions Soviet turbo-drills worked reasonably well,
and most other equipment needs were met without great difficulty. This
situation persisted until the late 1960s. Since then, however, severe
weaknesses in the quality of Soviet oil equipment have become obvious
as exploration and development in other areas have taken place.
Manufacture of petroleum equipment in the USSR is concentrated in
some 40 plants under the All-Union Ministry of Chemical and Petroleum
Machine Building. At least one-third of the plants are located in the
Azerbaydzhan SSR near Baku, and they produce about two-thirds of all
Soviet oil and gas production equipment. In recent years equipment
manufacturers have been unable to keep pace with requirements, and the
situation is getting worse as oil production shifts to remote and physically
inhospitable regions where specialized equipment and technology are
required. Soviet officials have indicated that, without greater domestic
capacity to manufacture petroleum equipment, the 1980 oil production goal
cannot be met.
24
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22: CIA-RDP80601554R002700220001-2
Exploration Equipment
Frequent complaints appear in the Soviet press about the shortage of
high-quality exploration equipment. Most Soviet seismic recording is still
done on analog tape employing technology used in the US in the 1950s.
Good quality seismic geophones and cables are in short supply. Because
of the lack of good seismic data, the Soviets often cannot locate, identify,
and map structures at depths greater than 2,000 meters. Moreover, because
of poor recording data and a lack of digital processing units, mapping of
complex traps--both structural and stratigraphic--is extremely difficult for
Soviet geologists.
Drilling Equipment
The Soviets use three types of drilling equipment: turbo-drills, rotary
drills, and electric drills. About 80 percent of Soviet drilling rigs are turbo
rigs. The remainder are mostly rotary rigs roughly comparable with US
equipment produced in the 1940s and early 1950s. The third type of rig,
the electric drill, is essentially experimental. Although the Soviets have
extensively tested electric drills, technical problems have not been solved.
Despite the obvious shortage of drilling rigs, the Soviet rig park has remained
essentially unchanged at 1,800 deep well rigs. Although the Soviets claim
to produce up to 500 deep well rigs annually, this is inconsistent with
their own rig inventory data.
The down-hole turbines used by Soviet turbo-drill rigs also have a
relatively short life, typically only 600 hours. Because of the abrasion caused
by drilling fluids, turbine vanes are quickly worn. Bearings also wear out
rapidly from the harsh operating environment. Downhole turbines have three
sections used singly or in combination depending on the depth, the type
of material being drilled, and the required torque on the drill bit. In 1975
Soviet production of turbine sections was slightly less than 10,000, which
implies that each operating rig requires reequiping with new turbines every
six months.
Despite the demonstrated superiority of rotary drilling, the Soviets have
basically stayed with the turbo-drill approach. There may be practical
problems in making the shift in any case because rotary drilling would
require large volumes of high-strength steel pipe. In using turbo-drilling,
the Soviets are able to use their heavy-wall, poor quality drill pipe. Because
of the weight of the drill pipe and turbine sections, Soviet rigs must be
made much heavier than Western rigs. To reduce the weight of the drill
strings and allow deeper drilling, aluminum alloy drill pipe, although three
times as costly as steel pipe, is widely used in Soviet drilling operations.
The Kungur Engineering Works in the Urals manufactures about 80
percent of all the turbo-drills produced in the USSR. Soviet literature
25
Approved For Release 2001/11/22: CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
indicates that a new turbo-drill has been produced that features a low speed
and high torque rating. It includes a hydrodynamic jet braking system so
that turbo-drill speeds can be controlled for optimum results under most
drilling conditions. The Soviets claim that these improved turbo-drills can
drill efficiently at depths up to 3,500 meters. Unless Soviet rock bit quality
is greatly improved, however, this performance can not be readily achieved.
Indeed, most drilling time in deep holes is spent removing the drill pipe
in order to change bits, which last only a few hours. Soviet wells deeper
than 3,000 meters usually take more than a year to drill.
Rock Bits
The USSR manufactures an estimated 1 million rock bits of all types
annually, compared with only about 400,000 in the entire Western world.
The quality of Soviet bits is grossly inferior to those produced in the United
States. Soviet imports consist of high quality bits for deep drilling.
Pumps
The bulk of oilfield pumps are produced at petroleum machine building
plants in the vicinity of Baku. Although data are not available on output
of centrifugal, electric submersible pumps, the Soviets claim that about
11,000 such pumps are in operation in addition to those imported from
the US. The Soviet units are inferior to US-manufactured pumps in
efficiency, capacity, and service life. With the increasing volume of fluid
to be lifted from waterflooded fields, the Soviets will require more
high-capacity submersible pumps than they can produce and continued
imports from the US appear to be a necessity.
