technology and soviet energy availability

Technology and Soviet Energy Availability

November 1981

NTIS order #PB82-133455

Library of Congress Catalog Card Number 81-600166

For sale by the Superintendent of Documents,U.S. Government Printing Office, Washington, D.C. 20402

Foreword

This assessment was undertaken in response to requests from the HouseCommittee on Foreign Affairs; the Senate Committee on Banking, Housing, andUrban Affairs; and the House Committee on Science and Technology to examinethe contribution of American and other Western technology and equipment toSoviet energy availability in the present decade.

In November 1979, OTA published an assessment of Technology and East-West Trade. Among the conclusions of that work was the suggestion that theUnited States enjoys significant technological advantages over the U.S.S.R. inpetroleum equipment and computers, two areas that have been accorded highpriority in Soviet economic planning. It therefore appeared that these tech-nologies might offer the United States opportunities to use export controls forpurposes of exercising political leverage over the Soviet Union.

The present study addresses in detail the significance of American petro-leum equipment and technology to the U.S.S.R. and the resulting options forU.S. policy. However, the scope of this assessment is far broader. It examinesthe problems and opportunities that confront the U.S.S.R. in its five primaryenergy industries—oil, gas, coal, nuclear, and electric power. It discusses plausi-ble prospects for these industries in the next 10 years; identifies the equipmentand technology most important to the U.S.S.R. in these areas; evaluates the ex-tent to which the United States is the sole or preferred supplier of such items;and analyzes the implications for both the entire Soviet bloc and the Westernalliance of either providing or withholding Western equipment and technology.

OTA is grateful for the assistance of its project advisory panel chaired bySen. Clifford Case, as well as for the advice of numerous reviewers in agencies ofthe U.S. Government, academia, and industry. However, it should be under-stood that OTA assumes full responsibility for its report, which does not neces-sarily represent the views of individual members of the advisory panel.

Director

///

Technology and Soviet Energy AvailabilityAdvisory Panel

Clifford Case, ChairmanCurtis, Mallet-Prevost, Colt&Mosle

E. C. Broun, Jr. Stanley LewandHughes Tool Co. Chase Manhattan Bank

Robert CampbellIndiana University

Leslie DienesUniversity of Kansas

John GarrettGulf Oil Exploration and Production

Marshall GoldmanWellesley College and Harvard

University

Gregory GrossmanUniversity of California at Berkeley

Robert JacksonDresser Industries

Richard NehringThe Rand Corp.

Richard Pipes (until January 1981)Harvard University

Dankwart RustowCity University of New York

Henry SweattHoneywell

Allen S. WhitingUniversity of Michigan

iv

. .. .

Technology and Soviet Energy AvailabilityProject Staff

Lionel S. Johns, Assistant Director, OTAEnergy, Materials, and International Security Division

Peter Sharfman, Program ManagerInternational Security and Commerce Program

Ronnie Goldberg, Project Director

Martha Caldwell Mildred Turnbull*

Administrative Staff

Helena Hassell Dorothy Richroath Jackie Robinson

Battelle Columbus LaboratoriesL. W. Bergman& Co.EG&G Corp.William McHenry and Seymour Goodman,

University of VirginiaThane GustafsonEdward Hewett

Project Contractors

Eric Anthony JonesAngela StentStephen SternheimerWilliams Brothers EngineeringThomas A. Wolf, Center for Science and

Technology Policy, New York University

OTA Publishing Staff

John C. Holmes, Publishing Officer

John Bergling Kathie S. Boss Debra M. Datcher Joe Henson

● OT,4 contractor

v

Acknowledgments

This report was prepared by the staff of the International Security and Commerce Pro-gram of the Office of Technology Assessment. The staff wishes to acknowledge the contribu-tion of OTA's contractors in the collection, analysis, and preparation of material for the report;and to thank the following individuals and Government agencies for their generous assistance:

Central Intelligence AgencyDepartment of CommerceCentrally Planned Economies Project,

Wharton Econometric ForecastingAssociates, Inc.

