WEEKLY SUMMARY SPECIAL REPORT CONSTRAINTS ON THE SOVIET OIL POSITION 1970-80

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001500020051-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: December 22, 2016
• Document Release Date: August 14, 2009
• Sequence Number: 51
• Publication Date: October 2, 1970
• Content Type: REPORT

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DIRECTORATE OF
INTELLIGENCE
WEEKLY SUMMARY
Special Report
Constraints on the Soviet Oil Position 1970-8~
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2 October 1970
No. 0390/70B
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SECRE'T'
CONSTRAINTS ON THE SOVIET OIL POSITION, 1970-80
Since the mid-1950s the USSR has been a substantial net exporter of
oil. In recent years, oil sales have been the country's largest single source of
hard currency. In 1969, however, the Minister of the Petroleum Extraction
Industry, V.D. Shashin, declared that total Soviet exports of oil will not
increase significantly in the future because domestic demand will rise faster
than production. He also said that the USSR will maintain a high level of
exports to Eastern Europe but expressed doubt that exports to the West will
show much further increase. Shashin's predictions may well err on the side
of optimism. Analysis confirms the suggestion that during the 1970s Soviet
consumption of oil is likely to increase faster than production. By 1980
there still will he an excess of production over domestic consumption, but
the excess will be IeFs than the import requirements of Easter n Europe. The
USSR already has begun procuring small quantities of Middle Eastern and
North African oil under barter agreements for re-export to other Communist
countries. Encouraged by the Soviets, the East European states also have
been bartering directly for Middle Eastern oil. The Soviets probably hope
that oil obtained in this manner will permit them to maintain oil sales in
hard currency markets at current levels.
The USSR has emerg3d as a major oil pro-
ducing nation only in the last two decades. Soviet
crude oil production, which rose from 37.9 mil-
lion metric tons in 1950 to 147.9 million in 1960,
should reach 350 million this year. Thanks to this
upsurge, ?:he Soviet Union now is second only to
the Unitt,d States in crude oil output. The rate of
increase has declined, however, from almost 16
percent per year during 1956-60 to a less spec-
tacular but still rapid rate of nearly eight percent
annually.
During the post-1950 expansion of oil pro-
duction, Azerbaydzhan-where fields had been
producing since tsarist times-was eclipsed as the
principal Soviet source of oil by the prolific
Urals-Volga region. Although production in the
North Caucasus, West Siberia, and Central Asia
subsequently increased considerably, the Urals-
Volga region still accounted for some 60 percent
of national output as recently as last year.
Soviet authorities originally predicted that
the Urals-Volga fields alone would he yielding
350 million tons of oil a year by 1980, but they
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USSR: Major Oil Producing Regions
CaiJ' i us
Urais,';Vblga
Azerbaydzhan ,,
n tral
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now indicate that annual production there will be
at its peak this year at about 207 million tons.
The amount of oil that ultimately can be re-
covered from this region has been reduced by
extraction at excessive rates and by faulty use of
water injection to maintain reservoir pressure. In-
jected water has encroached on producing oil
zones and has isolated sizable pockets of oil,
rendering them unrecoverable.
Costly blunders have not been confined to
the Urals-Volga region, but have occurred in prac-
tically all oil producing areas. In addition to ex-
cessively rapid extraction and faulty water injec-
tion, a common mistake has been. large-scale burn-
ing off of the natural gas found in association
with oil. The gas should be recycled into the
deposits to maintain pressure and utilized after
the extraction of oil has been completed. In the
important fields of western Kazakhstan, asso-
ciated gas was burned off instead of being re-
cycled. Then cold sea water was injected in an
attempt to restore pressure, and much of the oil,
which is high in paraffin content, solidified. As a
result, production targets have had to be cut
drastically.