Large-Diameter Pipe
Soviet capacity for manufacturing large-diameter pipe has not kept pace
with demand. We estimate that during 1971-75 the USSR produced 11
million tons of large-diameter pipe (20 inches and larger), of which about
7 million tons were 40-inch diameter and larger. Total demand for
large-diameter pipe during this period approximated 17 million tons,
requiring 6 million tons of imports. Present plans call for construction of
36,500 kilometers of gas pipelines and 18,500 kilometers of oil pipelines
during 1976-80. Pipe production capacity is scheduled to rise by at least
one-third during the five-year period, but steel output is lagging and such
a rise will be difficult. Even if production rises by the planned percentage,
at least 4-5 million tons of pipe will have to be imported if the planned
pipelines are to be completed.
Production of large-diameter pipe is concentrated in five major plants;
the largest is at Chelyabinsk in the Urals. Most of the increase in pipeline
production capacity is to come from two new plants. One is being built
26
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
at Vyksa in Gorkiy Oblast (Urals) to produce up to 2 million tons of pipe
up to 48 inches in diameter. A second is to be constructed in West Siberia
to produce pipe of 48-inch and 56-inch diameter.
Offshore Technology
The most obvious deficiency in Soviet equipment manufacture is the
lack of modern offshore technology. Although the USSR has produced oil
from offshore fields in the Caspian Sea for more than 20 years, most drilling
and production has been conducted from man made islands or fixed trestles
extending from the shore. At present the USSR has two modern and two
obsolete jack-up drilling platforms, all operating in the Caspian Sea. Plans
call for the number of mobile offshore platforms to reach 12 by 1980,
including at least two semisubmersibles. It is doubtful that this goal can
be reached; only three have been built in the past 10 years. The obsolete
jack-ups--the Apsheron and the Azerbaydzhan?can drill to depths of 1,800
meters and 3,000 meters, respectively, in no more than 20 meters of water.
The modern jack-ups include the Dutch-built Khazar and the Soviet-built
Baky. Both rigs are rated for a maximum drilling depth of 6,000 meters
in about 60 meters of water. A new rig, similar to the Baky, is being
completed and should be ready for fitting out and testing this summer.
Imported Equipment
During 1972-76, Soviet orders of Western oil and gas equipment and
technology (excluding large-diameter line pipe) totaled about $3.1 billion.
The US domestic share was $550 million. US foreign subsidiaries provide
a large share of the remainder. The bulk of the orders were for pipeline
equipment, primarily for expansion of the gas pipeline network. Without
these imports the rapid growth of Soviet gas production would not have
been possible.
Soviet Orders from the US
1972-76
Million US $
Total
550
Orenburg gas pipeline project
250
Other gas pipeline equipment
33
Submersible oil well pumps
148
Offshore equipment
40
Exploration and logging equipment
21
Oil pipeline equipment
21
Drilling equipment and drill bits
14
Refining equipment
9
Gas well completion equipment
8
Miscellaneous
6
27
Approved For Release 2001/11/22: CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
USSR: Orders of Western Oil and Gas Equipment'
1,617.0
573395 7-77
1972
1973
1974
1975
1976
Excludes imports of large-diameter line pipe, which totaled an additional $4 billion during 1972-76.
28
FROM THE WEST
2,555.8
FROM THE
UNITED STATES
549.7
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Imports of high-capacity, submersible oil well pumps from the US also
have been invaluable. During 1971-75, as the water cut in total fluid (oil
and water) recovery rose primarily because of extensive waterflooding, these
pumps increased fluid lift capacity to permit a rise in oil output of at
least 1 million b/d. Other important orders from the US, Japan, and Western
Europe include equipment for exploration, drilling, and refining.
The Soviets are aware that an extensive oil exploration program must
be implemented in permafrost areas of East Siberia, in offshore areas of
the Barents and Kara Seas, and in the deeper onshore formations of the
Caspian depression. Since Soviet geophysical equipment is inadequate for
this effort, seismic equipment and digital computerized recording units are
being bought from the West. Offshore technology and equipment are also
being sought in large amounts. Contracts have been placed with Western
firms for facilities to manufacture offshore oil drilling equipment for use
in deep. water of the Caspian Sea, and negotiations are underway to buy
semisubmersible offshore platforms, subsea production equipment, and
drillships.
The largest order being negotiated at the present time is for gas-lift
equipment to improve the efficiency of oil production at the Samotlor and
Fedorov oilfields in West Siberia. This package, which is currently valued
at about $1 billion, includes automated surface equipment for collecting
gas and separating it from oil, compressors for pumping the gas back into
oil wells, and downhole equipment for monitoring the flow of compressed
gas at the bottom of the wells.
