FINAL REPORT T O NATIONAL COUNCIL FOR SOVIET AND EAST EUROPEAN RESEARC H
TITLE : Soviet Oil Policy and Energy Politics , 1970-198 5
AUTHOR : Thane Gustafso n
CONTRACTOR : Columbia University, Research Institute on Internationa l Chang e
PRINCIPAL INVESTIGATOR : Seweryn Bialer
COUNCIL CONTRACT NUMBER : 627-1 3
DATE : March, 198 5
The work leading to this report was supported in whole or i n part from funds provided by the National Council for Sovie t and East European Research . -i -
CONTENTS
FIGURES i i
TABLES
Sectio n
EXECUTIVE SUMMARY 1
I . THE DILEMMAS OF SOVIET OIL POLICY 3
II . THE BREZHNEV EMERGENCY RESPONSE, 1977-1980 1 8
A. Development 1977-1980 1 9 B. Exploration, 1977-80 26
III . SOVIET OIL POLICY SINCE 1980 3 1
A. Exploration in the 1980s 33 B. Development and Production Since 1980 3 7 C. The Latest Developments in West Siberia and Thei r Implications 5 5
IV . CONCLUSION 58
FIGURES
1 . Oil output versus investment
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TABLE S
1 . Soviet Oil Output, 1975-1984 3
2 . Investment Data, Soviet Oil Industry, 1976-1983 (billions o f rubles)
3 . Drilling for Gas and Oil, Country-Wide 8
4 . Drilling for Gas and Oil, West Siberia 9
5 . Qualitative Trends in Soviet Oil Drilling : Key MNP Indicators 1 0
6 . Investment vs . Net Output Increments for Oil, Gas, and Coa l Compared (1982) 1 2
7 . Annual Rates of Increase in Soviet Oil Investment, 1978-8 2 (percent) 1 2
8 . All-Union and West Siberian MNP Drilling Compare d (development and exploration) 1 9
9 . New Well Flow Rates 20
10 . Relative Use of Different Drill Types in the Soviet Oi l Industry, 1970-1980 2 1
11 . Oil-Drilling Brigades Attached to Glavtiumenneftegaz 22
12 . Productivity of Development Oil Drillers in West Siberia , 1970- 1980) 23
13 . New Well Flow Rates in New and Old West Siberian Field s Compared 26
14 . Trend in Exploratory Oil Drilling in West Siberia, 1975-198 0 ...... 2 7
15 . Deterioration of Performance Indicators i n Glavtiumengeologiia, 1975-1978 2 7
16 . Anticipated Decline of Major West Siberian Oil Indicators _ (1970-1985) 32
17 . Qualitative 5-Year Drilling Goals (1980-1985) 33
18 . Share of Free Flowing Wells in Soviet Oil Output 39
19 . Installation of Gaslift Units 40
20 . Number of Wells to be Equipped with Electric Submersibles 42
21 . Average Time Between Repairs (Days), 1976, 1979 43
22 . Manpower Required for Well Maintenance and Repair, 1975-198 5 ...... 44
23 . Number of Producing Oil Wells, 1972-1985 44
24 . Allocation of Oil Industry Manpower in West Siberia , 1975-1985, as of total 45
25 . Incremental Production Attributable to Enhanced-Recover y Methods, 1975-1985 48
26 . Principal Tertiary Recovery Projects as of 1983 5 3
27 . Output Shares and Yield Per Meter Drilled, 1970-1985, Wes t Siberia 56
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KEY TO ABBREVIATION S
SOURCES Ekonomika i organizatsii a promyshlennogo prozvodstva EKO Neftianoe khoziaistvo NK h Ekonomika neftianoi promyshlennosti EN P Narodnoe khoziaistvo SSSR Narkho z Geologiia nefti i gaza GN G Vestnik akademii nauk SSSR VA N Ekonomicheskaia gazeta EG Sotsialisticheskaia Industriia S I Planovoe Khoziaistvo PI Kh Oil and Gas Journal OGJ
ORGANIZATION S Ministry of the Gas Industry M G P Ministry of the Oil Industry MN P Ministry of Construction for Oi l and Gas Enterprises MNG S Ministry of Geology Mingeo EXECUTIVE SUMMAR Y
Since 1977 the Soviet leaders have staved off a decline in oi l output by doubling investment and shifting the oil industr y ' s resource s to West Siberia . As a result, the Soviet Union remains the world ' s leading oil producer, and its annual output has continued to increas e
slowly but steadily, reaching 616 million tons (12 .32 million barrels pe r day) in 1983 . But the price has been high and the appearance of stabilization i s deceptive . The gains of the last seven years have come not fro m improvements in productivity but from a massive increase in infil l drilling and waterflooding, mostly using traditional technology . As th e benefits from the industry ' s move to West Siberia fade, it face s spiraling costs but few new opportunities . To maintain oil output a t its current level, the leaders may have to double oil investment ever y five years . Diminishing returns, of course, are the fate of all extractive industries, but the Soviet oilmen ' s failure to modernize thei r operations and improve their productivity, despite the high priority an d ample resources allocated to them, demands a special explanation . Th e answer, this report finds, is the intense campaign atmosphere that ha s surrounded the Soviet oil industry for most of its existence, bu t particularly since the leaders began pouring resources into oil seve n years ago . Leaders and planners demanded not merely that output b e stabilized but that it continue to grow year by year . Under suc h unremitting near-term pressure, the oil industry has been forced to pour the bulk of its resources into drilling, while neglecting vita l ancillary tasks, such as well completion, mechanization, an d maintenance . Exploration remains weak, labor turnover high, equipmen t inadequate both in quality and quantity, and infrastructure primitive . In 1982 and 1983 signs of trouble began to crop up in West Siberia , as for the first time in its history the Siberian oil association faile d to meet its annual output targets . The leaders responded with mor e emergency transfers of oil teams from the rest of the country to the 2 east of the Urals . At this writing (August 1984) the breach has been temporarily filled, but once again by heroic measures, not improve d efficiency . What are the larger costs of this brute-force strategy and why d o the leaders persist in it? Already the marginal capital costs of Sovie t energy in the form of oil are far higher than for gas, coal, or nuclea r power, and energy saved through conservation is two to four time s cheaper yet . Sound strategy, then, calls for reallocating resource s away from oil and letting its output fall to a level that can b e defended at more reasonable cost . Each year ' s delay is not onl y expensive in its own terms but -retards the inevitable transition of th e Soviet economy to l'apres-petrole. The Soviet leaders have already begun to make the shift towar d other energy sources, but if they have refused so far to accept a pea k of oil output, it is for four reasons : (1) National prestige is at stake ; (2) oil is the key to hard-currency earnings and to East Europea n commitments ; (3) the oil industry keeps promising that costs can be hel d back ; (4) the alternatives to oil are not yet ready to fill the void . The last point is especially important : gas output, in particular, i s growing rapidly, but there are limits to the rate at which it can b e absorbed into the economy . Coal and nuclear power, meanwhile, ar e having problems . In sum, despite the cost, Soviet leaders and planners dare not let up the oil campaign . Accordingly, in their recently published Energy Program, they hav e vowed to keep oil output growing steadily to the year 2000 . This report concludes, however, that in the absence of dramatic cost breakthroughs , which at this writing are nowhere to be seen, an attempt to maintain oi l output at its present level even to the end of the 1980s would b e expensive to the point of folly and would deny resources to the rest o f the energy sector, thus delaying the transition to gas, coal, an d nuclear . How long will the leaders persist in such a self-defeatin g course?
I . THE DILEMMAS OF SOVIET OIL POLIC Y
Nearly seven years have passed since the CIA predicted that Sovie t oil output would peak in 1980 and drop sharply thereafter .1 In th e risky world of oil forecasting (only one lonely expert, the now - legendary King Hubbard, predicted that U .S . oil production would peak when it did in 1970) the CIA ' s analysts came very close : ahead of an y foreign observer, they called attention to an impending crisis in th e Soviet oil industry ; and though Soviet oil production did not actuall y peak in 1980, since that year its growth has slowed to a crawl . What did not take place, however was the predicted sharp decline . It surely would have, if the Soviet leaders had done nothing . Bu t beginning in late 1977 they reacted vigorously, first by sharpl y shifting the oil industry ' s resources into West Siberia, and the n
Table 1
SOVIET OIL OUTPUT, 1975-1984
1984 1975 1976 1977 1978 1979 1980 1981 1982 1983 (plan )
Tota l 490 .8 519 .7 545 .8 571 .5 585 .6 603 .2 608 .8 612 .6 616 .0 624 . 0 oil and condensat e
West 141 . 4 175 .0 211 .1 245 .7 274 .4 313 .0 335 .0 353 .0 369 390 Siberia
Sources : All Union : Narodnoe Khoziaistvo SSSR, various years .
West Siberia : Through 1979, Tekhnicheskii progress v neftianoi promyshlennosti v desiatoi piatiletke , (Moscow, " Nedra " 1981), p . 90 . 1980-1983, Soviet Geography, Vol . XXV , No . 4 (April 1984) .
1 CIA, The International Energy Situation : Outlook to 1985 , ER77-10240 (April 1977) ; Prospects for Soviet Oil Production, ER77-1027 0 (April 1977) ; CIA Directorate of Intelligence, Prospects for Soviet Oi l Production : A Supplemental Analysis, (July 1977) .
4 4 following that up with a flood of additional money, manpower, an d resources . Soviet central investment in oil has more than doubled sinc e 1976 and is still climbing rapidly . This is what has enabled Soviet oi l output, instead of declining, to keep rising each year through 1983, i f by steadily smaller increments . At this writing (June 1984) it i s declining slightly, though the industry may yet succeed in keepin g production stable, as it has in the past . But the appearance of stabilization is deceptive : the only thin g that maintains Soviet oil output where it is today is the Sovie t leader s ' willingness to pay a steadily increasing price for it, and the price is growing at a breathtaking rate . No cost figures are available for the country as a whole, but i n West Siberia capital costs per ton of gross addition to capacity ar e projected to increase 2 .3 times between 1980 and 1985 (see Tables 3 an d 4), and this is almost certainly an underestimate . 3 The volume o f drilling, which is the largest single component in the cost of gros s additions to output and thus a rough yardstick of overall cost trends , is scheduled to double nationwide between 1980 and 1985, while the cos t of each meter is probably growing as well, because teams must dril l deeper and in more remote places . " Meanwhile, an ever larger share o f the new capacity won at such cost must go to offset declines in othe r fields . Thus, the depletion rate in West Siberia (the only remainin g major growth area in the industry) will rise from 49 percent in 1980 t o 86 percent in 1985 . 5 Nationwide, the roughly 350 million tons per yea r
2 It cannot be excluded that the bulk of the recent increase i s actually gas condensate . The Ministry of the Gas Industry produce d about 20 million tons of condensate in 1983 . (Soviet Geography, Apri l 1984) . 3 S . N . Starovoitov (ed .), Problemy razvitiia zapadno-sibirskog o neftegazovogo kompleksa (Novosibirsk : " Nauka, " 1983), p . 81 . 4 During the 10th Five-Year Plan (1976-1980) the cost per meter o f develo pment hole went up 16 .6 percent and it is unlikely to behav e differently in the 11th . (Ekonomika neftianoi promyshlennosti, No . 12 , 1981, p . 4 . ) 5 Starovoitov (ed .), p . 81 .
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Table 2
INVESTMENT DATA, SOVIET OIL INDUSTRY, 1976-198 3 (BILLIONS OF RUBLES )
10th FYP 11th FYP 1980 1981 1982 1983(plan )
Capital investe d 26 .2 42 .7 6 .8 8 .1 8 . 7 (vlozhenie) Capital utilize d 26 7 .3 7 . 8 (osvoenie) Construction-and - 9 .4 2 2 .3 2 . 4 assembly wor k (stroitel ' no - montazhnye raboty) Assets put int o +80% 6 .5 7 . 5 operatio n (vvedeni e osnovkykh fondov) Reconstruction an d +21 .7 % reequipmen t (tekhnicheskai a rekonstruktsiia i perevooruzhenie) Uncompleted project Jan .' 76 Jan .' 81 (as percentage of 72% 66% annual investment ) (nezavershenka )
Sources : Capital invested : 10th Plan : Narkhoz 1980, p . 388 ; 11th Plan : NKh . 4/82, p . 6 . 1980 : Narkhoz 1922-82, p . 371 . 1981 : Ibid . Other data : NKh . 12/82, p . 66 says that 1981 was u p 12 .3% over 1980, whereas the Narkhoz . figures sho w an increase of 18% . NKh . 4/81, p . 4, says that th e plan for 1981 was up 14 .5% over 1980 . 1982 : Narkhoz 1982, p . 341 . Capital utilized : 10th Plan : NKh . 4/81, p . 3 . 1981 : GNG, 5/83, p . 3 . (NKh . 4/82, p . 3 says 7 .2) . 1982 : GNG, 5/83, p . 3 . (NKh . 3/83, p . 3 says "under 8 " ) . Construction-and-assembly work : 10th Plan : NKh . 4/81, p . 3 . 1980 : derived from NKh . 4/81, p . 2, and 3/82, p . 2 . 1981 : NKh . 3/82, p . 2 . 1982 : GNG, 5/83, p . 3 . Assets put into operation : 11th Plan : NKh . 4/82, p . 6 . - 6 -
1980 : derived from NKh . 3/82, p . 2 and NKh . 12/82, p . 66 . 1981 : NKh . 3/82, p . 2 . 1982 : derived from GNG, 5/83, p . 3 and NKh. 3/82, p . 2 . Reconstruction and reequipment : 1983 Plan : ENP, 1/83, p . 3 . 10th Plan and 1981 : ENP, 3/82, p . 14 .