Under constant urging to maximize short-
run achievements, Soviet oil technicians have
worked feverishly with poor equipment and ob-
solete techno'ogy. The geophysical instruments
they use to map geological structures are gen-
erally outdated. In seismograph technology,
which is used in the exploration of deep, complex
geological formations, the USSR is seven to ten
years behind the US. The Soviets continue to rely
on turbodrills for as much as 80 percent of all
operations, both for shallow and deep drilling.
The transition to greater reliance oni rotary drill-
ing, best suited for deeper drilling, is impeded by
a shortage of high-quality drill pipe. Soviet deep-
drilling capability also is limited by a shortage of
high-powered mud pumps and high quality drill
bits. Burdened with their many handicaps, Soviet
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drillers require eight to ten months to drill wells
that American crews could sink in a single month.
Transportation of oil continues to encounter
serious problems. Prior to 1965, most oil was
shipped by rail, although this mode of transport
was nearly three times as expensive as movement
by pipeline. Since 1965, however, pipelines have
carried the greatest tonnage. At least 80 percent
of the oil-pipeline network carries crude oil, and
the remainder oil products. The oil fields of
Azerbaydzhan and the Urals-Volga region, on
which the Soviets have depended so heavily, are
sufficiently distant from major centers of popu-
lation and oil consumption to pose significant
transport problems. The newly important oil
fields of Central Asia and West Siberia are even
less accessible.
Oil refining, like oil extraction, is techno.
logically backward in the Soviet Union and lags
far behind the American industry in the quality
of individual products, in product mix, in the
depth of refining, and in the sophistication of
refining processes. This backwardness has resulted
chiefly from failure to allocate sufficient invest-
ment to refining during a period of rapid growth
and transition to lower quality crude oils. In part,
however, the lag in product mix is attributable to
the pattern of demand, which is influenced by the
small number of automobiles in the Soviet Union.
The demand for high-octane gasoline now has
begun to rise, but facilities for producing it are
not keeping pace. Expansion of existing refineries
and construction of new ones consistently have
fallen short of plans. Nevertheless, primary refin-
ing capacity has increased at an average rate of
about eight percent a year since 1958 and now is
second only to that of the US. It is sufficient to
meet the needs of domestic consumers and to
provide over 25 million tons of products for ex-
port.
Soviet oil consumption has increased greatly
since 1950, but only recently has it approached
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(million metric tons)
0 1958 59 60 61 62 63
64 65 66 67 68
the growth rate achieved by production. During
the decade from 1958-68, consumption of oil
products rose at an average annual rate of about
8.4 percent. Despite the existence of an over-all
surplus of oil, sporadic local shortages of certain
oil products nevertheless have occurred because
of failure to turn out the needed range and qual-
ity of products and because of inadequacies in the
transportation and distribution systems.
With production outstripping domestic con-
sumption in past years, an increasing portion of
Soviet oil production was exported. Exports of
oil and oil products increased about 17 percent
per year over the decade from 1958 through
1968. Since 1966, however, the growth of ex-
ports has slowed appreciably, and exports to free
world countries have leveled off. Even so, exports
of oil and oil products remain the USSR's biggest
single earner of hard currency. Last year such
exports brought in some $340 million. Moreover,
the Soviet Union serves as the principal supplier
of oil to Eastern Europe.
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Domestic Prospects Through 1980s
T'ie USSR has abundant potential resources
of petroleum, both on and offshore, that could
enable it to become the world's leading producer
of petroleum by the end of this century. It is
estimated that, as of 1 January 1969, the Soviets
had proved reserves of crude oil of 3.0 to 3.4
billion tons, or about 10 to 11 times the amount
produced annually. This situation is analogous to
that of the United States, where proved reserves
were estimated at 4.2 billion tons in 1969, giving
a ratio of reserves to production of about 10:1.
To tap their reserves successfully, the Soviets
must overcome difficult obstacles, of which one
of the most serious is permafrost. Some 30 to 40
percent of Soviet reserves lie under permafrost,
and Soviet technicians have yet to prove that they
can operate successfully in such conditions.