In addition to items already mentioned, the Soviet oil industry will
need to import the following:
(1) Rotary rigs, drill pipe, and casing. The domestic supply of drill
pipe and casing is not adequate in size, quantity, and quality required for
field development, especially in cold climates and under difficult conditions.
As the requirement to drill to greater depths increases, both onshore and
offshore, the USSR will have to shift increasingly to rotary rigs and
high-quality drill pipe, most of which will have to come from the West.
(2) Multiple completion equipment. As this type of equipment is
relatively scarce in the USSR, in many fields separate holes must be drilled
at a single site where separate 'producing zones exist. Multizone well
completions permit important economies in reduced drilling costs and
savings in casing.
(3) Secondary and tertiary recovery technology. The USSR is
preparing to undertake a high-priority program to increase yields from
29
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
producing fields through intensive use of enhanced recovery techniques.
Technical agreements have been signed with US oil companies to assist in
this development. Soviet experience with enhanced recovery techniques is
very limited, although every major secondary and tertiary method has been
tried on an experimental or pilot plant basis.
Soviet Reserves of Crude Oil
The size of the USSR's reserves is uncertain because of definitional
problems as well as secrecy. Our estimate is that current Soviet proved
oil reserves are at the most 30-35 billion barrels (4.1-4.8 billion tons),
roughly comparable with those of the United States. Soviet proved reserves
have been relatively stagnant in recent years, and we see very little chance
that enough new oil will be discovered during the next few years to
appreciably improve the reserves-to-production ratio. Indeed, despite major
efforts, it will probably deteriorate.
Approach to Estimating Soviet Reserves
The Soviet Union has not published an oil reserve estimate since 1938.
In 1947 oil reserves officially became a state secret. Because of this secrecy,
we have had to develop indirect methods, based on fragmentary data in
the Soviet oil literature, for estimating Soviet reserves. Some insights into
Soviet oil reserves can also be obtained from natural gas reserve data.
Another technique is to determine Soviet oil reserves using the United States
as an analogue.
Soviet literature provides two basic types of data that can be used
to estimate crude oil reserves: the publication of periodic link relatives can
be used to chain bits of information from the past to the present, and
the reporting of ratios of reserves to production (R/P) will provide some
information about reserves when production figures are known. As an
example of the first type of reporting, one journal stated that explored
reserves of oil increased 1.7 times in the past 10 years (1961-70). An
example of the second type occurred when another journal reported that
the R/P on 1 January 1968 had declined from more than a 28-year supply
in 1966 to little more than an 18-year supply.
Reserve Definitions
An analysis of Soviet oil reserves is further complicated because, even
in the historical literature (before World War II), the Soviet reserves were
not comparable with those used in the West. Soviet definitions, unlike the
US proved and probable reserves concept, do not specify that the reserves
must be commercially exploitable with available technology and equipment.
30
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
The Soviets have defined several categories of oil reserves, A, B, Ci,
C2, Di, and D2. Soviet reserves in category A can usually be considered
as reserves established through drilling, including undrilled areas enclosed
by producing wells. Category B reserves include those in undrilled areas
of a producing zone bounded by at least three producing wells but not
completely enclosed. Category Ci reserves are those with at least two wells
in the producing zone. The other categories of reserves, C2, Di, and D2,
are simply inferred reserves not established by drilling.
We believe that proved reserves in the US sense correspond to the
Soviet A reserves plus some fraction of adjacent B reserves. The remainder
of the B reserves and some of the Ci reserves would fall into the US category
of probable. Much of the remainder of the Clreserves fall into the US
possible category. Moreover, some portion of Soviet B and Cl reserves are
not exploitable with current technology and equipment.
The Size of Soviet Oil Reserves, 1946 to 1975
Our estimates of Soviet oil reserves are based on recently published
reserve growth indexes (link-relatives), which track Soviet oil reserves from
1947 through 1971, and two statements that indicate the reserve
developments for the period 1971 through 1975. According to Professor
Robert Campbell, the Soviet Union had 2.8 billion barrels (390 million tons)
of A and B reserves in 1946. Taking that figure as a base, he applied 'a
Soviet link relative published in 1969 to derive an estimate of 19 billion
barrels (2.6 billion tons) of oil in Soviet A and B reserves on 1 January
1961. A 1974 Soviet publication reported that reserves had grown by 63
percent (1.63 times) between 1 January 1961 and 1 January 1972. Applying
this growth factor to the 1961 estimate yields a 1972 estimate of 31 billion
barrels (4.2 billion tons).