- 1 1 - of new capacity projected for the 11th Plan will barely replac e declines , 6 leaving only a small increase in net output . In short, th e oil industry is having to run faster and faster to stay in place . This is, of course, the ultimate fate of all extractive industrie s everywhere, but in the Soviet case the problem is compounded by th e leader s ' insistence on keeping oil output growing and by the cumulativ e damage done (as this report will show) by a decade and a half o f campaign atmosphere . On the face of it, the rational thing for the Soviet leaders to d o now is to begin shifting investment toward other energy sources . If on e compares investment versus net output increments for the three majo r organic fuel sources, it is clear that the resources required to add a million tons of net energy capacity (as measured in coal-equivalents ) are now dramatically greater for oil than for either coal or natural ga s (see Table 6) . Yet the 11th Five-Year Plan projects a larger increas e in oil investment (63 percent) than for the energy sector as a whole (5 0 percent), thus increasing the oil industry ' s share instead of cuttin g it . Why do the Soviet leaders continue to favor oil? Why are the y pushing oil investment so far, seemingly beyond rational limits, instea d of allowing oil output to decline to a plateau that can be defended a t less cost? This is not an issue that the Soviet leaders discuss i n print, but one can infer four plausible motives :
1 . They dare not let up : For the moment, expensive oil is th e only insurance against bottlenecks that would be even mor e expensive . Letting oil ou put decline amounts to a wager o n alternative energy sources and programs, both for interna l consumption and for hard currency income . Gas is progressin g nicely but output is growing as fast as it can be absorbed, an d other energy sources continue to have problems . Th e conservation program is still largely on paper only and fuel - switching to dis p lace oil is just beginning to show results . 6 This estimate comes from Edward H . Hewett, Energy, Economics, an d Foreign Policy in the Soviet Union (Brookings Institutions, 1983), by inference from a report in the Petroleum Intelligence Weekly that Sovie t planners were assuming an 88 percent depletion rate in the 11th Plan . - 12 -
Table 6
INVESTMENT VS . NET OUTPUT INCREMENT S FOR OIL, GAS, AND COAL COMPARED (1982 )
Ratio of investmen t Capita l Net Output to net increment Investmen t Incremen t (billions of ruble s (billions o f (millions of ton s per millions of ton s rubles) of standard fuel*) of standard fuel* )
Oil 8 .7 5 .4 1 .6 1 Gas 6 .0 42 .0 0 .1 4 Coal 2 .2 9 .0 0 .24
Source : Narodnoe khoziaistvo SSSR, 1982, p . 143 and 338 . The gas investment figure has been adjusted to include th e portion of transmission investment normally not included b y Narodnoe khoziaistvo . For assumptions see Gustafso n (1983) . The ratio is somewhat misleading, since investment s in year y do not necessarily result in additional outpu t until some time later .
The Soviet definition of one ton of "standard fue l " is 7 x 1 09 calories . To convert to millions of tons of oil equivalent , multiply the output numbers in the table by 0 .7 .
Table 7
ANNUAL RATES OF INCREASE I N SOVIET OIL INVESTMENT, 1978-8 2 (PERCENT )
1978/77 1 7 1979/78 1 1 19.80/79 1 6 1981/80 1 9 1982/81 7 .4
Source : Narodnoe khoziaistvo SSSR, variou s years .
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2. National prestige is at stake : The crash Soviet response, i n late 1577, was motivated in part by Western forecasts and th e publicity that surrounded them . To allow output to decline no w would be viewed by the Soviet leadership as a loss of face . 3. The industry promises that costs can be controlled : Geologist s continue to hold out hope that new provinces can be found tha t will yield lower-cost oil ; the oil industry has elaborat e programs for cost-reduction in oil development through suc h means as well clusters, more efficient pumps and gas-lift, an d faster drilling . 4. Oil is the key to hard-currency earnings and to East Europea n commitments : Despite efforts to substitute gas exports fo r oil, oil has real advantages over gas as an export commodity . To offset soft oil prices, the Soviets stepped up their export s to record levels in 1982 and 1983 . The world oil market i s sufficiently uncertain that the leaders must be prepared t o export still more . Meanwhile, after cutting subsidize d deliveries to Eastern Europe by 10 percent in 1982, the Soviet s appear unwilling to push their clients harder for the tim e being .
All four of these motives push toward more spending on oil, but th e crucial question is, to what point? It has been evident for some tim e that the Kremlin has been growing uncomfortable . In 1982, for the firs t time since the Brezhnev campaign began, the annual growth of centra l investment in oil dropped below ten percent (Table 7) . This move di d not mean that the leaders were resigning themselves to a decline in oi l output, however, because the output target for 1982 called for continue d growth . Were they banking on the oil industry ' s promises of improve d efficiency? Or were they forced to transfer resources temporarily t o the gas sector to deal with the American compressor embargo? Unti l investment figures are available for 1983, it will not be possible t o tell whether the 1982 slowdown in spending was the beginning of a trend . - 1 4
During Andropov ' s brief fifteen months as General Secretary cam e further signs of discomfort . Several signs suggested that he and hi s closest associates (notably Gorbachev) were concerned by the spiralin g costs of oil and were inclined to shift their policy toward conservatio n and diversification . In April 1983 Pravda announced that the Politbur o had examined the draft of a comprehensive Energy Program for the perio d 1985 through 2000.7 Andropov, in what proved to be one of his las t public appearances, strongly endorsed the new Energy Program at the Jun e plenary meeting of the Party Central Committee, referring to it as "a major document of long-term significance, a kind of GOELRO for today ' s conditions . " ' Though the program called for further increases in oi l and gas output, it put particular stress on conservation an d displacement of oil . But over the months that followed the program wa s not published, which suggests that the leaders below Andropov disagree d among themselves over the relative priority to be given to conservatio n and diversification versus further investment in hydrocarbons . In the fall of 1983 the USSR Council of Ministers, reviewing Gosplan ' s draf t plan for 1984, instructed the planners to give additional emphasis t o conservation of energy and metals, 9 while the Politburo considered way s of conserving petroleum products and dwelt on the rapidly growing cos t of oil . 1 0
' The report was the work of a commission of experts working unde r the overall chairmanship of the president of the USSR Academy o f Sciences, A . P . Aleksandrov . It was commissioned by Brezhnev in 1979 . For a valuable presentation of the arguments underlying the program , buttressed by extensive systems analysis, see L . A . Melen t ' ev and A . A . Makarov (eds .), Energeticheskii kompleks SSSR (Moscow : " Ekonomika, " 1983) . ' GOELRO was a comprehensive plan for the electrification of the USSR, first launched under Lenin and pursued successfully through th e 1920s . 9 Speech by Finance Minister V . F . Garbuzov, Pravda, December 29 , 1983 . 10 "V Politbiuro Tsk KPSS, " Pravda, October 29, 1983 . 1 5 -
By this time Andropov had not been at the helm for months . Th e strong accent on conservation may have reflected the influence o f Andropov ' s apparent favorite, Gorbachev . 11 But with Andropov ' s deat h and Chernenko ' s accession the political line-ups shifted and th e leaders ' commitment to oil was reaffirmed . Recent months have witnesse d the resumption of the rise of V . I . Dolgikh, the Party secretary for industry, whose career had stalled when Brezhnev died . Dolgikh ha d presided over the oil and gas campaign from its beginnings, and hi s recent speeches suggest that in his mind a secure and abundant supply o f oil and gas today take precedence over conservation tomorrow . 1 2 Two months after Chernenko ' s accession the long-heralded Energ y Program was finally published . 13 It calls for continuous growth in oi l output through the year 2000, with increased oil investment to match . In sum, the fragmentary evidence available suggests that the Sovie t leaders allowed themselves briefly, in 1982 and 1983, to conside r letting oil output decline in order to free resources to restructure th e
11 Gorbachev, in an important speech on Lenin ' s birthday in Apri l 1963, chose to discuss the machinery sector ahead of energy supply , whereas it has been customary in leader s ' speeches since 1978 to put th e latter first . 12 The difference is largely one of tone, since Dolgikh invokes th e official Energy Program, together with the by-now ritual comparison t o GOELRO . Nevertheless, his main concern appears to be to avoid energ y shortages that would slow economic growth . (See Dolgikh ' s electio n speech, published in Pravda, February 22, 1984 .) In April, Dolgikh delivered an address on the 1984 capital construction plan to a meetin g of Party secretaries at Central Committee headquarters, in which th e emphasis was likewise on energy supply . ( " V Tsentral ' nom Komitet e KPSS, " Sotsialisticheskaia Industriia, April 10, 1984 .) Finally , Dolgikh delivered the 1984 Leni n ' s Birthday speech and, unlike Gorbache v the year before, he put energy first, while machinery came third, afte r agariculture (Pravda, April 21, 1984) . Dolgik h ' s priorities reflect his duties, which are focused on heav y industry . The separation between energy production and conservation ma y be inferred from the meetings Dolgikh attends . So far, in the spring o f 1984, Dolgikh has been mentioned in the press as present at a meeting t o observe Geologists ' Day (Sotsialisticheskaia Industriia, April 1, 1984 ) but not at a meeting of an interagency committee on resourc e conservation, chaired by Gossnab chairman Martynov (Pravda, February 23 , 1984) . 13 " Osnovnye polozheniia energeticheskoi programmy na dlitel ' nuiu perspektivu, " Ekonomicheskaia gazeta, No . 12 (March 1984) . - 16 - energy economy, but that by the spring of 1984 they decided they had n o choice but to keep oil output high . The price will be high, however , unless they can bring about dramatic improvements in efficiency, both i n oil exploration and in development . This report examines the likelihoo d of that prospec t Much of the Soviet oil industry ' s apparent success since 197 8 stems, not from gains in efficiency, but from the one-time benefits o f moving its resources to West Siberia . This strategy has worked so fa r because well de pths are shallower in West Siberia than in the rest o f the country, wells can be sunk faster and in clusters, new-well flo w rates are higher, and a ruble invested in exploration yields mor e reserves . But these advantages are fading ra p idly as the establishe d fields of the Middle Ob ' basin reach their peak and as oil teams mus t keep drilling more and more, while simultaneously venturing ever farthe r to smaller and less accessible deposits . The scale and pace of th e effort are now so large that they are coming up against the limits o f the region ' s capacity to absorb more . The future of Soviet oil, then, depends on whether the industry can shift away from the emergency approach of the last seven years . Muc h will depend on whether the Soviet oil industry has used the last seve n years well or badly, that is, whether most of its resources were spen t on meeting the urgencies of the moment or whether it began laying a sound basis for future gains in efficiency . As will be explained in th e next two sections, the crisis of 1977, which has shaped oil policy fo r the last seven years, was a result of several long-standin g deficiencies, including neglect of exploration, wasteful productio n practices, misallocated resources among regions, lagging efficiency, and innovation . The key to future performance lies in whether the problem s that were critical then are now being resolved . Has the deterioratio n of known reserves in West Siberia been turned around? Has the overal l stagnation of exploration been reversed? Have the long-standin g disputes over West Siberian geology been resolved? I s waterflooding being practiced on a sounder basis? Are drilling, well preparation, an d production becoming more efficient? Will enhanced recovery make a contribution in the near future? Does the industry receive better an d more modern equipment? 1 7 -
Soviet literature in recent years has conducted an elaborate post - mortem, which gives the foreign reader some idea of whether the wors t problems have been righted or at least addressed . The overal l conclusion it leads to is that the leaders ' policy of boosting oi l output at all costs has largely prevented the industry from dealing wit h its longer-range tasks . There have been some gains in the industry ' s efficiency, as we shall see, and some success in stabilizing output i n the older oil-producing regions, but the larger effect of seven years o f crash effort has been to force the oil industry to put the short ter m first . As a result technological innovation, quality, retraining , maintenance and repair, have all progressed slowly . The implication is that costs will not soon be controlled, and that if the leaders insist on trying to keep oil output at its present hig h level, they will be forced to invest very large sums of money in oil fo r the foreseeable future--perhaps doubling their investment every fiv e years . This in turn will slow down the process of switching Sovie t energy policy toward other fuels and toward conservation . It is a fai r bet that so costly a policy will not endure, and that " life itsel f " (as Soviet speech-writers like to say) will force a retreat toward a mor e balanced policy, well before the end of the 1980s . II . THE BREZHNEV EMERGENCY RESPONSE, 1977-1980
In 1976, 1977, and perhaps 1978, for the first time, West Siberia n exploration teams failed to meet the annual target for gross addition s to reserves . But that was not the only bad news to come pouring in fro m the Siberian oil fields in 1976 and 1977 . The industry also reporte d sharp declines in the flow rates of new wells, especially in the crucia l Nizhnevartovsk association, abrupt increases in the West Siberia n depletion ratio (i .e ., the percentage of new output required t o compensate for declines in older fields), and above all, sometime i n 1977, the beginning of a decline in the growth rate of West Siberia n output.1 If one adds to that the simultaneous collapse of the coa l industry (which had been the centerpiece of the energy policy adopted i n 1975) and the disappointing growth of nuclear power, it is hard t o imagine that the Soviet leaders required any help from Western observer s to realize that their energy policy was in serious trouble . Brezhnev ' s vigorous personal intervention and the resulting shar p increase in the overall priority of energy investment, especially fo r West Siberian oil and gas, have been described elsewhere . 2 In thi s section we focus on the events in the oilfields themselves, first i n development and then in exploration . That the Brezhnev emergenc y response succeeded in staving off a decline in output is now clear . Bu t at what price? And with what lasting consequences? We turn first t o development, then to exploration .
