USSR MONTHLY REVIEW

• Document Type: CREST
• Collection: General CIA Records
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• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 40
• Document Creation Date: December 22, 2016
• Document Release Date: June 20, 2011
• Sequence Number: 2
• Publication Date: May 1, 1983
• Content Type: REPORT

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USSR Monthly Review
SOV UR 83-006X
May 1983
632
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Directorate of Secret
Intelligence
USSR Monthly Review
The USSR Monthly Review is published by the
Office of Soviet Analysis. Comments and queries
regarding the articles are welcome. They may be
directed to the authors, whose names are listed in the
table of contents.
Secret
SOV UR 83-006X
May 1983
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Contents
Energy and the Soviet Perspective: Moscow's Energy Policy for the 1980
Economy
The articles in this issue describe Moscow's effort to maintain the
USSR's energy independence and the difficulties it faces in exploiting
Siberian energy resources. Despite the leadership's willingness to date
to boost resource commitments to energy, we believe that by the mid-
to-late 1980s the USSR will be unable to afford the investment
requirements needed to meet all of its goals in both the energy and
nonenergy sectors of the economy (including defense). We expect that
by 1990 natural gas will be the largest source of Soviet energy
production, with oil production declining and coal output stagnant in
terms of energy content
Soviet Oil Supply Prospects for the 1980s (u) 5
With a rising commitment of investment and manpower to exploitation
of its large oil reserves, the Soviet Union should be able to approach its
oil production goal of 12.6 million barrels per day (b/d) for 1985. We
expect, however, that in the late 1980s, with GNP growth continuing to
decline, Moscow will not be willing to make the enormous investment
outlays necessary to keep production stable, and oil output will slip to
about 11-12 million b/d in 1990. Unless conservation and substitution
programs are considerably more effective than we expect them to be,
Moscow will then face hard choices in allocating oil output among
domestic consumption, exports to Eastern Europe, and hard currency
sales to the West]
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Moscow is turning to natural gas to satisfy most of its increasing
demand for energy in the 1980s and to minimize the squeeze on its
hard currency earnings should oil exports to the West taper off later in
the decade. By 1990 gas will be the largest source of Soviet energy,
with production reaching as much as 730 billion cubic meters a year-
roughly equivalent to 12.1 million barrels a day of oil. Attaining this
rate of production will almost certainly require large amounts of
Western pipe and equipment. Although demand forecasts for gas have
been trimmed, Western Europe's gas demand by 1990 will still provide
a lucrative market for Soviet gas.
Tengiz Discovery Adds to Kazakhstan's Oil and Gas Potentia~
Reserves of about 2.2 billion barrels of recoverable oil (roughly 4
percent of the USSR's A+B+C, reserves) and at least 200 billion
cubic meters of sour gas have been found at Tengiz, near the northern
end of the Caspian Sea. Development of these deposits will be
extremely difficult, requiring large purchases of Western pipe and
equipment because of the high reservoir pressures and temperatures
and the presence of corrosive contaminants. The Soviets currently
expect to produce only about 3 million tons of oil (60,000 barrels per
day) and 2 billion cubic meters of gas from Tengiz in 1985, but output
could rise to four times these amounts by 1990
Prospects for Expanding Coal Production and Use (u) 17
Soviet coal production will show little growth during the 1980s.
Although the industry managed last year to reverse a decline in output
which began in 1979, further growth will be constrained by the failure
to open new mines and by mine depletion in older coal basins.
Moreover, most of the gain in raw coal production through 1990 will be
offset by a continuing decline in the average energy content of the
mined coal. Tight coal supplies will severely undercut Soviet plans to
increase the use of coal in electricity production, and coking coal
production will become a major bottleneck. substantially limiting the
possibility for gains in steel production
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Management of Soviet Energy Policy
Soviet energy policy is formulated, approved, and implemented within
an essentially three-tiered decisionmaking hierarchy. Decisionmakers
at successively higher levels integrate energy policy into progressively
broader policy contexts but are dependent on lower levels for technical
expertise. Politburo decisions that significantly alter the basic direction
of energy policy usually are made only in response to important
unanticipated problems because the decisionmaking process does not
easily accommodate innovation and long-range planning. Sharp policy
shifts made under stress, however, may carry significant costs.
Other Topics Development of Helicopter Squadrons in Soviet Ground Forces 25
Divisions)
The Soviets are rapidly upgrading the helicopter detachments in the
ready divisions of their Ground Forces into larger, more potent direct-
support squadrons. The addition of aerial firepower and troop lift
directly responsive to the division's needs is part of a broad-based effort
to make maneuver formations more balanced, self-sufficient, mobile,
and powerful combined-arms forces.
Briefs Long-Term Energy Progra
Soviet Military Personnel in Lebanon
Soviets May Further Restrict Jewish Emigration
Kadar's Views on Andropov, Relations With the USSR
Good Start for Spring Grains
First-Quarter Industrial Growth
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Viewpoint Outlook for Soviet Oil: A DIA Assessmen
A favorable outlook for Soviet oil production is based upon the
existence of abundant energy resources among which petroleum is
especially significant. Central planning assures continuity in the role of
oil as a flexible instrument in energy development. For example,
effective programs for oil conservation and fuel substitution are in
place to permit a continuing key export role for petroleum through the
late 1980s and beyond. Furthermore, prospects for continued high
levels of essential hard currency earnings based on export of crude oil
and, increasingly, of petroleum products are favorable.
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Energy and the
Soviet Economy
Perspective: Moscow's Energy Policy for the 1980 STAT
A major driving force behind Soviet energy policy is Moscow's desire to re-
main self-sufficient in energy supplies. As the Soviets themselves have
noted, "The Soviet Union is currently the only highly developed country in
the world meeting its own fuel and energy needs from its own resources."
The articles in this issue illustrate Moscow's intent to maintain energy
independence and describe the difficulties it faces in exploiting Siberian
energy resources while at the same time satisfying the investment require-
ments of other sectors of the economy
In addition to heavy emphasis on West Siberian oil and gas, the major ele-
ments of Soviet energy policy for the 1980s include increased substitution
of gas for oil and energy conservation, especially through modernization of
industrial production facilities. To a large extent, the current strategy is
driven by the leadership's awareness that it will probably have to accept a
decline in oil production in the late 1980s. This prospective decline-
already being acknowledged by planners-defines the need for conserva-
tion and substitution and forces continued heavy investment in West
Siberia as a holding action
Despite Moscow's willingness to date to boost investment in energy, we
believe that by the mid-to-late 1980s the USSR will be unable to provide
the investment required simultaneously to:
? Keep oil production from falling.
? Expand secondary refining capacity to permit a shift in the structure of
refined products.
? Provide the processing, distribution, and storage facilities to handle the
increasing output of natural gas.
? Offset the drop in the energy content of mined coal.
? Accelerate development of nuclear power.
? Provide new equipment to meet the ambitious conservation and substitu-
tion goals.
? Satisfy the needs of the nonenergy sectors of the economy (including
defense).
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SOV UR 83-006X
May 1983
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The rapidly rising unit costs of energy production, processing, and
distribution will exacerbate the continuing sharp decline in overall capital
productivity. Soaring requirements for investment in energy will limit the
opportunities to substitute capital for labor-the key to raising productivi-
ty-elsewhere in the economy. The energy sectors, including associated
infrastructure, are scheduled to receive more than one-half of the incre-
ment in total investment during the 11th Five-Year Plan (1981-85), and
this share will have to rise still further unless total investment growth is in-
creased sharply. While some increase is possible, an abrupt acceleration in
total investment growth will be hampered by problems in metallurgy and
machinery production-increasing the competition for investment goods,
consumer durables, and defense hardware
Because of the investment squeeze and the increasingly complex technical
requirements in energy production, we believe the USSR will have an even
greater need for Western equipment and technical expertise in the 1980s
than it did in the 1970s. An analysis of Soviet equipment manufacturing
capabilities and continuing problems in the oil industry indicates that
requirements in the 1980s will center on Western equipment and technol-
ogy for deeper drilling, fluid lift, and well completion and servicing. In
addition, sophisticated exploration equipment, offshore drilling platforms,
and secondary oil refining technology will be crucial to preventing an oil
shortage later in the decade. Because gas is so important to maintaining to-
tal Soviet energy production growth in this decade, continued imports of
large-diameter pipe, pipelayers, pipe-wrapping and insulating materials,
and turbine-compressors will be necessary. Western equipment and tech-
nology will be especially critical for exploiting some newly discovered
"sour" gas deposits, as noted in the article on the Tengiz reserves.
Despite the increased resource commitment to energy in the 11th Five-
Year Plan, we believe the combined output of oil, natural gas, and coal will
increase only 11 to 12 percent in 1981-85 compared with the 17 percent
planned for this period and the 22 percent achieved in the last five-year
plan. As yet, the Soviets have not specified their energy production goals
for 1990, but, in our judgment, combined fuels output will grow by only 6
to 7 percent in the latter half of the decade under the best of circum-
stances. At the start of the 1990s, gas will be the largest source of Soviet
energy. Indeed, with oil output in decline by the late 1980s and coal
production stagnant in terms of energy content, the increases we foresee in
fuel availability will be largely the result of rising gas output. (This
assessment of Soviet energy production possibilities is not universally
shared within the Intelligence Community. See the article in this month's
Viewpoint section.)
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Whether oil production falls or not, one of the keys to the success of Soviet
energy policy will be the success with which increased gas supplies are
managed within the economy. The Soviets are faced with limits to the
amount of gas that can be absorbed domestically. Even though the long-
distance gas transmission network is being expanded rapidly, construction
of gas processing, distribution, and storage facilities is lagging. Outside the
industrial, electric power, and to a lesser extent, the housing and govern-
ment sectors, the opportunities for greatly increased gas use are limited.
Only in the electric power sector do the Soviets have concrete plans for in-
terfuel substitution. But because of delays in completing gas-fired power
plants and building lateral gas distribution lines, we estimate that only 60
to 65 percent of the 1985 target for incremental gas use in the electric pow-
er sector can be met.
Although Soviet plans call for energy conservation throughout the econo-
my, the current structure of energy demand and the nature of the Soviet
economic system will restrict the savings that can be achieved. Much of the
conservation program-including installation of more energy-efficient
equipment, wider use of secondary energy resources, dieselization of the
motor vehicle fleet, increased centralization of heat supply, and improve-
ment of energy consumption monitoring procedures-will involve large
new expenditures at a time of fierce competition for investment resources.
