PROSPECTS FOR CONTINUED SOVIET EXPORTS OF PETROLEUM

• Document Type: CREST
• Collection: General CIA Records
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• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 49
• Document Creation Date: December 27, 2016
• Document Release Date: March 9, 2012
• Sequence Number: 3
• Publication Date: September 1, 1970
• Content Type: REPORT

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111 11118111M
DIRECTORATE OF
INTELLIGENCE
Intelligence Report
Prospects For Continued Soviet Exports Of Petroleum
Confidential
ER IR 70-24
September 1970
Copy No.
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
September 1970
INTELLIGENCE REPORT
Prospects For Continued Soviet Exports Of Petroleum
Introduction
Since the mid-1950s the USSR has been a a sub-
stantial net exporter of fuels. In recent years,
Soviet exports of oil to the Free World have been
the largest single source of hard currency foreign
exchange. However, the Minister of the Petroleum
Extraction Industry in the USSR, V.D. Shashin,
stated in 1969 that total Soviet exports of oil will
not increase significantly in the future because of
rising domestic demand. He also announced that the
USSR will maintain a high level of exports to East-
ern Europe but doubted that exports to the West
would continue to increase indefinitely. Various
Western specialists have made even more extreme pre-
dictions. They speculate that future Soviet produc-
tion of petroleum will be unable to keep pace with
rising requirements at home and in Eastern Europe,
causing the USSR to become a net importer of oil
during the 1970s and to procure large quantities of
oil from the Middle East to meet its total require-
ments.
This report reviews the development of the Soviet
petroleum industry in recent years and estimates its
ability to satisfy the various demands that will be
placed upon it over the next decade.
Note: This report was prepared soZeZy by CIA. It
was produced by the Office of Economic Research.
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Recent Position of the Petroleum Industry
1. The USSR has abundant potential resources
of petroleum, both onshore and offshore, that could
make it the world's leading producer of petroleum
by the end of the 20th century. However, 30% to 40%
of these reserves are located in permafrost regions
where their exploitation will be difficult and costly.
2. The capability of the Soviet Union to meet
future demands for petroleum from its own resources
is measured by the level of "proved" reserves, which
means the oil estimated to be economically recoverable
with existing production technology. Although detailed
information is published on natural gas reserves, no
official data on oil reserves have been disclosed since
World War II, as the State Secrets Act of 1947 pro-
hibits such publication. Soviet technical journals,
however, have published certain link relatives that
can be applied to prewar data to provide an estimate
of Soviet oil reserves.
3. As part of a policy emphasizing self-suf-
ficiency in strategic resources, Soviet geologists
have regarded maintenance of a ratio of "proved"
reserves to production of about 25 or 30 to 1 as highly
desirable. The Soviet definition of "proved" re-
serves* is broader in scope than that used in the
United States. Soviet geologists have indicated
that perhaps only two-thirds to three-fourths of
their estimated "proved" reserves can be considered
as confirmed by drilling, and hence roughly com-
parable to the US definition of proved reserves.
Consequently, Soviet claims of oil and gas reserves
apply to probable and/or possible resources rather
than to "proved" reserves, upon which firm plans
for future production can be made.
4. Analysis of data in various Soviet technical
journals led several US experts to conclude that as
of 1 January 1961 the USSR had approximately 3 bil-
lion tons of "proved" oil reserves. This estimate
implied that the ratio of such reserves to production
was about 20:1. In January 1969, a Soviet journal
* For US and Soviet definitions of reserves, see
Appendix A.
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reported that these reserves had increased 51% since
1960, while production of crude oil had more than
doubled. No significant change in this pattern was
foreseen in the near future. Therefore, as of
1 January 1969, Soviet "proved" reserves of oil were
estimated at approximately 4.5 billion tons, or
about 15 times the annual rate of output (309 mil-
lion tons at the end of 1968). Assuming that two-
thirds to three-fourths of these "proved" reserves
can be equated to proved reserves according to the
US definition, Soviet reserves totaled 3.0 to 3.4
billion tons, or about 10 to 11 times the annual rate
of production. This situation approximated that of
the United States where proved reserves were esti-
mated at 4.2 billion tons in 1969, with a reserves
to production ratio of about 10:1.
Exploration and Drilling
5. Most Soviet geophysical instruments used in
mapping subsurface structures are less accurate than
comparable US equipment. For example, the Soviet
Union is about 7 to 10 years behind the United States
in computerized seismograph technology which permits
exploration of deep complex geologic formations.
The first computerized seismic field unit was de-
ployed in the northern regions of the USSR in 1969,
whereas the application of this technology had con-
tributed impressive benefits to petroleum explora-
tion in the United States by 1963. Limited applica-
tion of modern geophysical techniques has contributed
to the lag in Soviet rates of petroleum discovery
compared to the growth in production during the past
decade.
6. Drilling has become a significant obstacle to
oil and gas development in the USSR. Much of the
drilling equipment and technology employed is inef-
ficient and obsolete. Most of the turbodrills and
rigs now in use were designed for shallow drilling
in hard formations, such as those in the Urals-Volga
region where wells generally are less than 2,000
meters deep. The extra weight and high rotational
speeds of turbodrills facilitated the rapid drilling
of shallow wells, but in regions with geological
structures requiring deeper drilling, turbodrilling
is less satisfactory. In soft formations and at
depths below 2,500 meters the conventional turbo-
drill is very inefficient. Although deeper drilling
is becoming increasingly necessary both in the older
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producing fields and in the new areas being developed,
the turbodrill continues to be used for about 80% of
all drilling operations in the USSR. Soviet tech-
nicians have suggested modifications to make the
turbodrill more effective, but most of its short-
comings persist. To improve deep drilling capability,
Soviet experts have advocated the combined use of
turbodrilling and rotary drilling -- turbodrilling
to depths of 1,500 meters and rotary drilling beyond.
The lack of high-quality drill pipe, however, pre-
cludes widespread use of rotary drilling. Soviet
deep-drilling capability also is limited by the lack
of high-powered mud pumps, blowout preventors, and
high-quality bits. Soviet data reveal that 8 to 10
months are needed to drill a well to depths of 3,000
to 3,500 meters. In the United States, such wells
are usually drilled in about a month. Soviet in-
ability to drill faster, deeper, and more efficiently
will limit the amount of oil and gas reserves that
can be explored and exploited without disproportionate
increases in investment.
7. Total drilling for exploration and development
of oil and gas in the USSR rose from 7.1 million meters
in 1959 to a peak of 11.7 million meters in 1967 and
then declined to about 11.1 million in 1968. Of the
total meters drilled during the 10-year period 1959-68,
approximately 80% was for oil exploration and develop-
ment. Drilling activity in 1970 does not appear to
be increasing as it should to meet the needs for new
reserves and greater production; the plan calls for
total drilling to reach only about 10 million meters,
and this goal will
be difficult to reach.
Production
8. During the past two decades the USSR has in-
creased crude oil production at an average annual
rate of about 12%, from 33.4 million tons in 1949 to
328 million tons in 1969 (see Table 1). Soviet
output is second only to that of the United States,
the world's largest producer. Rates of increase have
declined, however, from almost 16% during 1956-60 to
less than 8% since 1965, although the annual quanti-
tative increase has risen from about 15 million tons
per year in the earlier period to more than 21 mil-
lion tons annually during 1966-69.
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Production of Major Fuels in the USSR
Crude Oil
Natural Gas
Coal
Year
(Million Metric Tons)
(Billion Cubic Meters)
(Million Metric Tons)
1950
37.9
5.8
261.1
1955
70.8
9.0
389.9
1958
113.2
28.1
493.2
1959
129.6
35.4
503.3
1960
147.9
45.3
509.6
1961
166.1
59.0
506.4
1962
186.2
73.5
517.4
1963
206.1
89.8
531.7
1964
223.6
108.6
554.0
1965
242.9
127.7
577.7
1966
265.1
143.0
585.6
1967
288.1
157.4
595.2
1968
309.2
169.1
594.0
1969
328
181.3
608
1970
Plan
197
618
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9. The major portion of the increase in output
during the past 20 years has come from the Urals-Volga
oilfields, which in 1969 accounted for about 60% of
national output. In 1970, Soviet production of crude
oil is planned to reach about 350 million tons, and
data on output during the first half of the year
indicate that the goal can be attained.
output in the Urals-Volga
fields should reach a maximum of about 207 million
tons in 1970, and future growth in production will
have to come primarily from deposits in Western Siberia
and Central Asia. In recent years, the USSR has ex-
perimented with the use of nuclear explosives to
stimulate production in some of the oilfields of the
Urals-Volga where well yields had fallen sharply.
Preliminary results indicated that production at one
oilfield had been increased as much as 40% by such
nuclear stimulation. US experts, however, do not
consider this method, in its present state of develop-
ment, a reliable or economical means of increasing
recovery from oil or gas deposits.