To estimate Soviet A and B oil reserves on 1 January 1976, we have
again resorted to the recent Soviet literature. A 1975 planning index
published in a leading journal indicated that reserves would increase by
30 percent during the 1971-75 period. This would yield an estimate of
roughly 40 billion barrels (5.5 billion tons) for A and B reserves as of
1 January 1976. Of this amount, 33 billion barrels (4.5 billion tons) can
be considered reliable A reserves proved by drilling operations. We can verify
this from exploratory drilling discovery rates. During 1946-75, about 80
million meters of exploratory drilling for oil were reported by the Soviet
Oil Ministry. An estimated average finding rate of 130 tons per meter for
the 30 years would yield gross additions of 76 billion barrels (10.4 billion
tons). Subtracting cumulative production of 43 billion barrels (5.9 billion
tons) during 1946-75 leaves 33 billion barrels (4.5 billion tons) of remaining
A reserves at the start of 1976.
31
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
The 33 billion barrels (4.5 billion tons) of Soviet A reserves plus a
small portion of the 7.3 billion barrels (1 billion tons) of B reserves roughly
corresponds to the US definition of proved reserves. The remainder of the
B reserves and some fraction of the Cl reserves correspond to the US
definition of probable reserves. As a result, based on the literature, we
estimate Soviet proved oil reserves (US definitions) at between 30 and 35
billion barrels (4.1 to 4.8 billion tons) as of 1 January 1976 and that proved
and probable reserves would amount to about 40 billion barrels (5.5 billion
tons).
The US Reserve Analogue
Soviet oil reserves can also be calculated by using the United States
as an analogue. The Urals-Volga and other old producing regions are roughly
similar to the lower 48 states, particularly in that the combined output
of all regions except West Siberia stabilized at 340 million tons (6.8 million
b/d) in 1974 and 1975, and then declined in 1976. West Siberia, on the
other hand, is much like Alaska, in that in the years ahead growth in Siberian
output is expected not only to offset continued declines in other regions
but also to allow for substantial growth in output.
Based on a close comparison with the United States, Soviet proved
reserves outside of West Siberia probably total at most only 17-18 billion
barrels (2.3-2.5 billion tons) and could total only about 14 billion barrels
(1.9 billion tons). US output of 420 million tons (8.4 million b/d) in 1975
came from a working proved reserve base of only 23 billion barrels (3.2
billion tons).* Applying this reserve production ratio for US working
reserves (7.5) to Soviet output outside of West Siberia yields a working
reserve base of 18 billion barrels (2.5 billion tons) for all regions except
West Siberia. Because of the intensive exploitation of reserves, through
massive water flooding and use of high-lift pumps, the reserve production
ratio is probably only 5 or 6. The extremely rapid depletion rate of capacity
in these older fields tends to confirm use of a reserve/production ratio as
low as 6. On this basis, reserves outside of West Siberia would total only
about 14 billion barrels (1.9 billion tons).
West Siberian proved reserves probably total some 18-24 billion barrels
(2.5-3.3 billion tons). Remaining reserves in Samotlor range from 7.5 to
11 billion barrels (1-1.5 billion tons), depending on ultimate recovery rates.
Initial reserves of about 14-15 billion barrels (1.9-2.0 billion tons) were
calculated on the basis of recovery of 40 some percent of the original oil
in place. More recent information indicates that recovery will only reach
*Total proved reserves of 35.3 billion barrels (4.8 billion tons) in 1975 less 9.6 billion (1.5 billion
tons) for North Slope reserves and 2.5 billion (340 million tons) in Naval reserves and the Santa
Barbara Channel.
32
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
some 26 percent, while the urgency of Soviet plans for gas-lift equipment
and the extremely rapid rise in water cut could mean recovery will be even
lower. Thus, our best estimate for remaining recoverable reserves at Samotlor
on 1 January 1977 is 7.5 billion barrels (1 billion tons), initial reserve
of about 11 billion barrels (1.5 billion tons) less cumulative production
off 3.1 billion barrels (425 million tons).
Using the same reserve production ratio for other producing West
Siberian fields as that at Samotlor (8 if average recovery is 26 percent and
12 if recovery reaches 36 percent), indicated reserves of 4-6 billion barrels
(550-820 million tons) remain to be exploited at other producing fields.
In addition to fields already in production in West Siberia, the USSR
has plans to develop a large number of smaller fields over the next four
years. According to their plans these fields are expected at their peak
development to add production of 90 million tons (1.8 million b/d). Using
an RIP of 12, the same as that for Samotlor's peak output vs initial
recoverable reserves, yields 8 billion barrels (1.1 billion tons) of additional
proved reserves not yet in production.