Michael HammettJohn HardtM. K. Horn,

Cities Service Co.William Kelly

Yuri Ksander and Charles Cooke,Engineering Societies Commissionon Energy

Paul LangerTheodore ShabadJonathan SternMyron UretskyRafail VitebskyJoseph Yager

Conversions (except where otherwise noted)

1 million tons standard fuel X 4.582 = million barrels of oil1 million metric tons hard coal X 5,051 = million barrels of oil1 million metric tons of hard coal X 0,6859 = million metric tons of oil1 million tons of standard fuel = 0.9091 million metric tons hard coal1 million metric tons of oil X 7.33 = million barrels oil equivalent1 million barrels oil equivalent per day X 365 ÷ 7.33 = million tons oil equivalent1 billion cubic meters natural gas X 0.8123 = million tons oil equivalent1 billion cubic meters natural gas X 5.982 = million barrels oil equivalent1 billion cubic feet X 23.01 = million metric tons oil equivalent1 cubic meter = 264.172 American gallons1 cubic foot = 0.0283168 cubic meters1 American barrel = 42 American gallons

Abbreviations

million metric tons — mmtbillion cubic meters – bcmmillion barrels per day — mbdmillion barrels of oil equivalent — mboemillion barrels of oil equivalent per day — mbdoeBritish thermal unit – Btukilowatt-hour – kWhMegawatts – MW

VI

Contents

Chapter Page

1. Summary :Issues and Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2. The Soviet Oil and Gas Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

3. The Soviet Coal Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

4. The Soviet Nuclear Power Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

5. The Soviet Electric Power Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

6. Western Energy Equipment and Technology Trade With the U.S.S.R. . . . . . . . . . . . 169

7. The Prospects for Energy Conservation in the U.S.S.R. . . . . . . . . . . . . . . . . . . . . . . . 227

8. Energy and the Soviet Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249

9. East European Energy Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

10. The Soviet Bloc and World Energy Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313

11. Japanese-Soviet Energy Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325

12. West European-Soviet Energy Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351

13. Soviet Energy Availability and U.S. Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385

Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399

Vll

CHAPTER 1

Summary:Issues and Findings

CONTENTS

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

PRINCIPAL FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Energy and the State of the Soviet Economy . . . . . . . . . . . . . . . . . . . . . . . . . . 4Soviet Energy Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5The Energy Situation of Eastern Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Soviet Energy Production in the 1980’s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6The Contribution of Western Equipment and Technology to Soviet

Energy Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10The Prospects for Energy Conservation and Substitution in the U.S.S.R. . . . 11The Foreign Availability of Western Technology and Equipment. . . . . . . . . . 11The Policies of America’s Allies Toward Soviet Energy Development . . . . . . 12

FOUR ALTERNATIVE U.S. POLICY PERSPECTIVES.. . . . . . . . . . . . 13

TABLE

Table No. Page

1. 1985 Soviet Oil Production Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

FIGURE

Figure No. Page

l. Soviet Primary Energy Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

CHAPTER 1

Summary: Issues and Findings

INTRODUCTION

The Soviet Union occupies the largestspan of territory in the world and is abun-dantly endowed with energy resources. It isthe world largest oil producer and a majorexporter of both oil and gas. Despite this en-viable position, however, controversy hasarisen in the past few years over whether theU.S.S.R. itself, or the Soviet bloc as a whole,may face an energy shortage during the pres-ent decade.

This possibility has provoked a debateamong U.S. policy makers over whether it isin the best interest of the United States toassist the Soviet Union in its energy devel-opment. Those who favor such a policy be-lieve it is justified to bolster American ex-ports; to increase the world’s total availablesupply of energy; to obviate extensive Com-munist pressure on world energy markets;and/or to reduce the likelihood that theU.S.S.R. would intervene in the Middle Eastto acquire oil it could no longer produce insufficient quantities at home.

Adherents of the opposing view contendthat to assist in the development of Sovietenergy resources would be to help strength-en the economy of an adversary and/or thatsuch assistance may convey direct or in-direct military benefits, either: 1) because itmight lead to the transfer of dual-use tech-nologies that have military application; 2)because oil itself is a strategic commodity; or3) because it could enhance the U. S. S. R. ’sability to exert “energy leverage” over WestEuropean nations if it placed the SovietUnion in a position to threaten to withholdenergy exports.