Plans call for crude production to rise from
350 million tons in 1970 to 450 million in 1975,
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a goal that implies an average annual growth rate
of 5.2 percent. This rate, which is well below the
7.6-percent rate posted during the five year pe-
riod now ending, seems attainable.
Achievement of the 1980 plan target for
crude output of 550-600 million tons now seems
unlikely. An anticipated decline in production in
some of the older regions, more difficult climatic
and geological conditions in new producing areas,
rising exploration and development costs, and a
shortage of equipment embodying modern tech-
nology-especially for drilling-suggest that pro-
duction in 1980 probably will be in the vicinity
of 500 million metric tons. This estimate implies
that production will increase by only 2.1 percent
per year during the last five years of the decade.
Because future production depends in part
upon current drilling rates, it is significant that
total drilling for exploration and development of
petroleum resources declined after 1967. Given
both the Soviets' inexperience with the sophisti-
cated techniques that are becoming more neces-
sary and the more difficult drilling conditions
anticipated in the 1970s, it is doubtful that aver-
age annual drilling rates will increase very much.
Shashin has indicated that production goals must
be achieved by technical progress and without
any such steep rise in capital investment for drill-
ing as has occurred in recent years. Some im-
provement, however, is possible. The priority as-
signed to the petroleum industry as a leading
earner of foreign exchange makes it likely that
Soviet planners will make an effort to provide the
resources required to solve problems that already
have been recognized by Soviet technicians.
Prospects for the three regions that will be
the USSR's principal sources of oil in the present
decade are mixed at best. In the Urals-Volga re-
gion, blunders have cut prospects for 1980 pro-
duction by some two thirds. It now seems that
production in this region will decline from 207
million metric tons this year to about 180 million
in 1975 and 100 million in 1980. Production
from Central Asia is expected to rise more slowly
Special Report
than planned but to reach 60 million tons in 1975
and 65 million in 1980. West Siberia presents the
greatest potential but poses the most difficult
problems. Production in this area may increase
from 30 million m^tric tons this year to 100-120
million in 1975 anu 150-200 million in 1980.
Demand for petroleum products in the So-
viet Union can be projected by its relationship to
anticipated industrial growth. Using this method
and taking into account the expected growth of
the motor vehicle park, it is estimated that the
USSR will consume approximately 350 million
tons of oil in 1975 and 450 million tons in 1980.
Projections of both production and con-
sumption are, of course, subject to error, and
projections ten years into the future are particu-
larly risky. Western estimates indicate that the
Soviet excess of production over domestic con-
sumption will rise from 90 million metric tons
this year to about 100 million in 1975 and then
decline to about 50 million in 1980. Meanwhile
East European demand for foreign oil is expected
to outstrip Soviet supply capability. If the Soviet
Union is to maintain exports of oil to hard cur-
rency markets in this decade, the USSR and East-
ern Europe will have to obtain oil from non-Com-
munist producers. It seems likely that in 1975 the
Soviets will be obtaining about 10 million metric
tons of Middle Eastern and North African oil for
shipment to other countries on Soviet account.
Moscow probably hopes to pay for some of this
oil by bartering technical assistance and equip-
ment for producing oil. By 1980, however, the
USSR may have to obtain as much as 80 million
metric tons a year from non-Communist countries
in order to maintain its deliveries to foreign
clients. At today's prices this quantity of oil
would be valued at more than $750 million. In
addition, the Eastern European countries prob-
ably will need to import some 15 million metric
tons directly from the Middle East and North
Africa in 1975 and perhaps 30 million in 1980.
Even if the Communist countries' imports reach
the indicated levels, however, the Middle East and
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E.Stimaited Soviet P.roductiont Derna.ndf and,, Exports of 011
Million Metric Tons of
Crude Oil Equirolonls
Imports from the Free World
Necessary to Maintain the
Projected Level of Exports
0
1965
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North Africa will remain dependent on free world
markets for the disposal of more than 90 percent
of their cil.