1 Data on new-well flow rates, depletion ratios, output per mete r of development drilling (broken down according to the various producin g regions of Tiumen ' ), and a graph of overall output trends in Wes t Siberia, will be found in Efremov et al ., in Starovoitov (ed .), op . cit ., pp . 64, 81, and 82 . 2 See Thane Gustafson, " Soviet Energy Policy , " in U .S . Congress , Joint Economic Committee, Soviet Economy in the 1980's, Washington , D .C ., December 1982, Vol . I, pp . 441-442 .
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A . DEVELOPMENT 1977-198 0 The Soviet oil industry ' s success in stabilizing oil output afte r 1977 was due overwhelmingly to two factors . The first was a massiv e increase in development drilling (see Tables 3 and 4) . The second, eve n more important than the first, was a drastic shift in the focus o f effort toward West Siberia . Whereas in 1975 less than 25 percent of th e oil drilling effort had gone into West Siberia, by 1981, West Siberia ' s share was well over half of the oil industry ' s total (see Table 8) .
Table 8
ALL-UNION AND WEST SIBERIAN MNP DRILLING COMPARE D (DEVELOPMENT AND EXPLORATION )
(millions of meters )
Country-wide West Siberia
1974 11 .0 2 . 3 1975 11 .1 2 . 6
1976 12 .1 3 . 4 1977 12 .4 3 . 8 1978 13 .7 5 . 0 1979 15 . 1 1980 18 .0 8 . 4
1981 21 .6 11 . 2 1982 23 .3 12 . 9 1983 (plan) 26 .7 15 . 9 1981-1985 (plan) 130-131 75-77
Sources : Country-wide, as in table on p . 1 ; 1974, 1976, 1977 : Lecky and Lee (1979), p . 592 . West Siberia : 1974, 1976, 1977, 1978, 1979 : Lecky and Lee, p . 592 ; 1975, 1980, 1981, 1982 , 1983 : Neftianoe khoziaistvo, various issues . The two estimates for the 11th Plan, country - wide, appear in Sotsialisticheskaia Industriia , September 5, 1982 (130 million) and Neftiano e khoziaistvo, No . 4 (1982), p . 3 (131 million) ; for West Siberia : Ekonomika neftianoi promysh - Iennosti, No . 3 (1982), p . 24 (75 million) an d Neftianoe khoziaistvo, No . 4 (1982), p . 3 .
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This shift to West Siberia has been crucial for the stabilization of Soviet oil output, because every new well in West Siberia yields mor e oil than in the older fields of the Volga and the North Caucasus (se e Table 9) . Moreover, most of the West Siberian oil fields currentl y under development lie at shallow depths, and the rock is fairly easy t o drill . As a result, a drilling brigade can drill nearly three time s more hole in a year in West Siberia than the national average . 3 The move to West Siberia, since drilling there involved shallowe r depths and simpler formations, en :led the Soviets to skirt some of th e chronic problems of their drilling technology, especially the defects o f the turbodrill, which becomes less and less desirable to use a t increasing depths . And since the historic advantage of the turbodril l for the Soviet oil industry has been that it has less exactin g requirements for high-quality pipe and drill bits, the massive move t o West Siberia enabled the Soviets to postpone painful solutions to thos e problems as well . During the decade from 1970 to 1980, the share of th e
Table 9
NEW WELL FLOW RATE S
(tons/day )
1975 1978 1980 1980 198 5 (as expected (actual) (forecas t in 1979) in 1982 )
USSR 58 .5 48 .4 45 .0 NA NA West Siberia 162 .0* 90 .6 71 .1 66 .2 28 . 2
Source : for 1975, 1978, and 1980 (plan) : V . I . Filanovskii , " Zapadno-Sibirskii neftegazovyi kompleks : rezul ' taty i perspektivy, " Planovoe khoziaistvo, No . 3 (1980), p . 23 . For 1980 : Efremov et al . in Starovoitov (ed .), pp . 67-81 . *For 1975, Starovoitov gives 148 .7 tons per day .
' In 1981, for example, the West Siberian figure was 45,000 meter s per brigade vs . 16,000 meters in the rest of the country . The Wes t Siberian figure comes from Ekonomicheskaia gazeta, No . 5 (1982), p . 2 ; the all-Union figure is derived from Neftianoe khoziaistvo, No . 1 2 (1982), p . 66) .
- 21 -
Table 1 0
RELATIVE USE OF DIFFERENT DRILL TYPE S IN THE SOVIET OIL INDUSTRY, 1970-198 0
Development Exploratory Tota l
1970 1980 1970 1980 1970 198 0
Turbodrill 81 .8 87 .1 63 .8 48 .1 76 .4 82 . 1 Rotary 14 .8 11 .1 34 .5 51 .5 20 .8 16 . 3 Electric 3 .4 1 .8 1 .7 0 .4 2 .8 1 . 6 100 .0 100 .0 100 .0 100 .0 100 .0 100 . 0
Absolute Meterage 1970 1980 198 5 (plan ) Electric 265 .8K 275 .0K 1200K
Source : Ekonomika neftianoi promyshlennosti, No . 9 (1982), p . 10 . (Absolute meterage, pp . 9 and 12 . )
turbodrill in total development drilling actually rose from 81 .8 percen t to 87 . 1 percent .4 Such a remarkable increase in development drilling, together wit h so radical a shift in priorities to West Siberia, would have bee n difficult to forecast in 1977, the year before the stepped-up oi l campaign began . How was it achieved ? From 1978 through 1981, the drilling increases were obtained i n classic " extensive " manner, through massive additions and transfers o f manpower, resources, and funding . Hundreds of thousands of additiona l workers were brought to Tiumen ' and Tomsk provinces from older oi l regions.5 Two mechanisms were used . The first was to add new worker s to the permanent drilling teams of the Tiumen ' oil industry . Whil e nationwide the number of oil-drilling brigades attached to the Ministr y of Oil Industry grew by only 23 .2 percent from 1976 to 1982 , 6 the numbe r of brigades attached to MNP in Tiumen ' nearly doubled during roughly th e same period . (See Table 11 .) Since MNP, we recall, does littl e
ENP, No . 9 (1982), p . 10 . 5 A . Aganbegian, " Toplivo Sibiri, " Pravda, August 1, 1983 . 6 Oil and Gas Journal, June 27, 1982, p . 27, from Soviet sources . - 22 - exploration in Siberia, almost all of these new workers were used t o boost development drilling . Alongside these increases in the " permanent " complement of th e Tiume n ' industry, the second mechanism for transferring manpower was t o fly in temporary teams from older areas . Since 1977, when the syste m began, the contribution of such outside forces has been crucial : flown - in teams from Tatariia, for example, drilled 1 .3 million meters8 durin g the 10th Plan, and contingents from Bashkiriia contributed even more . 9 All told, drilling teams on loan from outside West Siberia contribute d 10 million meters of hole (mainly development) by the end of 1981 , roughly one-fourth of the total in West Siberia . "
Table 1 1
OIL-DRILLING BRIGADES ATTACHED T O GLAVTIUMENNEFTEGAZ
end 1976 7 0 end 1979 10 6 end 1980 11 9 end 1981 13 8 end 1985 (5 Year-Plan) 219
Source : ENP, No . 4 (1982), pp . 17-18 . (Note : The only absolute number thi s article actually gives is the figur e for 1981 . It also gives the numbe r of brigades added during 1977-1979 , 1980, 1981, and planned for the 11t h Five-Year Plan . The absolute number s given in the chart are derived from these, but should probably be taken as approximate only . )
ENP, No . 4 (1982), pp . 17-18 . 8 NKh, No. 12 (1982), p. 12. 9 NKh, No . 2 (1983), p . 7 . According to Ie . V . Stoliarov, directo r of Bashneft ' , Bashkir drilling brigades drilled 3 million meters from 1977 to 1982 . 10 P . T . Bulgakov (former director of Glavtiumenneftegaz) , " Zapadnaia Sibi r ' --osnovnaia neftegazodobyvaiushchaia baza strany , " Neftianoe khoziaistvo, No . 12 (1982), pp . 13-15 . - 2 3 -
This resort to flown-in manpower was the greatest single surpris e of the Brezhnev emergency oil policy . The flown-in teams remaine d subordinated to their home organizations and their work in Siberia wa s credited toward target fulfillment back home, which made thei r contribution difficult for Westerners to spot at first . However, sinc e Soviet sources began publishing figures on the subject, it became clea r that the " fly-in " method has been--and is increasingly--one of th e essential elements of the oil industry ' s success since 1977 . The emergency response rescued the 1980 output plan . Thanks to th e tripling of development drilling that took place in West Siberia betwee n 1975 and 1980, the West Siberian industry produced 312 .6 million tons o f oil in 1980, a little above the low end of the five-year target set i n 1976 . There is little doubt that, if the leaders had not responded a s they did in 1977-1978, Soviet oil output would have peaked around 1980 . But the gains wrung between 1978 and 1981 were costly . A s inexperienced and inadequately trained drillers were thrown into th e ranks, productivity declined . The flown-in drilling teams, thoug h manned by experienced workers, were hampered by fatigue an d disorientation from poorly organized air transportation and inadequat e housing . " Both the local teams and the fly-ins were increasingly . deployed to remote locations, which caused further logistical snarls an d increased nonproductive time . The results can be seen in Table 12 . I n Nizhnevartovsk, the most important of Tiumen ' oil associations ,
Table 1 2
PRODUCTIVITY OF DEVELOPMENT OIL DRILLER S IN WEST SIBERIA, 1970- 1980 )
(meters per worker per year )
1970 1975 1977 1978 1979 198 0
Local Teams 230 274 277 .1 254 .4 222 .5 204 . 4 Fly-ins 390 .9 271 .1 240 .0 246 .7
Source : Efremov in Starovoitov, pp . 66 and 84 .
11 A. Laletin, "Samoletom na rabotu i obratno ," Trud, June 8, 1982. - 24 - commercial drilling speed (i .e ., meters per rig per month) dropped by 3 7 percent, mostly because nonproductive time rose from 25 to 50 percent o f the drillers ' time budget . But even mechanical speed (i .e ., meter s drilled .12per hour during productive time) declined by 9 percent Overall, because of the declining productivity, the average cost pe r meter of development hole rose sharply . 1 3 More significant for the long-term future of West Siberian oil wa s the indirect impact of the Brezhnev campaign on all other West Siberia n oil operations . Investment in the Tiumen ' oil industry was sharply rechanneled toward drilling and away from ancillary and infrastructura l tasks, such as well completion and maintenance, installation of liftin g equipment, housing and amenities, and construction of roads . Thus , while total productive investment in oil development and production i n West Siberia increased 2 .8 times between 1975 and 1980, drillin g investment increased 3 .4 times but ancillary construction and road construction grew only half as fast . The share of housing constructio n in West Siberian oil investment, never large to begin with, decline d from .149 .1 percent in the 9th Plan to 6 .6 percent in t h 10th The impact of these lopsided priorities could be observed almos t immediately . Capital tied up in uncompleted projects soared from 55 8 million rubles in 1975 to 1302 million by 1980 . 15 Uncompleted well s doubled from 350 to over 700, and many of those officially listed a s complete were poorly built, requiring repair and insulation before the y could be put into operation . 16 The relative lack of attention given t o installation of pumps and gaslift equipment delayed the process o f
12 ENP, No . 4, 1982, p . 6 . 13 Unfortunately, no figures are available for cost per meter i n West Siberia . Countrywide, cost per development meter rose 16 .6 percen t during the 10th Plan (ENP, No . 12-1981, p . 4), but the increase in Wes t Siberia must have been considerably higher . For the decade of the 1970 s as a whole, development and exploration combined, cost per meter in Wes t Siberia increased by 15 .3 percent, but most of that increase must hav e been concentrated in the three years from 1978 to 1980 (Starovoitov, p . 68) . 14 Starovoitov, pp . 67, 73, 83 . 15 Starovoitov, p . 45 . 16 Derived from ENP , No . 3 (1982), p . 22 . - 25 -
mechanizing production, so that by 1980 80 percent of West Siberia n wells were still free-flowing (though with the aid of pumped-i n water).17 Housing for oil workers by 1980 was only one-third of th e national average, and for workers from other organizations (particularly geologists) it was worse.18 The one major bright spot in infrastructural development was the growth of railroad capacity, whic h went from three percent of the oil industr y ' s supply needs to 33 percen t in five years, thus relieving the overburdened river-transport system . 1 9 The West Siberian oil industry, ii short, was solving its immediat e problem--that of producing the massive increase in drilling required b y Moscow--but storing up further trouble for the future through unbalance d development . Another portent of future trouble was that the West Siberia n industry continued to rest on a small base, despite efforts to broade n it . The number of producing fields did grow from 19 in 1975 to 46 i n 1980, but by 1980 nearly half the output of Tiume n ' province still cam e from Samotlor, whose output was pushed from 87 million tons in 1975 t o 154 .6 million in 1980, far beyond the limits that Siberian oilmen ha d been advocating only a few years before . 20 Yet the industry had littl e choice because, however quickly the flow-rates of new wells in th e established Siberian fields declined, those of newly-developed field s proved lower still (see Table 13) . Oil industry spokesmen in holiday speeches are fond of claimin g that since 1977 they have made major gains in efficiency nationwide, bu t one must beware : for the years 1978 to 1980 these were artifacts of th e move to West Siberia . As a result of such factors, the continued growt h of oil output between 1977 and 1980 nationwide was achieved with onl y about a ten percent increase in manpower over the course of the 10t h Plan, but it should be clear that this result was due mainly to the one - time gains produced by the geographic shift and not to fundamenta l improvements in the oil industry . 21 Within West Siberia itself, as w e