Both of these perspectives entail certainunstated assumptions. Primary among theseis the assumption that it is in the power ofthe United States to significantly affect the

outcome of Soviet energy development in thenear or midterm. Thus, focusing on the issueof whether or not the United States shouldassist the U.S.S.R. in its energy develop-ment tends to lead to the neglect of morebasic questions. Among these is the issue ofwhat course Soviet energy production willtake if present policies—in both the Westand the U.S.S.R. itself—remain unchanged.This is a controversial question in the West,and perhaps within the U.S.S.R. as well.Moreover, there are the central issues ofwhether, how, and to what extent the UnitedStates, either itself or in concert with itsWestern allies, could affect the energy futureof the Soviet Union.

This study, undertaken at the request ofthe House Committee on Foreign Affairs;the Senate Committee on Banking, Housing,and Urban Affairs; and the House Commit-tee on Science and Technology, was designedto investigate the latter set of technicalissues so that the policy debate might beplaced on a firmer footing. Specifically, it ad-dresses the following questions:

First, what opportunities and problemsconfront the U.S.S.R. in its five primaryenergy industries—oil, gas, coal, nuclear,and electric power—and what are plausibleprospects for these industries in the presentdecade?

Second, what equipment and technologyare most needed by the U.S.S.R. in theseareas; of this, how much has been or is likelyto be purchased from the West; and to whatextent is the United States the sole or pre-ferred supplier of such items?

Third, given the evidence regarding theprevious two questions, how much differencecould the West as a whole and/or the UnitedStates alone make to Soviet energy avail-

3

4 . Technology and Soviet Energy Availability

ability by 1990; and what are the impli-cations of either providing or withholdingsuch assistance for both the entire Sovietbloc and for the West?

As will become clear, the U.S.S.R. facesboth problems and opportunities in the yearsahead. On the one hand, the Soviet Union isthe world’s largest oil producer and it hasthe world’s most extensive gas reserves. Ithas the advantage of long experience with alarge and complex petroleum industry, andit also has vast yet-to-be- explored territoriesthat may contain energy resources. On theother hand, the development of these re-sources is constrained by two important andinterrelated problems.

The first is the cost of energy exploitation.A diminishing proportion of Soviet oil andcoal reserves are located in readily accessibleareas. As older deposits are depleted, theU.S.S.R. must look to increasingly remoteand difficult areas for proven reserves orpromising sites for new discoveries. Whileproven gas reserves are more than ample,production is constrained by the pipelinecapacity available to transport the gas. Con-struction of new pipelines—in this case

across Siberia—is time-consuming and ex-pensive since most of the pipe and otherequipment must be purchased from theWest. In short, the development and in-stallation of technology and infrastructureto exploit the Soviet Union’s remainingenergy will take some time.

The time required for this exploitation andthe severity of the problem itself will be af-fected by the second constraint on Sovietenergy development. This arises from thenature of the Soviet economy—the rigiditiesintroduced by the system of central planningand the problems caused by price and incen-tive structures that inhibit efficiency andproductivity in both the energy sector andits supporting industries. While nonmarketeconomies such as that of the U.S.S.R. dohave the advantage of allowing maximummarshaling of resources in priority sectors,there is an important sense in which the ma-jor inhibitor of Soviet energy development isthe Soviet economic system, which not onlyproduces conditions under which domesticsolutions to energy industry problems be-come more difficult, but which also limits theextent to which the U.S.S.R. is willing orable to turn to the West for assistance.

PRINCIPAL FINDINGS

ENERGY AND THE STATE OFTHE SOVIET ECONOMY

The rate of Soviet economic growth overthe past quarter century has generally de-clined, and Western experts are virtuallyunanimous in predicting a continued slowingin the near term. To the extent that this eco-nomic slowdown signifies stagnation or de-cline in the rate of growth of per capita con-sumption in the U. S. S. R.—i.e., in the im-provement of living standards for the Sovietpopulace—it may create political difficultiesfor the Soviet leadership.

