PETROLEUM PIPELINE TRANSPORT FROM THE USSR TO POLAND, EAST GERMANY, CZECHOSLOVAKIA, AND HUNGARY 1960-65

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01141A002400110001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 32
• Document Creation Date: December 23, 2016
• Document Release Date: March 26, 2013
• Sequence Number: 1
• Publication Date: June 1, 1962
• Content Type: REPORT

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SECRET
Economic Intelligence Report
PETROLEUM PIPELINE TRANSPORT
FROM THE USSR TO POLAND,
EAST GERMANY, CZECHOSLOVAKIA, AND HUNGARY
1960-65
CIA/RR ER 62-20
June 1962
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
SECRET
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SECRET
Economic Intelligence Report
PETROLEUM PIPELINE TRANSPORT
FROM THE USSR TO POLAND,
EAST GERMANY, CZECHOSLOVAKIA, AND HUNGARY
1960-65
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
SECRET
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FOREWORD
During the period of the Seven Year Plan (1959-65) the USSR expects
to double its exports of crude oil to Poland, East Germany, Czecho-
slovakia, and Hungary. In order to transport this crude oil at the
lowest possible cost and to relieve the demand on other modes of trans-
portation, a pipeline is being constructed from the petroleum-producing
area near Kuybyshev in the USSR to refineries in these four European
Satellite countries.
This report attempts to assess the investment in money and materials
that will be required to construct the pipeline, to evaluate the impact
of the pipeline on other modes of transportation, to compare the cost
of pipeline transport with other modes of transportation, and to give
some indication of the economic and strategic significance of the pipe-
line.
-iii-
S-E-C-R-E-T
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CONTENTS
Page
Summary and Conclusions 1
I. Introduction o 0 3
II. Planned Development of Pipeline Transport 3
A. Demand for Petroleum 3
B. Route and Characteristics of the Pipeline System ~-
C . Investment Costs 7
D. Availability of Pipe 10
III. Probable Effects of the Pipeline on Other Modes of Trans-
portation 10
A. General 10
B . Sea Transport 12
C. Inland Water Transport 13
D. Railroad Transport 13
1. General 13
2. USSR . . 13
3. European Satellites . 15
E. Etiiropean Satellite Transportation System as a Whole 16
IV. Comparative Freight Rates for Transportation of Crude Oil,
by Mode of Transportation 16
A. Pipeline a 16
B . Railroad 18
C . Inland Water 18
D. Sea o 18
E. All Modes of Transportation 19
V. Economic and Military Strategic Significance of the Pipe-
line 19
Appendixes
Appendix A. Methodology 23
- v -
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Page
1. Planned Production and Imports of Crude Oil in Poland,
East Germany, Czechoslovakia, and Hungary, 1965 ~+
2. Estimated Carrying Capacity of the Pipeline System Con-
necting the USSR with Poland, East Germany, Czecho-
slovakia, and Hungary . . 5
3. New Refineries Under Construction in Poland, East Germany,
Czechoslovakia, and Hungary, 1965 and 1968 7
4. Investment in Construction of the Pipeline Connecting the
USSR with Poland, East Germany, Czechoslovakia, and
Hungary, by Section 8
5. Requirements of Pipe for the Pipeline Connecting the USSR
with Poland, East Germany, Czechoslovakia, and Hungary,
by Section 11
6. Estimated Deliveries of Crude Oil by Pipeline from the
USSR to Poland, East Germany, Czechoslovakia, and
Hungary, 1965 15
7. Comparison of Demand for Transportation of Crude Oil and
Petroleum Products in Poland, East Germany, Czecho-
slovakia, and Hungary, 1860 and 1965 17
8. Comparison of Rates for Transporting Crude Oil from
Kuybyshev, USSR, to Refineries in Poland, East Ger-
many, Czechoslovakia, and Hungary, by Mode of Trans-
portation 20
Map
Crude Oil Pipeline System from the USSR to Poland, East Ger-
many, Czechoslovakia, and Hungary following page ~+
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PETROLEUM PIPELINE TRANSPORT FROM THE USSR
TO POLAND EAST GERMANY CZECHOSLOVAKIA AND HUNGARY-
1 0- 5
Summary and Conclusions
A petroleum pipeline system is under construction that extends from
the principal petroleum-producing area in the USSR, near Kuybyshev, to
refineries in Poland, East Germany, Czechoslovakia, and Hungary. The
entire system is scheduled for completion by the end of 1963 and probably
will be put into operation in 196+. The pipeline is designed to deliver
about 23 million metric tons~-~ of crude oil per year to these four coun-
tries when all pumping facilities are installed. This amount is well
above the refinery capacity that will exist in these countries in 1963
and exceeds the 15 million tons of Soviet crude oil planned for export
by pipeline to these countries in 1965. It is probable, therefore, that
initial operation of the pipeline will employ sufficient pumping facili-
ties to supply refineries through 1965 and that additional pumping fa-
cilities will be installed thereafter to bring the system up to its Hill
capacity when new refineries that are now under construction are com-
pleted, probably in 1968.
This project, which is under the auspices of the Council for Mutual
Economic Assistance (CEMA), probably is the most ambitious single economic
project ever to be undertaken jointly by members of the Soviet Bloc. Con-
struction of the pipeline will require an investment of between $300 mil-
lion~~ and $500 million, 80 percent of which will be invested in the
Soviet sections.
The pipeline will be about 3,750 kilometers (km) in length, 2,550 km
of which will be in the USSR. It is estimated that about 725,000 tons
of pipe will be required for the project. Progress on construction in
the Satellitest has been rapid, but delays have occurred in the Soviet
section, where there has been some difficulty in obtaining large-diameter
pipe.
~ The estimates and conclusions in this report represent the best
judgment of this Office as of 1 May 1962.
~-~ Unless otherwise indicated., tonnages are given in metric tons
throughout this report.
-x-~~- Unless otherwise indicated, dollar values are given in current US
dollars throughout this report.
t Unless otherwise indicated, the term Satellites in this report re-
fers to Poland, East Germany, Czechoslovakia, and Hungary.