Soviet officials themselves have admitted that conservation progress has STAT
been slow and that the potential for energy savings in several areas
(improving the efficiency of rail transportation and reducing the consump-
tion of fuels for electricity generation, for example) is being exhauste~7
This prospective energy picture implies reduced rates of growth for the
Soviet economy through the 1980s. Oil requirements are likely to outstrip
supplies, and Soviet growth prospects are not likely to turn around before
1990. If the current emphasis on oil and gas founders in the late 1980s, the
main thrust of Moscow's energy policy is likely to change later in the
decade. Indeed, coal and nuclear power may once again come to the fore as
suggested by recent Soviet references to a new 20-year energy program. By
the 1990s advances in technology may make viable such projects as coal-
slurry pipelines and long-distance transmission of coal-based electricity.
Nuclear power is also likely to play a larger role in Soviet energy supply in
the 1990s. Nonetheless, until such programs become a reality, the Soviets
face costly energy problems that will absorb much of their attention and re-
sources through the end of this decade.
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Soviet Oil Supply Prospects
for the 1980s
Production of oil and gas condensate in the USSR
now stands at 12.4 million barrels per day (b/d), only
300,000 b/d more than in 1980. Though still posting.
small annual gains, the oil industry has not reached
an annual production target since 1972. In our judg-
ment, the recent increases were made possible only by
a willingness on the part of the government to fund an
enormous and costly brute-force development effort in
remote West Siberia, now the source of some 58
percent of Soviet oil output. With reserves estimated
at 50-70 billion barrels, Moscow should be able to
approach its production goal of 12.6 million b/d for
1985. Thereafter, we expect, production will level off
and then decline slowly to about 11-12 million b/d by
1990.'
Production Problems
The prospective tapering off in Soviet oil production
results largely from planning and strategy choices
made during the 1970s, increasingly difficult field
conditions in the oil regions, and often mediocre
performance on the part of the oil industry:
? Outside of West Siberia only two major onshore oil-
producing regions, Komi and Kazakhstan, are not in
decline, and both will remain relatively small pro-
ducers throughout this decade. The Soviets concede
that their promising offshore areas will contribute
little before the 1990s.
? Our engineering analysis indicates that by the late
1980s production will be declining rapidly at most
of the supergiant and larger giant fields on which
the Soviets have relied for the bulk of their oil over
the past two decades. Offsetting the decline in
production from giant fields will require a greatly
expanded effort to produce oil from smaller depos-
its, which yield disproportionately lower returns for
a given drilling effort.
? Though the remaining hydrocarbon resources of the
Soviet Union are potentially among the largest in
the world, the Soviets are already producing oil
from the highest quality deposits in their favorably
located oil reserves. Since the mid-1970s, well flow
rates have steadily declined and water cuts have
rapidly increased even in oil-rich West Siberia, sure
signs that the best reserves are being depleted and
that the Soviets must work increasingly hard just to
keep production from falling. To make matters
worse, new deposits tend to be progressively deeper,
harder to drill, and more remotely located.
? Emphasis on maintaining high rates of production
growth has resulted in Soviet failure thus far to
implement an exploration program adequate for
proving up substantial new reserves, especially out-
side West Siberia. Consequently, potentially oil-rich
portions of the Arctic, East Siberia, and even parts
of West Siberia will contribute little significant new
oil output until the 1990s.
? Though the Soviet Union produces the bulk of
equipment used by its oil industry and Soviet re-
searchers are well-versed in the applicable technical
theory, special applications (such as sophisticated
exploration, deeper drilling, sour gas, offshore posi-
tioning and drilling, and secondary refining) will
require infusions of Western equipment and tech-
nology in the foreseeable future.
? Despite the priority accorded oil production, the oil
industry suffers from the same kinds of inefficiency,
poor performance, and bureaucratic mismanage-
ment that tend to plague other civilian sectors of the
Soviet economy.
Supply Outlook
None of the problems enumerated above would indi-
vidually preclude the Soviets' maintaining some
growth in oil output over the rest of this decade. But
taken together they have dramatically raised the
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average and marginal costs of producing a barrel of
crude. The Soviets plan to increase the oil industry's
share of industrial investment from 12 percent in the
previous five-year plan (FYP) to 16 percent in the
current plan. This increase means that one-third of
the increment in industrial investment funds will go to
the oil sector during 1981-85. Assuming the Soviets
follow through with these investment plans, they will
probably come close to their announced production
target of 12.6 million b/d for 1985.
Given the apparent adequacy of the reserve base,
Soviet oil production beyond 1985 will be largely
determined by the investment options chosen by Sovi-
et leaders. For the 12th FYP (1986-90), Soviet plan-
ners will probably be choosing from among three
general investment options:
? We believe that they are most likely to opt for a
continued increase in the flow of economic resources
to the oil industry over the coming 12th FYP but
will find it difficult to accelerate the already rapid
pace of oil industry investment. This strategy would
most likely result in production plateauing at about
12.5 million b/d by 1985 and subsequently declin-
ing slowly, perhaps to between 11 and 12 million
b/d by 1990. Though such a program would still be
expensive-investment would have to double be-
tween now and 1990-it would be consistent with
Moscow's past willingness to make the effort needed
to avoid an energy crisis.
? With an enormous increase in investment, the Sovi-
ets could hold production between 12 and 13 million
b/d until 1990. Oil reserves appear adequate, but
we believe the costs of exploiting them would be
prohibitive: investment would roughly have to
triple, and the number of wells on artificial lift
would have to double to help pump roughly 20
million b/d of additional water. This option would
be very expensive and, without some unforeseen
windfall discoveries soon, would create a drag on
other sectors of the economy.
? At the other end of the spectrum, the Soviets-if
dogged by increasing production problems and
worse-than-expected geologic conditions in their oil-
fields and forced to shift investment rubles to other
hard-pressed industries-could choose to halt the
growth of resources going to the oil industry after
the end of this FYP. Such an approach could result
in production peaking by 1985 and subsequently
falling as low as 9 or 10 million b/d by 1990. This
option could, in our view, create a serious gap
between Soviet oil supply and demand.
Though the situation might change, we believe the
Soviets are now moving in the direction of the first
option. Recent speeches by Andropov, together with
public and private statements by senior spokesmen of
the oil and gas industries and the still sketchy details
of the new 20-year energy plan, convince us that
Moscow is feeling the investment pinch. These sources
suggest that Soviet planners are attempting to shift
the energy investment balance from oil to the current-
ly more cost-effective gas. If this process continues-
and it would represent a rational choice-little, if any,
further growth in Soviet oil output would occur
beyond 1985.
Economic Implications of the Slowdown
Assuming the Soviets choose the first option, our
projections of Soviet economic performance in the
1980s indicate that growth of GNP will continue to
decline-from over 2 percent during the current five-
year plan period to between I and 2 percent during
the 12th Five-Year Plan (1986-90)-regardless of
whether the Soviets achieve the low or high side of the
projected oil production of 11-12 million b/d by 1990.
The eventual level of oil production does have an
impact-during the 12th Five-Year Plan economic
and industrial growth are projected to be marginally
higher for the upper end of the oil estimate than for
the lower end. Nonetheless, if future oil output falls
within the range we now expect, oil requirements are
likely to outstrip supplies and Soviet growth prospects
are not likely to turn around this decade.
Any shortfall in oil available to the domestic economy
would result in reduced use of capital equipment if
other fuels cannot provide an offset. That is, there
would not be enough fuel to operate at normal rates
all of the factories, trains, trucks, and so on that make
up the USSR's capital stock. Oil use could be reduced
in various ways. The most efficient method would be
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to retire equipment that uses the most oil relative to
what it produces for the economy. Given the USSR's
cumbersome approach to economic management,
however, we are more likely to see the across-the-
board imposition of restrictions on energy use in
industrial ministries and factories and tighter alloca-
tion policies. Open sources make it clear that such
limits have been used extensively over the past year or
so to cope with electric power shortages. In effect,
these restrictions represent a type of crisis manage-
ment directed toward coping with specific problems
associated with any energy shortfall. They are not an
effective substitute for a more rational and longer
term approach to energy-efficient use of capital re-
sources and result in a larger-than-necessary penalty
on economic performance.
At worst, such unplanned disruptions can damage
both work in progress and capital equipment. For
example, in January Pravda reported that, because of
power shortages, oil production by the Nizhnevar-
tovsk Petroleum Administration in West Siberia was
thousands of tons less than it should have been. The
article also noted the large number of premature
machinery breakdowns (in electric loaders, for exam-
ple) caused by the disruptions in electric power sup-
plies. We expect to see more problems of this nature if
energy imbalances become more severe.
Policy Implications of the Slowdown
The possibility of an oil production plateau poses
serious problems for Soviet planners and policymak-
ers, given the oil demand outlook for the 1980s. In
1990 Soviet internal requirements for crude oil should
grow to 9.5 or 10 million b/d, up from 8.9 million b/d
in 1980. By the Soviets' own admission, an ongoing
conservation program has been largely unsuccessful,
primarily because the structure of domestic oil con-
sumption does not lend itself to substantial discretion-
ary cuts in use, and the price system does little to help
reduce demand. Though some gains have been made
in the substitution of gas for oil, opportunities to
substitute both additional gas and coal appear to be
limited by investment considerations, the apparent
inability of the transportation network to provide
reliable delivery of coal, and the large proportion of
heavy fuel oil in refinery output.
Neither can the Soviets, in our judgment, afford to
make substantial near-term cuts in the more than
3 million b/d of oil currently being exported. About
two-thirds of this amount supplies Eastern Europe
with roughly three-fourths of its oil needs. Though
Moscow has recently imposed selective cuts of
10 percent on some of its soft currency buyers, we
believe that only very small and gradual additional
cuts in supplies to Eastern Europe are possible during
this decade. Reductions over the short term of as little
as 100,000 b/d could appreciably diminish Eastern
Europe's economic prospects, and cuts greater than
200,000 b/d could risk driving some of these econo-
mies into absolute decline.