Conclusion
Use of the US analogue technique results in an estimate of total proved
reserves for the USSR of 33.5 billion barrels (4.5 billion tons) in 1976.
The estimate, on a regional basis, is as follows:
Billion Barrels
Billion Tons
Total
33.5
4.5
Old producing regions
14.0
1.9
West Siberia
19.5
2.6
Samotlor
7.5
1.0
Other producing fields
4.0
0.5
Proved nonproducing
8.0
1.1
33
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Prospects for Soviet Oil Production
ER 77-10270
April 1977
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
This publication is prepared for the use of U.S. Government
officials. The format, coverage and contents of the publication are
designed to meet the specific requirements of those users. U.S.
Government officials may obtain additional copies of this document
directly or through liaison channels from the Central Intelligence
Agency.
Non-U.S. Government users may obtain this along with similar
CIA publications on a subscription basis by addressing inquiries to:
Document Expediting (DOCEX) Project
Exchange and Gift Division
Library of Congress
Washington, D.C. 20540
Non-U.S. Government users not interested in the DOCEX
Project subscription service may purchase reproductions of specific
publications on an individual basis from:
Photoduplication Service
Library of Congress
Washington, D.C. 20540
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
FOREWORD
This report is the unclassified version of the recent CIA study on
Soviet oil production which provided the basis for the evaluation of
the Soviet oil industry contained in our recent publication, "The
International Energy Situation: Outlook to 1985."
Our analysis of the Soviet oil industry results primarily from a
detailed review of Soviet publications and a comparative study of
these results with information freely available from all other sources
on the economics of the world oil industry. These include studies of
the technical aspects of oil production, reserves and demand, and
their relationship to general developments in the Soviet economy.
Approved For Release 2001/11/22 : CIA-RDP801301554R002700220001-2
Approved For Release 2001/11/22: CIA-RDP80601554R002700220001-2
Prospects for
Soviet Oil Production
April 1977
The Problem
1. Unlike the United States, which has long restricted production for reasons
of conservation and profit, the USSR favors a forced draft approach. Short-term
production goals are considered floors, not ceilings, and rewards are given for
exceeding them with little regard to productivity over the longer term. Under these
conditions, Soviet production has expanded much more rapidly in the last 20 years
than that of the United States.
Soviet and US Crude Oil Production
MILLION B/D
12
FIGURE 1
572441 3.77
lIncluding a small amount at natural gas liquids (20,000 bid in 1960 to some 300,000 bld in the 1980s),
2Excluding natural gas liquids (0.8 million hid in 1956, 1.6 million bid in 1976, and an estimated 1.2 million bid in 1985).
1111
. 1111 1111
I 1 1 1 1 LI 1 1 1 I
60 65 70 75 76 80 85
F--- projected-I
2. The Soviet stakhanovite approach has led to (a) an emphasis on
development drilling over exploration, 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 requirements that soon
will run far beyond the Soviet oil industry's capability.
Approved For Release 2001/11/22: CIAIRDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
USSR: Production of Crude Oil,'
by Region
Million Barrels per Day
1980
1970
1975 Goal
Total
7.06
9.82 12.80
Western region and Urals
5.80
6.00 5.71
Urals-Volga
4.17
4.50 NA
Tartar
2.01
2.07
Bashkir
0.81
0.81
2.85
Kuybyshev
0.70
0.69
Perm'
0.32
0.45 0.62
Orenburg
0.15
0.24
Lower Volga
0.14
0.14
Udmurt
0.01
0.07
Saratov
0.03
0.03
Belorussia
0.08
0.16
1.74
Caucasus
0.69
0.47
Azerbaydzhan
0.41
0.35
Ukraine
0.27
0.23
Other
0.03
0.07
Komi and Arkhangersk
0.15
0.22 0.50
Eastern region
1.26
3.82 7.09
West Siberia
0.63
2.96 6.16
Central Asia
0.58
0.82 NA
Mangyshlak
0.21
0.40 0.54
Emba
0.05
0.08 I
Turkmen
0.29
0.31 0.28
Other
0.03
0.03 1
Sakhalin
0.05
t
0.04 ( 0.11
1
Other
Negl
Negl j
1. Including gas condensate.
CIA Estimates
of Peak Output
High Low
11.8 11.0
5.6 4.9
4.1 3.5
1.5
2.9 0.6
0.5
0.6 0.5
0.6 0.4
0.2 I
0.3
0.4 1.0
0.2
Negl
0.4 0.4
6.2 6.1
5.2 5.2
0.9 0.8
0.1 0.1
3. As the ratio of reserves to output has fallen, the bulk of Soviet output
has come increasingly from fields approaching exhaustion. The result has been an
acceleration of drilling requirements, which will level off or decline only when-and
if--very large new additions are made to the producing reserve base. The Soviets
speak of this problem in terms of the depletion offset-the amount of new capacity
required to offset depletion of old capacity in each 5-year plan period.