10. Production in the West Siberian region is,
and will continue to be, plagued with problems and
high costs because of the permafrost, extremes of
climate, difficult terrain, shortages of equipment
and labor, and poor transport and supply facilities.
The lack of production equipment suitable for use in
Siberian conditions is a major bottleneck. Chronic
shortages of suitable drilling rigs, all-terrain
vehicles, earthmoving equipment, and building
materials are reported. Most of the oil tool manu-
facturing industry is located far from Siberian
activity and has been slow to meet the needs of this
region. Automation equipment is needed in the oil
and gasfields to reduce the requirement for labor
in the difficult operating conditions of Siberia,
but little equipment of this type is available at
present. There is inadequate planning for the
construction of roads, railroads, pipelines, or
electric power facilities before the fields are
developed. In many instances equipment must be
brought in by helicopter which adds significantly
to the cost of development. In 1968, air freight
alone accounted for 13 million rubles out of a
reported total of 81 million rubles spent for ex-
ploration in West Siberia.
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Refining
11. In general, oil refining is a technologically
backward branch of the Soviet petroleum industry.
It lags far behind the United States in terms of
the quality of individual products, product mix,
depth of refining, and complexity of refining
processes. This situation resulted from the failure
to allocate necessary investment to refining during
the late 1950s and early 1960s, a period of rapid
growth in production of poorer quality crude oils
that were more difficult to process. Some of the
lag, however, can be attributed to the market, which
differs considerably from that in the United States,
especially as passenger automobile transport in the
USSR is insignificant.
12. Soviet demand for high--quality oil products
is increasing, especially for higher octane gaso-
lines and diesel fuels with low sulfur content. How-
ever, many of the secondary processing facilities,
such as catalytic cracking, hydrocracking, and
catalytic reforming, which are necessary to improve
quality and to increase flexibility of the product
mix, are not being installed as rapidly as needed,
or when completed are not operated at design capacity.
The exiDans.ion of existing refineries has not been
completed on schedule. In 1969, Soviet journals
reported that not a single new refinery was started
during 1961-68 and two important refineries planned
in 1965 had not yet reached the blueprint stage.
Failure to put new refineries in operation on
schedule has required the more intensive use of
existing facilities, including such practices as
use of thermal cracking units for primary distilla-
tion.
13. As of 1 January 1970, total crude oil charge
capacity (primary distillation capacity) in the USSR
was about 285 million tons (5.7 million barrels per
day), second only to the United States. Primary
capacity has increased at an average rate of about
8% a year since 1958, but is not adequate to process
all of the indigenous crude oil produced. Soviet
planners apparently decided against building excess
refining capacity when the USSR began to export
large quantities of crude oil during the early 1960s.
Refining capacity is continuing to expand, however,
at about 15 million tons per year. Plans for 1971-75
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call for construction of primary distillation units
with larger capacities -- up to 6 million tons per
year rather than 1 million to 3 7.2_1-ion tons --
and almost certainly the past level of annual ad-
ditions to capacity can be maintained. Therefore,
total primary capacity is expected to he some 375 mil-
lion tons by the end of 1975.
14. The output of petroleum products rose from
almost 92 million tons in 1958 to about 230 million
in 1969, an average annual increase of about 9%.
During this period the yield of products has been
adequate to satisfy the quantitative demands of the
economy and also to permit exports averaging about
20 million tons per year.
Domestic Consumption
15. During 1959-68, the apparent domestic con-
sumption of petroleum products in the USSR rose at
an average annual rate of 8.4%, increasing from
almost 87 million tons in 1958 to about 194 million
tons in 1968 (see Table 2). During the same period,
Soviet production of crude oil increased at an
average rate of 10.6% per year. Although the quantity
of oil products in general has been adequate to satisfy
the steadily growing domestic demand, some inflexi-
bility in refinery operations has resulted at times
in a range of product output that does not satisfy
seasonal needs or that does not meet quality specifi-
cations. Consequently, sporadic local shortages of
certain oil products occur. Local shortages also
result from inadequate transport facilities during
peak periods of consumption. For example, at harvest
time when railroads are overburdened, supplies of
diesel fuel tend to be tight.
Distribution
16. Transportation of oil in the USSR continues
to he a major problem because of the concentration
of crude oil production in a few regions far from
the centers of refining and consumption. In the
early 1960s oil pipeline transport developed slowly
because greater priority was given to building the
natural gas pipeline system. Until 1965 railroads
carried more oil than any other mode of transport,
at a cost of almost three times that of movement
by pipeline. Since 1965, however, movement of oil
by pipeline haq accounted for the largest share of
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Apparent Consumption of Oil Products in the USSR
Year
Gasoline
Kerosine
Lubricating
Diesel Fuel Oils
Residuals
and Others
Total
1958
20.0
13.5
18.4
31.4
86.7
1959
21.3
14.6
20.6
34.0
94.2
1960
22.9
15.3
23.2
37.1
102.7
1961
23.8
16.1
26.7
40.3
111.3
1962
26.3
17.2
30.2
45.5
124.2
1963
29.0
18.0
33.8
50.7
137.0
1964
30.6
18.8
37.1
54.3
146.8
1965
32.2
18.9
40.5
58.4
156.3
1966
34.0
19.5
43.4
63.0
166.8
1967
36.4
20.6
48.5
69.1
181.9
1968
38.2
21.2
51.7
74.9
193.8
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total tons carried. In 1968, pipelines and rail-
roads accounted for about 85% of all oil transported
in the USSR.
17. The total length of the oil pipeline network
in the USSR at the end of 1969 was about 37,000 kilo-
meters. At least 80% of the system consisted of pipe-
lines for transport of crude oil and the remainder for
product movement. The total tons of oil carried by
pipeline increased from almost 130 million tons in
1960, when the system consisted of 17,300 kilometers,
to more than 301 million tons in 1968, over a total
system of 34,100 kilometers. Most of the available
data on future plans indicate that emphasis will be
placed on construction of long-distance crude oil lines
rather than product lines. At the same time, larger
diameter lines will have to be used to move oil over
greater distances. Domestic supplies of large-diameter
pipe, however, are not adequate to meet the needs of
both the oil and gas industries, and imports of such
pipe will be required from Western and Eastern Europe
to fulfill construction goals. If adequate supplies
of pipe cannot be obtained, the Soviet oil industry
may have to return to greater reliance on rail and
maritime transport, thereby making pipe available for
movement of natural gas that cannot be shipped by
other means.
Foreign Trade
18. The USSR has been a net exporter of oil in
increasing amounts since 1955. Net exports rose from
slightly less than 4 million tons in 1955 to about
85 million tons in 1968, an average annual increase
of about 26%. In 1969, however, total exports leveled
off and net exports were about the same as in 1968.
Exports of oil have represented a rising share of
indigenous production of crude oil, increasing from
22% in 1960 to 28% in 1968. Total oil exports rose
from about 33 million tons in 1960 to approximately
86 million tons in 1968 (see Table 3). During the
years since 1960 about 55% of the oil exported from
the USSR has been shipped to Free World countries.
Such exports totaled about 42 million tons in 1969.
The greatest part of this oil has been sold to in-
dustrialized countries to finance imports of technol-
ogy and equipment needed for Soviet industrial
development. In recent years exports of oil have
been the largest single source of foreign exchange
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Soviet Exports of Oil
Exports to Free World Countries a/
Exports to Communist Countries
Year
Crude Oil
Products Total b/
Crude Oil
Products
Total b/
Total
1955
0.7
3.1
3.8
2.2
2.0
4.2
8.0
1958
3.9
5.3
9.2
5.2
3.8
9.0
18.1
1959
6.1
8.0
14.1
6.4
4.8
11.3
25.4
1960
9.0
9.0
18.1
8.8
6.4
15.1
33.2
1961
13.3
9.5
22.8
10.1
8.3
18.4
41.2
1962
13.6
11.1
24.7
12.7
8.0
20.7
45.4
1963
15.4
13.0
28.4
14.8
8.2
23.0
51.4
1964
18.8
12.5
31.3
17.9
7.4
25.3
56.6
1965
21.0
14.5
35.5
22.4
6.5
28.9
64.4
1966
24.8
16.6
41.3
25.5
6.7
32.3
73.6
1967
26.8
16.9
43.7
27.3
8.1
35.4
79.0
1968
26.7
18.0
44.7
32.5
9.0
41.5
86.2
1969
c/
24.7
17.1
41.8
36.0
8.5
44.5
86.3
d/
a. Cuba is included in the Free World prior to 1960 and thereafter in the Communist
countries.
b. Because of rounding, components may not add to the totals shown.
c. Preliminary.
d. Not including some 4 million tons procured from the Free World and reexported
on Soviet account.