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Completion of the pipeline system probably will terminate the trans-
portation of crude oil by railroad from the USSR to the four Satellites,
at least through 1965, and will certainly reduce this movement by rail-
road from East German and Polish seaports to the Satellite refineries.
The increase in refined products in the Satellites will cause an in-
creased demand for internal transport there.
The transportation of at least 15 million tons of crude oil by rail-
road from the Soviet oilfields to the Satellite borders (a distance of
about 2,100 km) would require the continuous employment of about 16,100
Soviet tank cars. This figure is believed to be the minimum number of
tank cars required under the most optimum conditions, with tank cars
moving at a speed of 300 km per day and allowing only 1.75 days for load-
ing, unloading, terminal handling, and switching en route. In addition,
6,800 more cars would be required to complete the haul from the Satellite
border to the refineries. This total of 22,900 tank cars, representing
an investment of about 260 million, is more than 50 percent of the esti-
mated maximum cost of constructing the pipeline.
A comparison of the estimated costs of pipeline transport with those
of any other mode of transportation from Kuybyshev to the Satellite ter-
minals at current rates shows that pipeline costs are lower by 75 to 80
percent. If the volume of crude oil movement by pipeline planned for
1965 is achieved, the saving in annual transportation expenditures to
the Satellites by use of pipeline rather than rail transport will enable
these countries to recover their investment in pipeline construction in
a remarkably short period of time. The rate at which the USSR will be
able to recover its investment is less clear because, although it is more
likely to retain its substantial savings in transportation expenditures,
it might decide to pass them along to the Satellites in the form of lower
prices for Soviet crude oil.
There is no evidence that the pipeline is intended for any other pur-
pose than the supply of crude oil to the Satellites. The pipeline sys-
tem will increase the supply of military fliel available in Eastern Europe
and, by relieving the railroads of the burden of carrying the crude oil,
will improve their capability to carry other economic and strategic ma-
terials.
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I. Introduction
In December 1958, at the tenth session of the Council for Mutual
Economic Assistance (CEMA), which was held in Prague, Czechoslovakia,
an agreement was concluded by the USSR, Poland, East Germany, Czecho-
slovakia, and Hungary td construct a crude oil pipeline system to
connect the oilfields in the Urals-Volga region of the USSR with re-
fineries in the four Satellite countries concerned. The movement of
petroleum through this pipeline system is expected to total about
15 million tons per year by 1865.
The principal reasons given as justification for the pipeline sys-
tem are the increasing demand for petroleum in the Satellites, the high
costs of railroad transport, and the desire to create a petrochemical
industry in the Satellites. Completion of the pipeline will make avail-
able to the Satellites increasing quantities of low-priced oil that will
vie with coal as a primary source of energy. The effects on the future
development and exploitation of other modes of transportation, particu-
larly railroad transport, are significant and probably will be beneficial
to all countries concerned. The Satellites, however, will have increased
their economic and political dependence on the USSR.
II. Planned Development of Pipeline Transport
A. Demand. for Petroleum
Between 1955 and 1960 the USSR increased its production of petro-
leum by nearly 110 percent. Domestic consumption, however, increased by
only 70 percent, thus creating a considerable surplus of petroleum for
export. In the Satellites the situation is reversed. The rapid rate of
industrialization and the growing importance of petroleum as a primary
source of energy Yiave necessitated the importation of petroleum in in-
creasing amounts. With the exception of Rumania and Albania, the European
Satellite countries are dependent on outside sources for their major sup-
ply of crude oil. Poland, East Germany, Czechoslovakia, and Hungary ob-
tain the preponderance of their supply from the USSR. Soviet exports of
crude oil to these four countries in 1955 amounted to 1.7 million tons
and in~1959 to 5.3 million tons. By 1965, Soviet exports of crude oil
to these four countries by pipeline are expected to reach about 15 mil-
lion tons, or about 88 percent of the total imports of crude oil planned
by those countries for 1965 (see Table lam).
The origin of the 2.1 million tons of crude oil to be imported
in excess of the imports from the USSR is not clear. Rumanian plans
-~ Table 1 follows on p. ~+.
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through 1965 do not provide for the export of crude oil to any other
Satellites. It is entirely possible that the 2.1 million tons also
will come from the USSR, although both Albania and Austria have sup-
plied crude oil to these countries in the past.
Planned Production and Imports of Crude Oil
in Poland, East Germany, Czechoslovakia, and Hungary
1965
Planned
Country Domestic Production C
Poland
East Germany
Czechoslovakia
Hungary
0.2
1.0
0.2
2.2
3.6
Imports Total
3.1
5.0
6.0
3.0
3.3
6.0
6:2
5.2
B. Route and Characteristics of the Pipeline System-~-
The pipeline system now under construction will originate at
Kuybyshev in the Urals-Volga producing area of the USSR and will extend
westward to Mozyr'. At Mozyr' the line separates into two branches,
one of which will run through Brest to P1ock in Poland and terminate at
Schwedt in East Germany on the west bank of the Oder River. The other
branch will run through Brody to Uzhgorod on the Czechoslovak border
and thence westward to Sahy, Czechoslovakia. At that point it separates
into two spurs, one of which will terminate at Bratislava, Czechoslovakia,
and the other at Szazhalombatta, near Budapest, Hungary.~~ This pipeline
system has been designed exclusively for the movement of crude oil. The
~ See the map, following p. ~+, and Table 2, which follows on p. 5.
-~~ Hungary also plans to construct a short 18-km link to connect this
pipeline with an existing line that serves a small refinery at Szony near
Budapest.~~ 50X1
- ~+ -
S-E-C-R-E-T
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CRUDE OIL PIPELINE SYSTEM FROM THE USSR
to Poland, East Germany, Czechoslovakia, and Hungary
I "LnMgj~i]'r.~ Rra+i~l~.._1.
FEDERgL V L
7r' u S T R I A ?'??, ~ y
recognized by the U. S. Government.
.~HUNGA
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principal characteristics of each of the sections of the pipeline system
are shown in Table 2.