About one-third of Soviet oil exports are sold on the
Western market and represent the Soviets' principal
source of hard currency needed to purchase grain and
foreign technology. Moscow has indicated that it
intends to sustain hard currency earnings-even to
the point of accepting some reduction in domestic
economic growth. Even allowing for increased sales of
gas to Western Europe, the Soviet Union's total
requirement for oil (domestic and export)-if uncon-
strained by supply-should continue to hover between
12 and 13 million b/d through the 1980s.
The oil policies the Soviets choose and the production
levels achieved will depend on many factors, most of
which are beyond the control of the oil industry: the
general state of the economy and key sectors like
agriculture; the Soviet perception of the military
balance; the state of the world oil market; the success
of the development and export program for Siberian
natural gas; the Soviet success in substituting gas for
oil in the domestic economy; and the stability and
confidence of the new leadership.
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Soviet Natural Gas:
Outlook for the 1980s
Moscow is turning to natural gas to satisfy most of its
increasing demand for energy in the 1980s and to
minimize the squeeze on its hard currency earnings
should oil exports to the West taper off later in the
decade. Because of the generally low quality of Soviet
manufactured goods, gas exports offer the only sub-
stantial prospect for bolstering foreign exchange earn-
ings. To promote an export market for gas, Moscow
will probably exploit its ability to undersell any
prospective competing supplier of natural gas to
Table 1
USSR: Production of Natural Gas
Western Europe.
By 1990 gas will be the largest source of Soviet
energy, with production reaching as much as 730
billion cubic meters (m') a year-roughly equivalent
to 12.1 million barrels a day of oil (bdoe). Attaining
this rate of production will almost certainly require
large amounts of Western pipe and equipment. Al-
though most of the equipment is available from
Western Europe and Japan, the outlays for extensive
pipeline construction and gasfield development, to-
gether with associated requirements for infrastruc-
ture, will increase the strain on Soviet investment
resources
Background
Since 1977 natural gas output has grown at an
average annual rate of nearly 8 percent-much faster
than any other form of energy production in the
Soviet Union (see table 1). Gas output now provides
two-thirds as much energy as oil, compared with
about one-half as much in 1977. In March of this
year, West Siberia-now the center of Soviet gas
production-had produced over a trillion m' of natu-
ral gas since commercial output started there in 1966.
One-half of this amount came from just one giant
gasfield, Medvezhye, which began to produce in 1972.
The Medvezhye and Urengoy gasfields currently ac-
count for nearly 40 percent of the USSR's natural gas
production, and we expect their contribution to in-
crease to nearly 50 percent by 1985
Amount Change From
Previous Year
1976 321
1977 346 25
1978 372 26
1979 407 35
1980 435 28
1981 465 30
1982 501 36
The Role of Gas in Soviet Energy
Plans for the 1980s
The Soviets plan to raise the share of natural gas in
total primary energy production from 26 percent in
1980 to 32 percent in 1985. In order to achieve this
goal, they will have to:
? Raise annual production to 630 billion m' (10.4
million bdoe) by 1985.
? Build 50,000 kilometers of new natural gas pipelines
in 1981-85, including six transcontinental 1,420-
mm trunklines totaling 20,000 kilometers in length
(see table 2). (About 14,000 kilometers of 1,420-mm
pipelines were built in 1972-80.)
? Construct up to 370 compressor stations which
would boost capacity by 25,000 megawatts (MW)
from 18,000 MW of operating power to 43,000
MW.
is to be held constan
? Accelerate development of the giant Urengoy gas-
field to boost its production from 50 billion m' in
1980 to 270 billion m' in 1985 and perhaps to 300
billion in 1990. Virtually all of the USSR's planned
1981-85 increase in output is to come from this
field, and production in other regions of the USSR
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Table 2
Major Gas Trunklines Planned for 1981-85
Pipeline
Length
(km)
Status
Urengoy-Ukhta-Gryazovets-
Moscow
2,800
Complete
Urengoy-Punga-Petrovsk
2,835
Complete
Urengoy-Punga-Novopskov
3,345
Complete
Urengoy-Pomary-Uzhgorod I
(export line to Western Europe)
4,450
Pipelaying about
three-fourths com-
plete; compressor sta-
tion construction
about one-tenth
complete
Urengoy-Pomary-Yelets-Center I
3,250
Construction recent-
ly started
Urengoy-Pomary-Yelets-
Center II
3,250
Not started
The total investment required to implement the 1981-
85 gas industry development projects will probably
exceed 50 billion rubles-roughly 7 percent of total
Soviet investment planned for 1981-85. Nearly one-
half this amount will go for gas well drilling and
production installations; most of the remainder will be
required for pipeline construction.
Factors Affecting Plan Fulfillment
As a result of delays in construction of gas-gathering
lines and gas processing plants, only one-half of last
year's new wells were connected with the gas process-
ing and transmission system. Transportation bottle-
necks are much to blame for the slow delivery of
equipment and construction material. Only one rail-
road serves Urengoy, and the backlog of freight
awaiting shipment extends all the way to factories in
the Ukraine. The river navigation system and ports in
the Ob' River delta area are also overloaded because
of the heavy pipeline construction program and the
short ice-free shipping season. Shortages of electric
power in the Urengoy area also have retarded drilling
and construction work.
The gas industry's logistical and infrastructural prob-
lems in northern Tyumen' are exacerbated by techni-
cal considerations. Starting this year, the Soviets hope
to develop the deeper, Valangian gas condensate
deposits at Urengoy at depths of 2,000 to 4,000
meters. Up to now only the Cenomanian reservoirs
have been exploited at relatively shallow 1,300-meter
depths. The increasingly deeper drilling and higher
reservoir pressures that will be encountered will in-
crease drilling problems and reduce the productivity
of drilling brigades in terms of meters drilled. The
high gas reservoir pressures present substantial risk of
blowouts. Gas drillers, therefore, must drill cautiously
in the presence of high-pressure gas pockets-espe-
cially in the deeper overpressured gas condensate
formations
The deeper gas condensate deposits will also be more
difficult to exploit because of water and natural gas
liquids accompanying the gas. The production of
liquids in the Arctic is difficult and dangerous, espe-
cially if freezing hydrates plug or burst wellhead
equipment. Also, liquids of any kind tend to collect in
the bottom of older gas wells and to reduce the flow of
gas. The higher proportion of liquids in the gas
produced from deep wells also requires more complex
gas processing plants to remove the water vapor and
extract the valuable natural gas liquids prior to
pipeline shipment.
Production Outlook for the 1980s
Natural gas production probably will rise to about
590-600 billion m' (9.8 million bdoe) in 1985, some
35-45 billion m' (0.6 million bdoe) below the current
plan. Lags in gas well drilling, transportation bottle-
necks, and shortages of electric power will constrain
natural gas production in the first half of the decade.
By 1990 output could reach as much as 730 billion m'
(12.1 million bdoe).
We estimate that the USSR will be able to produce
more gas than it can ship via pipeline throughout most
of the 1980s. It should be considerably easier to drill
and complete 200 to 300 new gas wells at Urengoy,
capable of producing 250 billion m' (4.2 million bdoe)
per year by 1985, than it will be to equip and fully
STAT
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Secret
power six new 3,000-km transcontinental pipelines to
transport this volume of gas. We believe that pipelay-
ing for all six lines-but not all of the compressor
stations required to fully power the lines-will be
completed in 1985. Moreover, we do not expect plans
for new gas processing capacity at Urengoy to be met
by that time. Last year, for example, only one of three
planned gas processing plants was placed in operation,
and only two-thirds of the annual plan for construc-
tion of gas-gathering facilities was completed.__~
Export Prospects
On economic grounds, the prospects for increased
exports of Soviet natural gas to West European
countries into the 1990s are good. Although demand
forecasts for gas have been trimmed, Western Eu-
rope's gas demand by 1990 will still provide a lucra-
tive market for Soviet gas. Under existing contracts
(including expected sales to Italy), Soviet pipeline
exports of gas to Western countries are scheduled to
increase from nearly 30 billion m'(0.5 million bdoe) in
1981 to about 58 billion m'(1.0 million bdoe) in 1990.
At today's prices, this increase could bring in addi-
tional hard currency earnings of roughly $4 billion.
Gross exports of Soviet gas, including sales to both
East European and West European buyers, might
expand from 62 billion m' (1.0 million bdoe) to 100-
120 billion m' (2.0 million bdoe) during the same
period (see table 3
Beyond 1990 Soviet gas exports to the West could
double again by the end of the century. The USSR
will probably maintain its ability to undersell other
sources of primary energy and continue to enlarge its
share of the gas market. At some point, of course,
buyer recognition of the potential strategic and politi-
cal consequences of expanding reliance on Soviet gas
could result in limits on the amounts purchased.
In the foreseeable future, the USSR will probably be
able to undersell by a wide margin alternative gas
suppliers such as Norway and Algeria. Despite the
remoteness of the West Siberian gasfields, Soviet
production and transportation costs for gas are low, in
no small measure because of Moscow's willingness to
accept a low rate of return on natural gas investment.
The Soviets' ability to deliver gas to Western Europe
at a cost of less than $1 per million Btu-a small
fraction of the costs faced by non-Soviet suppliers-
will tend to deter financing of new Western gas
Table 3 Billion cubic meters
USSR: Exports of Natural Gas
1981
1990
(Planned)
Eastern Europe
32.1
45-60
Poland
5.3
Czechoslovakia
8.4
East Germany
6.3
Bulgaria
4.6
Hungary
3.8
Romania
1.5
West Germany
11.9
22-24
Italy
8.1
15-17
France
5.8
12-13
0.8
2
development projects in Norway and Africa. The
viability of some of these projects has already been
called into question by the impact of lower oil prices
on Western gas demand.
The Soviets will also be in a position to affect West
European oil prices insofar as direct substitution of
gas for oil is possible. In order to further penetrate the
West European market, Soviet gas must undersell
residual fuel oil. However, the most recent gas con-
tracts with West Germany and France call for pay-
ment in deutsche marks and francs, with Soviet gas
prices pegged to residual, gas-oil, and crude oil prices
denominated in dollars. Given the oil price reductions
and currency devaluations since 1981, Soviet gas is
still a bargain at an estimated $3 to $3.50 per million
Btu. However, persistent weakness in the price of oil
would likely impinge on the Soviet Union as well as on
other suppliers of natural gas, because the incentive in
Western Europe to substitute gas for oil would be
reduced.