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earnings for the Soviet Union. Since 1955, annual
hard currency earnings from oil exports to Free World
countries rose from $10 million to a maximum of
$375 million in 1968. During the past five years
(1965-69), Soviet oil sales to the industrialized
countries of the Free World earned a total of about
$1.5 billion in hard currency (see Table 4).
Prospects for Oil During 1971-80
Probable Soviet Production in 1975 and 1980
19. The USSR probably can fulfill the announced
goal for production of 450 million tons of crude oil
in 1975 without significantly increasing its present
level of drilling.* The average annual rate of growth
in production of crude oil during 1971-75 would be
only 5.2%, compared with 7.6% during the previous five
years. The requisite yearly increase of 20 million
tons, which is slightly less than the average yearly
increase attained during 1966-70, seems feasible.
20. Soviet production of crude oil in 1980 is much
more difficult to forecast. The plan calls for pro-
duction of 550 million to 600 million tons in that
year. Various methods of estimation suggest a possible
production range of 450 million to 550 million tons.
The anticipated decline in production in some of the
older regions (coupled with more difficult climatic
and geological conditions in new producing areas), ris-
ing exploration and development costs, and the lack of
equipment embodying modern technology -- especially
for drilling -- suggest that within this range pro-
duction probably will be in the vicinity of 500 million
tons. This estimate equates to an average annual ex-
pansion of only 2.1% during 1976-80, and the extrac-
tion of 10 million tons of additional crude oil each
year. The importance of the petroleum industry as a
domestic source of energy and as an earner of foreign
exchange probably will lead Soviet planners to take
the steps necessary to guarantee production of approxi-
mately this level even if production costs increase
sharply.
* See Appendix B, Case 1.
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Soviet Earnings of Hard Currency from Exports of Oil
Year
Total Exports of
Oil to Free World
(Million Metric Tons)
Exports to
Hard Currency Countries
(Million Metric Tons)
Hard Currency Earnings
Obtained from Oil Expa9rts
(Million US $) -
1955
3.8
0.5
10
1960
18.1
9.3
1965
35.5
22.3
1966
41.3
25.4
1967
43.7
29.9
1968
44.7
31.0
1969 b/
41.8
27.9
a. Rubles were converted to dollars at the official rate of exchange of 0.9 ruble
to US $1.
b. Preliminary.
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Drilling Rates a Key to Production
21. Production of crude oil and natural gas
generally is a function of the number of producing
wells. As the number of wells increases each year,
the drilling requirement rises. During the early
1960s the National Petroleum Council (NPC)* analyzed
Soviet oil and gas exploration, drilling, producing,
and transportation operations and concluded that
drilling is the best indicator of ultimate producing
potential. To evaluate future output possibilities
on the basis of total drilling, production of both
crude oil and natural gas must be considered. US
experts in the NPC evaluation estimated that a total
of 108 million meters would have to be drilled during
1964-70 to produce 360 million tons of oil and 250 bil-
lion cubic meters of gas by 1970, and maintain ratios
of "proved" reserves to production of 17:1 for oil
and 20:1 for gas. Subsequent information published
in Soviet petroleum journals revealed that a total of
105 million meters were to be drilled for oil and
gas during 1964-70. Drilling plans, however, have
not been fulfilled during this period; by the end of
1970, less than 80 million meters will have been
drilled. The production goals for 1970 have been
lowered to 350 million tons for oil and 197 billion
cubic meters for natural gas, but in consequence of
the failure to fulfill drilling plans, achievement of
even these revised goals will result in significant
reduction of the reserves to production ratios.
22. In the NPC study, it was estimated that a
total of 480 million meters would have to be drilled
during 1961-80 to achieve production goals of 700 mil-
lion metric tons of oil and 700 billion cubic meters
of natural gas and to have a reserves to production
ratio of 15:1 for oil and 20:1 for gas. Available
data indicated that about 500 mil-
lion meters would have to be drilled during 1961-80
to meet the above production goals. Since that time,
however, the goals for production in 1980 have been
lowered considerably, to 550 million to 600 million
'E NPC reports, Impact of Oil Exports from the Soviet
Bloc, VoZs. I and II (1962) and Supplement to the
1962 report (1964),
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tons of oil and 550 billion to 600 billion cubic
meters of natural gas. Achieving even the low ends
of the planned ranges, while maintaining the reserves
to production ratios indicated above, would require
annual drilling over the next ten years to average
2 to 3 times the amounts attained in recent years.
In fact, however, total drilling has been declining,
from about 11.7 million meters in 1967 to 10 million
in 1970. Failure to invest in more exploratory and
developmental drilling, if continued, will seriously
impede the growth of production.
23. V.D. Shashin, Minister of the Petroleum Ex-
traction Industry, stated early in 1969 that, based
on past and present drilling efforts, the amount of
drilling by 1980 would have to be 80% more than in
1968 if oil and gas production goals are to be reached,
and that 1,600 more rigs and 2,317 more drilling crews
would be required. This effort would almost double
the number of rigs and crews and also double the
average cost per meter drilled. At about the same time
he indicated that fulfillment of future goals for
production of oil and gas must be accomplished without
any such steep rise in capital investment for drilling
as has occurred in recent years. He emphasized that
technical progress is essential for achieving the goals.
Presumably such technical progress would include greater
reliance on rotary drilling and development of light-
weight drilling rigs suitable for use in the Siberian
climate and terrain. Instead, however, there appears
to be continued reliance on the turbodrill, and al-
though new drilling rigs have been developed for use
in western Siberia, they are extremely heavy. Their
transport between drilling sites requires three times
as many tractors as did the older rigs, and frequently
involves considerable loss of time. Downtime (time
when the bit is not drilling on the bottom) now amounts
to 60% to 70% of total drilling time in the USSR,
compared with about 30% to 40% in the United States.
24. The drilling performance suggested by Shashin
is not impossible in the light of past experience,
but it appears improbable. The annual drilling depths
achieved during 1960-62 were 80% greater than those
attained in 1950-52, and annual drilling in 1964-67
was approximately double that of 1954-57. Those in-
creases, however, were attained chiefly in the Urals-
Volga region where conditions were more favorable
than in the areas that will be exploited in the 1970s.
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An 80% increase in drilling by 1980 would require an
average increase of about 1 million meters per year
during 1971-80. This average is higher than any
annual increase achieved in the past and probably
will not be attained. If it could be, the lower
ranges of the goals for production of oil and gas in
1980 could be reached by permitting the "proved"
reserves to production ratios to fall to about 10:1
for both.*
25. If the USSR should continue to drill only at
the level of the most recent years -- 10 million to
11 million meters per year -- it could produce 450 mil-
lion to 500 million tons of crude oil and perhaps
350 billion cubic meters of natural gas in 1980 without
letting the reserves to production ratios fall much
below 10:1.** Therefore, crude oil production in 1980
can be estimated somewhere between the level of 450
million tons (virtually no improvement in drilling rates
and no increase in annual production after 1975) and
the 550 million tons (achieved with the almost equally
unlikely 80% increase in drilling mentioned by Shashin).
Within this range, a reasonable estimate may be a pro-
duction of around 500 million tons.
26. Given the greater average depths of wells
required, the use of more drilling rigs in prolonged
deeper drilling, inexperience with multizone comple-
tion and directional drilling, and the more difficult
drilling conditions to be encountered in the next
decade, it is doubtful that average annual drilling
rates will grow very much. Some improvement is pos-
sible, especially if the USSR is willing to make
sufficient investment in new technology and equip-
ment, some of it from Free World sources. The pri-
ority assigned to the petroleum industry as the
USSR's leading earner of foreign exchange makes it
appear unlikely that Soviet planners will fail to
make a strenuous effort to provide the resources re-
quired to solve problems already recognized by their
technicians. There have been indications that this
will be the case. In recent years the USSR has turned
See Appendix B, Case 2.
* See Appendix B, Case 3.
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to Free World countries for equipment and technology
to overcome some of its deficiencies. In 1967 the
USSR bought a mobile offshore drilling platform,
valued at $10 million, from the Netherlands for use
in petroleum exploration in the Caspian Sea. Late
in 1969, high-level Soviet officials invited a US
firm to consider undertaking offshore work in the
USSR. J.M. Gvishiani, Deputy Chairman of the State
Committee for Science and Technology of the Council
of Ministers of the USSR (and Kosygin's son-in-law),
stated that the USSR has several projects under con-
sideration involving offshore exploration for oil and
gas and construction of underwater gas pipelines, in-
cluding a pipeline to Japan. He indicated that the
USSR had almost no specialized equipment for such
work and that it would be easier to bring in outside
contractors for the initial phase of the offshore
program than to wait for development of Soviet
technology.