Estimated Carrying Capacity of the Pipeline System
Connecting the USSR with Poland, East Germany,
Czechoslovakia, and Hungary
Route
Length
(Kilometers)
Dia
In
meter
ches
Car
(Mi
ryi
lli
ng Capacity
on Metric Tons
per Year)
Kuybyshev-Mozyr'
1,350
40
45 to 50
Mozyr'-Brest
475
24
11.5
Brest-flock
280
24
11.5
flock-Schwedt
390
20
7.5
Mozyr'-Uzhgorod
(via Brody)
725
24
11.5
Uzhgorod-Bratislava
(via Sahy)
400
20
7.5
Sahy-Szazhalombatta
130
15
3.0
Total 3750
50X1
b. The carrying capacity of the 40-inch section is tonnage that the
USSR claims will be pumped through the line when all pumping stations
are installed.
The capacities of all the other sections are the ca- 50X1
pacities for w
is
pipelines of the di
ameters shown are normally de-
signed and utilized in the USSR.
50X1
In actual practice the capacity of a crude oil pipeline system
depends on a number of factors, including the diameter of the pipe, the
capacity and spacing of pumping stations, and the temperature and vis-
cosity of the crude oil. The capacities shown in Table 2 are well below
the throughput delivery practices in the US for pipelines of equal di-
ameter. Therefore, the pipeline system under construction probably
will be a equate for transportation of the 15 million tons of crude oil
planned for export to the four Satellites in 1965.
It is planned that the entire pipeline system will be completed
by the end of 1963, but the system probably will not be put into operation
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until sometime, in 1864. The scheduled completion dates, by section,
are as follows)
Pipeline Section
Completion
Date
Kuybyshev-Mozyr'~
1863
Mozyr'-Brest
1863
Brest-flock
1863
flock-Schwedt
1963
Mozyr'-Uzhgorod (via Brody)
1963
Uzhgorod-Bratislava-~~ (via Sahy)
1861
Sahy-Szazhalombatta
1962
Construction of the sections in the Satellites appears to be on
schedule. The section from Brody in the USSR to Bratislava, Czecho-
slovakia, was completed in October 1961 and placed in operation in
January 1962. For the present, railroad tank cars will transport crude
oil to the eastern terminus at Brody, at which point the crude oil will
be transferred to the pipeline system. By the end of 1861, more than
70 km of the Hungarian section had been completed, and construction was
progressing at the rate of 1 km per day. More than 200 km of the Polish
section had been completed by the end of 1961. Three construction crews
are working on the Polish section, and they plan to complete 300 km in
1962. Very little construction is required in East Germany, and there
is no evidence that construction has been started, although dual, 20-
inch pipes have been laid across the Oder River. Information on the
amount of progress on the Soviet sections is not available. Moreover,
there is no evidence that construction has yet been started on the 40-
inch section from Kuybyshev to Mozyr', although considerable construction
is planned during 1862.
In order to process the planned increase in imports of crude oil,
the four Satellites are constructing new refineries or, as in Czecho-
slovakia, increasing the capacity of existing refineries at the western
~ In addition to the Satellite network, a pipeline is being laid at
the same time from Unecha (in the USSR on the Kuybyshev-Mozyr' line)
north to a refinery at Polotsk, thence to Klaypeda in the Lithuanian
SSR. Another line, from Polotsk to Ventspils, in the Latvian SSR, is
proposed and may be under construction. Both Klaypeda and Ventspils
are ports on the Baltic Sea, permitting export of crude oil by sea,
especially to the Scandinavian countries.
~--~ It has been proposed that eventually the Czechoslovak sector be ex-
tended from Bratislava to refineries in the western part of that country,
including Pardubice, Kolin, and Kralupy.
-6-
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terminals of the pipeline system. The location and planned capacities
of the new refineries are as indicated in Table 3.
New Refineries Under Construction
in Poland, East Germany, Czechoslovakia, and Hungary
1865 and 1868
Million Metric Tons of Planned Capacity
Location
1965
1868
Plock, Poland
2
6
Schwedt, East Germany
~+
8
Bratislava, Czechoslovakia
5
5
Szazhalombatta, Hungary
2
3
Total
13
22
The annual capacity of refineries currently in operation in these
countries is about 10 million tons. This existing capacity, together with
the 13 million tons of new capacity indicated in Table 3, would result in
a total of 23 million tons of capacity in 1965, which will be more than
adequate to process the domestic production and imports of crude oil
planned for 1965.
C. Investment Costs
The total cost of construction of the 3,750-km pipeline system is
estimated to be between $300 million and $500 million, distributed by sec-
tion as shown in Table 4.-~ This estimate is based on an arbitrary assump-
tion that the cost of construction in the Soviet Bloc will be similar to
the cost of construction in the US but will not be more than the cost of
construction in the USSR. The average cost of construction of 1 mile of
pipeline of all sizes constructed in the US during 1960 was 100,000 per
mile (about 62,000 per kilometer), including the cost of pipe. In the
USSR in 1957 the cost of construction, including pipe, was about 365,000
rubles-~~ per kilometer for a 15-inch line, 560,000 rubles per kilometer
~ Table follows on p. 8.
*~ In 1957 prices. Unless otherwise indicated, all values are given in
old rubles (before the 1961 currency reform). The ruble-dollar ratio in
the construction field is about 7 to 1. All values relating to construc-
tion are converted at this rate, and all other values are converted at the
rate of exchange of ~+ rubles to US ~1.
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Table ~+
Investment in Construction of the Pipeline
Connecting the USSR with Poland, East Germany, Czechoslovakia, and Hungary
by Section
Cost
(Thousand US $)
Per Kilometer J
Total
Length
Diameter
Percent
Pipeline Section (Kilometers)
Inches Minimum
Maximum
Minimum
Maximum
of Total Maximum Cost
USSR
Kuybyshev-Mozyr' , 1,350
40
137
209
184,950
282,150
57.4
Mozyr'-Brest 475
24
62
94
29,516
44,650
~9.1
Mozyr'-Uzhgorod 725
24
62
94
45,049
68,150.