17 Starovoitov, p . 66 . 18 Starovoitov, p . 76 . 18 Starovoitov, p . 70 . 20 Derived from Starovoitov, pp . 64 and 65 .
- 26 -
Table 1 3
NEW WELL FLOW RATES I N NEW AND OLD WEST SIBERIAN FIELDS COMPARE D
(tons/day )
Date of development of field New well flow rat e 1975 198 0
prior to 1971 177 75 . 6 1971-1975 121 72 . 3 1976-1980 54 . 7
have noted, efficiency dropped .
B . EXPLORATION, 1977-8 0 Most of the increase in resources for West Siberian oil after 197 7 went to development, but exploration shared in the boom, too . Wes t Siberian oil exploration drilling doubled between 1975 and 1980 , reaching 1 million meters in that year (see Table 14) . 22 However, jus t as development dominated exploration, so within exploration downstrea m operations got most of the increase, to provide information to suppor t the rapid increase of development drilling . Thus, the share o f razvedochnoe drilling, which had declined to 57 percent of West Siberia n exploratory drilling (oil and gas combined) in the 9th Plan (1971-75) , rose sharply again to 66 percent in the 10th (1976-80), most of tha t increase presumably coming in the last three years of the plan . 23 Eve n within exploration, in other words, the bias was toward near-ter m results .
21 The estimate of ten percent is derived from the information tha t oil output per worker grew from 19 .3 percent during the 10th Plan (ENP , No . 12, 1981, p . 4) . Since total oil output increased by 31 percen t over the same period, one can then calculate a figure for the increas e in the labor force . 22 " K tiumenskomu millionu, " Pravda, December 14, 1980 . 23 Korchagin et al . (1983), p . 27 .
Table 41
TREND IN EXPLORATORY OIL DRILLING I N WEST SIBERIA, 1975-198 0
(thousands of meters )
197 5 1976 50 0 1977 (600 ) 197 8 1979 (763) 80 0 1980 100 0
Sources : 1979 parenthesis : Filanovskii (1980), p . 21, fo r Glavtiumengeologiia ; 197 7 parenthesis : A . Iudin, Sot - sialisticheskaia Industriia , 3/3/78 (also Glavtiumengeologiia) ; all others : Pravda, Decembe r 14, 1980, defined as " oi l exploration " .
In 1977-1980 the efficiency of West Siberian ex p loratory drillin g declined even more sharply than that of development drillling, since th e geologists had been undersupplied and underequipped for years, and wer e therefore not able to respond overnight to a sudden influx of resource s (see Table 15) . Most of the burden fell on Glavtiumengeologiia, th e Tiumen ' agency of the Ministry of Geology . Out of the total volume o f
Table 1 5
DETERIORATION OF PERFORMANCE INDICATORS IN GLAVTIUMENGEOLOGIIA, 1975-197 8
78/7 5 1975 1978 (in % )
Commercial speed (meters/rig .mo .) 1230 1005 81 . 7 Completion time (days/well) 155 .8 216 .5 139 . 0 Meterage per rig (m/yr .) 3755 3306 88 . 0 Labor productivity (m/man) 44 .5 37 .3 83 .8
Source : Filanovskii, Planovoe khoziaistvo, 3-80, p . 21 . - 2 8 -
West Siberian oil exploration, which grew 28 percent to about 3 . 4 million meters in the 10th , 24 all but about 0 .5 million was the work o f the Ministry of Geology . 2 5 These data, compared with those for oil exploration countrywide , suggest that the Ministry of Geology shifted about 10 percent of it s total drilling capacity to West Siberia in the space of three years, no t as dramatic a shift as that of the Ministry of Oil but apparently clos e to the limit of what Glavtiumengeologiia could absorb . The increase in exploration in West Siberia did not put an end t o the debates over Tiumen ' oil reserves or the long-term future of th e area . In 1979, an influential Tiumen ' geologist exclaimed :
The more insistently the question is raised about exploratio n of oil in the Siberian tundra, the more skeptics appear in th e way of the geologists . . . . Never once have the forecasts o f the Tiumen ' scientists been refuted in practice . On th e contrary, more than once reality has exceeded the most darin g of them . . . . Life shows that the Tiumen ' geologists hav e earned the right to special trust .
Behind the plea for " special trust , " however, lay a reluctant concessio n that the Tiumen ' geologists had not yet succeeded in proving the well - foundedness of their predictions . 25 At about the same tim e Glavtiumengeologiia ' s chief economist stated that half of the region ' s planned output for 1985 would have to come from fields that had not ye t been discovered! 27 In 1980, as once again the five-year targets came u p
24 The first figure comes from Brenner (1979), p . 88 . The secon d is a guesstimate from Pravda, December 14, 1980, op . cit . 25 This is another guesstimate . Trofimuk (1980) writes that in th e late 1970s the Ministry of Oil was putting only about 1/30 of it s exploratory effort into West Siberia . Roughly the same range o f meterage comes from a description of exploration by Glavtiumenneftega z in Geologiia nefti i gaza, No . 11 (1982), p . O . The article states tha t Glavtiumenneftegaz completed 183 exploratory wells in Tiumen ' in th e 10th Plan period . If one assumes an average depth of 2700 meters ( a representative depth, as reported in Tekhnicheskii progress, op . cit .) , then one arrives at a total of just under 0 .5 million meters . 26 I . Nesterov, " Pravo na doverie, " Pravda, July 22, 1979 . 27A .A . Geniush in " Tiume n ' : Kompleks i ego grani , " EKO, No . 3 (1979), p . 15 . - 2 9 - for debate, the unnamed " skeptics " had still not come around . Farman Salmanov, chief of Glavtiumengeologiia, acknowledged that if anythin g the controversy was growing :
In the second stage of development of West Siberia there ar e no fewer disputes than before, . . . I cannot agree wit h those who try to show that we have reached a peak i n . Tiumen'.28..
Salmanov went on to hint that the skeptics were located high up i n Moscow, in planning and policymaking circles . 29 But shortly before, th e new chief of Gosplan ' s oil and gas department, V . I . Filanovskii , appeared to endorse the Tiume n ' position, when he wrote that exploratio n conducted during the 10th Plan had refuted the theory that there was n o oil to be found north of the 64th Parallel . 30 Since 1978, in othe r words, lack of high-level support does not seem to have been the mai n problem in West Siberia . The main reason the debates raged on is that Siberian geologist s were unable by 1980 to reverse the worrisome reserves trend in Wes t Siberia . Though gross additions to total reserves (i .e ., A+B+C 1 +C 2 ) increased slightly from the 9th to the 10th Plans, the more immediatel y important category of proven and probable reserves (A+B+C 1 ), which ha d been one of the chief concerns of 1976 andd 1977, continued to pos e problems . 31 In 1980 Academician A . A . Trofimuk, one of the leadin g authorities on Siberian oil and gas, wrote that the " ratio of output t o additions to reserves is worse than in the other regions . "3 2 No new giant fields were discovered ; instead, additions to reserve s came either from further exploration of established fields or fro m increasingly unattractive new locations . The latter showed a revealin g
28 Farman Salmanov, " V sporakh rozhdaetsia . . . nef t ' , " Sotsialisticheskaia Industriia, July 12, 1980 . 29 Ibid . 30 Filanovskii (1980), op. cit., p. 19. 31 Efremov in Starovoitov, pp . 59 and 61 . 32 A . A . Trofimuk, " Neft ' i gaz Sibiri, " Sotsialisticheskai a Industriia, July 1, 1980 . - 3 0 - discrepancy between potential and proven reserves : the average new field discovered during the 10th Plan was reported to contain 39 percen t as much potential reserves (A+B+C 1 +C 2 ) as the average field discovere d before 1966, but only 12 .3 percent as much proven and probable reserve s (A+B+C 1 ) . Such a gap between confirmed and unconfirmed reserves coul d only stimulate further skepticism and controversy about the region ' s prospects . Meanwhile, even such unconfirmed additions were growing muc h more expensive to discover : during the 10th Plan one ton of gros s additions to A+B+C 1 +C 2 reserves cost 3 .3 times what it had ten year s before . 33 Reluctant planners began to realize that dispelling th e uncertainty surrounding West Siberia ' s oil future in the 1980s woul d require a substantial further increase in exploration expenditure , particularly for upstream operations . In 1980, as the leaders and planners reviewed the results of th e three-year crash effort and debated their strategy for the 11th Pla n (1981-85), three things must have been evident to them . First, th e shift to West Siberia had enabled the industry to skim dramatic one - time gains from the region ' s shallower wells, higher new-well flo w rates, simpler geological formations, and greater concentration o f production in a few large fields . These advantages, though fadin g steadily, still remained great . Sound strategy, therefore, called fo r continuing the transfer of the industry ' s resources to Siberia, whil e continiung to limit the decline of the older regions . Second, the impact of the previous three years on the efficiency o f the oil industry in West Siberia had been disastrous . Unless th e rocketing costs could be slowed, even doubling oil investment in th e region in the first half of the 1980s would not be enough to enable Wes t Siberian output to offset declines elsewhere . Third, the previous three years had confirmed the weakness o f exploration crews in Tiumen ' and had failed to dispel the uncertaint y over West Siberian prospects . Moreover, the immediate need fo r downstream exploration to support development of new fields wa s preventing the geologists from stepping up the search for new prospects . It was far from clear whether the regio n ' s claimed potential would eve r be confirmed, but the only way to find out was to invest still more .
33 Starovoitov, p . 59 . - 31 -
III. SOVIET OIL POLICY SINCE 198 0
In 1980, as the energy program of the 11th Five-Year Plan was bein g debated, energy economists presented to the planners a chart showin g them what it would cost to keep the share of oil in total energy balanc e consumption the same as in the previous five years . Capital investmen t in oil, the economists said, would have to increase between 3 .7 and 3 . 8 times, i .e ., from 26 .2 billion rubles to over 97 billion, more than hal f again as much as the investment increase planned for all of Sovie t industry.1 The planners chose instead to limit the 5-year investmen t increase to 63 percent and adopted a more modest 1985 output goal of 63 0 million tons, set in 1976 for 1980 but not reached . 2 Modest as the 1985 goal may have appeared, though, in reality i t required the oil industry to continue juggling the same two desperat e tasks : to limit the decline of the older oil regions from 290 .6 million tons (1980) to between 240 and 245 in 1985, while boosting West Siberia n output from 312 .6 million (1980) to between 385 and 390.3 The oi l industry, for its part, was evidently willing to allow oil output t o peak ; they initially proposed a 1985 West Siberian target of 350 millio n tons . But the planners would not hear of it . As in the previous tw o five-year plans, the planners sharply raised the oil industry ' s initia l proposed West Siberian target, this time by about 10 percent . 4 Was such an increase possible? Economists ' calculations told th e planners that by 1985 even West Siberia would reach a depletion ratio o f more than 85 percent (that is, more than 85 percent of the gros s increase in West Siberian output would be compensating for declines
1 The cost of this " inertia l " option is discussed in Makarov an d Melent ' ev, Energeticheskii kompleks SSSR, p . 165 . 2 The planned increase in oil investment was announced in Neftiano e khoziaistvo, No . 4 (1982), p . 6 . 3 The 1985 target for West Siberia comes from V . Lisin, "Proschet y v raschetakh, " Pravda, April 3, 1984 . 4 The oil industry initially volunteered 350 million tons for Wes t Siberia . See Lisin, op . cit .