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Tengiz Discovery Adds. to
Kazakhstan's it and Gas
Potentia
Reserves of up to 300 million tons of recoverable oil
(about 2.2 billion barrels) and at least 200 billion
cubic meters of sour gas have been found at Tengiz,
just east of the northern end of the Caspian Sea,
according to Soviet reports. The general area-known
geologically as the Pre-Caspian Depression-contains
at least five other recent commercial discoveries: gas
at Astrakhan' (6 trillion m3) and Karachaganak (500
billion m3), oil at Kenkiyak (200 million tons), and
unknown amounts of both oil and gas at Zhanazhol
and Tazhigali.
Although the massive gasfields of Urengoy, Yam-
burg, and the Yamal area of West Siberia contain the
bulk of the reserves contributing to the Soviet Union's
imminent emergence as the world's leading producer
of natural gas, the Kazakhstan gas deposits have
special importance. They will provide a convenient
source for supplying more gas to the Caucasus, which
has been cut off for some time from Iranian gas, and
will help offset declines in gas supply there and
elsewhere as fields in Central Asia and around Oren-
burg play out. Tengiz oil, while only about 4 percent
of the USSR's A+B+C, reserves, will be a welcome
supplement to Caspian offshore oil in bolstering oil
supply in the southern regions of the USSR. In
addition, both the gas and oil from the Kazakhstan
deposits will provide large amounts of condensate,
sulfur for industrial use, and carbon dioxide for
enhanced oil recovery applications.
About 2,000 deep wells to produce both oil and sour
gas may eventually be drilled at Tengiz; initial plans
call for at least 100 wells during 1983-88. Soviet
discussions with Western pipe suppliers have led to
speculation that as much as $5-10 billion worth of
high-nickel, high-chrome stainless steel casing, tub-
ing, and other seamless pipe ultimately will be needed
for this project. About 25 percent of the project cost
would go for the producing wells, 25 percent for the
gathering system and surface installations, and 50
percent for oil and gas processing plants. The Soviets
currently expect to produce only about 3 million tons
of oil and 2 billion m3 of gas from Tengiz in 1985, but
output could rise to 12 million tons of oil and 8 billion
m' of gas annually by 1990. At that time, about 1
million tons of natural gas liquids, 2 million tons of
sulfur, and some carbon dioxide will also be recovered
each year at Tengiz for industrial use. In the future,
pipelines for transporting condensate and carbon diox-
ide will have to be constructed.
Each of the new Kazakhstan development projects
will present extremely difficult technical challenges.
The required equipment and technology to cope with
adverse conditions in the six deposits, located 4,000 to
5,000 meters deep in Paleozoic-Carboniferous sedi-
ments, exceed the current capability of the Soviet oil
and gas industries. Without large purchases of West-
ern pipe and equipment, drilling and production oper-
ations in these fields will be extremely hazardous.F_
STAT
Most of the deep reservoirs in the Pre-Caspian De- 25X1
pression are overpressured accumulations, with high
temperatures and high percentages of contaminants-
as high as 24-percent hydrogen sulfide and 24-percent
carbon dioxide. The equipment required for each deep
well must be carefully determined and ordered up to
12 months before the start of drilling
STAT
The high content of corrosive contaminants poses a
special set of technical problems and related equip-
ment requirements for oil and gas production. Drill-
ing, producing, and pumping equipment must be 25X1
made of special corrosion-resistant steel to avoid
undue equipment failures. For example, non-
corrosion-resistant steel will relatively quickly become
brittle and subject to failure as a result of exposure to
hydrogen sulfide and carbon dioxide. Casing corrodes,
develops leaks, and may even collapse, rendering a
well inoperable. Most of the wells, which will be more
than 4,000 meters in depth and overpressured, will
entail substantial risk of hydrogen sulfide gas leakage
which, in turn, poses a threat to life and is a fire
hazard. Each of the development projects will involve
production of different ratios of oil, natural gas
liquids, gas, sulfur compounds, and carbon dioxide
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New Oil and Gas Discoveries in the Pre-Caspian Depression
Karachaganak
pression
Tazhigali
LTengiz
0
Pre-Caspian D
Kenkiyak
ci
Zhanazhol
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Estimated Equipment Purchases for Initial Phase
of Astrakhan'-Type Project
Possible (Non-US)
Suppliers
Drilling equipment ($10-20 million)
Surface: Blowout preventers, hydraulic Argentina
controls, wellheads. Brazil
Mexico
Canada
Subsurface: Drill pipe, tool joints, drill Mexico
collars, kelly joints, casing and special Canada
rotary tools, formation-testing and well- West Germany
logging equipment. France
Finland
Italy
United Kingdom
Netherlands
Norway
Production equipment ($100-200 million)
Surface: Christmas trees, snubbers, Canada
valves, workover rigs and tools, pumps, Mexico
field now lines, field processing equip- West Germany
ment. France
Italy
United Kingdom
Japan
Subsurface: Well casing, tubing, well Japan
cementing and perforating equipment, Brazil
wireline tools, mandrels, packers, valves Mexico
for gas lift operations, submersible United Kingdom
pumps and cable, miscellaneous downhole
equipment.
Possible (Non-US)
Suppliers
Field gathering systems ($150-300 million)
Surface: Storage and pumping equip- Canada
ment.
West Germany
France
Italy
Japan
United Kingdom
Oil- and gas-processing plants
($50-500 million)
Installations for the separation of oil, Canada
water, and gas streams and the extrac- West Germany
tion of natural gas liquids, sulfur, and France
carbon dioxide. Italy
Japan
United Kingdom
Pipeline transportation
($500 million-1 billion)
Surface: Compressors and pump sta- France
tions, pipelayers, bulldozers, computer- Italy
telecommunications system and West Germany
controls. Japan
Netherlands
Switzerland
Subsurface: Linepipe, valves (gate and
ball), pigs for cleaning pipe, wrapping
and coating materials, corrosion-preven-
tion equipment.
Sweden
Italy
West Germany
France
Netherlands
STAT
mixed with some amount of water. At 4,000-meter
depths the reservoir pressures range from 7.0 to 10.0
megapascals (10,000 to 15,000 pounds per square
inch), and temperatures of 100 to 200 degrees Celsius
are reported to exist.
Pre-Caspian Depression to be about the same as for
Astrakhan'. Key categories of equipment, together
with their estimated value for the initial phase of a
single project such as Tengiz or Astrakhan', and
potential non-US suppliers are listed in the table. 25X1
Contracts will soon be let for Tengiz, Karachaganak,
and Zhanazhol. Others may soon follow for Tazhigali
Drilling disasters are most easily avoided by procuring
from the West specially designed corrosion-resistant
equipment made of stainless or monel steel. Until
recently, the most critical equipment items came from
the, United States, but other suppliers are now com-
peting. US drilling equipment, including seamless
tubular steel-casing, tubing, drill pipe, drill collars-
and workover tools have been purchased for develop-
ment of Astrakhan', the first of the recent Pre-
Caspian discoveries. We expect future Soviet equip-
ment orders for development of other fields in the
and Kenkiyak.
25X1
25X1
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Secret
Prospects for Expanding
Coal Production and Use
Soviet coal production will show little growth during
the 1980s. Although the industry managed last year
to reverse a decline in output which began in 1979,
further growth will be constrained by the failure to
open new mines and by mine depletion in older coal
basins. Moreover, most of the gain in raw coal
production through 1990 will be offset by a continu-
ing decline in the average energy content of the mined
coal (see graph).
During the remainder of the decade, tight coal sup-
plies will sharply curtail Soviet efforts to build large
coal-fired power plants, undercutting plans to increase
the use of coal and decrease the use of oil for
generating electricity. Therefore, to limit the use of
oil, the Soviets will have to place even greater reliance
on natural gas as fuel for power plants. We also
project that Soviet coking coal production will be
below the level needed to achieve the target. for steel
output and other industrial uses (including export
commitments) in 1985.
Soviet Coal Output Trends in Terms of Raw
Coal and Standard Fuel Equivalent
Production Problems and Their Implications
Soviet miners ended the coal industry's three-year
decline in output with production of 718 million
metric tons of raw coal in 1982, a 14-million-ton
increase over 1981. However, production was still 10
million tons below the 1982 goal-marking the sev-
enth consecutive year that output has fallen short of
plan. The key basins posted only small increases in
output; more than 35 percent of last year's gains came
from minor basins with little potential for further
growth. The 1982 production gains reflect a tempo-
rary recovery from unusually severe problems with
equipment availability and the supply of electricity for
mine operations during 1981. The output growth
probably is not sustainable. Since 1978, of the eight
main basins that provide more than 80 percent of
Soviet coal production, half have posted declining
annual output, one is maintaining output, and three
are increasing production (see table).
I I I I I 1 1
1955 60 65 70 75 80 85 90
Note: The output trends are based on comparisons at live-year intervals:
therel'ore annual variations are not shown.
Four major problems are hampering Soviet coal
production:
? Mining conditions in underground operations are
deteriorating rapidly; mine depth is increasing,
seam thickness is decreasing, and methane concen-
trations are rising, particularly in the Donets and
Kuznetsk Basins. These basins account for about 50
percent of raw coal production and about 75 percent
of coking coal output.
STAT
STAT
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1983
1985
1985
1990
701
716
704
718
723 .
775
720
745
366
338
326
334
332
341
308
285
Donets
223
204
198
201
201
210
190
175
Moscow
34
25
22
24
23
20
15
10
Pechora
24
28
28
28
28
28
28
30
Urals
45
44
43
44
44
45
40
35
Other
40
37
35
37
36
38
35
35
Eastern USSR
335
378
378
384
391
434
412
460
Ekibastuz
46
67
68
70
73
84
80
110
Karaganda
46
48
49
49
50
50
50
40
Kuznetsk
138
144
144
143
143
154
140
145
Kansk-Achinsk
28
35
35
37
40
48
48
65
South Yakutiya
0
3
3
4
4
12
8
12
Other
77
81
79
81
81
86
86
88
a Data for 1975 are from the No. 4 issue of Ugol'. Production figures
for 1980-82 are based on data from various Soviet press and mining
industry publications.
b Midpoint of ranges.
? Too little new capacity is coming on line to offset
the stagnating or declining production in older coal
basins.