13.9
subtotal 2,550
259,515
394,950
80.4
E~zropean Satellites
Brest-Plock (Poland) 280
24
62
94
17,398
26,320
5.4
Plock-Schwedt (Poland ~) 390
20
62
80
24,234
31,200
6.4
Uzhgorod-Bratislava (Czecho-
slovakia) 400
20
62
80
24,855
32,000
6.4
Sahy-Szazhalombatta (Hungary) 130
15
52
52
6,760
6,760
1.4
Subtotal 1,200
73,247
280
12.6
Total 3,750
3 2 62
491,230
100.0
b. Maximum and minimum material and construction-installation costs multiplied by kilometers of line to be installed. Total invest-
ment costs for construction of the pipeline are based on unrounded data.
c. The section from Kuybyshev to Mozyr' will serve Soviet refineries and seaports as well as those of the European Satellites.
d. Although all but 25 to 30 km of this section of pipeline are in Poland, the pipeline serves East Germany exclusively.
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for a 20-inch line, and 660,000 rubles per kilometer for a 2~+-inch
line. These costs would represent about $52,000, $80,000, and 50X1
$94,0 per kilometer for 15-inch, 20-inch, and 2~+-inch pipelines, re-
spectively. About 80 percent of the total cost of construction will
be invested in the 2,550 km of line within the USSR, and 20 percent
will be invested in the four Satellites concerned.
It has been claimed that this investment, the largest single in-
vestment project ever undertaken by CEMA,~ will be recovered within 50X1
a few years of operation because of the substantial savings in transporta-
tion costs compared with the principal alternative mode of transportation,
the railroad. Each country is to construct, own, and operate that por-
tion of the pipeline crossing its territory and will charge transit fees
for all petroleum flowing through that portion en route to another coun-
try.
East Germany has been called on to assist Poland by providing a
loan to fin e 1 of the construction of the 390-km section from Plock
to Schwedt. Although that section is on Polish territory, it will 50X1
serve East ermany exclusively, and presumably Poland has balked at the
initial outlay of funds from which it will realize no immediate return.
East Germany also will assist Poland in financing the construction of
the 280-km section from Brest to Plock, the justification being that
the line would have been smaller and less costly if it had been planned
to be used only by Poland.~The loan for both sections will be re- 50X1
paid over a 10-year period, par ly in goods and partl in reduced charges
for transportation of petroleum through the line.~t is possible tha50X1
similar arrangements have been made between Czechoslovakia and Hungary,
as a large portion of the line that will serve Hungary runs through
Czechoslovakia. Moreover, as the over-all project is sponsored by CEMA,
it is entirely possible that the USSR is providing some financial aid
to all of the four Satellites, although there is no definite evidence of
this assistance. The lack of more accurate cost data precludes a more
definitive analysis of the investment program for this project. Consider-
ing the large volume of crude oil to be transported, however, the reduc-
tion in transportation costs compared with costs by other modes of trans-
portation and the investment that would be required in other modes of
transportation if the pipeline were not constructed, there is little doubt
that this financial venture is sound and that f'urids will be made available.
It is estimated that the cost of pipe for the entire system will
amount to about $200 million, which represents about ~+0 percent of the
estimated maximum investment in the pipeline. The cost of 15-inch pipe
is estimated to be about $2~+0 per ton, and the cost of 20-inch and 2~+-inch
~- See IV, p. 16, below, and Table 8, p. 20, below.
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pipe is estimated to be $2~+5 and $250 per ton, respectively. The cost
of ~+0-inch pipe is estimated to be about $300 per ton. The total pipe
required and the estimated cost thereof, by section, are shown in
Table 5 . -~~-
D. Availability of Pipe
The procurement of pipe constitutes a major problem because there
is not sufficient production capacity within the Bloc to provide the
amount needed for this pipeline and at the same time to provide all that
is needed for other projects such as gasline construction in the USSR.
None of the Bloc countries has produced ~+0-inch pipe in the past. In
November 1961, however, the first ~+0-inch pipe mill in the USSR began
operating on a limited basis. In an effort to solve the problem of pro-
curement of pipe of all dimensions, the USSR has contracted with Italy,
Japan, Sweden, and West Germany. During 1959-61, West Germany delivered
x+75,000 tons of ~+0-inch pipe to the USSR, about 100,000 tons of which
were delivered during 1961. Another order for 2 0 000 tons has been 50X1
placed with West Germany for shipment during 1962. During 1961, 50X1
Sweden shipped 3,000 tons of a 135,000-ton order for 0-inch i e the
remainder of which is scheduled for shipment during 1962-63. Italy 50X1
has a firm order for 180,000 tons of ~+0-inch pipe that is sc e u ed for
delivery to the USSR during 1962-63.~ During 1961 the Satellites pro- 50X1
duced about 2+0,000 tons of pipe of 1 inch diameter and larger. East
Germany alone is capable of producing 20,000 tons of 20-inch pipe per
year, which represents about two-fifths of the requirement for the sec-
tion of pipeline from Plock to the East German refinery at Schwedt.
Poland is known to be importing 2~+-inch pipe from the Phoenix-Rheinrohr
Company of West Germany. The Czechoslovak section of the pipeline has
been completed, and although Czechoslovakia is capable of producing both
welded and seamless large-diameter pipe, significant quantities have been
purchased from West Germany. Hungary also is importing pipe of 14-inch
to 15-inch diameter from West Germany. There is no evidence that the
procurement of pumping equipment will be a significant problem in this
construction project.
III. Probable Effects of the Pipeline on Other Modes of Transportation
A. General
The net effect of the movement of crude oil by pipeline on other
modes of transportation is not entirely clear. On the one hand, the move-
ment of crude oil from the USSR to the four Satellites by any mode of
~- Japan has quoted the USSR a price of $2~+5 per ton for 20-inch pipe
and $250 per ton for 28-inch pipe.
~ Table 5 follows on p. 11.