Regional Trends in Production
27. Available information on trends in regional
development of oil production was evaluated as a
check on the validity of the above estimates which
were based on national drilling rates and minimum
desirable reserves to production ratios. The re-
sults of the two methods of estimation were found
to be at least compatible.
28. Many of the productive deposits of the Urals-
Volga region, which now accounts for about 60% of
the current national output of crude oil, have been
overproduced to meet annual goals and their producing
life has been severely curtailed as a result. Faulty
technical procedure in waterflooding oilfields at
the initial stage of development -- for purposes of
pressure maintenance -- has resulted in unexpected
water encroachment in the producing oil zones, re-
duction in oil recovery, and loss of a significant
part of the reserves in place. A critical loss in
oil reserves as a result of such practices occurred
in the Romashkino field, the largest in the USSR.
This field, which now accounts for about one-fourth
of total national production, originally was esti-
mated to have recoverable reserves of 2.6 billion
tons. With increased water encroachment in recent
years, it is now estimated that no more than 1.6 bil-
lion tons will be recovered.
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29. The production forecast for 1980 from the
Urals-Volga fields originally was about 350 million
tons, but the 207 mil-
lion tons to be produced in 1970 will be about the
maximum level of output. Once oilfields reach their
maximum output, rates of decline often are similar to
those of the buildup period, resulting in a bell-
shaped curve for annual production throughout the
life of the field. If this proves true in the Urals-
Volga fields, output from the region may be in the
neighborhood of 180 million tons in 1975 and 100 mil-
lion tons in 1980. Given the extensive damage to the
fields that has occurred, much larger production
seems unlikely. The estimate of 100 million tons from
the Urals-Volga in 1980 approximately coincides with
the findings of a US petroleum geologist who has made
an independent study of the most important Soviet
oilfields.
30. Technical errors in the development of rela-
tively new large oil deposits in the Mangyshlak fields
of western Kazakh apparently have reduced the potential
recovery there as well. Instead of collecting as-
sociated gas and reinjecting it to stabilize formation
pressure, Soviet technicians have flared it off, there-
by causing a number of wells to stop flowing. Other
wells stopped flowing when cold sea water injected to
maintain pressure reduced the reservoir temperature
below 90?F, thereby causing the highly paraffinic oil
to solidify underground. When these wells stopped
producing, the goals for production were lowered. The
original goals called for Mangyshlak fields to produce
35 million to 40 million tons in 1975 and 65 million
to 100 million tons in 1980. Recently, however, a
Soviet oil industry official indicated that output
from these fields is not expected to exceed 25 million
tons in 1975 or 30 million tons in 1980. Production
from Turkmen, the other significant oil producing
region in Central Asia, is developing at about the
same rate as production from Mangyshlak and total pro-
duction from Central Asia probably will not be more
than 60 million tons in 1975 and some 65 million tons
in 19 80 .
31. In January 1970, Soviet policymakers announced
that development of oil and gas reserves in Western
Siberia would have top priority during the next dec-
ade. Annual production of oil from this region is
scheduled to reach 100 million to 120 million tons by
1975 and 230 million to 260 million tons by 1980.
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These goals are considerably above those announced
in the early 1960s which called for an output in
1980 of about 42 million tons from all of Siberia
and the Far East.
32. West Siberian deposits are located in an
uninhabited area, covered with permafrost and taiga
and lacking in public utilities, transportation, and
communication facilities. Their development will be
much more expensive than development of those in the
Urals-Volga region and logically could take longer.
It took 22 years to reach an annual production of
100 million tons from the Tatar ASSR, the republic
which is the largest producer of oil in the Urals-Volga
region. The Tatar ASSR, it should be noted, was an
area ideally suited for use of the turbodrill and which
possessed established population centers and developed
communication and transportation facilities. To pro-
duce 100 million to 120 million tons of oil from the
West Siberian fields in 1975, only 10 to 12 years after
the beginning of their development, will be difficult --
although possible if the most favorable prospects
are developed first. Annual production has been
growing much more rapidly in Western Siberia than it
did during the comparable period of development in
Tatar. The chance for continued rapid growth is
improved somewhat by the high average well-yield
achieved thus far in Western Siberia. V.D. Shashin
has indicated that this average yield has been 3 to
4 times that from the fields of the Tatar ASSR. Thus
production of 100 million tons per year could be
achieved with a smaller number of wells than was re-
quired in the older fields.
33. Attainment of the goal for production of
230 million to 260 million tons of oil in Western
Siberia in 1980 appears more unlikely than fulfill-
ment of the goal for 1975. Once the most obvious
prospects have been drilled, growth in production
from the region can be expected to slow down. More
efficient oilfield development than has occurred in
the past, combined with a considerable amount of
good luck, will be necessary if production from
West Siberian reserves is to exceed 150 million to
200 million tons in 1980.
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34. Thus the three principal oil-producing regions
of the USSR -- the Urals-Volga, Central Asia, and
Western Siberia -- may be producing 340 million to
360 million tons of crude oil in 1975 and some 315 mil-
lion to 365 million tons in 1980. Production from
other regions in those years may total about 100 mil-
lion tons and 135 million tons, respectively. On the
basis of such regional information as is available it
can be estimated that production of crude oil in the
USSR as a whole could total some 440 million to 460 mil-
lion tons in 1975 and 450 million to 500 million tons
in 1980. For a regional distribution of Soviet crude
oil production in selected years during 1965-80, see
Table 5.
Domestic Demand for Oil
35. To forecast future levels of Soviet demand
for oil the relationship of growth in total domestic
demand* to growth in industrial production was es-
tablished for the years 1955-68 and projected to 1975
and 1980 using two different assumptions (see Table
6 and Figure 1). The first projects industrial
growth at an average annual rate of 6% during 1969-80
and implies a demand for 340 million to 360 million
tons of oil in 1975 and 470 million to 490 million
tons in 1980.** The second projects industrial growth
at 6% per year during 1969-75 and 5% per year there-
after. This latter projection, which assumes diminish-
ing returns to capital, implies a demand for 440 mil-
lion to 460 million tons of oil in 1980.*** These
figures imply that total demand for oil in the USSR
will increase at an average annual rate of 6% to 7%
during 1969-75 and 4% to 8% during 1976-80. Caution
must be exercised in extrapolating the results of
any regression exercise, although the level of demand
for oil probably will fall within these ranges. The
uncertainty of the projection beyond 1975 is, of
* Including consumption, losses, storage, and
bunkers, all measured in crude oil equivalents.
** Ranges assume three standard errors of estimate
from the computed regression Zine and rounding to
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Table 5
Estimated Production of crude oil in the USSR, by Region
Million Metric Tons
Producing Region
1965
1968
1969
1970
1975
1980
Urals-Volga
173.6
201
204
207
180
100
West Siberia
1.0
12.2
21.4
30
100-120
150-200
Central Asia
13.8
22.6
26
30
60
65
North Caucasus
20.7
30.5
30.9
33
30
30
Azerbaydzhan
21.5
21.1
20.4
20.2
20
20
Ukraine
7.6
12.1
13.4
15
20
25
Belorussia
Negl.
1.7
2.7
4.3
10
25
Komi
2.2
5.0
6
7
15
25
Far East
2.4
3.0
3.2
3.5
5
10
Total
242.9
309.2
328.0
350
440-460
450-500
a. Because of rounding, components may not add to the totals
shown.
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Soviet Domestic Demand for Oil and Growth in Industrial
Production
a. Assuming a 6% rate of industrial growth during 1969-80.
b. Assuming a 5% rate of industrial growth during 1976-80.
Domestic Demand for Oil
(Million Metric Tons
Year
of Crude Oil Equivalents) Index of Industrial Production
1955
67.0
100
1956
78.8
109
1957
88.5
117
1958
98.8
129
1959
107.9
140
1960
118.1
151
1961
127.2
162
1962
142.1
175
1963
155.9
185
1964
167.6
196
1965
178.7
208
1966
191.3
223
1967
208.3
239
1968
221.8
253
1969
268
1970
284 a/
1975
379 a/
1980
508 a/
484 b/
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1980-478 million tons at 6% rate
of industrial growth 1969-80. -(i
/ t
1980-454 million tons
at 5% rate of industrial
400
growth 1976-80
0
-o
0
U
0
1975-349 million tons at 6% rate
e
0
of industrial growth 1969-75
300
0
t 3 standard errors of estimate
0
100 150 200 250 300 350 400 450 500
Figure 1. Relationship of total domestic demand for oil to growth in industrial production
78855 9-70 CIA
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course, much greater, as is indicated by the ranges
shown for both quantities and rates of increase.