Soviet Interest in Middle Ecstern and North African Oils
The USSR's involvement with Middle East-
ern and North African oil, already in evidence for
a decade, is expected to increase further in the
1970s. In the last year or two Soviet interest in
such oil has increased perceptibly, and the USSR
now has oil pacts with most of the major oil
producing countries of the Middle East and North
Africa.
Pipeline
Existing
Proposed
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The first agreement with Iraq was concluded
in the early 1960s, essentially for political pur-
poses and for its impact on Western oil interests.
In 1967, however, after Baghdad had reclaimed
some of its concession areas, the USSR and Iraq
signed a memorandt,'rn under which the Soviets
would provide technical assistance and equipment
for exploration and for the extraction, transporta-
tion, and marketing of oil in exchange for crude.
An agreement signed with Baghdad in June
1969 and valued at $72 million is repayable in
hard currency. Another pact, valued at $67 mil-
lion, provides for Soviet assistance in exploiting
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the big North Rumaila field-where drilling began
in September-and for the surveying of new areas,
with payment to be made in crude. The Soviets
also are to lay an 80-mile pipeline to the port of
Fao, where they will build storage facilities. If
findings in other fields in southern Iraq justify
development, the Soviets "will examine the pos-
sibility of providing technical assistance in imple-
menting" development programs there. In carry-
ing out these agreements, the USSP has sent
numerous experts to Iraq.
The USSR has been exploring for oil in
Egypt and may drill as many as 40 exploratory
wells in the Western Desert, where operations
began in March. The Soviets are to provide ten
seismic crews to bolster prospecting operations
and will deliver six drilling rigs. Furthermore, if
oil is found, the Soviets will provide credits for
the development of the field, which will be repaid
in oil.
The USSR also is expected to receive two
million tons of Egyptian crude from the El Mor-
gan field in 1970 in exchange for Soviet oil de-
livered to northern Egypt. As in the past, the
Egyptian oil probably will be shipped to other
countries on Soviet account, a practice likely to
be followed as long as the Suez Canal remains
closed and the Suez-Mediterranean pipeline re-
mains to be built.
Soviet involvement in Algerian petroleum af-
fairs began in 1964 with the establishment of the
African Petroleum and Textile Institute, where an
estimated 300 Soviets are on the teaching staff.
About 200 Soviet oil technicians have been work-
ing in Algeria since 1967. In 1969, the USSR
contracted to receive 500,000 tons of Algerian oil
annually through 1975 as part of a barter deal.
Recently the Soviets and Algerians signed
several contracts, two of which covered explora-
tion and drilling. At present six drilling rigs are
operational and the USSR is to provide 15 more.
The USSR will probably not receive many kudos,
however; most observers describe the Soviet
equipment as antiqu.-'ted, perhaps a.3 much as 20
years behind Western equipmer,I ~. I he rigs are
usable only for shallow drilling and would be
unsuitable for exploitation of major Algerian
fields.
Soviet exploration in Syria, which has been
going on for more than ten years, helped Damas-
cus to begin commercial production early in
1968. The Soviets also provided technical aid for
construction of a 400-mile pipeline linking the
fields in northeastern Syria with the Mediter-
ranean port of Tartus. In late 1969 Soviet special-
ists prepared a comprehensive plan for oil produc-
tion, and agreed to aid in the establishment of a
research laboratory for Syria's proposed oil insti-
tute.
Six months after seizing power in 1969, the
new Libyan government took several steps, in-
cluding negotiation for Soviet participation in
Libyan oil affairs, to reduce its dependence upon
Western companies. The Soviets have proposed a
joint exploration venture with the newly or-
ganized Libyan National Oil Company and last
May sent a delegation of petroleum experts to
Libya to conduct a one-month study. At that
time they also agreed to supply three Soviet tech-
nicians to the Libyan Ministry of Petroleum to
perform a long-term survey of oil reserves
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