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Table 5
Requirements of Pipe for the Pipeline
Connecting the USSR with Poland, East Germany, Czechoslovakia, and Hungary
by Section
Requirements
(Metric Tons)
Cost
Inches
Length
Amount
Per Metric Ton ~ Per Kilometer
Total
_ Pipeline Section
(Kilometers)
Diameter
Gauge
per Kilometer J
Total Amount
(US $) (US $)
(Million US $)
USSR
Kuybyshev-Mozyr'
1,350
40
0.500
308
415,800
300
92,400
124.7
Mozyr'-Brest
475
24
0.375
141
66,975
250
35,250
16.7
Mozyr'-Uzhgorod
725
24
0.375
141
102,225
250
35,250
25.6
subtotal
2,550
585,000
167.0
European Satellites
Brest-Flock
280
24
0.375
141
39,480
250
35,250
9.9
Flock-Schwedt
390
20
0.375
117
45,630
245
28,665
11.2
Uzhgorod-Bratislava
400
20
0.375
117
46,800
245
28,665
11.5
Sahy-Szazhalombatta
130
15
0.281
61
7,930
240
14,640
1.9
subtotal 1,200
13 840
~.5
Total ~
~
724,840
201.5
_
a.
Figures are
converted to m
etric m
easurement.
rJ~
b.
Estimated.
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transportation other than pipeline probably will cease entirely by 1863,
on completion of the pipeline, and will not be required through 1865.
By 1865 the pipeline will be capable of delivering at least 15 million
tons of crude oil annually, and the planned export of Soviet crude oil
through 1865 to these countries by pipeline is only 15 million tons.
Therefore, the USSR will feel the effects immediately on completion of
the line in diminished demands on railroad and sea transport for the
movement of crude oil to the European Satellites.
Demands on the inland transport system of the Satellites will
increase. Although the long haul of crude oil by rail from the Soviet-
Satellite borders and from seaports will be eliminated, the growing re-
liance of the Satellites on petroleum as a source of energy will gen-
erate an increase in demand for the transportation of refined petroleum
products.
In 1959, about 5.3 million tons of crude oil were exported by the
USSR to the four Satellites participating in the pipeline project. About
1 million tons were transported by sea to East Germany and Poland through
the Bospcrus, about 0.5 million tons were moved by inland waterway to
Czechoslovakia and Hungary via the Danube River, and about 2.8 million
tons were carried by railroad from the USSR. The balance of Soviet ex-
ports (1 million tons) was actually shipped from Austria to the Satel-
lites under the terms of the Soviet-Austrian reparations agreement.
B. Sea Transport
Although the cost per ton-kilometer by pipeline transport is about
twice the cost by sea transport, the circuitousness of the Black Sea route
plus the sizable overland haul at both ends makes it probable that the
maritime haul of crude oil will be discontinued on completion of the pipe-
line in 1963 and that it will not be required to satisfy the planned de-
mand for crude oil through 1865. The estimated cost by pipeline from
Kuybyshev to Plock will be $5.26 per ton compared with an expenditure of
25.65 per ton by a combination of rail-sea-rail transport. The el~mina-
tion of this sea carriage will release Bloc tankers, thereby improving the
competitive position of the Bloc in the sale and delivery of Soviet crude
oil and other petroleum products to other markets.~~
The movement of petroleum by sea to East Germany and Poland also
requires an overland routing from the ports because present and planned
~ For a comparison of expenditures for various modes of transportation,
see Table 8, p. 20, below.
-~~ Nine tankers of 18,000 deadweight tons each in continuous operation
would be required to transport 1 million tons of crude oil from Odessa
to East German or Polish ports.
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locations of refineries are inland. Thus availability of the pipelines
also would relieve the railroad systems of the crude oil traffic asso-
ciated with the seaborne movement.
C. Inland Water Transport
The movement of crude oil from the USSR by inland water transport
probably will cease, at least through 1965, as the capacity of the pipe-
line that will serve Czechoslovakia and Hungary will be adequate to de-
liver the imports planned for 1965. Moreover, the cost of transporting
crude oil by a combination of railroad and inland water services from
Kuybyshev to the refineries in Czechoslovakia and Hungary exceeds the
cost of pipeline transport by a considerable margin (about five to one).
Another reason for avoiding the use of inland water transport is the
fact that it is not a dependable mode of transportation if an even flow
of crude oil is required. Navigation on the Danube River is interrupted
by ice about 40 days annually, usually during January and February, and
by low-water conditions during the late summer and fall.
On completion of the pipeline, Bloc river tank barges can be re-
leased for use in transporting Soviet crude oil, and petroleum products
as well, to Austria and West Germany, thus improving the competitive
position of the USSR in the sale and delivery of petroleum to the Western
European market.
D. Railroad Transport'
1. General
The effect of completion of the pipeline on the railroad sys-
tems of all countries participating in the pipeline program will be far
more significant than the effect on other modes of transportation. The
movement of crude oil by railroad from the USSR to the four Satellites
probably will cease entirely, at least through 1965, and the movement
of crude oil by railroad from East German and Polish seaports to the re-
fineries also probably will cease or certainly will be reduced. An in-
crease in the volume of refined products in the Satellites will result
in an increased demand for internal distribution on railroad transport
services there. Additional tank cars will be required as well as other
equipment and facilities.
On completion of the entire pipeline system the railroads of
the USSR will be the first to realize an absolute reduction in demand for
services. In 1959, for example, the Soviet railroads carried 2.8 million
tons of crude oil to the four Satellites, and the Soviet railroads per-
formed a minimum of 5.6 billion ton-kilometers (tkm) in delivering crude
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oil to the European Satellite borders for onward transportation by rail-
road. In addition, 1 million tons were delivered to Black Sea ports for
onward transportation by sea. The railroad distance from Kuybyshev to
Odessa is about 2,000 km, resulting in 2 billion ton-kilometers. To
accomplish this movement, it is estimated that the continuous employment
of 3,900 tank cars with a capacity of 40 tons each was required.~--~ On
completion of the pipeline, this demand on the Soviet railroad system
will cease.