2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
4. During the 1961-65 plan period, only 1.3 million b/d (67 million tons
per year) of capacity had to be replaced. In 1971-75, 5.1 million b/d (254 million
tons per year) of replacement capacity was required because of rapid depletion.
Viewed in another way, about 72 percent of 1970 capacity had to be replaced
by the end of 1975. The target for the 1976-80 plan is 10.6-10.8 million b/d
(530-540 million tons per year) of new capacity; 7.8 million b/d?equal to about
80 percent of the capacity on line in 1975?is to offset depletion. If depletion
is more rapid than the Soviets expect?and, based on their past record, it may
well be?considerably more of the 1975 capacity will have to be replaced.
Reserves
5. 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 reserves are 30-35 billion 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 reserves-to-production ratio.
Indeed, despite major efforts it will probably deteriorate further.
6. Although the USSR has abundant potential reserves in Arctic, East
Siberian, and offshore areas, development of such reserves is at least a decade away.
Thus, during the next 8-10 years, almost all Soviet output will have to come from
existing fields and from new fields in existing producing regions.
The Outlook for Output from Existing Production Regions
7. From World War II through 1970, the growth in Soviet oil output came
either from the Caspian fields or, after the mid-1950s, from large fields in the
Urals-Volga region. Since 1970, nearly 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, while doubling production in
West Siberia. Because of a variety of problems, we believe that output west of
the Urals will decline, while that of West Siberia will fall far short of doubling.
8. Production from fields in the western part of the country is coming
increasingly from greater depths and from in-fill drilling which allows more intensive
exploitation of already tapped reservoirs. All growth in output through 1980 will
3
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
USSR: Additions to Oil Producing Capacity FIGURE 2
MILLION BARRELS OF OIL PER DAY
3.2
1.9
1961-65
572463 3.77
4.0
2.2
1966-70
7.8
1971-75
10.8
1976-80 plan
GROWTH
DEPLETION OFFSET
4
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
come from West Siberia, where the inhospitable climate, difficult terrain, and vast
distances greatly complicate operations. In 1976, approximately 60 percent of West
Siberian output and roughly one-fifth of national production came from the giant
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 more
than 4 years. It is already experiencing rapid water incursion. The water cut reached
47 percent in 1975, and increasing quantities of fluid (water plus oil) must be
lifted to recover any given quantity of oil. Although new fields are being discovered
in West Siberia, no giant fields comparable to Samotlor have been found.
The Drilling Problem
? 9. The USSR does not have the drilling capability to pursue adequate
development and exploration programs simultaneously, The Soviets have some 1,600
active rigs, about the same as the United States. In terms of meters drilled, however,
the Soviet effort amounts to only about one-fifth that of the United States. In
1971-75, the Soviet Ministry of the Oil Industry drilled a total of about 52 million
meters. In 1975. alone, the United States drilled 53 million meters with about
1,700 rigs. We estimate that, even with a maximum effort, the Soviets will not
be able to come close to drilling by 1980 the 75 million meters called for by
their current 5-year plan.
10. The poor Soviet drilling record is in part the result of the fact that 80
percent of their drilling is done with turbodrilling rigs that are highly inefficient
for deep drilling or for use in soft formations.
The Fluid Lifting Problem
11. In the 1950s, when wells in the Urals-Volga region began to stop flowing
naturally, the Soviets were forced to begin pumping. At that time, however,
pumping equipment was in short supply. To forestall a slowdown in the growth
of oil output, the Soviets adopted the practice of massive water injection within
and along the edges of each field. If enough water is forced into a formation,
it raises reservoir pressures so that wells once again flow without pumping. The
Soviet system differs from the standard Western secondary recovery technique of
5
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
waterflooding in that the object is to increase rather than just to maintain pressure.
Much more water is injected than oil produced.
12. Although massive water injection can boost production for a time,
eventually the water will find a channel of least resistance and break through to
the oil-producing well, a process that leaves behind much oil in the less permeable
portions of the formation. When the wells begin to show water in large quantities,
the natural flow will usually stop and the wells must be pumped. In this case,
however, conventional pumping equipment cannot be used; special high-capacity
submersible pumps are needed because much greater volumes of fluid (water plus
oil) must be lifted.