? Shortages of labor and declines in labor productivity
are becoming more acute, especially in the older
coal basins in the western USSR.
existing equipment. These problems are significant at
the Donets Basin, the country's largest coal producer,
where mine depth is increasing by about 11 meters
per year and the current average thickness of seams is
only three-fourths that of the seams being worked a
decade earlier.
? Development of the large basins east of the Urals is
constrained by the poor quality of these deposits,
slow progress of research on coal enrichment, lack
of transportation capacity for movement of coal,
and unresolved technical problems relating to trans-
mission of electricity from mine-mouth power sta-
tions to consuming areas.
Worsening mining conditions limit output and boost
the real cost of coal production in several ways.
Deeper mines require more machinery to bring the
coal to the surface and to perform auxiliary tasks,
such as equipment repair and ventilation. Thinner
coal seams become increasingly difficult to mine with
The Soviets have only been able to compensate par-
tially for the mine depletion in older basins, such as
Donets, by adding new production capacity.' During
1976-80 gross annual additions of new capacity fell to
an average of about 18 million tons, the lowest level
since the 1961-65 plan period. At the same time,
annual mine depletion increased to some 15 million
tons, up from about 7 million tons a decade earlier.
' We define depletion as the amount of operating capacity lost
because of mine exhaustion and the decreased productivity of older
mines that are still operating.
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Soviet data suggest that more than 80 percent of the
output from new capacity now simply offsets mine
depletion.
Investment in the Coal Industry
The slowdown in new mine development has resulted
from inadequate investment in the coal industry. The
coal industry's share of investment in the fossil-fuel
industries fell from about 35 percent in the mid-1960s
to about 18 percent in 1981. From the mid-1960s to
the early 1980s, Soviet investment growth in the oil
and gas industries outpaced investment growth in coal
by a factor of six.
The sharp curtailment in the share of investment
available to the coal industry reflects the outcome of
energy policy debates during the 1970s when Soviet
policymakers reviewed the coal industry's problems
and examined the advantages of increasing oil and
natural gas supplies to the economy. The advocates of
oil and gas prevailed, arguing that the coal industry
was not a reliable energy supplier because coal quality
was declining and the energy return on investment
was much less for coal than for oil and gas.
Attempts To Deal With the Labor Constraint
Shortages of-labor and falling labor productivity have
become increasingly serious at both underground and
surface mines. The steady deterioration in the work
environment, especially in the older coal basins, and
the austere living conditions at newer basins in the
eastern USSR have made it difficult to find enough
miners, despite relatively high wages. To attract
additional workers, the average workweek, which was
36 to 38 hours until 1976, has been cut to 30 hours.
Shortening the workweek has not increased recruit-
ment, however. Instead, it has forced mine managers
to transfer manpower from maintenance to production
activities. The mining enterprises are more likely to
meet short-term output goals in this way, but failure
to maintain equipment properly will eventually cut
into production.
In 1982 Moscow raised the average wage for coal
miners in five major basins by as much as 27 percent,
with additional premiums for especially difficult con-
ditions. However, the wage hikes appeared to have
little to do with the upturn in output last year, since
most of the coal production increase came from mines
not yet included in the pay boost. The wage increase is
scheduled to be extended to all coal miners this year.
Nonetheless, regional coal industry officials indicate
that without additional steps to increase the availabil-
ity and variety of consumer goods, the pay hike
probably will do little to attract additional workers.
Continuing Technical Problems
Development of the large new basins east of the Urals,
notably Ekibastuz and Kansk-Achinsk, is constrained
by technical problems. Although the Soviets estimate
reserves in these two basins to be large, totaling 120
billion tons, the quality is poor. Both low coal quality
and distance from consumers make large-scale rail
shipment from Ekibastuz and Kansk-Achinsk uneco-
nomic. Realizing this, the Soviets are attempting to
develop alternatives to rail transportation, new tech-
niques for improving the quality of coal prior to
shipment, and long-distance electricity transmission
systems.
The Soviets are studying various types of pipeline coal
shipment (slurry lines, capsule pipelines) as alterna-
tives to rail transportation; but large-volume, long-
distance transfers are beyond their current capabili-
ties. Experience in operating slurry pipelines has been
confined to two low-volume lines only 10 kilometers
long. Conversion of the low-quality Kansk-Achinsk
coal into upgraded products-semicoke, thermocoal,
or synthetic liquid fuels-would make it transportable
over long distances and usable in a variety of boilers.
However, Soviet research on coal conversion processes
appears to be stalled in the pilot-plant stage of
development. Last year, Moscow intensified contacts
with Western firms possessing technical expertise on
slurry pipelines and coal conversion. Western assist-
ance may help the Soviets better evaluate the
long-term possibilities for these technologies, but im-
mediate Western aid for major projects is unlikely
given the considerable technical and financial hurdles.
To transmit electricity from mine-mouth power sta-
tions in Siberia to the western USSR, the Soviets
would have to achieve research breakthroughs on a
combustion system for Kansk-Achinsk coal and on an
ultra-high-voltage power transmission system of 2,200
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to 2,500 kilovolts. Because there has been only slow
progress in these areas since the early 1970s, produc-
tion at the new coal basins is now largely confined to
supplying regional needs. Major expansion of Ekibas-
tuz and Kansk-Achinsk will be delayed until new
technologies are ready for commercial use and neces-
sary construction is funded by major investment.
Production Outlook
Coal production is slated to increase by 5 million tons,
to 723 million tons, in 1983. The industry probably
will not perform well enough to achieve this goal.
Production will probably stagnate at about the 1982
level-a situation that does not augur well for the
1985 plan goal of 775 million tons. The 1981-85 plan
calls for annual additions of 18.6 million tons to
mining capacity. The Soviets expect that mine deple-
tion will average 10.5 million tons per year over the
same period. Both of these Soviet projections are
overly optimistic: early indications suggest that deple-
tions are running higher and additions of new capaci-
ty lower than foreseen in the plan.
Taking into account lagging production in older coal
basins and less-than-hoped-for increases at basins in
the eastern USSR, we estimate that annual Soviet
coal production will be only 715-725 million tons by
1985. We expect that the Soviets will eventually
accelerate yearly increases in the Ekibastuz output,
raising total production to 735-760 million tons by
1990, with 745 million tons the most likely figure.
Attaining even this level by 1990 will depend heavily
on a significant increase in coal industry investment,
particularly for the Ekibastuz Basin.
All of the gain in raw coal production through 1985,
and most of the gain through 1990, however, will be
offset by the continuing decline in the average energy
content of the coal being mined. Consequently, coal's
contribution to Soviet primary energy production will
probably continue to decline from the 25-percent
share posted in 1980 to 20 percent in 1990.
Impact of Coal Shortages
Tight supplies of coal will severely undercut Soviet
plans to increase the use of coal in the production of
electricity during the 1980s. Moreover, coking coal
production will become a major bottleneck, substan-
tially limiting the possibility for gains in steel produc-
tion. The production of electricity and steel accounts
for about three-fifths of Soviet coal consumption.
The Soviets hope to replace oil as a fuel in electricity
production by increasing the use of both coal and gas.
Because coal production will lag, we believe they will
have to boost gas consumption by more than the
already sizable increase targeted for 1985 if power
plant use of oil is to be reduced.
If the USSR tries to meet its planned 1985 crude steel
production goal and also to meet the demand of all
other consumers at or near the 1980 levels, including
export commitments, it will need nearly 215 million
tons of raw coking coal. But, given the declining
production of coal at the Donets and Kuznetsk Basins,
we estimate that Soviet production of raw coking coal
will drop from about 178 million tons in 1980 to about
168 million tons in 1990. Thus the Soviets will have to
choose among several alternatives. They could change
the pattern of domestic allocations, trim their plans
for steel production, substantially increase coking coal
imports, or eliminate coking coal exports-or, more
likely, adopt some combination of these options.
If the planned needs of the electric power and steel
industries were fully met, the availability of coal for
all other users in 1985 would be about 30 to 35
percent less than in 1980. This is clearly an unaccept-
able outcome in view of requirements for coal in high-
priority sectors like nonferrous metals and petrochem-
icals. Accordingly, the Soviets probably would stretch
out the construction of new coal-fired power plants to
balance coal supply and demand.
Looked at another way, to meet the planned 1985
requirements of the electric power and steel industries
and maintain allocations to all other users at the 1980
level (including exports), total coal production would
have to increase to about 815 million tons of raw coal.
This level of output appears to be beyond Soviet
capabilities until well into the 1990s.
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Management of Soviet
Energy Policyn
The success of Soviet energy policy depends in part on
the effectiveness of the decisionmaking process. This
process occurs within an essentially three-tiered hier-
archy with responsibility for approval, formulation,
and implementation of energy policy distributed
among a wide range of institutions and individuals
The Decisionmaking Hierarchy
Policy Approval. Final responsibility for determining
Soviet energy policy lies with the Politburo, which
integrates its directives on energy matters into broad-
er issues of economic, foreign, and national security
policy. Because the Soviet system funnels most deci-
sions up to the top of the hierarchy, many of the
Politburo's actions constitute pro forma ratification of
operational decisions worked out at lower levels where
technical expertise is greater. On the other hand the
Politburo has the authority to unilaterally make
changes in basic policy directions. The criteria for this
type of policy-altering decision include not only eco-
nomic efficiency but political considerations. The
Politburo can then authorize drafting of decrees to
implement its decisions and reallocate resources as
needed
Because of the breadth of its responsibilities the
Politburo depends on the expertise of those members
whose functional and regional responsibilities require
considerable involvement in energy matters. Among
the most influential are Nikolay Tikhonov, Chairman
of the Council of Ministers; Geydar Aliyev, First
Deputy Chairman of the Council of Ministers and
former party boss of the Azerbaijan Republic; Vladi-
mir Dolgikh, party secretary and head of the Heavy
Industry Department of the Central Committee; and
Mikhail Solomentsev, Premier of the Russian Repub-
lic.