- 32 -
elsewhere in the region), the new well flow rate would drop to littl e over 40 percent of its 1980 level, and the marginal capital cost of eac h to n ' s gross addition to capacity would rise to 2 .3 times the 1980 level . To reach its goals against such a gradient, the oil industry determine d to triple its drilling in West Siberia while doubling it overall (se e Tables 3 and 4) . Investment was similarly biased toward West Siberia : Out of the total increase of 16 .5 billion rubles o f the oil industry in the 11th Plan, West Siberia was slated to receive about 10 .7, or nearl y two-thirds . 5 Yet since 1981 the planners may have set the 1985 targe t for West Siberia higher still, possibly as high as 395 million tons . 6
Table 1 6
ANTICIPATED DECLINE OF MAJOR WEST SIBERIAN OIL INDICATOR S (1970-1985 )
1970 1975 1980 1985 (est . )
Depletion ratio (%) 26.9 34 .7 49 .0 85 . 7
New well fow rat e 111 .8 148 .7 66 .2 28 . 2 (tons/day)
Capital costs per ton 100 .0 N/A 150 .0 345 . 0 of gross addition t o capacity (1970=100)
Source : Starovoitov, pp . 64, 67, 63, 81 .
5 The nationwide increase is derived from NKh, No . 4 (1982), p . 6 ; the West Siberian share is derived from the information that th e regio n ' s oil investment is scheduled to double during the 11th Plan (S . D . Ageeva and B . P . Orlov, " Nekotorye cherty inestitsionnogo prosessa v zapadno-sibirskom neftegazovom komplekse, " Investiia Sibirskog o Otdeleniia Akademii Nauk SSSR [seriia obshchestvennykh nauk], No . 11 , 1982, pp . 85-89), together with the statement that West Siberia i s receiving half of the total oil investment during the same period (NKh , No . 3 (1982), p . 4) . 6 Derived from Neftianoe khoziaistvo, No . 4 (1982), p . 3 . Such an increase would be consistent with the pattern of the past : every yea r from 1973 to 1980 the planners had raised targets year by year above th e levels initially set in the five-year plan .
- 3 3 -
In short, the oil industry at the beginning of the 11th Five-Yea r was being asked to continue the same desperate race as in the previou s three years . Yet at the same time, to meet its targets with the mean s given to it, the industry had to raise its productivity (see Table 17) . The chief question for the industry in the first half of the 1980s, wa s the extent to which it could make such gains in productivity on the run , or if it could not, where it could make sacrifices and with wha t consequences . In this concluding section we review the main elements o f the oil industry ' s strategy for the 1980s and evaluate the result s reported so far .
A . EXPLORATION IN THE 1980 S The pattern of spending on oil and gas exploration since 1980 show s a somewhat expanded commitment, but not as great as that for developmen t and production . Total spending on oil and gas exploration grew fro m 3 .15 billion rubles in 1980 to about 3 .5 billion in 1982 . But the shar e of exploration in total spending on gas and oil has continued t o
Table 1 7
QUALITATIVE 5-YEAR DRILLING GOALS (1980-1985 )
(Ministry of Oil Industry ) (combined development and exploratory)
1980 198 5
Meterage per brigade per year 14,000 22,00 0 Commercia l speed (meters per 1,791 2,807(a ) rig-month development) Completion time per well (days) 52(b) 44(b ) Uncompleted wells per brigade 5 .7 3 . 2 Hole per bit (meters per bit) 73(c) 140-150(c ) Labor productivity up 35% over 1980(d )
Sources : ENP, No . 3 (1982), p . 6 . (a) Exploratory commercial speed to increase from 30 percent ; development from 60 percent (NKh, No . 12 (1982), p . 67) . (b) These figures appear also in ENP, No . 12 (1981), p . 2 . (c) NKh, No . 12 (1982), p . 67 . (d) NKh, No . 6 (1982), p . 5 . - 3 4 - decline, dropping from 32 percent in 1980 to 20 percent in 1982 . 7 Tha t is unlikely to be enough to support the 29 percent increase i n exploratory drilling that the 11th Plan calls for . 8 Drilling increase d only slightly in 1981 and stagnated in 1982 (see Tables 3 and 4) . The five-year plan figures do suggest that the relative neglect o f West Siberian exploration is gradually being overcome, but more slowl y as yet than the region ' s contribution to reserves would appear t o warrant . Both the Ministries of Geology and of the Oil Industry ar e supposed to double their exploratory drilling in West Siberia by 1985 , which would bring the total to about 10 million meters for the 11t h Plan . 9 Most of the burden, as in the past, is to be borne by th e Ministry of Geology, which continues to perform some 90 percent of th e exploratory drilling . For these targets to be met the Ministry o f Geology must continue transferring its operations east of the Urals an d perform 40 to 50 percent of its oil exploration work there, while th e Ministry of the Oil Industry continues to direct most of its explorator y work elsewhere . Yet the Tiumen ' " patriots " are still not satisfied . Chie f geologist Farman Salmanov, ever on the warpath, wrote in late 1982 that , " the pace of exploration corresponds neither to the country ' s need no r to its possibilities . 10 In mid-1983 Academician Abel Aganbegian calle d upon the Ministry of Oil to help out :
The means available to the geological organizations are stil l rather limited . The Ministry of the Oil Industry should hel p them by increasing its razvedochnoe drilling near th e developed fields of the Middel Ob ' region, so that th e geological organizations can move out more quickly to th e poorly explored northern regions and increase their volume o f prospecting (poiskovoe) drilling . "
7 These figures leave out of account much of the investment i n equipment for gas transmission . Thus the share of exploration woul d appear lower still if the latter were included . 8 Ekonomicheskaia gazeta, No . 5 (January) 1983, p . 1 . 9 The Ministry of Geology ' s targets are reported in Sovetskai a geologiia, No . 3 (1982), p . 4, while those of the Ministry of Oil can b e found in Geologiia nefti i gaza, No . 11 (1982), p . 12 . 10 Salmanov, " Chtoby plast . . . ," op . cit . - 3 5 -
The theme that more " upstream " emphasis is needed reflects a countrywide trend that has geologists worried : Since 1978 the share o f razvedochnoe drilling has been growing, provoking protests fro m technical specialists that the geologists are now underinvesting in th e upstream stages of exploration . The results, they predict, will b e " arrythmia, " a shortage of new regions and structures identified fo r development preparation . Since the prevailing incentive structur e rewards additions to " industrial reserves " (i .e ., A+B+C 1 ), there is a natural tendency to increase the share of downstream operations, whic h lead directly to such additions . 1 2 But in West Siberia, where the problem of adding to A+B+ C 1 reserve s has been especially acute, geologists have added reason to focus thei r scarce resources on downstream operations to support development . As before there is still no agreement over the region ' s long-ter m prospects . An effort in 1981 to arrive at a consensus among th e geologists in various research institutes produced only the cautiou s conclusion that West Siberian reserves of oil, gas, and condensate wer e " sufficient " . 13 As of 1982, according to another source, the forecast s of Siberian oil prospects by various agencies differed from one anothe r by " 50% and more " . 14 In early 1984, a meeting in Tiumen ' of th e country ' s top planners and energy officials was treated to a dramati c illustration of the continuing wide disagreements among the experts : the long-term estimates presented by Farman Salmanov, head of th e Tiumen ' geological service, were bullish as always ; while thos e presented by R . Kuzovatkin, head of Tiumen ' s oil industry, were far mor e pessimistic . The two officials were instructed to produce a common estimate, but it is hardly likely that the Siberian geologists and th e oilmen will be any more able to agree now than they have over the las t 5 fifteen years . 1
11 Abel Aganbegian, " Toplivo Sibiri, " Pravda, August 1, 1983 . 12 N . I . Buialov, V . I . Korchagin, " Izmenenie sootrosheniia zatra t v zavisimosti ot etapa i stadii provedeniia geologorazvedochnykh rabo t na neft ' i gaz, " Ekonomika neftianoi promyshlennosti, No . 8 (1982), pp . 15-16 . 13 Sovetskaia geologiia, No . 3 (1982), p . 4 . 14 Starovoitov (ed .), op . cit ., p . 14 . 15 Iu . Perepletkin, " Energeticheskii potentsial Sibiri , " Izvestiia , March 24, 1984 . - 3 6 -
In particular, Soviet oil literature has grown more cautious abou t north Tiumen ' , in particular, which raises the suspicion that most o f the claimed oil finds there are turning out to be condensate . Th e priorities for Siberian exploration in the 11th Plan, outlined in 198 2 by the RSFSR Minister of Geology, were revealing : of the five region s listed for special emphasis, north Tiumen ' came last . 16 Although th e article spoke of adding to the industrial reserves of oil identified a t such north Tiumen ' locations as Urengoy, Gubkin, Tax, Vyngapur, an d Yamal as " first-priority tasks " , the five-year plan for north Tiumen ' calls for surveying and prospecting only and targets only 6 0 structures,17 mostly clustered around Urengoy . The minister was clearl y more excited about recent interesting discoveries at paleozoic level s farther south, particularly a well at Khanty-Mansiisk, drilled in 1982 , that yields a flow of 426 tons per day at 3062-3152 meters . Studie s suggest that the Khanty-Mansiisk deposit may be part of a deep structur e covering much of Tiumen ' (south and north), Tomsk, and Novosibirs k provinces . The paleozoic zone may thus promise the equivalent of a ne w oil province, but further investigation is hampered by the lo w efficiency of seismic mapping in the prevailing complex structures, s o that.18 the productiveness of exploration so far has bee n low Such enduring uncertainty over the region ' s reserves is lending a gloomy tone to recent literature from Siberia . Oil specialists ther e seem to be resigning themselves once and for all to the prospect tha t future additions to reserves will come primarily from small, poorl y accessible, and geologically complex formations . This will greatl y raise costs (more about that below) but also imposes a practical uppe r limit to West Siberian output . A recent source hints that West Siberia n production should be allowed to peak about 1990 and warns that outpu t could drop precipitously if attempts are made to keep boosting Wes t Siberia output as in the past . 1 9
16 Geologiia nefti i gaza, No . 12 (1982), p . 8-15 . The other fou r top-priority regions listed ahead of north Tiume n ' , are (1) the souther n part of the Nizhnevaztovsk arch, (2) the northern part of the Surgu t arch ; (3) the Krasnoleninsk arch ; and (4) the Salym region . 17 Ibid ., p . 9 . 18 Ibid ., p . 10 . 19 Starovoitov, p . 14 . Under the current five-year plan West - 3 7 -
Soviet leaders may still prefer to believe, however, that more an d better exploration can still transform the situation . The officia l Energy Program, which was finally published in the spring of 1984, call s for an increase in Siberian exploration and continued growth in Wes t Siberian output through the early 1990s . 2 0 The question is, what wil l such a policy cost ?
B . DEVELOPMENT AND PRODUCTION SINCE 198 0 Soviet sources say that the slide in efficiency indicators in Wes t Siberian development and production, particularly in drilling, wa s halted in 1981 and reversed in 1982 . 21 The main reason is the growin g use of cluster drilling, which involves sinking multiple wells , currently 10 to 12 but eventually as many as 80, from a singl e platform . 22 This yields dramatic savings in infrastructure, rig - assembly costs, etc ., since drilling platforms can remain in position for two or three years at a time, thus reducing non-productive time . Cluster drilling does have some disadvantages . Well-finishin g teams waste time waiting for the wells in the cluster to be drille d before the process of testing, finishing, and bringing into productio n can begin ; as a result, the share of uncompleted projects rise s sharply . 23 A second problem is that cluster drilling requires 15-3 0 percent more hole per well to compensate for deviations from th e vertical ; these currently average about one kilometer per hole but wil l increase to two kilometers as the number of wells in each cluste r increases . 24 The slant in the wells, in turn, complicates the job of - extracting oil : with traditional pumps, inconvenient buildups of resi n
Siberia ' s share of total Soviet output is supposed to reach nearly 6 3 percent . An article by A . A . Makarov in the Starovoitov book recommend s that the West Siberian share not be pushed beyond 68 percent . Sinc e output from non-Siberian regions is already declining, stabilizing th e West Siberian share is tantamount to allowing West Siberian output t o fall . 20 Programma, etc ., Ekonomicheskaia gazeta, No . 12 (1984) , centerfold . 21 ENP, No . 4 (1982), pp . 6-17 . 22ENP, No . 9 (1982), p . 2 . 23 ENP, No . 8 (1982), p . 3 . 24ENP, No . 3 (1982), p . 7 . - 3 8 - and paraffin take place (especially at Samotlor), eventually obstructin g the wells and forcing downtime for maintenance . 25 These problems wit h cluster drilling are apparently minor in comparison with the gains , however, and the oil industry is pushing ahead with plans to develo p super-clusters of 70-100 wells apiece . Aside from cluster drilling, most of the industry ' s strategy fo r boosting drilling and oil output in West Siberia remains extensive, eve n though the industry,vigorously asserts otherwise . The number o f drilling brigades permanently attached to Glavtiumenneftegaz, afte r doubling during the first three years of the oil campaign, is schedule d to double again during the 11th Five-Year Plan (see Table 22) . 2 6 Drillers on loan from other regions (vakhtovoekspeditsionnye rabochie ) are supposed to contribute 2S million meters during the 11th Plan, ou t of a planned total for the region of 77 million . 2 7 In short, the drive to transfer resources to West Siberia i s continuing, but judging from the fact that the planned doubling in th e number of drilling brigades and the doubling of investment ar e anticipated to produce no more than a doubling of drilling meterage, th e planners and the industry, despite the official rhetoric, are evidentl y not expecting major gains in efficiency ; at best, they are hoping t o hold the line . Confronted with the prospect of an endless increase in drilling , the oil industry is trying to slow costs by giving more emphasis t o efficient well operation and field development . The program contains three main parts : (a) First, improve d efficiency of production, notably through increased use of gaslift an d electric submersible pumps ; (b) second, improved total recovery through more sophisticated waterflooding and enhanced-recovery techniques ; and
25 NKh, No . 6 (1983), p . 31 . 26ENP, No . 4 (1982), p . 18 . 27 Mal ' tsev, in NKh, No . 4 (1982), p . 3 . In 1982, flown-in team s drilled 4 .736 million meters in Tiume n ' and Tomsk (GNG, No . 5 (1983), p . 3), about one-third of the West Siberian total . This may have bee n slightly less than planned . According to one source, the planned shar e for flown-in drillers for 1982 was supposed to have been 38 percent . (Planovoe khoziaistvo, No . 28 (1982), p . 125 .) In 1983 the shar e reached 40 percent (Pravda, April 3, 1984) .