Easily accessible and abundant energyplayed an important role in generating highgrowth rates in the past. The U.S.S.R. now

faces the possibility of a plateau or evendecline in oil output. The latter would cer-tainly cause Soviet economic growth to sloweven more, although the magnitude of such aslowdown is difficult to calculate. The im-pact of falling energy supplies will depend ona system of complex interrelationships in theeconomy and on Soviet policy regarding thecomposition of future energy balances andforeign trade patterns. Every policy optioncarries with it some costs and benefits to theSoviet economy.

If the U.S.S.R. is able to maintain levels ofenergy production close to the “best” casesposited here (stable or slightly increased oilproduction, and large increases in gas out-put), the Soviet economy could continue to

grow at the modest rate of the past 5 years;to supply Eastern Europe with energy at1980 levels; and to increase the amount of oiland/or gas available for export to the Westfor hard currency. Under “worst” case as-sumptions, Soviet economic growth wouldslow considerably, and the ability of theU.S.S.R. to increase its real nonenergy im-ports from the West would be seriously im-paired. This would negatively affect theoverall growth prospects for East-Westtrade and would place further strains on theSoviet economy. Actual conditions will prob-ably fall between these extremes.

In constructing best and worst case sce-narios for 1990, OTA assumed that Westernassistance in the development of Soviet ener-gy resources would have its greatest quan-titative impact on production after 1985.With extensive Western assistance in ener-gy (particularly gas) development, Soviethard currency earnings could rise substan-tially by the end of the decade. In the worstcase scenario, with little or no Westernassistance, Soviet exports of energy for hardcurrency would disappear by 1990.

If these cases are indeed close to the rangeof plausible outcomes, it appears that thesimultaneous maintenance of a politicallyfeasible rate of economic growth in theU. S. S. R., the further expansion of realenergy exports to Eastern Europe after 1985,and a reasonably high rate of growth ofEast-West trade may hinge importantly onwhether or not the West plays a significantpart in developing Soviet gas resources inthe 1980’s.

SOVIET ENERGY POLICY

Despite the centralized nature of theSoviet system, policymaking takes place in apolitical context in which individuals andgroups compete for resources and influence.There is ample evidence of debates over therelative priority that should be accorded dif-ferent energy sectors. While the decisionsmade have naturally reflected the choices ofthe Communist party and its ruling execu-tive committee (Politburo), a number of state

Ch. l—Summary: Issues and Findings ● 5

Planning and administrative organizations,and ministerial, regional, and scientificgroups also play identifiable roles in the for-mulation of energy policy, and are critical tothe implementation of policy once for-mulated.

At one time, Soviet leaders placed somestress on the importance of the coal indus-try, and there were indications that it wouldreceive priority in investment. This may atleast partly have been due to the influence ofthe late Premier Kosygin, an advocate ofcoal development. The current Five YearPlan (FYP) indicates that this is no longerthe case. Emphasis has now been placed ongas production and, to a lesser extent, on de-velopment of the nuclear industry. However,the energy debates of the past few years sug-gest that competition for resources amongenergy sectors may well reappear, particu-larly when the impending change in theaging Soviet leadership takes place.

THE ENERGY SITUATION OFEASTERN EUROPE

While Eastern Europe is much less de-pendent on imported energy than is WesternEurope, these nations are constrained bygeologic conditions that offer only limitedprospects for increased domestic energy pro-duction, relatively energy-intensive econ-omies, and limited ability to increase hardcurrency exports to pay for energy on worldmarkets, In the past, heavily subsidized ex-ports of Soviet oil have been crucial to EastEuropean economic development. If thissubsidy were abruptly removed, the impacton Eastern Europe as a whole would be dis-astrous. The U.S.S.R. does appear to be be-ginning a transition, however; it has alreadyannounced that its oil exports to EasternEurope will remain at 1980 levels, and itseems to be increasing the level of exports ofgas priced at world market rates.

If the countries of Eastern Europe suc-ceed in their plans for increased domesticproduction of coal and nuclear power (plansthat may well engender growing environ-mental concerns) and for energy conserva-tion and substitution measures, and if the


U.S.S.R. continues its oil exports at 1980levels, Eastern Europe could make it to theend of the decade without a major energy-driven crisis. In the more likely case thatthese programs are only moderately success-ful, there will be pressure on the U.S.S.R. toincrease its energy exports to EasternEurope. In the absence of such assistancefrom the Soviet Union, pressure for eco-nomic reform within Eastern Europe couldbe expected to grow.