36. Average annual rates of growth in total
domestic demand for oil in the USSR have declined
from 12.0% during 1956-60 to 8.6% during 1961-65
and to 7.5% during 1966-68. During these same
periods, however, the average quantitative increases
in demand for oil have risen from about 10 million
tons per year to approximately 14 million tons. These
past patterns of declining percentage rates of in-
crease and growing quantitative increases in demand
suggest that the most likely rates of growth in total
demand for oil, considering possible improvements in
technology and increases in efficiency of consumption,
may be about 6.5% to 7% per year during 1969-75 and
some 5% annually during 1976-80. Thus total domestic
demand for oil may approximate 350 million tons in
1975 and 450 million tons in 1980. This estimate of
demand in 1975 is compatible with the forecast of
about 375 million tons of crude oil charge capacity
at refineries in that year. It also appears reasonable
when compared with estimated use of oil by agricultural
tractors and combines in 1975 -- taken in conjunction
with a Soviet projection of agriculture's share in
total petroleum consumption in that year -- and is
consistent with an estimate of increased requirements
of the growing motor vehicle park during the first
half of the 1970s.
Growing Demand in Eastern Europe
37. In addition to being faced with a growing
domestic demand for oil, the USSR is expected to
supply increasing quantities to the Communist coun-
tries of Eastern Europe. The total oil supply of
these countries rose from about 25 million tons*
in 1960 to more than 56 million tons in 1969, an
average annual rate of growth of more than 9%.
Available information on plans, combined with esti-
mates of future consumption patterns, leads to the
conclusion that Eastern Europe's demand for oil
during 1970-80 probably will rise at a slightly
slower rate, perhaps at about 8% annually. If this
is the case, it will total some 90 million to 100
* Including crude oil and petroleum products ex-
pressed in crude oil equivalents.
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million tons in 1975 and 120 million to 135 million
tons in 1980. This would be compatible with plans
for refining capacity of at least 90 million tons
by 1975.
38. Eastern Europe will be able to meet only a
relatively small part of this demand from its own
production which totaled about 17 million tons in
1969 and is not expected to rise much above 20 mil-
lion tons per year by 1980. The largest part of
Eastern Europe's requirement for oil will continue
to be met by imports from the USSR. During 1960-69
such imports rose from about 9 million tons to almost
36 million tons, or from 37% to 63% of total East
European supply. If Romania, which is itself a net
exporter of petroleum, is excluded, Soviet oil ac-
counted for almost 70% of Eastern Europe's oil supply
in 1960 and about 85% in 1969 (see Table 7). Plans
indicate that Eastern Europe expects imports of Soviet
oil to continue to rise, reaching 60 million to 65 mil-
lion tons by 1975 and perhaps as much-as 75 million
to 85 million tons by 1980. These expectations appear
to coincide with intentions of the USSR to continue
to supply most of the oil required by Eastern Europe.
In recent years, much of the Soviet crude oil exported
to Eastern Europe has been delivered via the Friend-
ship pipeline system which extends from oilfields in
the Urals-Volga region to Czechoslovakia, Hungary,
Poland, and East Germany. This system, which was
completed in the early 1960s and now has the capacity
to deliver more than 20 million tons per year, is
being paralleled. When the second line is finished
in the mid-1970s, the entire system should be capable
of transporting some 50 million tons per year. Con-
tinuation of the present level of Soviet deliveries
by rail and maritime transport -- approximately 15 mil-
lion tons of crude oil equivalent per year -- appears
adequate to satisfy the additional East European
requirement for Soviet oil in 1975.
39. Most of the East European countries have
signed contracts with Middle East nations -- Iran,
Iraq, and Syria -- to obtain oil in exchange for
technical equipment and manufactured goods. The
quantity of oil to be imported from the Free World
will be rather small for the next several years,
reaching about 15 million tons in 1975 -- of which
Romania will import about one-third. By 1980, im-
ports from the Free World may reach 30 million tons
and account for as much as one-fourth of the total
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Oil Supply in Eastern Europe a/
Imports
Soviet Oil as a
enous
Indi
S
hare of Total Supply
Y
g
Production b/
From the USSR
From the Free World
Total Supply ~/ (Percent)
ear
1960
14.7
(1.5)
9.4
1.0
25.1
37
69 d/
1965
16.5
(1.3)
22.8
1.7
41.0
56
80
1966
16.6
(1.0)
25.6
1.9
44.1
58
82 d/
1967
17.2
(1.0)
28.0
2.3
47.5
59
82 d/
1968
17.1
(0.7)
32.7
3.0
52.8
62
85 d/
1969
Preliminary
16.7
(0.6)
4.3
56.5
63
85 d/
1970
Estimated
17
(0.5)
6
63
63
85 d/
1975
Estimated
18-19
14-16
92-100
INNOMMMMMMM
60-71
74-88 d/
1980
Estimated
20-21
25-30
120-136
55-71
66-88 d/
a. Including Bulgaria, Czechoslovakia, East Germany, Hungary, Poland, and Romania (Romania is a
net exporter of petroleum and does not import oil from the USSR).
b. Including output of synthetic oil from processing of coal through 1970; quantities of synthetic
oil are shown in parentheses.
C. Exports of oil products to Free World not deducted; such exports amounted to about 8 million tons
in 1969.
d. Soviet oil as a share of Eastern Europe's total supply excluding Romania.
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East European supply of oil. Construction of an oil
pipeline through Yugoslavia to Hungary, Czechoslovakia,
and Poland to transport oil imported from the Middle
East has been proposed for several years. Preliminary
discussions indicate that the capacity of this line
might be about 20 million tons per year, but no agree-
ment has been reached among the countries involved
concerning its financing. In any case, it is doubtful
that it will be built before the mid-1970s.
Prospects for Oil Exports
40. Through 1975, the USSR will produce enough oil
to meet its own needs and those of Eastern Europe while
continuing to export to other areas. Just how much
oil will be available for export to other areas is
less certain. Extreme combinations of the ranges of
possible production and of demand in the USSR and
Eastern Europe imply that the amount could be as little
as 15 million tons or as much as 60 million tons. The
combinations of factors that would lead to either of
these extremes, however, are unlikely. It appears more
probable that in 1975 the USSR will produce some 100
million tons more than it will require to meet its own
needs and that of this amount about 60 million tons
will be allocated to meet the rising demands of Eastern
Europe. This would leave approximately 40 million tons
available for export to other Communist countries and
to the Free World. If the USSR wishes to maintain its
position as a supplier of these latter areas at about
present levels, modest quantities of oil -- perhaps
10 million tons -- may have to be procured from Free
World producers for reexport. The USSR has already
entered into agreements with Middle East and North
African countries -- Iraq, Syria, Egypt, Algeria, and
Libya -- that may provide approximately this quantity
of oil in 1975.
41. By 1980, the range of possibilities implicit
in the foregoing analysis becomes much greater. At
one extreme Soviet production would fall some 40 mil-
lion tons short of covering domestic demand. At the
other, the USSR would not only cover its own require-
ments and those of Eastern Europe, but have about 35
million tons available for export to other Communist
countries and the Free World. Again, the extreme
positions seem unlikely. Soviet production in 1980
probably will be sufficient to cover the needs of the
USSR, but if production does not exceed 500 million
tons and if domestic demand increases at the rates
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anticipated, the quantity of oil available for export
will be sharply reduced. To supply the quantities of
oil desired by Eastern Europe and to maintain exports
to other Communist countries and to the Free World at
or near present levels, the USSR may have to procure
about 80 million tons from non-Communist sources.
For a summary of possible future patterns of Soviet
oil trade, see Table 8 and Figure 2.
42. During the past two years Soviet oil experts
have noted the rising demand for oil in the USSR
and have indicated that although the USSR will con-
tinue to sell oil to capitalist countries to earn
much-needed foreign exchange, such exports may have
reached their peak. These experts have expressed
awareness that the United States, the world's lead-
ing producer of petroleum, depends on imports for
more than 20% of its oil supplies. Soviet planners
may be considering the possibility of a similar
solution to some of their long-range problems.
43. Several possible courses of action are open
to the USSR. The strong Soviet need for hard c,:r-
rency foreign exchange could motivate- planners to
increase exports to the Free World and to let the
East European countries procure a much larger share
of their oil directly from the Free World. However,
it is unlikely that Eastern Europe could afford to
buy the major part of its oil supply from Free World
producers. Moreover, from the Soviet point of view,
this course of action would have the disadvantage of
reducing East European dependence on the USSR and,
if carried far enough, could result in underutiliza-
tion of the Friendship crude oil pipeline system,
After expanding the capacity of this system to about
50 million tons per year by the mid-1970s, the USSR
probably intends to utilize it.