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(3) third, greater attention to maintenance and repair of existin g wells . In the next three subsections we briefly review all three , before drawing their implications for the Soviet program as a whole .
1) Improved efficiency of production : As any oil field ages, the underground pressure drops and the flo w rate declines . When that happens, oil must be helped to the surface , either by raising the underground pressure artificially or by installin g pumps . Standard Soviet practice since the 1940s has been to accelerat e the yield of oil by pumping water into their fields from the start . This delays the moment when pumps or lifts must be installed, but in th e long run "mechanization " (as the Russians call it) is necessary . A s Table 18 shows, the share of free-flowing wells in West Siberia is muc h higher than in the rest of the country, reflecting their lesser age . But in the early 1980s for the first time, West Siberian oilmen mus t follow the road that the older fields have traveled . Instead of th e inefficient sucker rod pumps of the last generation, though, th e
Table 1 8
SHARE OF FREE FLOWING WELLS IN SOVIET OIL OUTPU T
(percent )
countrywide West Siberia
1965 64 .4 99 . 1 19 7 0 98 . 7 1973 40 1975 85 . 9 1980 80 . 4 1981 1 5 1985 (plan) 12
Sources : Countrywide : 1965, 1973 : Campbel l (1976), p . 26 ; 1981, 1985 : ENP, No . 3 (1982), p . 6 . West Siberia : Starovoitov, p . 66 . Note : The countrywide figures refer to numbers of wells ; the West Siberian figures refer to the share of oi l produced by each type .
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industry needs something more powerful . The two most promisin g techniques are gaslift and electric submersible pumps . a) Gaslif t Gaslift involves recycling associated gas back into the well t o make the oil-water mixture more buoyant, so that it rises to the surfac e faster . Soviet experiments with imported gaslift equipment began i n 1972 in West Siberia and the technique has been adopted as a major too l in the 11th Five-Year Plan . 28 Four thousand five hundred gaslift unit s are to be installed during the current five-year plan, 29 at a cost o f over 1 billion rubles in capital investment . More than one-third of th e new units are to be located at Samotlor . " The lift units at Samotlor are French equipment supplied b y Technip . 31 But the Soviets evidently hoped to build and install th e ancillary compressor stations and gas-feeder networks themselves, an d
Table 1 9
INSTALLATION OF GASLIFT UNIT S
Plan Actua l
198 2 60 0 198 3 120 0 11th Five-Year Pla n 4500
Sources : 11th FYP : ENP, No . 3 (1982), p . 6 ; 1982 and 1983 (plan) : ENP, No . 1 (1983), p . 1 .
28 Neftianoe Khoziaistvo, No . 3 (1982), pp . 53-55 . 29ENP, No . 3 (1982), p . 6 . 30 Ekonomicheskaia gazeta, No . 8 (1981), p . 7 . 1500 units were t o be installed at Samotlor between 1981 and 1983 at a cost of about 49 0 million rubles . An American correspondent, based on local interviews , reported in 1981 that 1400 of Samotlor ' s 3000 wells would be equippe d with gaslift and another 600 at Fedorov (Robert Gillette, " Russi a Expected to Mount Major Drive to Avert Decline in Oil Output, " Lo s Angeles Times, January 6, 1981, p . 1) . 31 A contract with Technip was signed in October 1978 for 85 0 million francs . (Los Angeles Times, op . cit .)
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that part of the program is in trouble . 32 At various times there hav e been reports that the gaslift program at Samotlor has been runnin g behind schedule, most recently, according to the minister of oil , because construction crews have been slow to install the gas-feedin g networks . 33 In early 1984, the gaslift program at Samotlor was reporte d to be moving slowly, because the ministry responsible for the necessar y equipment was lagging . 34 Despite these problems and despite the high initial costs o f gaslift, the industry has every incentive to press ahead with it s program because gaslift needs much less maintenance and repairs tha n other systems, and because it is especially well-suited for cluste r wells, 35 which as we have seen are a part of the oil industry ' s hope s for increasing efficiency in West Siberia . Gaslift is also an importan t part of the industry ' s plans for increasing output of heavy oils . B y 1985, according to plan, 50 percent of output from the Mangyshla k Peninsula in Kazakhstan is to be produced by gaslift . 3 6 b) Electric Submersible s The other key part of the mechanization program is to install mor e
32 A domestic model of a (-megawatt centrifuge compressor has bee n under development at a plant in Kazan ' , and the first two units wer e sent off to Samotlor in late 1981 . These are the first of a series o f seventeen to be produced by 1985, designed to supply gas under pressur e for several clusters of wells simultaneously ( " Adresovano neftianikam, " Pravda, September 12, 1981) . But as of 1983, only one more compresso r station 'which was still described as " experimenta l " ) had been installe d at Samotlor, and there were hints that the first two had been based o n foreign equipment ( " Vtoroe dykhanie neftianogo plasta, " Izvestiia , October 23, 1983) . 33 Neftianoe khoziaistvo, No . 4 (1982), pp . 3-8 ; Ekonomicheskaia gazeta, No . 5 (1982), p . 2 ; and Ekonomicheskaia gazeta, No . 15 (1983) , p . 7 . 34 V . Lisin, " Proschety v raschetakh , " Pravda, April 3, 1984 . Th e ministry concerned is the Ministry for Chemical and Petroleu m Machine-Building . r 35 Neftianoe khoziaistvo, No . 3 (1982), p . 55 . 36 Khazakhstanskaia pravda, November 21, 1982 . - 42 -
modern and reliable electric submersible pumps (see Table 20) . Th e attraction of electric submersibles is their high capacity . Sovie t models can extract 250 to 500 cubic meters a day (and the better model s as much as 700), compared to 30 or 40 cubic meters for the traditiona l sucker-rod pump . 37 However, until now Soviet electric submersibles hav e been very unreliable and req uired frequent repairs (Table 21) . Th e success of the program, then, depends on whether the suppliers (in thi s case, the Ministry of Chemical and Petroleum Machinery), can produce th e pumps in sufficient number and quality . As of late 1983, there wer e still frequent complaints on both counts . 38 Users protest that th e pumps cannot be used as they arrive from the manufacturer, but have t o be repaired beforehand . 39 Once that has been done, as at Iugansk i n
Table 2 0
NUMBER OF WELLS TO B E EQUIPPED WITH ELECTRIC SUBMERSIBLE S
1969 5,20 0 1975 8,58 5 1982 about 16,00 0 1983 (plan) about 18,00 0 1985 (plan) about 24,000
Sources : for 1969 and 1973 : Campbell (1980), p . 223 ; Th e figure for 1982 is derived from the total number o f mechanized wells at the end of 1982 (78,000, as given b y Neftianoe khoziaistvo, No . 8 (1983), p . 28) and th e share of electric submersibles in that total (20 percent, a s given in Neftianoe khoziaistvo, No . 6 (1982), p . 7) . The 1983 plan called for 2100 more units (ENP, No . 1 (1983), p . 1) .
37 A . Gumeniuk (general director of Kominef t ' ), " Zaiavka neftianog o promysla, " Sotsialisticheskaia Industriia, August 7, 1932 . 38 Most of the electric submersible units come from two plants : th e
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Table 2 1
AVERAGE TIME BETWEEN REPAIR S (DAYS), 1976, 197 9
1976 197 9
Free-flowing wells 773 101 4 Sucker-rod 230 24 0 Electric centrifuge 91 9 8 Gaslift 516 472
Source : Tekhnicheskii progress, op . cit . (1981) , p . 106 .
West Siberia, electric submersibles average 390 days between repairs . 4 0 But this only underscores that Soviet industry has a long way to go t o support the program adequately . 2) Well Maintenance and Repai r The industry hopes to increase the average number of days betwee n well repairs from 146 days per well in 1980 to 185 in 1985 . 41 There i s some basis in reality for such targets, as one can see from the stead y drop in the number of men needed to service one well for one year (se e Table 22) . The gains have been especially great in Tiumen ' , where th e manpower required per well-year dropped by nearly half between 1975 an d 1981 . 4 2 Nevertheless, the gains per well are offset by the vast increase i n the total number of producing wells planned for 1985 . Even i f efficiency targets are met, the industry will require nearly 40 percen t more men for maintenance and repair, with much of that increase comin g during the last three years of the current plan . West Siberia will be a
" Boret s " in Moscow and the Al'metevsk Electric Submersible plant i n Tatariia, both belonging to Minkhimmash . 39 Aganbegian, Pravda, August 1, 1983 ; Lisin, Pravda, September 30 , 1983 . 40 Ekonomicheskaia gazeta, No . 40 (1983), p . 8 . 41Ekonomika neftianoi promyshlennosti, No . 3 (1982),. p. 6 42 Derived from ENP, No . 11 (1982), pp . 1-3, and ENP, No . 3 (1982) , p . 7 .
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Table 2 2
MANPOWER REQUIRED FOR WELL MAINTENANCE AND REPAIR, 1975-198 5
1975 1980 1982 1983 (plan) 1985 (plan )
Men per well/year 1 .93-2 .05 1 .66 1 .56-1 .60 1 .49-1 .52 1 .41-1 .4 2 Number of producing 68,000 82,000 88,771 129,00 0 wells (Jan 1 ) Implied total service 136,000 142,000 182,000 personnel (1 x 2) men me n
Sources : Producing wells : 1973 : Wilson (1980), p . 63 ; 1980 : NKh , No . 4 (1981), p . 5 ; NKh, No . 6 (1982), p . 6, and NKh, No . 1 2 (1982) p . 5 ; 1985 (plan) : NKh, No . 12 (1982), p . 11 . (NKh , No . 4 (1982, p . 6, gives 122,500), men per well year : 1975 : Higher estimat e comes from EG, No . 15 (1983), p . 7 ; lower from NKh, No . 1 2 (1982), p . 65 ; 1980 : NKh, No . 12 (1982), p . 65 ; 1983 : derived fro m ENP, No . 1 (1983), pp . 1-3 ; 1985 : derived from ENP, No . 3 (1982), p . 3 .
special problem, because of the rapid growth of that regio n ' s share o f total wells . Yet in West Siberia the man power requirements of th e drilling program have been so overwhelming that drilling crews ar e drawing away an ever-larger share of workers from other purposes , including well maintenance (see Table 24) . Significantly, the mos t
Table 2 3
NUMBER OF PRODUCING OIL WELLS, 1972-198 5
(development and exploratory combined )
All-Union West Siberi a
1972 53,00 0 1982 88,800 15,00 0 1985 (5-Yr Plan) 122,500(a ) 129,000(b) 32,00 0
Sources : 1972 : Campbell, Trends, p . 29 ; 1982 : All-Union : NKh, No . 6 (1982), p . 6 ; West Siberia : GGJ, June 27, 1983, p . 26 ; 1985 : All Union : (a) NKh, No . 4 (1982), p . 6 (b) NKh, No . 12 (1982, p . 1 1 West Siberia : NKh, No . 4 (1982), p . 45
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Table 2 4
ALLOCATION OF OIL INDUSTRY MANPOWER I N WEST SIBERIA, 1975-1985 , AS OF TOTA L
1975 1980 1985 (forecast )
Drilling 14 .7 18 .8 24 . 1 Oil Production 9 .0 10 .2 14 . 4 Construction 11 .0 8 .0 ' 5 . 6
Source : Starovoitov, p . 83 .
recent difficulties of the Siberian oil industry (about which mor e below) appear to be due not to drilling but to neglect of the othe r tasks involved in development, particularly well maintenance an d repair . 4 3 Improving well maintenance and repair is complicated by the fac t that, in the prestige hierarchy of the Soviet oil industry, these task s traditionally rank at the bottom . 44 Thus the head of well maintenanc e and repair in Surgut, one of the major Tiumen ' regions, complains he i s neglected by his agency and that manpower and equipment are short, whil e the workload continues to climb . 4 5 As in other parts of the efficiency program, progress require s adequate support from other ministries . One example is corrosio n control . Because of the Soviets ' extensive use of waterflooding, thei r wells produce vast quantities of water laden with salts and othe r
43 Lisin, " Proschety . ." op . cit . (1984) . 44 M . Zaripov and A . Podo l ' skii, " Truduyi gorizont , " Sovetskai a Rossiia, December 7 and 8, 1982 . 45 On Tatariia, see R .T . Bulgakov (formerly head of Tatneft ' , recently removed as head of Glavtiumenneftegaz) and A .K . Mukhametziano v (head of Tatneft ' ), " Neftegazodobyviaushchii raion posle ego zenita, " Ekonomika i organizatsiia promyshlennogo proizvodstva, No . 1 (1981), pp . 110-148 . In Surgut, the head of the directorate for well maintenanc e and enhanced recovery, writes, " Both the glavk and the ob " edinenie loo k through their fingers at our troubles . There are neither enoug h specialists nor housing for them . They give us little specialize d equipment . The volume of work is growing, but the directorate ' s staf f is not . " Sotsialisticheskaia Industriia, August 20, 1983 .