General Secretary Andropov's knowledge in energy
policy is limited largely to information obtained dur-
ing Politburo discussions over the past decade, al-
though he may have become involved in assessing
requirements for energy-related foreign technology
during his tenure as head of the KGB. Nevertheless,
STAT
Andropov indicated his awareness of the critical
importance of energy policy almost immediately on
taking office when, at the Central Committee plenum
in November 1982, he called for the establishment of
new energy commissions in the Council of the Union
and the Council of Nationalities-the two houses of STAT
the Soviet parliament-to monitor energy policy for
the government. Since he became party leader, the
public record indicates that the Politburo has at least
twice taken up energy questions at its weekly meet-
ings: it reviewed the long-term energy program of the
USSR drafted by the Academy of Sciences and
examined plans for the development of energy in the
Far East
Policy Formulation. The formulation of energy policy
occurs primarily in the Secretariat of the Central
Committee of the CPSU, the Presidium of the Coun-
cil of Ministers, and the USSR State Planning Com-
mittee (Gosplan). These organizations provide the
Politburo with- information and advice, serve as high-
level forums for review of alternate strategies, and
resolve conflicts over allocation of resources. Like the
Politburo, they are responsible for integrating the STAT
various aspects of energy policy into broader economic
and political contexts.
management
The Secretariat, supported particularly by the Heavy
Industry Department, has responsibility for formulat-
ing and monitoring energy policy for the party. Al-
though specific policy options probably originate in
specialized government, academic, and scientific or-
gans, they must be coordinated with the party appara-
tus before being presented for Politburo review. In
addition to Dolgikh, newly appointed party secretary
Nikolay Ryzhkov is probably involved in energy
matters as part of his responsibilities for economic
Within the Presidium of the Council of Ministers an
Energy Commission has reportedly been set up to
bring those members with a direct interest in energy
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problems into frequent consultation and to provide
direction to energy policy. Its membership probably
includes at least the ministers of the energy produc-
tion industries and the energy-related machine-build-
ing and construction industries. The Commission ap-
parently is headed by Veniamin Dymshits, the Deputy
Chairman of the Council of Ministers with responsi-
bility for energy. Deputy Chairman Guriy Marchuk,
the Chairman of the State Committee for Science and
Technology (GKNT), also has a special interest in
energy policy. he
GKNT established a new Oil and Gas Industry
Department in early 1983 headed by Victor Mishche-
vich, a former first deputy minister of the oil industry.
They expected this department to exercise consider-
able influence over the Soviet oil and gas industries.
Although formally subordinate to the Council of
Ministers, USSR Gosplan exerts a powerful, separate
influence on the formulation of energy policy through
its extensive involvement in setting plan targets and
allocating resources. Gosplan negotiates these with
the responsible ministries and Central Committee
departments.
(disputes between Gosplan and a
ministry are usually resolved in favor of the former.
Gosplan has been headed since 1965 by Nikolay
Baybakov, another Deputy Chairman of the Council
of Ministers and a former oil minister, who probably
is also a member of the Energy Commission. Major
responsibility within Gosplan for energy policy ap-
pears to reside with Arkady Lalayants, Gosplan Dep-
uty Chairman for Energy Affairs, and Vladimir
Filanovskiy-Zenkov, chief of the Petroleum and Gas
Industry Department. Gosplan's role in energy policy
was theoretically enhanced with the creation in 1981
of an Interdepartmental Commission located in Tyu-
men', which was supposed to act as a project manager
for development of the West Siberian oil and gas
region by promoting cooperation across ministerial
and regional boundaries. So far, its success has been
limited by a lack of any genuine authority.
Policy Implementation. Responsibility for the imple-
mentation of energy policy lies with several key
ministries and other state organs (see table), which
take the general plan targets set by Gosplan and
disaggregate them in order to assign specific tasks to
Ministry-Level Organizations With Primary
Responsibility for the Implementation of
Energy Policy
State Commission for
Reserves
Ministry of Petroleum
Industry
Ministry of Power and
Electrification
State Committee for Utili-
zation of Atomic Power
Locates new reserves of energy re-
sources to support future
production.
Confirms reserves estimates of the
Ministry of Geology and approves
field development and production
plans.
Defines full extent of fields identi-
fied by the Ministry of Geology;
proposes plans for field development
including appropriate technology;
designs and maintains facilities and
equipment for extraction, initial
processing, storage, and distribution
of crude oil.
Similar to those of Oil Ministry but
for gas. Also responsible since 1978
for offshore exploration and produc-
tion of both oil and gas.
Similar to those of Oil Ministry but
for coal, peat, and shale. Distribu-
tion handled by railroad ministry.
Siting, design, construction, and, in
most cases, operation of all types of
electric power stations, and the dis-
tribution of electric power.
Theoretical development of com-
mercial nuclear power including
breeder reactors.
Ministry of Construction of
Oil and Gas Industry Enter-
prises
Ministry of Petroleum Re-
fining and Petrochemical
Industry
State Committee for the
Supply of Petroleum
Products
Ministry of Power Machine
Building
Ministry of Chemical and
Petroleum Machine Build-
ing
Primary contractor for construction
of oil and gas field facilities and
infrastructure and for laying of
crude oil, natural gas, and product
pipelines.
Primary and secondary processing
of crude oil into various kinds of
fuels, lubricants, and petrochemical
feedstocks.
Planning and monitoring the distri-
bution and economical use of petro-
leum products.
Manufactures boilers, turbines, and
generators for power production.
Manufactures equipment for oil,
gas, and petroleum refining
industries.
Negotiates and supervises contracts
for the import and export of energy
and for the purchase of energy-
related foreign technology and
equipment including turnkey
plants.
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Secret
operational units. Because of their extensive knowl-
edge of technological, production, and distribution
capabilities, ministerial assessments and recommen-
dations constitute a significant input to the decision-
making process, particularly to Gosplan
The ministry-level policy perspective is narrow; each
ministry is primarily concerned with setting and
achieving its own production goals rather than with
overall energy policy. This perspective tends to create
problems because the operational interdependency
among both the primary and support organizations-
such as various transportation, construction, supply,
and machine-building ministries-is great, whereas
the degree of cooperation and coordination is often
quite low. The frequent failure of one ministry to
achieve plan targets or to fulfill contractual obliga-
tions has a ripple effect that forces continual adjust-
ments in production schedules and encourages the
kinds of inefficiencies-stockpiling of resources,
duplication of effort, and underestimation of produc-
tion capability-that Soviet decisonmakers want to
eliminate.
Decisionmaking Behavior
The decisionmaking process functions most of the
time to confirm rather than alter the basic direction of
established energy policy. In this environment
decisionmakers:
? Proceed through a sequence of annual and five-year
planning cycles in the usual Soviet style of incre-
mental planning.
? Act as troubleshooters to resolve the nearly continu-
ous stream of organizational conflicts over resource
allocation and areas of responsibility.
? Become involved in administrative activities such as
the development and introduction of new economic
indicators and planning procedures, bureaucratic
reorganization, and exhortation campaigns
For example, when the Ministry of Construction of
Oil and Gas Industry Enterprises was apparently
unable to meet its target for building access roads to
Soviet oilfields a decision was made, probably by the
Council of Ministers Presidium, to try to solve the
problem by shifting responsibility for the roads to the
Ministry of Transport Construction. So far, however,
the most tangible effect of this shift is the concern
expressed by an official of the latter ministry in late
1982 about the need to acquire the resources neces-
sary to meet this new obligation. Energy decision-
makers have also been occupied recently with the
introduction of new wholesale prices for energy and
with the campaign for conservation of all energy
resources, which has touched even the Ministry of
Defense.
Because in the Soviet system even minor decisions on
these matters tend to rise through the hierarchy for
review and ratification, decisionmakers at all levels
are caught up in the management of the most mun-
dane matters relating to energy policy. Soviet deci-
sionmakers operating in this process are driven by the
need to meet current production targets and con-
strained by a lack of flexibility. They thus lack a
longer term perspective which might help them identi-
fy serious problems earlier. In addition, despite a high
level of activity on the administrative front, decision-
makers remain tied to an economic system that is not
very effective in fostering the type of innovative and
economically efficient behavior that is most important
for the successful implementation of Soviet energy
policy for the 1980s.
This more typical decisionmaking process occasional-
ly can be interrupted by the top leadership in response
to pressing problems that require a rapid reevaluation
and redirection of energy policy. The leadership clear-
ly demonstrated this ability in 1977 when it abruptly
shifted the direction of energy policy in the middle of
the 1976-80 five-year plan. At that time, the Politbu-
ro ordered a sharp reallocation of investment to West
Siberia when it became apparent that planned invest-'
ment was insufficient to meet oil production targets.
It also sought to significantly alter the role oil and
natural gas were to play in the Soviet energy balance
over the next decade. More recently, the Politburo
responded to the large increase in the Soviet hard
currency balance-of-trade deficit by increasing ex-
ports of petroleum and petroleum products to the
West, while simultaneously forcing several of its East
European allies to absorb reductions in their imports
from the USSR.
STAT
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The capacity to mobilize and shift large amounts of
resources rapidly is an important strength of the
highly centralized and hierarchical Soviet decision-
making system. Once the Politburo decides to change
the direction of energy policy, the rest of the hierar-
chy is compelled to implement the decision, although
some foot-dragging and lobbying for alternative op-
tions may occur. The decisionmaking process is weak-
ened, however, by the fact that changes in policy can
often be effected only in response to major problems
decisionmaking process
The outline of the new energy program, which, ac-
cording to the Soviet official who provided it, has
already been approved and will be announced shortly,
does not appear to contain any major changes in
energy policy. Yet, as suggested in several other
articles in this issue, many of the targets of the
program are already in jeopardy. Thus, it is likely that
during the remainder of the decade the Soviets will
face mounting energy problems that may again re-
quire major, sudden changes in energy policy.
These types of changes in policy cannot be made
without paying a price. The Soviet leadership must
carefully weigh the benefits of such changes against
the potential economic and political disruptions they
may cause. Moreover, this type of decisonmaking is
inherently self-limiting because the more frequently
such changes are required, the greater are the poten-
tial costs involved. This reduces the flexibility of the
system to handle additional problems.
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Secret
Other Topics
Development of Helicopter
Squadrons in Soviet
Ground Forces Divisions
The Soviets are rapidly upgrading the helicopter
detachments in the ready divisions of their Ground
Forces into larger, more potent direct-support squad-
program to provide division commanders with helicop-
ter squadrons that they can control directly signals a
major shift in the roles of helicopters in divisional
operations. The addition of aerial firepower and troop
lift directly responsive to the division's needs is part of
a broad-based effort to make maneuver formations
more balanced, self-sufficient, mobile, and powerful
combined-arms forces.