13. Such pumps began to be used extensively in the USSR in the late 1960s.
In 1973, these pumps provided 2.5 million b/d of the Soviet total of 8.6 million
USSR: Fluid Lifting Requirementsl FIGURE 3
MILLION METRIC TONS
3,500 ?
3,000
2,500
2,000
1,500
1,000
500
B3
WATER
3,200
1,828
640
1975 1976 1977 1978 1979 1980
plan
1Crude oil, condensate, and water.
2Water which constituted 50 percent of liftings in 1975 will rise to 80 percent in 1980.
3Water which constituted 59 percent of liftings in 1975 will rise to 65 percent in 1980.
6
572442 3.77
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
b/d. The Soviets had some 12,000 of these pumps in 1975, and their need for
such equipment is increasing rapidly as water encroachment becomes a problem
in more and more fields. As an alternative to high-capacity submersible pumps, at
least in some fields the Soviets are considering wider use of gas.lift equipment.
The Longer Term Outlook
14. The initial falloff, when it comes, will almost 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 large--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, we doubt that the new discoveries
will come on stream rapidly enough to do more than temporarily arrest the rapid
slide of Soviet output.
15. As we stated earlier, only small amounts of Soviet production during
the next decade will come from outside existing producing areas. In the early 1980s
new offshore Caspian reserves may make some small contribution to output, as
will new discoveries on the Mangyshlak Peninsula on the east shore of 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
condensate.
16. Geological conditions favorable to large future discoveries exist over much
of the Arctic offshore regions (especially in the Barents and Kara Seas), in the
East Siberian lowlands, in deep structures in the Caspian area, and perhaps off
Kamchatka and Sakhalin in the Sea of Okhotsk. Production from most of these
areas, however, is at least a decade away. In the offshore Arctic, environmental
7
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22: CIA-RDP80601554R002700220001-2
conditions are much more severe than in the North Sea; technology for exploration
and production in this region does not yet exist, even in the West. Although
conditions are more favorable near Sakhalin and in the East Siberian lowlands,
production and transportation difficulties make it doubtful that significant
production could take place until 10 years after a major discovery--which has yet
to be made. The lead time would be shorter for production from deep wells in
the Caspian region; the USSR, however, lacks the equipment and experience
necessary to undertake a deep drilling program without extensive Western help.
Economic Implications
17. When oil production stops growing, and perhaps even before,
repercussions will be felt on the domestic economy of the USSR and on its
international economic relations. The extent of such repercussions can be only
guessed at without further research. At a minimum, the USSR will find it difficult to
continue to simultaneously meet its own requirements and those of Eastern Europe
while exporting to non-Communist countries on the present scale. More
pessimistically, the USSR will itself become an oil importer.
18. These are important considerations for the Soviet Union. It now supplies
three-fourths of the oil required by the Communist countries of Eastern Europe.
For many years the export of oil to non-Communist countries, mainly in Western
Europe, has been the USSR's largest single source of hard currency.
19. 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 will take time and large
capital investments. The cost of Soviet energy almost certainly will increase. The
largest known gas reserves are in permafrost zones of Siberia where production
and transportation will be difficult. Deposits of coal scheduled for exploitation
in the next decade are also east of the Urals; considerable investment in transport
facilities and on-site thermal powerplants and other coal-using industrial facilities
will be required.
20. Electric power from hydroelectric and nuclear powerplants will make only
a small contribution for many years to come. Although there are vast hydroelectric
resources in Eastern regions of the USSR, the technical problems of long-distance
8
Approved For Release 2001/11/22: CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
transmission must be solved before such resources can be fully exploited. The
Soviets consider nuclear power to be the best source of new electric power in
European areas. A program for constructing nuclear powerplants is under way, but
it will be quite some time before these plants can have an important effect on
the power base. In 1975 nuclear power represented 2 percent of total power
production, and it will reach only about 6 percent in 1980.
Summary
Soviet oil production will soon peak, possibly as early as next year and
certainly not later than the early 1980s. The maximum level of output reached is
likely to be between 11 and 12 million barrels per day (b/d)?up from the 1976 level
of 10.4 million b/d. Maximum levels are not likely to be maintained for long,
however.
The Soviets have two basic problems: one of reserves and one of production.
Barring an extremely unlikely discovery of a massive new field close to an existing
field, new deposits will not be found rapidly enough to maintain acceptable
reserves-to-production ratios, and those fields that account for the bulk of Soviet
production are experiencing severe water encroachment. As a result, increasingly
large quantities of water must be lifted for each barrel of oil produced, and
high-capacity submersible pumps will be required if production declines are to
be staved off even temporarily.