In addition to crude oil the USSR in 1959 exported 1.4 mil-
lion tons of petroleum products to the four Satellites. The exact dis-
tance that these products moved by railroad within the USSR is not clear,
but it is probable that a rail haul was involved, whether the products
were delivered to seaports or to the Soviet-Satellite borders. Because
many of the petroleum refineries in the USSR are located in the areas of
production of crude oil, the average length of haul is high,~--*-~ resulting
in delayed turnaround time for tank cars. It is estimated that 1,140 tank
cars in addition were required to transport the 1.4 million tons of petro-
leum products. On completion of the pipeline and the Satellite re-
fineries that the pipeline will serve, this movement also may cease, as
these products will be refined in the Satellites.
In summary, therefore, putting the pipeline into operation
will release about 5,040 tank cars, or about 4.5 percent of the current
tank car inventory in the USSR, and thus will reduce the shortage of tank
cars in the USSR. These cars may be used for internal distribution in
the USSR or for delivery to seaports, thus improving the ability of the
USSR to deliver its exportable surplus to the other world markets.
By 1965 the USSR plans to export at least 15 million tons of
crude oil to the Satellites. To move that tonnage by rail to the Soviet-
Satellite borders or to the Black Sea ports would require more than 16,100
tank cars, or about 12 percent of the planned inventory of Soviet tank
cars in 1965.t The investment required to build these tank cars for use
in Satellite traffic alone would amount to about 724 million rublestt
(181 million), or about 45 percent of the estimated maximum cost of con-
structing the Soviet section of the pipeline as outlined in Table 4.ttt
~ Although other Black Sea ports may have been used, the difference in
rail distance would be negligible.
~~- See the methodology, Appendix A.
~~-~ The average length of haul for petroleum products in the USSR is
1,367 km.
t It is estimated that 140,000 tank cars will be required in the USSR
i+t1965, provided that all planned pipeline construction is completed.
Estimated to be 45,000 rubles per tank car.
ttt p, 8, above.
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3. European Satellites
The effect of the pipeline on the railroad system'in the
Satellites will be somewhat different from that in the USSR. It is
probable that the planned import of 15 million tons from the USSR in
1965 will move entirely by pipeline, thereby eliminating the long over-
land haul from the Soviet-Satellite borders. Although the refineries
at which the pipelines will terminate will have a capacity of only
13 million tons in 1965, it is believed that the 2 million tons above
new refinery capacity will be distributed from the pipeline terminals
to other refineries. Both.Czechoslovakia and Hungary will have suf-
ficient refinery capacity to absorb the additional tonnage. It is
probable, therefore, that pipeline deliveries in 1865 will be as shown
in Table 6.
Table 6
Estimated Deliveries of Crude Oil by Pipeline from the USSR
to Poland, East Germany, Czechoslovakia, and Hungary
1965
Recipient Country Amount
Poland 2
East Germany ~+
Czechoslovakia 6
Hungary 3
Transportation of this amount of crude oil by railroad from
the Soviet-Satellite borders to the Satellite refineries would require
about 6,800 railroad tank cars distributed as follows: Poland, 800;
East Germany, 2,300; Czechoslovakia, 2,600; and Hungary, 1,100. At an
estimated cost of x+5,000 rubles per tank car ($11,250), this would rep-
resent an investment of about $77 million, or about 80 percent of the
cost of constructing the Satellite sections of the pipeline.
The Satellite plans for the import of crude oil beyond 1965
are not available. Refinery capacity in these countries in 1968, how-
ever, probably will amount to about 32 million tons annually. Domestic
~ New refineries at pipeline terminals plus the capacity of existing re-
fineries.
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production in 1968, assuming that the goals for 1965 are maintained,
coupled with pipeline deliveries of up to 23 million tons, will amount
to 26.x+ million tons, or almost 83 percent of refinery capacity.
E. European Satellite Transportation System as a Whole
The pipeline will reduce the demands on the over-all transporta-
tion systems of each of the four Satellites for the transportation of
crude oil in 1965. Nevertheless, the large increase in imports of crude
oil, coupled with increased domestic production, will generate an in-
crease in demands on the transportation system for the movement of re-
fined products. It is not feasible to estimate the demands that may be
levied on each mode of transportation, but it is reasonable to conclude
that a railroad haul will be required for a major portion of the tonnage.
It is not possible, either, to assess accurately the requirements for
freight cars, locomotives, personnel, and route space, because the length
of haul will be reduced and the distribution pattern will change. More-
over, the type of freight cars utilized most advantageously for the move-
ment of refined products varies, to some degree, from the type required
for crude oil. It is even possible that the amount of coal used by rail-
roads will be reduced as petroleum is substituted for coal as a fuel for
transportation, and this substitution itself would entail a reduction in
tonnage to be carried because the calorific value of petroleum is much
higher than that of coal. This situation has prevailed in a number of
Western European countries since 1958, when coal tonnage has dropped as
petroleum tonnage increased.
The increase in demand for the transportation of petroleum alone
in 1965 amounts to about ~+~+ percent above the demand in 1960, measured
in terms of tons carried. The change will vary in each country. A de-
tailed analysis of demand is shown in Table 7.-~
IV. Comparative Freight Rates for Transportation of Crude Oil, by Mode
of Transportation
A. Pipeline
A comparison of rates for transportation of crude oil by pipeline
with the rates and charges by any other mode of transportation indicates
a differential of between 75 and 80 percent.
In the Soviet Bloc the ministries controlling the petroleum in-
dustry operate the petroleum pipeline system as a private carrier and not
as a common carrier offering service to shippers generally. For this
reason, no rates, as opposed to costs, have ever been announced, and no
-~ Table 7 follows on p. 17.