They are not suitable-either in numbers or by
type-to provide troop lift or fire support
the Soviets began to 25X1
experiment by adding to some of these detachments 25X1
new types of helicopters which gave the division
commander troop lift and aerial fire support over 25X1
which he could exercise direct control. Aerial fire
support came from the addition of MI-24 Hind D/E 25X1
and MI-8 Hip E helicopters. The additional MI-8
Hips provided troop lift. The 18 to 20 helicopters in
the expanded detachment-which then became a
squadron-generally included six Hinds (D or E
models) and six Hips (C, D, or G models) in addition 25X1
to the six Hoplites and two Hips (C or D models)
already present in the old detachment. This inventory
is not standard throughout the force; variations in 25X1
number and type of aircraft abound. Table 1 com-
pares the makeup and capabilities of the helicopter
Evolution of Divisional Helicopter Units
detachment and the direct-support squadron
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The typical detachment is equipped
wit six to eig t MI-2 Hoplite and two MI-8 or MI-9
general purpose helicopters. These aircraft provide the
division with aerial reconnaissance, fire-support tar-
geting, command and control, communications relay,
medical evacuation, and general logistics support.
' The Soviets define as "ready" those divisions which are highly
manned, well trained, and fully equipped, and which are at least
minimally prepared for combat operations with little or no mobili-
] The Soviets began to reorganize motorized rifle and tank divisions
in the late 1970s. They added tanks, armored personnel carriers,
and self-propelled artillery to the division's units to increase
firepower, improve cross-country mobility, and achieve greater
combined-arms cooperation at the regimental level. The conversion
of the division's helicopter detachment to a direct-support s uadron
appears to be part of this combined-arms reconfiguration.
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Secret
Long-Term
Energy Program
Briefs
A Soviet economist recently told the US Embassy in Moscow that the USSR will
soon announce a 20-year energy program calling for changes in energy policy
involving goals beyond the mid-1980s. Some of the planned increase in investment
in current oil production will be shifted to exploration for new deposits, and
investment in coal production is to rise more rapidly. Future hard currency
revenues will be obtained by raising gas exports and sustaining oil exports. To do
this, the economist said, gas would increasingly be substituted for oil in domestic
use and domestic allocations of oil might be cut before oil exports, even though this
STAT
would slow economic growth
allocations without a reduction in exports.
The energy program is one of several new long-term efforts the Soviets are making
to focus resources on major problem areas. Program goals and investment
priorities appear to be more practical than previous ones. The program will be
difficult to carry out, however, because of growing competition for investment
resources. In addition, planners are unlikely to make large cuts in domestic oil
Increase in Economic Cuba has announced that the USSR increased its economic aid by 20 percent last
Aid to Cuba~~ year and will increase it further this year, but the Soviets reportedly are STAT
demanding that Havana improve its management of the economy.I 25X1
Moscow has been urging that improvements be made in sugar 25X1
production and oil conservation. 25X1
America, the Caribbean, and Africa.
The Soviets will continue to urge Cuba to manage its economy better to limit the
amount of aid they have to provide. In dollar terms, Soviet economic and military
aid appears to have tripled over the past eight years as a result of falling world sug-
ar prices, increased oil prices, and the modernization of the Cuban armed forces.
The USSR is short of sugar and is asking Cuba to provide 4 million tons this year.
This probably is more than Havana can deliver from the weather-damaged crop
without jeopardizing its earnings from selling sugar to the West. The USSR
presumably considers the economic aid-and the estimated $590 million in
military aid last year-to be worthwhile in view of Cuba's role in Central
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Soviet Military Soviet military personnel apparently are stationed with Syrian forces in Lebanon.
Personnel in Last month the Soviets reportedly were operating Syrian Army mobile radar
Lebano~ equipment in the Bekaa Valley. I a
few Soviets have been working near a village just west of the Bekaa Valley for
Moscow's willingness at this time to station some Soviet personnel in Lebanon
presumably is part of the USSR's program to strengthen Syria's defenses. Before
the crisis last summer in Lebanon, a few Soviet technicians stationed in Syria
reportedly went into Lebanon only during the daytime to maintain the Syrian
SAM sites there. The Soviet personnel now in Lebanon may be helping the Syrians
set up and coordinate early warning radars tied to the net in Syria. They also may
be operating electronics or communications equipment.
Soviets May Further The US Embassy reports judicial employees in Moscow early this month received
Restrict Jewish a background briefing on an apparent decision to halt the emigration of all but a
EmigrationF __-] handful of Jews from the USSR and to give those who remain easier access to
higher education and better jobs. New administrative procedures have made
emigration by all Soviet citizens more difficult this year, and the rate of Jewish
emigration-already low since 1979-currently is about half that of last year.
Meanwhile, the creation of an Anti-Zionist Committee headed by prominent
Soviet Jews has been announced.
The decision to further restrict emigration and the creation of the committee
probably are aimed primarily at cutting the foreign ties of the Soviet Jewish
community. Easing Jewish assimilation would be a logical next step, but this also
would be a major reversal of past practices.
Kadar's Views on In late April Hungarian Party First Secretary Janos Kadar held a lengthy talk
Andropov, Relations with the US Ambassador in which he discussed his relations with Soviet party boss
With the USSRO Yuriy Andropov. Kadar was reportedly embarrassed by Western speculation on
his close ties to Andropov, but admitted they had known each other well since the
mid-1950s. Kadar portrayed Andropov as more rational and formidable than his
predecessors, remarking "If you are looking for an opponent, Andropov will be
awesome, but if you are looking for a partner, he will be reasonable.'
Kadar admitted that the Soviets exert significant control over their East European
allies, but argued that the extent of control is overestimated in the West. He
acknowledged overwhelming Soviet involvement in military matters and implied
that in a crisis the Soviet General Staff would control non-Soviet Warsaw Pact
forces directly rather than through the national command structures. Foreign
policy coordination is also close, though Kadar maintained that individual
countries have considerable freedom to go their own way on issues not vital to
Moscow. He said the allies have the most latitude in the economic sphere. In the
summer of 1980-when strikes broke out in Poland over price increases-
President Brezhnev gave the Hungarians the go-ahead on price hikes by asserting
"You know what you're doing."
STAT
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Secret
Hard Line on Shortly before Brezhnev's death, the party's historical journal (Voprosy Istoriya
Economic Reform KPSS) reviewed a collection of documents relating to the crushing of the Czech re- STAT
form movement in 1968. The review, written by A. M. Rumyanstev-a onetime
reputed "liberal"-took a hard line in dealing with ideological deviation and
economic reform and was clearly relevant to Poland. It stressed that vigilance must
be maintained, revisionist elements within the party checked, opposition groups
repressed, and party hegemony maintained. Economic decentralization was scored
as an attempt to restore l and the reformist ideas of Czech economist
Ota Sik were castigated STAT
The review is noteworthy considering the positive attention given East European
economic reform in the Soviet media over the last year and the relatively upbeat
treatment of Polish issues in the press. Soviet ideologists, in this case a former fa-
vorite of moderate party circles, continue to castigate reform, pluralism, and
revisionism and obviously remain concerned about East European stability STAT
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Soviet Views on Moscow apparently is not optimistic about the insurgents' immediate prospects in
El Salvador[_7 El Salvador but believes they could succeed over the long term. STAT
the leadership believes the current level of US assistance to 25X1
the Salvadoran Government is enough to prevent a guerrilla victory. At the same
time, however, the Soviets are confident that the US Congress will not approve the
military aid and advisers needed to quell the insurgency. 25X1
Moscow may believe that a lengthy military stalemate will further complicate the
US administration's efforts to win Congressional and public support for its Central
American policy. If the United States decides eventually to put pressure on San
Salvador to negotiate with the insurgents, the Soviets probably hope the insur-
gents-particularly the Salvadoran Communists-will be able to exploit any
government overtures
NC Machine Tool A CIA study' shows that in the current five-year plan the USSR continues to em-
Production phasize the production of numerically controlled (NC) machine tools to help STAT
increase industrial productivity and to modernize its defense industry. But the
USSR has lagged badly in moving from early-vintage NC machine tools to
advanced types now common in the West. Thus, although Soviet annual NC
machine tool output of about 10,000 units equals that of the United States,
advanced computer-operated multiaxis machines make up only 4 percent of total
Soviet production, compared with 56 percent of the US total. 25X1
To help compensate for the slow progress in advanced machine tools, the USSR
has resorted to large-scale imports. For some models-machining centers, for
example-imports even exceed domestic production. Much of the imported
equipment has been allocated to the defense sector. Known applications include
production of aircraft, missiles, tanks, trucks, and ship propellers.
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USSR: Pace of Spring Grain USSR: First-Quarter and Annual
Sowing Industrial Growth, 1978-83
1976-80
I I I I 1 1
4 11 18 25 2 9 16
April May
I
Good Start for The spring grain crop in the USSR (about two-thirds of total grain production) is
Spring Grains~ off to one of its best starts ever. By the end of April, the amount of grain planted
was nearly double that of a year ago and second only to the 1975 record.
the southern European USSR is good to excellent.
t development in
The pace of sowing has slowed considerably during the past two weeks because
planting was drawing to a close in the European USSR and, as usual, had not yet
begun in the main spring wheat areas east of the Ural Mountains. Nevertheless, if
Soviet farmers maintain a normal tempo of fieldwork for the next few weeks,
nationwide sowing targets should be easily fulfilled. More importantly, completion
of planting ahead of schedule in the west has increased the likelihood that most
plants there will flower before the summer's hottest weather. Unusually hot, dry
weather at flowering-the time when maximum potential grain yields are
determined-often causes plant sterility and reduced yields. Early planting also
reduces the vulnerability of ripened grain to frost damage in the fall.
With an estimated 61 million hectares of spring grains still to be planted, it will be
weeks before a definitive forecast of 1983 Soviet grain production can be made.
Nevertheless, Moscow's target of 238 million tons already appears well out of
reach because of current prospects for a below-average harvest of winter grains. A
bumper crop of perhaps 220 million tons is still possible, however, if excellent
weather prevails through the end of the crop season in early October
STAT
STAT
STAT
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Secret
First-Quarter Soviet industrial output in the first quarter of this year was up nearly 5 percent
Industrial Growth= over the corresponding period in 1982. This is well above the increase of less than 1
percent during the first quarter of last year and exceeds the 3.2-percent growth
rate planned for all of 1983. Output in civilian machinery grew by over 6 percent,
and construction materials increased by nearly 5 percent. The pivotal ferrous
metals industry, beset with serious problems in recent years, showed a gain of 3
percent compared with a decline of almost 3 percent in the first quarter of 1982.