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substances that create plugs, deposits, and corrosion . This problem i s growing fast, yet only 4700 wells a year are getting anti-corrosio n treatment, 46 because the chemical industry is not producing enough o f the chemicals req uired . 4 7 3) Enhanced Recovery . All over the world oil co mpanies are forced to leave unrecovered 4 0 to 80 percent of the oil known to be present ; and in every countr y oilmen are searching actively to increase total recovery . The Sovie t Union is no exception, but in that country enhanced recovery (which i n the Soviet definition includes waterflooding) has undergone a curiou s political history . In the early and mid-1970s, so great was th e opposition among planners and certain oilmen to taking the plunge int o Siberia that enhanced recovery became a rallying cry, a convenien t justification for continuing to allocate resources to the older oi l regions instead . Only in the last couple of years has the program come down to earth and begun to tackle the tasks of enhanced recovery in a more modest and systematic fashion . Yet even now progress is hindere d by competition between two principal approaches : a newly revitalize d " old " approach waterflooding and a new approach, tertiary recovery , which is risky and experimental but popular among oil planners an d technocrats .
a) Waterfloodin g The favorite Soviet method of enhanced recovery is waterflooding , which has been in wide use since World War II and now accounts for ove r 90 percent of all Soviet oil production . " Soviet sources claim that i t enables the industry to produce 250 million tons more each year than th e existing development infrastructure (wells, pumps, etc .) could yiel d otherwise, at a saving of some 25 billion rubles over the las t generation . 49 What is beyond dispute is that with waterflooding one can
46 Neftianoe khoziaistvo, No . 6 (1982), p . 8 . 47Sovetskaia Rossiia, December 8, 1982 . 48 R . Sh . Mingareev, G .E . Grigorashchenko, A .P . Smirnov et al . , Tekhnicheskii progress v neftianoi promyshlennosti v desiatoi piatiletk e (Moscow : " Nedra, " 1981) . 49 V .M . Iudin (deputy minister of oil in charge of enhanced-recovery - 4 7 - bring a new field up to maximum output faster than without ; thu s Samotlor reached its peak in ten years . But Soviet oilmen claim furthe r that waterflooding also produces higher total recovery than othe r countries obtain, 43 percent for the Soviet Union versus 33 .3 percen t for the United States . 50 Thus, they classify waterflooding not simpl y as a means of accelerating output or achieving lower cost (which it doe s by extending the free-flow period of a well), but as a true means o f enhanced recovery . Western oilmen have long been dubious about this last claim, an d waterflooding figured prominently in the logic of the CI A's pessimisti c 1977 report on Soviet oil . The complex technical issues involved nee d not detain us here, except to note that the dire consequences predicte d by the CIA ' s analysts in the late 1970s, particularly a premature an d sharp decline of production at Samotlor because of unwise waterfloodin g practices, have not yet occurred . But, as we shall see, waterfloodin g is very controversial among Soviet oilmen . Waterflooding involves injecting water into an oilfield so as t o push oil toward the oilwells and up to the surface . It requires an elaborate network of pumps and pipes and frequently water-treatmen t equipment, as well as (in special situations) boilers for heating wate r or generating steam . Since the injected water soon breaks through t o the oilwells, what comes up to the surface is a complex and ofte n viscous mixture of oil, water, and gas which must be separated b y additional equipment . As the field ages, the proportion of water in th e mixture (the " water cut " ) tends to increase . In many older Sovie t fields the water cut has reached 85 to 90 percent, so that pumped well s in late stages of development are working largely to raise water . Each year the Soviet oil industry pumps into its oilfields th e 5 1 equivalent of a small river (1 .84 billion cubic meters in 1982), consuming about one percent of all Soviet electricity for this on e purpose alone . " Recently the volume of water pumped has been rising a t
programs) and M .L . Surguchev, " Polnoe ispo l ' zovanie resursov nedr , " Neftianoe khoziaistva, No . 12 (1983), p . 54 . 50 " Vozmozhnosti neftianogo plasta , " Ekonomicheskaia gazeta, No . 8 (1982), p . 2 . 51 Narodnoe khoziaistvo SSSR 1982, p . 98 . "Neftianoe khoziaistvo, No . 1 (1983), p . 53 . Pumping water in th e early 1980s required 13 billion kilowatt-hours per year .
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about 9 percent a year, and the water cut in. 1982 reached 62 .2 percen t natio :iwide . 53 Nor is this simply a phenomenon of the older oilfields : waterflooding has been used in West Siberia since the beginnings of oi l development, and the water cut there, while still lower than th e national average, is rising faster . Recent trends in waterflooding ca n be seen in Table 25 . From the foregoing it might appear that waterflooding and th e increase in the water cut are inexorable processes, and that the Sovie t oil industry is on an uphill treadmill . That was the gist of the CIA ' s 1977 report, which projected that the water cut world rise by 1980 t o between 65 percent (under optimistic assumptions) and 80 percent (unde r pessimistic ones), with corresponding requirements for water pumped . The CIA was roundly criticized for these projections, 54 although i n actual fact their " optimistic " scenario seems to be coming to pass, i f
Table 2 5
INCREMENTAL PRODUCTION ATTRIBUTABLE T O ENHANCED-RECOVERY METHODS, 19 75 -198 5
(millions of tons/year )
1975 1 . 5 1980 2 . 7 1981 2 . 6 198 2 3.0-3.4 1985 (plan) 8 . 0
Source : Ekonomicheskai a gazeta (1983), p . 8 ; No . 8 (1983), p . 2 . NKh, No . 1 2 (1982), p . 58 . : *Cumulative total to end of 1981 17 million tons .
53 Neftianoe khoziaistvo, No . 8 (1983), p . 28 . 54" The CIA has criticized Soviet waterflooding practices , " wrot e David Wilson in 1980, " but it is apparent that the authors of thei r report do not understand how the process works . . . . The CIA ' s optimistic (case A) assumption of 65 percent [water cut by 1980] i s hopelessly wrong and it can be shown that their pessimistic (case B ) assumption of 80 percent is technically impossible . " (Wilson [1980] , op . cit ., p . 77) . On the other hand, Wilson ' s own projections proved t o be too low . - 49 - some five years late . But is this really a sign of serious trouble ? Soviet oilmen themselves do not agree . In particular, a cardinal issu e is the spacing and density of the well network, over which Soviet oilme n have been debating for decades . In 1980, for example, the lat e Academician A .P . Krylov, then chairman of the Academy ' s Scientifi c Council on Oil Development, published an article that contained th e following dire-sounding lines (printed in boldface in the original) :
If the present annual increase in the number of ne w development wells and in the coefficient of decline (the rati o of flow rate to current reserves) continues at its presen t rate, then within a comparatively short time the countr y ' s oi l 5 output will peak and then begin to fall . 5
Krylov ' s words were interpreted by the CIA ' s analysts as a confirmation of their forecasts and Krylov, to his obvious annoyance, briefl y attained a certain international notoriety . Trotted out for an interview in Moscow News, Krylov explained that what he had really mean t was that the drilling effort that had been going into infill drilling i n the older oilfields should be redeployed in West Siberia instead . Whe n asked whether such a redeployment was not already taking place, Krylo v 6 answered, " Yes, but not to the extent needed . "5 But Krylov ' s article actually said both less and more, as th e subsequent evolution of the debate has shown . Less, because in hi s article he never mentioned West Siberia, which (considering that th e shift to West Siberia was by then official policy) would have been eas y enough to do . Instead, what he was mainly speaking out against was indiscriminate infill drilling, unsupported by adequate geologica l information or a carefully thought-out development plan . The culprit s were bureaucratic pressures, overtaut targets, and misplaced incentives , and Krylov doubted that newly developed waterflooding schemes, whic h required selective drilling by flexible, maneuverable drilling teams ,
55 A .P . Krylov, " 0 tempakh razrabotki neftianykh mestorozhdenii, " Ekonomika i organizatsiia promyshlennogo proizvodstva, No . 1 (1980), p . 68 56 " Soviet Oil Production Will Increase, " Moscow News, No . 3 8 (1980), p . 12 . - 5 0 - could actually be put into practice . Krylov ' s article, then, was mainl y a call for thoroughgoing organizational reform in oil developmen t practice . Krylo v ' s argument, moreover, was a defense of established doctrine , an echo of battles fought thirty years before, which held that dens e networks of wells do not, as a rule, produce more oil . But tha t doctrine is now under attack . A conference of oilmen in the spring o f 1983 claimed that recent research contradicts previous doctrine on th e following key points . 57 (1) Greater well density does increase bot h output and recovery rate, increases total displacement of oil b y waterflooding, and does not lower the flow rate of neighboring wells . (2) The new wells do not necessarily have the same high water cut as th e earlier ones in the network . Some important policy implications follow : first, the case fo r more infill drilling in established oilfields (which by now include s Samotlor), as opposed to new and inaccessible regions, grows stronger . Second, the news that the water cut in new infill wells remains lo w compared to that of their older neighbors gives a new lease on life t o waterflooding as the technique of choice for enhanced recovery . Thes e messages have not been lost on oilmen at the local level . b) Tertiary Recovery So-called " tertiar y " or " physico/chemica l " methods of oil recovery involve treating oil-bearing rock with heat, gases . or chemicals , sometimes in conjunction with waterflooding . In the United States , between a quarter and a half of all remaining recoverable oil wil l require some combination of these . 58 But after considerable excitemen t in the 1970s over the potential for tertiary recovery, Western oilme n have since become more cautious :
57 " Problemy sovershenstvovaniia razrabotki mestorozdeniia, " Neftianoe khoziaistvo, No . 8 (1983), p . 29 . This article reports on a conference on oil development held in April 1983 in Ufa . A brie f bibliography will be found in Neftianoe khoziaistvo, No . 11 (1983), p . 35 . 58 See, or example, the estimates in Exxon ' s " background series, " Improved Oil Recovery (New York : Exxon Corporation, Public Affair s Department, 1982) . Of the 30 to 105 billions of barrels of recoverabl e reserves remaining in the United States, 30 to 75 could be produced b y primary and secondary methods, while 20 to 30 would require tertiar y methods (p . 3) . - 5 1 -
All enhanced-oil-recovery methods require patience and th e willingness to undertake risk . Time is essential t o demonstrate the effectiveness of a process and to implemen t it . .. . An operator considering an EOR application , therefore, must be willing not only to invest heavily i n equipment and to meet daily operting costs, but also to wai t for months or years before producing the first barrel o f additional oil . Because of the limited knowledge o f subsurface conditions and of the manner in which a particula r technique will perform in a given reservoir, the risk that a project may fail is always present . 5 9
Nevertheless, the U .S . oil industry in 1982 was producing nearly 1 9 million tons a year through tertiary methods, of which 14 .4 millio n through the use of steam . 6 0 In the mid-1970s, tertiary recovery suddenly became fashionable i n the Soviet Union, part of a general wave of enthusiasm for enhance d recovery . In 1976 the Ministry of the Oil Industry launched an ambitious program, conducted by a special department under a deput y minister, E . Khalimov . The results were disastrous . A postmorte m conducted by the Central Committee ' s Party Control Commission in 198 1 disclosed that Khalimov had plunged into purchasing foreign equipmen t and chemicals, most of which, according to the PCC report, ended u p piled up on roadsides or dum p ed into spent wells . Khalimov tried t o cover up the debacle with faked figures and excuses, but by the end o f the 10th Plan it was clear that virtually nothing had been achieved . Shortly afterwards Khalimov was fired . 6 1 Today enhanced-recovery is back on the official agenda but in muc h soberer tones . It is supported through a " special fund " amounting t o about one percent of the total oil industry investment (81 millio n rubles in 1982 62 and 96 million for 1983 ; 63 ) . The results claimed ar e given in Table 25 .