44. The USSR could also act as a broker for
sales of Middle East oil obtained primarily from
national companies. Such sales could increase Soviet
earnings of foreign exchange and help to keep Soviet
oil available for export, both to Eastern Europe and
to the Free World. Oil might be obtained from the
Persian Gulf via a pipeline through Iran that could,
for the most part, be built parallel to the route
of a gas pipeline due to become operational in the
fall of 1970. The oil could then be transported
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Table 8
Estimated Future Soviet Trade in Oil
Million Metric Tons of Crude Oil Equivalents
1975
1980
1970
Range
Best Estimate
Range
Best Estimate
Production
Plan
Estimate
350
450
0 Demand for Soviet oil
ITJ
Domestic a/
260
340-360
350
440-490
450.
C17
Eastern Europe
40
60- 65
60
75- 85
80 L
Total
Available for export
to
other
300
400-425
410
515-575
530
Communist countries
and
to Free
World
50
15- 60
40.
-125 to +35
- 3d
Hypothetical levels
exports b/
of S
oviet oi
l
To other Communist
countries
10
10
10
10
10
To the Free World
40
40
40
40
40-
C/
0- 35
a. Including losses, storage, and bun ers.
b. For illustrative purposes it was assumed that exports will continue at about present levels.
c. About 5 million tons to be procured from the Middle East under existing contracts, mostly for
supply to other Communist countries.
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Million Metric Tons of
Crude Oil Equivalents
Imports from the Free World
Necessary to Maintain the
Projected Level of Exports
0
1965
1970 1975
Figure 2. Estimated Soviet production, demand, and exports of oil
78868 9-70 CIA
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by tanker and/or barge from the Black Sea to Eastern
Europe, or it could be used in the European part
of the USSR and Soviet crude oils from Central Asia
or Western Siberia could be shipped via the Friend-
ship pipeline to Eastern Europe. The Middle East
oil possibly could be obtained on a barter basis for
Soviet manufactured goods and military equipment
without expenditure of hard currency.
Limited Possibility of Substituting Natural Gas
for Oil
45. Widespread reports of huge reserves of natural
gas in the USSR, and the recently concluded agree-
ments whereby the USSR is to sell natural gas to
Western Europe, have occasioned speculation that in-
creased use of gas can relieve the pressure of growing
Soviet and East European demand for oil and that
foreign exchange earnings from exports of gas can
become a significant supplement to earnings from oil
exports. It is true that the USSR has large deposits
of natural gas and that the share of natural gas in
Soviet and East European fuel consumption is growing.
Exports of gas during the next decade will be an
important means of financing imports of badly needed
large-diameter line pipe and equipment, and of earn-
ing some foreign exchange. However, more than half
of all the "proved" Soviet gas reserves are located
in permafrost regions where development would be
difficult and costly. In many respects, the problems
that must be overcome to expand the output of the
gas industry are more difficult than those confront-
ing the oil industry. The chronic shortfalls below
planned gas production that have occurred during
the past ten years probably will continue during the
next decade.
Natural Gas Reserves and Production Problems
46. In January 1970, the Minister of the Gas
Industry claimed that "commercial" reserves of natural
gas had reached 10 trillion cubic meters and that
they would increase to 12 trillion cubic meters by
1 January 1971. This statement was in keeping with
recent Soviet practice of discussing national and
regional gas reserves in terms of "commercial" re-
serves -- that is, reserve categories A & B & C1 --
rather than in terms of reserves that have been
"proved" by drilling, as reserve categories A & B.*
* See Appendix A.
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Inclusion of the C1 category, which is estimated on
the basis of geological data but not extensively
tested by drilling, inflates the reserve estimates
significantly. "Proved" reserves are estimated to
have been about 2.5 trillion cubic meters as of
1 January 1969, equivalent to about a 15-year
supply at the 1968 production rate of 169 billion
cubic meters. The discrepancy between the inflated
"official" estimates of "commercial" reserves that
have been publicly announced and the reserves
actually proved by drilling and available for produc-
tion has become a source of embarrassment to Soviet
officials. Negotiations concerning the possible sale
of Soviet gas to Japan were suspended in February 1970
when Kosygin disclosed that reserves of gas in
Sakhalin were actually only 16 billion cubic meters
and not 60 billion as claimed in earlier talks and as
reported in Soviet statistics. Thus the reserves
would not be adequate to supply 2.4 billion cubic
meters per year to Japan for 20 years as had been
discussed in the negotiations.
47. In the older producing regions -- Ukraine
SSR,.Krasnodar and Stavropol Krays, Urals-Volga
region, and the Gazli field in Central Asia --
that provide about 70% of present gas output, major
fields are being depleted and exploration results
have been poor. Total production of natural gas
in these regions since 1966 has exceeded total
additions to reserves. In the future, the bulk of
new gas resources and new production will originate
in West Siberia and Central Asia. Most of the
reserves discovered in West Siberia have not yet
been drilled extensively, perhaps only one well per
structure thus far. On the basis of only 11 wells --
drilled 1 to 19 kilometers apart on the southern
half of the structure -- the gas discovery at
Urengoy was claimed to be the largest in the Soviet
Union, containing 2.6 trillion cubic meters of
commercial reserves. The reserves in this deposit
accounted for more than half of total commercial
reserves in Western Siberia as of 1 January 1969.
48. In many of the natural gasfields, rapid
exploitation has been emphasized to maximize output,
but in the process gas has been wasted and valuable
reserves have been reduced unnecessarily. For ex-
ample, in 1969, 10 billion cubic meters of associated
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gas and condensate, worth about 250 million rubles,
were flared to facilitate more rapid production of
oil and gas wells. The waste of this gas has reduced
the producing life of many fields because of the loss
of reservoir pressure.
49. As production of gas moves eastward to the
remote, permafrost regions of West Siberia, the de-
velopment problems become more severe. It is dif-
ficult for seismic equipment to detect the presence
of oil and gas structures in permafrost areas, and in
West Siberia permafrost is encountered at depths up
to 500 meters. Therefore, only by drilling can an
accurate delineation of the petroleum-bearing struc-
ture be obtained. Such drilling operations are dif-
ficult, especially if insulation is not supplied
around the well bores to prevent the permafrost from
thawing. Warm flows of gas at elevated temperatures
can thaw permafrost up to 6 meters around the well
and cause the casing to collapse, with subsequent
loss of the borehole. Several producing gas wells
in the large Tazov field developed ruptures in the
permafrost surrounding the well, allowed the gas to
escape, and destroyed a portion of the gas deposit.
50. The problems of developing natural gas re-
serves in permafrost regions without adequate modern
equipment and technology, coupled with shortages of
large-diameter pipe and matching valves and com-
pressors, will make fulfillment of production goals
in 1975 and 1980 impossible. Instead of the planned
output of 300 billion to 320 billion cubic meters in
1975, production probably will reach 270 billion to
280 billion. In 1980, output is unlikely to exceed
350 billion cubic meters, compared to the present
goal of 550 billion to 600 billion cubic meters.
51. During the past 10 to 15 years output of
natural gas rose rapidly in the USSR, but few annual
production goals were attained. The shortfalls in
output resulted from lack of production and transport
equipment, shortages of large-diameter pipe, inade-
quate supplies of consumer equipment to receive the
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gas, and the lack of storage facilities to meet peak-
load demands. The cumulative effect of these failures
is evident in the fact that production in 1970 is now
expected to be 197 billion cubic meters instead of the
310 billion to 325 billion foreseen in the plan for
1970, which was set early in the 1960s,
52. The new goal for production of 300 billion to
320 billion cubic meters of natural gas in 1975
probably could be met, although with greater dif-
ficulty than that for production of oil, if drilling
were the sole prerequisite for plan fulfillment.
However, construction of the pipeline system is the
most critical factor in future production of natural
gas, as pipelines are the only economical means of
transportation. Very large quantities of large-
diameter pipe (40 inches and over) and matching
compressors must be procured before the pipeline
networks planned for 1975 can operate at capacity.
Domestic facilities to provide such pipe and ancil-
lary equipment are not available, so sizable imports
will be required. It is estimated that shortages of
line pipe and of producing and consuming equipment
will continue to contribute to shortfalls in output-
Achieving the level of production planned for 1975
would require annual increases of approximately
21 billion to 25 billion cubic meters during 1971-75,
During 1966-70, production rose less than 14 billion
cubic meters annually, and only about 13 billion per
year during 1967-69. It seems improbable that pipe-
line capacity can be expanded rapidly enough to
permit annual increases in gas output to exceed
15 billion to 17 billion cubic meters. Such increases
would result in a total production of 270 billion to
280 billion cubic meters in 1975, some 10% below the
plan goal.
53. The goal for production of 550 billion to
600 billion cubic meters of natural gas in 1980
appears unattainable, and probably will be lowered as
other gas goals have been during the past decade.
Current Soviet plans are predicated upon the develop-
ment and installation of line pipe with a diameter of
2,520 millimeters (99 inches) during 1973-80. The use
of such pipe would permit shipment of 90 billion cubic
meters
per
year through a single pipeline and would
reduce
the
requirement for pipe, as about four pipe-
lines
with
a diameter of 1,440 millimeters (56 inches)
would
have
to be laid to transport the same volume of
gas.