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Table 7
Comparison of Demand for Transportation of Crude Oil and Petroleum Products
in Poland, East Germany, Czechoslovakia, and Hungary
1860 and 1965
(1) (2) (3) (4) (5) (6) (7)
Crude Oil Refined Products Amount
Total Demand Amount Transported
Domestic Domestic for Transported by Other Modes
Country Production Imports Production , Imports Transportation by Pipeline of Transportation
1960
Czechoslovakia
0.137
2.300
2.193
0.400
5.030
0
5.030
East Germany
0.002
2.000
1.802
0.380
4.184
0
4.184
Hungary
1.215
1.500
2.444
0.070
5.229
O
5.229
Poland
0.194
0.713
0.816
1.800
3.523
O
3.523
Total
1.548
6.513
7.255
2.650
17.966
C
17.966
1965
Czechoslovakia
0.210
6.000
5.589
0
11.799
6.000
5.799
East Germany
1.000
5.000
5.400
0
11.400
4.000
7.400
Hungary
2.200
3.000
4.680
0
9.880
3.000
6.880
Poland
0.200
3.100
2.970
1.450
7.720
2.000
5.720
Total
3.610
17.100
18.639
1.450 ~
40.799
15.000
25.799
1965 Compared with 1960
(Percent of Change)
a. Ninety percent of columns 1 and 2.
b. To be imported from Rumania.
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rates are believed to exist. Therefore, the only measure of price paid
for transp6rtation of crude oil by pipeline is the cost. The USSR has
announced that the cost of transporting crude oil through the pipeline
now under construction to the Satellites will be between 0.90 and 1.0
kopek per ton-kilometer (0.25 cents).
B. Railroad
The freight rate on crude oil transported by railroad varies with
the length of haul. On the basis of current freight tariffs in the Soviet
Bloc and the lengths of haul for which crude oil would be transported in
the USSR and in each of the Satellites, railroad rates per ton-kilometer
and per ton are computed as follows:
Distance
(Kilometers)
Rate
350
400
450
700
2,088
Kopeks per ton-kilometer
4.93
4.69
4.60
4.00
3.88
Rubles per ton
17.26
18.76
20.70
28.00
81.00
An additional charge of 4 rubles per ton is levied for transloading
crude oil at the Soviet border from Soviet wide-gauge cars to Euro-
pean standard-gauge cars.
C. Inland Water
Although adequate, direct inland waterway connections between
Kuybyshev and the Satellites are nonexistent, crude oil could be trans-
ported from Kuybyshev by rail to the nearest Danube River port at Galati,
Rumania, for onward transportation by river barge to Hungary and Czecho-
slovakia. The distance is so great, however, that a combination of rail
and inland water rates exceeds the through rail rate.-~-
The current freight rate on crude oil moving by sea from Odessa
to East German or Polish ports on the Baltic is about $2.50 (10 rubles)
per ton, and to this rate an additional rate must be added for inland
~ Pipeline revenue in the US in 1959 was at the rate of 0,31 cent per
short ton-mile,~or 0.21 cent per metric ton-kilometer.
~-~ See Table 8, p. 20, below.
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transport from Kuybyshev to seaport and from seaport to destination.
This combination of rail-sea.-rail rates is so prohibitive that when the
pipeline system is in operation, exports of Kuybyshev crude oil from
Black Sea ports probably will be discontinued. Such an export movement
probably will not take place until construction of a pipeline from
Kuybyshev to a Black Sea port is accomplished.
E. All Modes of Transportation
A comparison of rates and charges by all modes of transportation
is outlined in Table 8.~- An examination of the table reveals that trans-
portation of crude oil by pipeline from Kuybyshev to the Satellites will
result in Bloc-wide savings in transportation expenditures of 75 to 80
percent compared with any other mode of transportation, The economies
within the Satellites alone are of such magnitude that the Satellites
will be able to recover their investment in a remarkably short period of
time.
The rate at which the USSR will be able to recover its investment
in pipeline construction is not clear. The country normally sells crude
oil to the Satellites at prices quoted f.o.b. the Soviet border and ab-
sorbs a substantial share of the transportation costs of this movement,
Expenditures for pipeline transport from Kuybyshev to the Satellite bor-
ders will be from $15 to ~20 cheaper per ton than rail transport, These
substantial savings in transportation costs resulting from the use of
pipeline transport could be passed along to the Satellites in the form
of lower prices for Soviet crude oil. It is more likely, however, that
the USSR will retain most if not all of these savings in order to ac-
celerate the rate at which the substantial Soviet investment in the
pipeline system will be recovered.
V. Economic and Military Strategic Significance of the Pipeline
There is no evidence that the Satellite portion of the pipeline sys-
tem is intended for any purpose other than the supply of crude oil to the
Satellites. The capacity of the line, however, will amount to about 23
million tons when all pumping facilities are installed. This figure is
8 million tons higher than the planned imports of crude oil by pipeline
by the Satellites in 1965. It is entirely possible that full capacity
could be achieved on completion of the pipeline in 1963, thus providing
a capability to use the pipeline for transportation of apart of the
crude oil shipped to Western European countries. By 1968, however, this
excess capacity will be reduced or even eliminated, as new refineries at
pipeline terminals in the Satellites will require 22 million tons, as-
suming that refinery construction goals are met.~~
~ Table follows on p. 20.
~~ Text continued on p. 22.