During the next decade, the USSR may well find itself not only unable to
supply oil to Eastern Europe and the West on the present scale, but also having
to compete for OPEC oil for its own use. This would be a marked change from
the current situation, in which exports of oil to the West annually provide 40
percent 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
are east of the Urals, far from consuming centers in the western USSR. Distance,
climate, and terrain will make exploitation and transport difficult and expensive.
Exports of gas will increase, but will not compensate for the loss of earnings from
the export of oil. Although some substitution of coal and gas for oil in domestic
use will be possible in the long run, the effect of such substitution will be minimal
in the short run. Neither hydroelectric power transmitted from the east nor
construction of nuclear electric plants (mainly in the western USSR) can be
expected to afford much relief in the Soviet energy situation for more than a
decade.
9
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
transmission must be solved before such resources can be fully exploited. The
Soviets consider nuclear power to be the best source of new electric power in
European areas. A program for constructing nuclear powerplants is under way, but
it will be quite some time before these plants can have an important effect on
the power base. In 1975 nuclear power represented 2 percent of total power
production, and it will reach only about 6 percent in 1980.
Summary
Soviet oil production will soon peak, possibly as early as next year and
certainly not later than the early 1980s. The maximum level of output reached is
likely to be between 11 and 12 million barrels per day (b/d)?up from the 1976 level
of 10.4 million b/d. Maximum levels are not likely to be maintained for long,
however.
The Soviets have two basic problems: one of reserves and one of production.
Barring an extremely unlikely discovery of a massive new field close to an existing
field, new deposits will not be found rapidly enough to maintain acceptable
reserves-to-production ratios, and those fields that account for the bulk of Soviet
production are experiencing severe water encroachment. As a result, increasingly
large quantities of water must be lifted for each barrel of oil produced, and
high-capacity submersible pumps will be required if production declines are to
be staved off even temporarily.
During the next decade, the USSR may well find itself not only unable to
supply oil to Eastern Europe and the West on the present scale, but also having
to compete for OPEC oil for its own use. This would be a marked change from
the current situation, in which exports of oil to the West annually provide 40
percent 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
are east of the Urals, far from consuming centers in the western USSR. Distance,
climate, and terrain will make exploitation and transport difficult and expensive.
Exports of gas will increase, but will not compensate for the loss of earnings from
the export of oil. Although some substitution of coal and gas for oil in domestic
use will be possible in the long run, the effect of such substitution will be minimal
in the short run. Neither hydroelectric power transmitted from the east nor
construction of nuclear electric plants (mainly in the western USSR) can be
expected to afford much relief in the Soviet energy situation for more than a
decade.
9
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
Vents0/
'44
LeamArad ?
Kinsh,
Polo
? C?ereoovets
Vologda
Major Soviet Petroleum Deposits, Pipeline Systems, and Refineries
Ukraine 1220/1000
0
Orj anak
1020/800
Ura,rs-Volga
.Soarrano?
bro./
T ARSK AY
Ilemeselas
lzhewsk
ASSR
Armoit.
11.1M,
SZIO,Rrd. 410''
tJ
. Our.
e.:471""'
Reeve/WY,
ISubkin
% ara?amar
T Y UNIEN'SKAY A " newer ,
West
tku,R?11.44. Iry. goy- Chelyabie
0AaaiY
1220/1000 ?Aat - Siberian
7
Voiaoarad
StavrOPR
Th.
Yr ns-
Cauc sus
North
Iftleimumar TRY.
.Aleasandrov Gay BASIIKIRSKA Y
ASSR 1220/
beeverteask
metier
Pasetee-Seallaire-
Mew*.
000
aucasus
Mangyshlak
Novas..
Lowland
1010/800 A
SIBERIA
East Siberian
Lowland
11'41; orm,
Skovorod".___
Kazakhstan
?NovokuTnetak
4Svobocir,
kth
aabarovsk
A
?
Chardahoe?
IRAN
Central
Asia
0layRIP 400
AFGHANISTAN
Petroleum area
di Major oil refinery
MAJOR FIELDS
Natutal gas MP CrUde Oil
PIPELINES
? Plowed Or metier
eeestrectioe
Natural gas
Crude oil
1--0000eter Or mix:meters tweeter,. mdarnoters
1020/23 3 1220/1000
.----capaally. moon .--cepacay tLoaseral
cubic meters per da), barrels per clay
Approved For Release 2001/11/22 : CIA-RDP80601554R002700220001-2
AL3n10021?03
Ferns//
Sakhalin
.41111111111+ oil task.,
JAPAN