The
USSR, however, does not have the capability
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to fabricate the larger pipe or to manufacture the
necessary matching valves and compressors. Soviet
planners acknowledge that development of this pipe
is a long-term project as is solution of the attend-
ant problems of transporting and laying it.
54. By 1980, plans call for the completion of
three natural gas pipelines with a diameter of 99
inches -- two from West Siberia and one from Central
Asia -- to the Moscow area, a total length of 6,000
to 7,000 kilometers. Three additional gas pipelines
with a diameter of 56 inches are to be built from
West Siberia and Central Asia to serve the Urals and
Moscow areas, respectively. The total requirement
for pipe for these six lines would be about 13 mil-
lion to 14 million tons. Also, other oil and gas
pipelines of smaller diameter to be constructed will
require an additional 4 million to 5 million tons of
pipe by 1980. The USSR currently has a capability
to produce about 1 million tons per year of 40-inch
and 48-inch diameter pipe, and is developing capacity
to produce 56-inch pipe. Soviet pipe-manufacturing
facilities are not likely to be expanded enough to
provide all of the pipe needed nor will imports of
pipe and ancillary equipment be adequate to meet
pipeline construction schedules. From 1960 through
1968 the Soviet Union imported a total of almost
2.5 million tons of large-diameter pipe, valued at
about $470 million. To fulfill the 1980 goals for
pipeline construction would necessitate importing
more than 1 million tons per year of large-diameter
pipe and the expansion of domestic pipe-manufacturing
facilities by at least 50%. It appears that the
installation of 99-inch diameter pipe in the amounts
anticipated by Soviet planners is too formidable a
task to achieve by 1980. Therefore, pipeline capacity
probably will not expand rapidly enough to permit the
average annual increase in output of natural gas to
be more than about 15 billion cubic meters. If this
proves to be the case, production of natural gas in
1980 will be about 350 billion cubic meters. Estimate
of regional output of natural gas in 1970, 1975, and
1980 are presented in Table 9.
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Estimated Output of Natural Gas in the USSR,
by Region
Producing Region
1970
1975
1980
Ukraine
57.3
50
20
North Caucasus
45
40
35
Central Asia
52.6
70
120-130
Urals-Volga
12
15-20
30
West Siberia
10
70-75
100-110
Azerbaydzhan
4.5
5
5
Komi
15
20
25
Far East
0.3
2
5
Total
196.7
272-282
340-360
Domestic Demand for Natural Gas
55. Industry has been the major consuming sector,
accounting for more than 80% of total gas use in
recent years, and undoubtedly it will continue to
occupy this dominant position, especially as the needs
of the chemical and metallurgical industries expand.
Plans call for the share of natural gas in the Soviet
fuel balance to reach 25% by 1980, compared with about
19% at the present time. If, however, the production
goal is underfulfilled by as much as 200 billion cubic
meters in 1980, the output of other more expensive and
less efficient fuels may have to be increased sharply
to provide the energy required. Information obtained
during a recent US coal delegation visit to the USSR
indicated that investment in the coal industry is to
be increased substantially. This, coupled with the
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higher-than-average increase in coal production
attained in 1969 and a further rise in output planned
for 1970, may reflect the beginning of a greater
requirement for coal by consumers that originally
expected to use oil or gas.* Planned increases in
distribution of gas to the communal-household sector
probably would be reduced first as solid fuels could
be readily substituted. Coal might also be used in-
stead of oil and gas in central heating and electric
powerplants where flexibility in fuel use is possible
if provided for in the design of the plant. No
quantitative estimate of how much oil or gas could be
freed in this manner is possible, but providing the
necessary flexibility in facilities increases the
capital cost of power stations up to 20%.
Prospects for Trade in Natural Gas
56. During the past two years the USSR has
signed contracts agreeing to supply Austria, West
Germany, and Italy with a total of 9 billion cubic
meters per year of gas by 1975 and 10 billion to 11
billion annually by 1980. These sales will provide
the USSR, during 1970-72, with about 2 million tons
of 40-inch and 48-inch diameter pipe and auxiliary
equipment for use in construction of its gas pipe-
lines systems. Negotiations for sales of Soviet gas
to France and Japan have been suspended in recent
months, but may be resumed. If contracts are signed
with these countries, annual Soviet deliveries of
gas could reach 2.5 billion cubic meters to each by
1980.
* The USSR has very extensive reserves of coal and
is the world's leading coal producer. Most of the
deposits, however, contain Zow-quality coals and are
located in the eastern region far from present centers
of consumption, Production, which has been growing
at an average rate of almost 2% per year during the
past decade, is scheduled to reach 618 million tons
in 1970 (see Table 1). Plans provide for continued
rise in the output of coal to 700 million tons in
1975 and about 850 million in 1985. A likely goal
for 1980 appears to be some 775 million tons, which
could be reached with an average annual rate of
growth of slightly more than 2%.
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57. During 1971-80 the USSR will be importing
natural gas from Afghanistan and Iran. Afghanistan
began to provide gas to the USSR in 1968 through a
pipeline built by Soviet technicians with Soviet pipe
and equipment. Imports of Afghan gas will reach
about 2 billion cubic meters in 1970, increase
gradually to 4 billion by 1975, and remain at that
level until 1984. This gas will be used for the most
part in the eastern part of Central Asia, but some
of it may be moved through the Central Asia-Moscow
pipeline system. Imports from Iran are due to begin
in the fall of 1970, at a rate of 6 billion cubic
meters per year. These imports are to rise to 10 bil-
lion cubic meters annually by 1974 and to remain at
that level until 1984. Some of this gas will be used
in the Caucasus area as local deposits of gas are
becoming depleted and local demands are rising. For
a few years, however, some of it could be diverted
northward through the Ukrainian system. The Afghan
and Iranian gas is being obtained at relatively low
prices and can free more expensive Soviet gas for
export to Eastern and Western Europe.
58. Gas pipelines already built from the USSR to
Czechoslovakia and Poland will supply these countries
with a total of about 4 billion cubic meters in 1975.
Other pipelines planned or under construction from
the USSR to Bulgaria, East Germany, and Hungary are
to transport about 7 billion cubic meters in 1975.
By 1980, Soviet exports to Eastern Europe could
reach 15 billion to 20 billion cubic meters (see
Table 10).
59. In 1975 the USSR will be a net importer of
natural gas from the Free World, but overall it will
be a net exporter of some 6 billion cubic meters as a
result of deliveries to Eastern Europe. By 1980 the
Soviet Union should be a total net exporter of 15 bil-
lion to 20 billion cubic meters of natural gas although
its trade with the Free World is expected to be
roughly in balance.
60. There is evidence that even with gas produc-
tion failing to achieve planned levels and with do-
mestic supplies remaining smaller than desired,
Soviet planners place considerable importance on
selling gas to the Industrial West to finance pur-
chases of equipment and technology. In recent months
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Table 10
Estimated Supply of Natural Gas in the USSR
Billion Cubic Meters
Plan
Estimated actual
225-240
197
300-320
270-280
550-600
340-360
Imports
4
14
14
From Afghanistan
2
4
4
From Iran
2
10
10
Exports
3.5
20
30-35
To Eastern Europe
2.5
11
15-20
To the Free World
1
9
15 a/
Net supply b/
200
260-270
320-340
a. Assuming exports of about 2.5 biZZion cubic
meters each to France and Japan.
b. Rounded to two significant figures.
the USSR has placed large orders ($50 million so far)
with US companies for tractors, bulldozers, and pipe-
laying equipment for the construction of a gas pipe-
line from Novvy Port in the far north to the Soviet-
Czechoslovak border via Moscow. Late in 1969, A.K.
Kortunov, Minister of the Gas Industry, suggested
to a representative of a US firm that the Soviet
Union could compete in the sale of liquefied natural
gas (LNG) to the United States at some future date.
He visualized the possibility of a US consortium
being formed to buy Soviet LNG in exchange for the
delivery to the USSR of predetermined "turnkey"
plants via the consortium. During recent trade
negotiations with Japan, Soviet officials also sought
Japanese participation in development of East Siberian
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natural resources. It was proposed that payment be
made by deliveries of Soviet raw materials, including
natural gas that would be transported by pipeline to
a liquefaction plant at a Far East port and subse-
quently shipped to Japan by tanker.
Conclusions
61. The USSR has very large resources of petro-
leum, but many are located far from the major con-
suming areas, in permafrost regions of Siberia and
the Far North where exploitation will be difficult.
Exploration and development of these reserves and
transport of the petroleum to consumers will require
not only sizable allocations of investment but also
modern technology and equipment, much of which is
not available in the Soviet Union. Some of the re-
quired equipment and technical data are primarily of
US origin and subject to trade controls, although
numerous exceptions have been made to permit export.