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Comparison of Rates for Transporting Crude Oil from Kuybyshev, USSR,
to Refineries in Poland, East Germany, Czechoslovakia, and Hungary
by Mode of Transportation
Rate
Rate per Metric Ton
Differential, Pipeline
per
and Other Modes
Distance
Ton-Kilometer
Dollar
of Transportation
Mode of Transportation
From
To
(Kilometers)
(Kopeks)
Rubles
Equivalent J
(US $ per Ton)
Railroad
Kuybyshev
Brest
2,088
3.88
81.01
20.25
Pipeline
1,825
1.00
18.25
4.56
15.69
Railroad
Kuybyshev
Uzhgorod
2,500
3.88
97.00
24.25
Pipeline
2,075
1.00
20.75
5.19
19.06
Railroad
Brest
Plock
400
4.69
18.76
4.69
Transloading
4.00
1.00
Total
22.76
5.69
Pipeline
280
1.00
2.80
0.70
4.99
Railroad
Brest
Schwedt
700
4.00
28.00
7.00
Transloading
4.00
1.00
Total
32.00
8_00
Pipeline
670
1.00
6.70
1.68
6.32
Railroad
Uzhgorod
Bratislava
450
4.60
20.70
5.18
Transloading
4.00
1.00
Total
24.70
6_18
Pipeline
400
1.00
4.00
1.00
5.18
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Table 8
Comparison of Rates for Transporting Crude Oil from Kuybyshev, USSR,
to Refineries in Poland, East Germany, Czechoslovakia, and Hungary
by Mode of Transportation
(Continued)
Rate
Rate per Metric Ton
Differential, Pipeline
per
and Other Modes
Distance
Ton-Kilometer
Dollar
of Transportation
Mode of Transportation
From
To
(Kilometers)
(Kopeks)
Rubles
Equivalent
(US $ per Ton)
Railroad
Uzhgorod
Szazhalombatta
350
4.93
17.26
4.32
Transloading
4.00
1.00
Total
21.26
5.32
Pipeline
380
1.00
3.80
0.95
4.37
Combined rail-and-water
transportation
Railroad
Kuybyshev
Odessa
2,000
3,88
77.60
19.40
Sea
Odessa
Gdynia
7,300
10.00
2.50
Railroad
Total
Gdynia
Plock
270
5.56
15.01
102.61
3.75
25.65
Pipeline
Kuybyshev
Plock
2,105
1.00
21.05
5.26 20.39
Railroad
Kuybyshev
Galati
2,480
3.88
96.22
24.06
Inland waterway
Total
Galati
Bratislava
1,000
3,480
3.22
32.20
128.42
8.05
32.11
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It is doubtful that the use of this pipeline system for military pur-
poses was a major consideration in deciding to undertake the project.
The system was designed exclusively for the transportation of crude oil,
and the movement of crude oil cannot be alternated readily with the move-
ment of light petroleum products such as gasoline or diesel fuel. More-
over, to alter the system to carry petroleum products instead of crude
oil after the system is in use would require a time-consuming cleansing
effort to avoid adulteration and an increase in storage facilities.
Pumping equipment also probably would have to be changed, as the pumps
used for a crude oil pipeline are not suitable for light products. The
pipeline system, however, will contribute to an increase in the supply
of fuels in Eastern Europe by making crude oil available at a minimum
expenditure for transportation. Moreover, the pipeline system will re-
lieve the intensively used railroad systems of the long haul of crude
oil and petroleum products from the USSR, thereby improving their ca-
pability to carry other economic and strategic materials.
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APPENDIX A
METHODOLOGY
1. Estimating the Cost of Pipeline Construction
The methodology emplpyed in estimating the cost of pipeline construc-
tion is given in some detail in the text. The estimates of the cost in
the US are based on reports in various engineering publications that indi-
cate an average of 100,000 per mile. Estimates of the cost of construc-
tion in the USSR and the Satellites are based on the cost prevailing in
the USSR in 1956 for pipelines of 15-inch, 20-inch, and 2~+-inch diameters.
Although the post of pipe has increased since 1956, the actual cost of
construction has decreased with the advent of mechanized trenching equip-
ment, improved pipe welding and wrapping devices, and improved technology
gained through experience. Moreover, in a report to the Inland Transport
Committee of the Economic Commission for Europe of the UN, 1 December 1961,
the USSR announced the allocation of 355 million new rubles for the con-
struction of x+,730 km of pipeline, including the crude oil pipeline to the
Satellites. This amount reflects an average of about 750,000 rubles per
kilometer, or about $100,000 per kilometer. The cost of constructing
terminal and intermediate storage tanks is not included in these estimates,
because storage tanks would be required regardless of the mode of trans-
portation used to transport crude oil.
2. Estimating Expenditures for Transportation of Petroleum
Expenditures for rail transport are based on current freight rates
applicable in the USSR and published in Spravochnik po tarifam zhelezno-
dorozhnogo transporta (Handbook of Railroad Freight Rates , T~Ioscow, 1955?
Expenditures for sea transport are based on current freight rates between
the Black Sea and Polish Baltic seaports published in various shipping
publications, including the Weekly published by the Maritime Research Inc.,
New York, N.Y. Current costs, as opposed to rates, for the transportation
of crude oil in tank cars in the four Satellites are not available. The
average cost for all commodities in 1958 in the USSR, however, was 2.93
kopeks per ton-kilometer. The cost of transporting crude oil in tank cars
is considerably higher than the average, for empty car movement is nor-
mally 100 percent of the loaded haul. It is believed, therefore, that
the actual rail cost for transportation of petroleum in railroad cars is
between 3.5 and ~+ kopeks per ton-kilometer and is very close to the rail
rate.
~ Data as given in the source are in new rubles and were converted to
old rubles at the rate of 10 old rubles to 1 new ruble.
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3, Estimating Tank Car Requirements
For the purposes of this report, minimum tank car requirements are
estimated on the basis of the following factors to determine turnaround
time and annual carrying capacity; (a) the length of haul is multiplied
by two because tank cars are loaded in one direction only; (b) the aver-
age daily movement of a tank car is estimated to be 300 km; (c) the time
required for loading unloading, switching, and billing is estimated to
be 1.75 days; and (dj the average load per car is estimated to be 40 tons
(USSR) and 30 tons (European Satellites).
Example 1:
USSR
Kuybyshev to Brest and return:
4,176 km divided by 300 km
13.92 days
Plus loading, unloading, and
switching time
1.75 days
Turnaround time
15.67 days
365 days divided by 15.67 days
yields the number of times
each car is used per year
23.29 times
Multiplied by tons per trip
40 tons
Tons per car per year
931.60 tons
'T`herefore, the total annual tonnage divided by 931.60 would
equal the number of tank cars required. This number would represent the
operating park, or 90 percent of the total, as it is estimated that 10
percent of the tank car inventory is undergoing maintenance and repair
at all times.
Example 2: Satellites
The same methodology used in Example 1 is used in Example 2, at
30 tons per loaded car and according to the round-trip distances indi-
cated:
a.
Brest to Plock and return
800
b.
Brest to Schwedt and return
1,400
c.
Uzhgorod to
return
Bratislava and
900
d.
Uzhgorod to
and return
Szazhalombatta
700
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