59 Ibid ., p . 9 . 60 Ibid ., citing Oil and Gas Journal, April 5, 1982 . 61 V . Sevast ' ianov, " Izderzhki popustitel ' stva, " Sotsialisticheskaia Industriia, October 4, 1981 . 62 Ekonomicheskaia gazeta, No . 2 (1983), p . 8 . 63 Ibid ., No . 15 (1983), p . 7 . - 5 2 -
Most of the effort has been aimed at the older oil fields , particularly Kazakhstan, Komi, Tatariia, and Baskhiriia . 64 At th e beginning of 1982, the largest EOR project was in Mangyshlak, where ho t water and steam stimulation are being used to reduce the viscosity o f heavy oils .65 Next in size is a program in Tatariia, using sulphuri c acid . Other programs reported in the Soviet press are listed in Tabl e 26 . All told, by late 1982 some 130 projects were underway at over 10 0 locations in over 50 different fields in all parts of the country . " By and large, the tone of torments about them in the Soviet pres s is distinctly cautious . Gosplan chairman Baibakov, whose enthusiasm fo r enhanced recovery was instrumental in launching the whole program in th e early 1970s, acknowledges today that there is opposition to tertiar y recovery among " som e " specialists, who consider it too expensive and no t effective, although Baibakov himself has apparently not lost faith . 6 7 Oil Minister N .A . Mal ' tsev in recent writing acknowledges that th e tertiary program has problems, but he mentions few details, goes o n quickly to other subjects, and criticizes the insufficient attentio n given to it . 68 To get the full flavor of the current state of th e enhanced-recovery program, one must turn to lower levels . A pair o f reporters write that the program is plagued by "artisana l handicraft" (kustarshchina) . Their worst criticism is reserved fo r the programs lead research institute, TatNllNeftemash, which they sa y engages mainly in "deceptive practices" (ochkovtiratel'stvo), recalling th e language used to describe the unfortunate Khalimov . 69 The chief of oi l
64 Ekonomicheskaia gazeta, No . 8 (1983), p . 2 . 65 Neftianoe khoziaistvo, No . 12 (1982), p . 58 . Hot-water injectio n has lost popularity in the United States in favor of steam, because th e latter carries much more heat . 66 Ekonomika neftianoi promyshlennosti, No . 11 (1982), pp . 8-10 . Neftianoe 67 N .K . Baibakov, " Gody bol ' shikh svershenii, " khoziaistvo, No . 12 (1983), p . 5 . 68 See Ekonomicheskaia gazeta, No . 5 (1982), p . 2 ; Neftiano e khoziaistvo, No . 3 (1983), p . 5 ; Neftianoe khoziaistvo, No . 12 (1982) , p . 12 . 69 Zaripov and Podo l ' skii, " Trudnyi gorizont , " Sovetskaia Rossiia , December 7, 1982 .
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development for Bashkiriia comments that most of the projects involvin g detergents and other chemical methods of advanced recovery have no t proved cost-effective, but hints that he is under considerable pressur e from the ministry to use them . 7 0 These assessments reflect a tug-of-war between the planners in Moscow and the oilmen in the field . The latter favor waterflooding an d resent the pressure from above to adopt new methods before they ar e proven . Technocrats in Gosplan and in the State Committee on Scienc e and Technology prefer the new physico/chemical methods . " The potentia l of waterflooding as a means of further increasing total productivity i s already exhausted, " states flatly an article by the Oil and Ga s Department of the State Committee on Science and Technology . 71 " Fa r from exhausted, " retorts the conference of oilmen whose views o n waterflooding we have already discussed . The Oil Ministry itself , perhaps caught in the middle, has merged the two programs together unde r a single deputy minister, V . Iudin, who speaks of the benefits of usin g both together . One is hard put to decide which classic theme of Sovie t bureaucratic behavior this episode illustrates best, whethe r technological overambitiousness above, resistance to innovation below , overly enthusiastic acceptance of foreign examples and incautious use o f foreign imports, or inadequate support from supplier ministries . Th e consequences for the next few years, at all events, are clear : advance d recovery techniques are too experimental and too expensive to provid e the magic solution that Soviet planners hoped for in the late 1970s . Waterflooding, then, will remain the method of choice for enhance d recovery in the Soviet industry in the 1980s. The key unknown i s whether Soviet oilmen have developed more sophisticated floodin g practices, or whether the haste and short-sightedness that ol d Academician Krylov warned against will soon haunt them .
70"Novinka novinke roz n ', " Pravda, August 15, 1983 . 71 Ekonomicheskaia gazeta, No . 8 (1983), p . 2 . - 55 -
To sum up this review of recent efficiency measures : the crucia l question for the industry is whether they can slow the upward spiral o f costs, lessen the frantic urgency of the drilling program, and get awa y from the wasteful and destructive practices engendered by the campaig n atmosphere of the 1970s . Though the evidence is preliminary an d fragmentary, it suggests strongly that the answer is still no . Though the industry is managing some gains in productivity, they weigh littl e compared to the costs engendered by the continuing campaign . In th e concluding section we shall look at the looming consequences .
C . THE LATEST DEVELOPMENTS IN WEST SIBERIA AND THEIR IMPLICATION S The greatest danger for the oil industry in the 1980s, this repor t has argued, is the imbalance engendered by the unremitting pressure fo r high output . Reports from West Siberia, beginning in the fall of 1983 , suggest that the danger is already becoming reality . For the first tim e in the history of West Siberian oil, the 1983 annual output plan was no t met ; though production increased by 17 million tons, that was 3 millio n short of the target . 72 Local correspondents revealed that the Siberian s had fallen short in 1982 as well, but had been saved by a timel y " correctio n " of the target by their ministry . 3 So far in 1984 the Wes t Siberians have continued to lag ; and if the industry as a whole keeps t o the same pace as in the first five months of the year, it will end up a t 7 4 614 .5 million tons, 1 .5 million below 1983 . The center of the problem is the Nizhnevartovsk association, whic h contains the Samotlor field and had been hitherto the mainstay of th e Siberian industry . But the associatio n ' s growth is slowing sharply an d further increases in production require dramatic step-ups in drillin g (Table 27) .
72" Nastroi na dela , " Sotsialisticheskaia Industriia, February 24 , 1984 73 V . Lisin, " Proschety . . ." op . cit ., 1984 . 74 Quarterly and monthly reports in Ekonomicheskaia gazeta, Nos . 1 9 and 21 (1984) .
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The industry ' s difficulties in Nizhnevartovsk demonstrate ho w urgent it is to develop new fields quickly, but here too the Siberia n oilmen have run into trouble . The goal is to open up 30 new field s during the current five-year plan, but in the fall of 1983 the progra m was running behind plan . 77 The two newest oil associations in Wes t Siberia, Krasnoleninsk and Noiabrsk, which were created to give adde d priority to the effort, appear to be lagging . 7 8 The industry insists that these problems can be overcome and th e Soviet leaders, after some hesitation during the Andropov interim , appear determined to pay whatever price is required to keep oil outpu t at its current level . The political will, in short, is there, just a s it was in 1977 . But the opportunities for relatively easy gains tha t existed then are now gone . The path ahead leads only steeply uphill .
77 Ekonomicheskaia gazeta, No . 44 (October, 1983), p . 4 . 78 Ibid . According to Theorodore Shabad in Soviet Geography, Vol . xxiv, No . 4 (April 1983), p . 313, Noiabr ' skneftegaz, which includes th e Kholmogory field, had been projected to produce between 25 and 3 6 million tons a year by 1985 . By late 1983, however, it was producing i n the neighborhood of 10 million tons a year . (Sotsialisticheskai a Industriia, September 2, 1983 .) IV . CONCLUSIO N
For the past seven years the Soviet leaders have staved off a decline in oil output by doubling investment and cashing in major one - time gains available from shifting the industry ' s resources to Wes t Siberia . But the cam paign atmosphere that was largely responsible fo r the crisis of 1977 in the first place has continued without letup , because the leaders and planners have demanded not merely that output b e stabilized but that it continue growing . As a result, the Soviet oi l industry has been able to take only slight advantage of the last seve n years ' breathing space to modernize and improve its productivity . The outlook for the first half of the 1980s is for more of th e same . In the current five-year plan the industry is being asked to mak e vast improvements in productivity, continue shifting its center o f operations to West Siberia, and all the while to keep meeting ever - higher output targets . So far it is succeeding in meeting the latte r two goals but only at the expense of the first . The unremitting pressure to keep output growing forces oilmen and geologists to focus o n whatever will meet the plan, while neglecting the rest . Exploratio n remains weak, labor turnover high, equipment inadequate both in qualit y and quantity, and infrastructure primitive . Drilling takes preferenc e over well completion, mechanization, maintenance, or repair . That i s not to say that the oil industry has not improved some of it s operations, as we have seen, but it is riding cost curves that ar e growing exponentially . Moreover, the advantages of the shift to West Siberia are rapidl y fading, as exploration teams move out from the established fields of th e Middle Ob ' basin to smaller, less accessible, and less productiv e deposits . While the base of West Siberian oil production has bee n broadened compared to seven years ago, the rate of development of ne w fields continues to lag . As the leaders respond to these problems b y making ever-larger emergency transfusions of flown-in equipment an d manpower, they face not only rapidly mounting costs but the possibilit y of bottlenecks in transportation and supply that could block furthe r growth at any p rice . - 5 9 -
By every rational standard, therefore, the time has come to allo w oil output to fall to a level that can be defended more cheaply, thu s giving the oil industry a chance to put itself in order whil e accelerating investment in other energy sources, conservation, and fuel - switching . There are signs that Andropov took that view and wa s prepared to take the fateful plunge . But since his death the ne w leaders have evidently decided they dare not risk the consequences of a n oil shortage and they have declared themselves resolved, in the Energ y Program published in April 1984, to maintain oil output at its presen t level to the end of the century . The CIA ' s analysts were much criticized a few years ago fo r mistaking the Soviet leaders ' political will and determination t o prevent at all costs a decline in oil output . In truth, who would hav e predicted that the Soviet leaders would prove as willing and able a s they have to increase spending on oil, to set up the pace of drilling , and to transfer the industry ' s resources to West Siberia, while at th e same time managing to avoid a collapse of the older oil-producin g regions . That political will is now being demonstrated again . But thi s time the situation is different from what it was in 1977 . What was the n the only response available is now increasingly detracting from th e orderly development of successors to oil and from the necessar y rationalization of demand . From now on, Soviet experts agree, every ruble invested in oil could yield two to four times the energ y equivalent if invested elsewhere in the energy sector, especially on th e demand side . Yet we should not be too quick to say that they have acte d irrationally . The real problem is more subtle and more interesting . Two standards of rationality seem to contend in the Sovie t decisionmaking system . The first is the voice of long-term rationality . It has been saying for fifteen years that Soviet policy should mov e toward coal, nuclear power, and energy conservation . The other voice i s that of short-term caution, which says that oil output cannot be allowe d to drop until it can be done safely, lest oil shortages cause energ y bottlenecks that would slow down the whole economy . - 6 0 -
The voice of the long term is well represented in Sovie t institutions and it rings especially loud in the press . The USS R Academy of Sciences, the State Committee on Science and Technology, th e major energy ministries, and Gosplan all have offices and researc h institutes specializing in long-term energy policy . But in the actua l planning process the voice of near-term caution is louder than th e other, especially as one moves from five-year plans to annual ones . On e would not know it from the press, since that voice is hardly hear d there, but its impact on targets and funding priorities is unmistakable . Every year since the beginning of the 1970s the planners have acted a s though driven by the fear of disaster, setting ever higher oil target s in the five-year plans and then ratcheting them higher still in th e annual ones . In the first half of the 1970s, it was the unexpecte d decline of oil output in the older regions that caused them to force th e pace in Siberia . In the second half of the decade the fear of a shortfall in Siberia itself drove the campaign into still higher gear , while in the 1980s the fear that alternatives will not be available i n time has driven the planners even more urgently . Nor is the near-term voice necessarily wrong . Any Soviet planne r who knew his business would have been wary of the scientist s ' glib tal k of the coal-and-nuclear future and skeptical of the oil industry ' s constant efforts to chisel their targets downward . What he could no t dismiss, in contrast was the certainty of brown-outs and black-outs , hard-currency shortages, and other unpleasantness, if oil should ru n short . In sum, in any one year the case was overwhelming for higher oi l targets . But the result is a paradox . Fifteen years of year-by-year ris k aversion have produced a result that all Soviet decisionmakers woul d agree is the wrong one : a prematurely aged oil industry with uncertai n prospects and inadequate technology, costs out of control owing to year s of unbalanced effort and short horizons, and the solutions and alternatives still not ready . What prospect is there now that, at least where oil is concerned , the two voices of the Soviet planning system will soon dictate the sam e course? Thanks to the expanded gas program launched in 1981, natural - 6 1 -
gas is now beginning to displace fuel oil under boilers and will soo n provide a fifteen-year bridge to enable Soviet planners to begi n restructuring their energy economy . Will they take advantage of th e opportunity, or will the recent history of Soviet oil be repeated to th e end of the 1980s and beyond?