For the most part, the steep production increase is a reflection of the poor
achievement during the first quarter of last year. The average first-quarter growth
rate for the two-year period 1981-83 was 2.7 percent. Although the growth rate
will probably decrease during the remainder of the year when compared to the bal-
ance of 1982, this year's industrial growth will probably be higher than the 2.2-
percent increase last year.
STAT
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Secret
Viewpoint
The following article presents the Defense Intelligence Agency's
assessment of the prospects for Soviet oil production in the 1980s.
Outlook for Soviet Oil:
A DIA Assessment F_
By the late 1980s Soviet oil production is expected to
stabilize at about 12.6 million barrels per day, assur-
ing a surplus for the attainment of hard currency
objectives. The continued role of oil as an important
hard currency earner reflects prudent Soviet planning,
which emphasizes long-term policies of fuel substitu-
tion, conservation, and continued growth of secondary
refining capacity. Such policies will provide substan-
tial quantities of crude oil and the more valuable
petroleum products for export.
The leadership will continue to view oil as the corner-
stone of a broad strategy for the exploitation of the
Soviet Union's abundant energy resources. These
include the second-largest proved oil reserves in the
world and geologic structures in West Siberia that
have excellent potential for developing future re-
serves. Furthermore, this huge hydrocarbon resource
base is supported by the world's largest reserves of
natural gas and probably the largest reserves of coal
as well as a highly successful electric power industry,
which ranks second in the world in hydroelectric
potential and is a major producer of nuclear power
The general direction of Soviet energy development
and of growth and change in the petroleum sector is
clearly indicated in the USSR's current capabilities
and performance to date. While the specific course of
future petroleum-related programs cannot be precise-
ly determined, it is likely to reflect the benefits of
long-range integrated development of a massive re-
source base. Thus, assessments of prospects for explo-
ration, production, processing, and transport reflect
the continuity of long-range planning and the flexibil-
ity permitted by a range of energy development
Exploration
At the present rate, drilling in West Siberia should be
approaching 20 million meters per year by 1985. The
total number of additional development wells planned
for the 11th Five-Year Plan (1981-85) is about
23,700. By the end of 1983, over 13,000 wells will
have been drilled, leaving only some 10,000 to be
drilled by the end of the current plan. This appears to
be achievable since the 1983 rate of well completion
will probably exceed 5,000
By the end of the 1986-90 plan period, West Siberian
drilling should total more than 100 million meters.
This drilling capability should permit the USSR to
reach a production of 10 million b/d from West
Siberia by 1990. Beyond 1990, there is the possibility
of finding and developing many new oil deposits in
West Siberia, since relatively little of that vast area
has been fully explored.
Production
Soviet oil production will continue to grow through
1985, though at a rate of less than 1 percent annually,
and then level off pending installation of the necessary
additional infrastructure. This is likely for the follow-
ing reasons:
? Proved, recoverable oil reserves are large enough to
support the expected 1985 production level through
1990.
? The increase in the number of drilling brigades in
West Siberia, targeted at 450 by 1985, assures that
drilling goals in the region can be reached.
choices affecting the petroleum sector
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In addition, the rapid, ongoing expansion of the West
Siberian pipeline system is a good indication of Soviet
confidence that additional, exploitable oil reserves are
to be developed. West Siberian production should
reach 7.4 million b/d by 1984 and eventually should
reach 10 million b/d following construction of a new
large-diameter pipeline from the area, now reportedly
under way. Furthermore, production outside of West
Siberia is not expected to fall below 2.5 million b/d in
the same time frame. Thus, the USSR will be able to
maintain a production level of at least 12.5 million
b/d through 1990.
After 1990, with enough additional equipment, man-
power, and pipelines in place in West Siberia, Soviet
oil production could again show growth if officials
perceive that it would be to the USSR's benefit to
raise production. Worldwide demand and price at that
time will be determining factors.
Processing
A trend away from maximizing the production of fuel
oils is now beginning and should be well under way by
the late 1980s. Changes in the product mix at the
refineries probably will reflect the increased demands
for both high-octane gasolines and quality, low-sulfur
diesel fuels. Major boosts in the output of these
products will be needed if. (a) the increase in the
inventory of motor vehicles continues at present rates,
and (b) the average mileage per passenger car in-
creases as the result of a major program for upgrading
and expanding the highway system.
The emphasis on output of quality motor'vehicle fuels
is consistent with the expected lowering of demand for
fuel oils as natural gas and other fuels are substituted.
Moreover, an increase in overall secondary refining
capability affords the prospect of producing greater
amounts of higher valued petroleum products for
export.
Transport
Future trends in the movement of crude oil will
continue to reflect those of the past decade, concen-
trating upon the movement of oil by pipeline from
West Siberia to various refining centers. Since an
extensive system is already operational, most new
construction, other than additional pipelines from
West Siberia, will probably be limited to the modern-
ization of the existing system for more centralized,
The principal increase in oil pipeline construction is
likely to involve expansion and extension of the petro-
leum products delivery system. Military fuel pipelines,
which are already extensive, will probably be extend-
ed and improved.
During the present five-year plan period, an addition-
al 10,000 kilometers of new oil-products pipeline are
planned for construction. As a result, the movement of
products by rail should continue its slow decline over
the next several years, with an attendant reduction in
the current "bottlenecks" associated with the less
reliable rail transportation network.
Conclusions
The oil industry's development is likely to continue to
reflect pragmatic choices of the leadership in exploit-
ing energy resources according to a long-term per-
spective. Knowledge of the extent and availability of
these vast energy resources and the consistent per-
formance of this industry have given the senior party
and government officials the confidence with which to
make prudent choices in controlling future energy
developments.
Effects of Consumption Trends, Exports, and Fuel
Substitution. In 1982 oil production in the Soviet
Union was 12.2 million b/d (613 million tons), while
estimated internal consumption was 9.2 million b/d.
The remainder constituted exports to Eastern Europe
and other client states and the Free World, with the
latter receiving between 1.4 and 1.5 million b/d of
The USSR has recently reduced oil exports to Eastern
Europe by about 10 percent, apparently because of its
perception that further conservation measures can be
adopted in the East European economies and because
of the need to export additional oil to the West for
hard currency. Despite reduced Soviet deliveries, the
East European countries increased their net petro-
leum product exports to OECD countries from 7.35
million tons (147,000 b/d) in 1981 to an estimated 8.0
million tons (160,000 b/d) in 1982.
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Soviet petroleum exports to the West are probably
balanced to achieve hard currency earnings and to
exploit opportunities within the world oil market.
While there are indications that the USSR could
increase its oil deliveries, it apparently is seeking to
maintain high oil prices by adhering to an export level
that will not disturb the market
Major domestic consumers of oil include the electric
power and heat generation sectors, which in 1980
accounted for over 3.8 million b/d (43 percent) of
Soviet oil consumption. An upward trend has now
been reversed, and the use of oil for these purposes in
1982 was 3.67 million b/d. This decline is expected to
continue through 1995, when generation of power and
heat will be using over 3.0 million b/d, a drop of
around 700,000 b/d from the 1980 rate, reflecting the
increasing use of natural gas and coal in lieu of oil.
Offsetting this decline in oil consumption is the
targeted increase in usage of other fuels, with gas
increasing in these sectors from more than 165 billion
m3 in 1980 to over 282 billion m3 in 1985. Large
increases in the share of nonoil fuels beyond 1985 are
expected to occur.
With the reduction in oil consumption that will occur
through conservation and substitution, it is estimated
that Soviet oil exports could range between 3.5 and
3.75 million b/d in 1990
Economic Considerations. In the energy sector, natu-
ral gas is rapidly becoming a major export and hard
currency earner. However, initial deliveries from the
Urengoy-Uzhgorod gas pipeline to Western Europe
will not commence until 1984, and much of the
projected increase in exports will not take place before
1990. Therefore, oil sales will continue to be the
USSR's primary source of hard currency earnings
through 1990.
The petroleum industry is crucial to the Soviet econo-
my, and the rapidly increasing capital investments in
this sector represent a recognition of its great impor-
tance. The current production of over 12 million b/d
is valued at between $130 billion and $140 billion
annually at free market prices. Returns of this magni-
tude for a relatively small investment make resource
commitment to the petroleum industry a logical
In the current five-year plan (1981-85), the petroleum
industry and associated infrastructure development
account for a large portion of expenditures in the
energy sector, which received a much higher propor-
tionate increase in capital investment than any other
sector of the Soviet economy when compared with the
10th Five-Year Plan. (The growth in energy invest-
ment was five times the rate of the USSR's total
capital investment increase.
The Role of Oil. The Soviet energy sector as a whole
is not without its deficiencies and constraints. For
example, the nuclear power program is considerably
behind schedule, coal production continues to be slow,
occasional shortages occur in some petroleum prod-
ucts, and rail transport bottlenecks are chronic, even
affecting deliveries to some defense-related industries.
However, the petroleum industry is well planned,
tightly controlled, and relatively efficient. As far as
can be determined, the oil sector has performed
according to the leadership's expectations as part of
the overall plan to assure energy self-sufficiency and
to meet national energy goals.
Furthermore, it is likely that the USSR fully appreci-
ates the versatility of oil as an efficient energy source
for heating and power generation, a vital feedstock for
key industries, and an indispensable fuel for military
use. Such important applications, taken together with
the value of crude oil and petroleum products as a
flexible instrument in foreign commerce, explain the
prime consideration oil has received in long-term
development decisions.
The outlook for oil exploration, production, process-
ing, distribution, and consumption reflects the unique
flexibility of petroleum usage as a priority fuel and as
a feedstock. The USSR's energy future also envisions
an expanded role for natural gas and electric power in
domestic and foreign consumption and for coal as an
eventual substitute for both oil and natural gas in
heating and power generation.
choice and a major priority.
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Accordingly, the leadership will regulate the produc-
tion of oil to achieve balanced energy use of natural
gas, coal, electric power, and petroleum over the long
term to satisfy planned domestic consumption and
export requirements in a pragmatic, cost-effective
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