62. Producing Soviet fields are being depleted
more rapidly than expected, in part because poor
extractive practices have made large quantities, of
reserves impossible to recover. Such practices are
continuing and almost certainly will impair future
recovery of oil.
63. The USSR is the world's second largest pro-
ducer of oil. Its output is expected to reach 350
million tons in 1970, and the 1975 goal of 450 mil-
lion tons appears to be attainable. Production at
this level in 1975 would be adequate to provide for
all domestic needs, to satisfy East European demand
for Soviet oil, and still leave substantial quanti-
ties for export to other Communist countries and to
the Free World. At the same time, small quantities
of oil -- perhaps some 10 million tons -- might be
procured from Free World sources for shipment to
other countries on Soviet account.
64. By 1980, because of the rapid decline in out-
put from the major producing fields of the Urals-
Volga region and the probable underfulfillment of
production goals in West Siberia, production is ex-
pected to fall below plan and to reach only 500 mil-
lion tons. This level of output probably would be
more than adequate to cover domestic demands, but
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exports from domestic resources would be sharply
reduced. If the USSR continues to provide most of
the oil required by Eastern Europe and maintains other
exports near present levels, it may have to procure
about 80 million tons from Free World sources. The
most likely sources are the Middle East and North
Africa, areas from which the USSR and Eastern Europe
are already beginning to procure small amounts of oil.
65. Eastern Europe also is expected to increase
its annual imports of oil from the Free World, to
some 15 million tons in 1975 and perhaps 30 million
tons by 1980. Thus combined Soviet and East European
procurement of oil from the Middle East and North
Africa by 1980 may total about 110 million tons.
Although this is a significant amount of oil, the
major market for Middle East and African oil will
continue to be Western Europe which now takes over
half of the oil produced in those areas. Communist
purchases will lay claim to a relatively small
share of Middle East and North African production,
probably no more than 6% or 7% in 1980.
66. Substitution of natural gas cannot be expected
to relieve the pressures on the Soviet oil industry
created by growing domestic and East European demand
and by the desire to earn foreign exchange by ex-
porting to the Free World. Despite the publicity
given to large Soviet reserves of gas and to recent
Soviet sales of gas to Western Europe, the problems
of expanding the gas industry are even more serious
than those of the oil industry, and it is unlikely
that gas production goals can be met during the next
decade.
67. The USSR is becoming increasingly interested
in participating in the development of petroleum in
the Middle East through assistance to the national
oil companies. This policy will be aided by Soviet
willingness to become virtually the sole supplier of
sophisticated arms to the Middle East. Another means
of payment for oil would be the increased supply, on
long-term credits, of industrial goods needed for
economic development of the Middle Eastern countries.
68. In the long run, if the USSR is able to ac-
quire the necessary modern technology -- especially
exploration, drilling, and transport equipment -- the
need for Free World oil may be only temporary. It
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could disappear -- as a requirement -- in the late
1980s if the large oil deposits that the USSR un-
questionably possesses are developed. However, the
USSR would almost certainly regard any arrangements
made to procure Middle East oil, or to serve as a
broker in its sale, as valuable economic and politi-
cal assets worth perpetuating.
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APPENDIX A
US and Soviet Definitions of Reserves
United States
Proved reserves (American Petroleum Insti-
tute concept) include only the crude oil,
natural gas liquids, and natural gas re-
coverable from known deposits under existing
economic and operating conditions. Proved
reserves are both drilled and undrilled, but
to be included, the undrilled reserves must
be so close and so related to the drilled
reserves that there is every reasonable proba-
bility that they can be recovered by drilling.
Category A -- includes reserves of crude oil
and natural gas fully outlined by wells with
proved production capability.
Category B -- includes reserves of oil and gas
presumed to exist in undrilled parts of a
structure adjacent to drilled parts of the
same structure containing at least two wells.
Category C -- includes reserves of oil and 1 gas presumed to exist in undrilled parts of
a structure in which one well has been drilled
and where geophysical and geological informa-
tion indicates favorable conditions for the
presence of petroleum.
Category C -- includes reserves of oil and 2 gas presumed to exist in completely undrilled
structures where geophysical information,
supported by geological data from similar
drilled structures nearby, indicates favorable
prospects for the presence of petroleum.
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Annual Drilling Rates and Ratios of Reserves
to Production
Continuation of Present Level of Annual
Drilling Through 1975.
Crude Oil
(Billion
Metric
Tons)
Natural Gas
(Trillion
Cubic
Meters)
Estimated "proved" reserves
as of 1 January 1969
4.5
2.5
Additions to reserves
1969-75 a/
2.3
2.7
Total reserves available
during 1969-75
6.8
5.2
Estimated cumulative production
during 1969-74 b/
2.3
1.4
Net reserves available in 1975
4.5
3.8
Planned production in 1975
0.45
0.3
Ratio of reserves to production
10:1
13:1
a. Assumes: T-1)--continued total drilling of 10 mil-
lion meters per year as planned for 1970, with a
total of 71 million meters drilled during 1969-75;
(2) 60% of total drilling will be for oil and 40% for
natural gas; (3) 85% of total drilling for natural gas
will continue to be exploratory drilling, as it was
during 1965-68, and the remainder will be develop-
mental drilling; (4) continuation of discovery rates
of 55 tons of oil per meter drilled for oil and
110,000 cubic meters of gas per meter of exploratory
drilling for gas achieved during 1961-68.
b. Assumes achievement of planned production of
450 million tons of crude oil and 300 billion cubic
meters of natural gas in 1975.
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Case 2
An 80% Increase in Annual Drilling by 1980
Crude Oil Natural Gas
(Billion (Trillion
Metric Cubic
Tons) Meters)
Estimated "proved" reserves
as of 1 January 1969
Additions to reserves
1969-80 a/
Total reserves available
during 1969-80
4.5 2.5
5.8 6.6
10.3 9.1
Estimated cumulative production
during 1969-79 b/ 4.7 3.4
Net reserves available in 1980 5.6 5.7
Planned production in 1980 0.55 0.55
Ratio of reserves to production 10:1 10:1
a. Assumes: f1.1 an 80% increase in total annual
drilling during 1969-80, as proposed by Shashin, which
would result in a total of 176 million meters drilled
during 1969-80; (2) 60% of total drilling will be for
oil and 40% for natural gas; (3) 85% of total drilling
for natural gas will continue to be exploratory drill-
ing, as it was during 1965-68, and the remainder will
be developmental drilling; (4) continuation of dis-
covery rates of 55 tons of oil per meter drilled for
oil and 110,000 cubic meters of gas per meter of ex-
ploratory drilling for gasm
b, Assumes: (1) achievement in 1975 of planned pro-
duction of 450 million tons of crude oil and 300 bil-
lion cubic meters of natural gas; (2) production in
.1980 of 550 million tons of ail and 550 billion cubic
meters of gas, the lower limits of the goals for
tho t year
- 44 -
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2012/03/09: CIA-RDP08SO135OR000601930003-6
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/09: CIA-RDP08SO135OR000601930003-6
CONFIDENTIAL
ing Through 1980
Crude Oil Natural Gas
(Billion (Trillion
Metric Cubic
Tons) Meters)
Estimated "proved" reserves
as of 1 January 1969 4.5 2.5
Additions to reserves
1969-80 a/ 4.7-5,0 3.4-3.7
Total reserves available
during 1969-80 9.2-9.5 5,9-6r2
Estimated cumulative production
during 1969-79 b/ 4.5-4.6 2.8
Net reserves available in 1980 4.7-4.9 3.1-3.4
Estimated production in 1980 0.45-0.50 0.35
Ratio of reserves to production 10:1-10:1 9:.1-10:1
a. Assumes: (1) continued total drilling of 10-7d
million meters per year, with a total of 121 million
to 131 million meters drilled during 1969-80; (2) 70%
of total drilling will be for oil and 30% for natural
gas; (3) 85% of total drilling for natural gas will
continue to be exploratory drilling, as it was during
1965-68, and the remainder will be deveZopment.-l
drilling; (4) continuation of discovery rates of 55 tons
of oil per meter drilled and 110,000 cubic meters of
gas per meter of exploratory drilling for gas.
b. Assumes: (1) production of 450 million tons of
crude oil and 215 billion cubic meters of natural gas
in 1975; (2) production in 1980 of 450 million to
500 million tons of oil and 350 billion cubic meters
of gas.
CONFIDENTIAL
Declassified in Part - Sanitized Copy Approved for Release 2012/03/09: CIA-RDP08SO135OR000601930003-6
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/09: CIA-RDP08SO135OR000601930003-6
Confidential
Confidential
Declassified in Part - Sanitized Copy Approved for Release 2012/03/09: CIA-RDP08SO135OR000601930003-6