However, it is a mistake to think of East-ern Europe as a monolith. The situations ofthe six countries examined in this studyvary significantly, and range from that ofRomania, which appears to be facing themost difficult economic prospects even as-suming a number of “optimistic” develop-ments with respect to its energy situation, toHungary, which would seem to be best ableto withstand even a number of “worst case”conditions. The case of Poland is also note-worthy. Polish coal production has allowed itto be Eastern Europe’s sole net energy ex-porter. To the extent that the present politi-cal and economic difficulties in Poland con-strain coal output, the adverse repercussionson the energy situation of the region as awhole could be significant.

SOVIET ENERGY PRODUCTIONIN THE 1980’S

Figure 1 summarizes Soviet primary ener-gy production over the past 30 years andSoviet plans for 1985. The pattern exhibitedhere shows that for many years the bulk ofenergy output was in coal. The rate ofgrowth in coal production began to decline inthe 1960’s, when oil overtook it as the pre-dominant fuel. Coal production is now vir-tually stagnant, and the rate of growth in oilhas markedly declined from that of the previ-ous two decades. The fuel of the future isclearly gas, production of which, accordingto the U. S. S.R.’s own projections, will nearlyequal that of oil in energy value by 1985. Thefollowing sections examine in more detail thecurrent state of and prospects for Sovietenergy industries in the present decade.

Oil

Projections of Soviet oil production in1985 span an enormous range (see table 1).The Central Intelligence Agency’s (CIA)most recent forecast maintains that outputcould decline by nearly 17 percent, while in-creases of roughly the same magnitude havebeen foreseen by the British Economist In-telligence Unit. The U.S.S.R. itself in its cur-rent FYP envisages slightly increase pro-duction, and the U.S. Defense IntelligenceAgency endorses the feasibility of the Soviettarget. The disparities among forecasts for1990 are even more striking. CIA believesproduction will decline more than 40 percentfrom 1980 levels, while others contend thatthe Soviet oil industry could actually pro-duce 25 percent more oil in 1990 than it didin 1980.

These predictions are all based on differ-ent interpretations of fragmentary Soviet in-formation, different subjective evaluationsof Soviet oil industry practice, and differentjudgments about the future of the Sovieteconomy and its capabilities. OTA does notbelieve that it is a useful exercise to attemptto determine which, if any, of these predic-tions is “correct.” Indeed, given the poor rec-ord of forecasters even of U.S. production, itseems foolish to attempt to assert with anydegree of assurance the outcome of complexprocesses in the U.S.S.R. 10 years hence.

OTA has instead attempted to identifyplausible best and worst cases for Soviet oilproduction. These are not predictions; theyare intended solely to provide a contextwithin which the range of possible outcomesfor Soviet energy availability in this decadecan be discussed. OTA finds the upper rangeof the U. S. S. R.’s own target—which sets agoal of modest growth by 1985—to be a not-unreasonable best case. On the other hand,given that many things can simultaneouslygo wrong in the Soviet oil industry, it is rea-sonable to base discussion of worst case out-comes on the upper end of the CIA range.For 1990, even using best and worst caseprojections as a basis for analysis is a highlytenuous exercise. OTA has chosen as a best

Ch. l—Summary Issues and Findings ● 7

1,650

1,600

1,550

1,500

1,450

1,400

1,350

1,300

1,250

1,200

1,150

1,100

1,050

1.000

950

900

850

800

750

700

650

600

550

500

450

400

350

300

250

200

150

100

50

0

Figure 1 .—Soviet Primary Energy Production (1950-80)

632.5

37.44.7

128.330.6

Misc. fuels 33.6 33.127.4

520

3 2 8

30.6111

1950 1960 1970 1980 1985(plan)’

8 ● Technology and Soviet Energy Availability

Table 1 .— 1985 Soviet Oil Production Forecastsa

Million tons Million barrels per day Date of forecast

1 . 5 0 0 - 5 5 0 10-11 April 19812 . 5 6 0 - 6 1 0 112-12.2 June 19813 600 12 19794.605-655 . .. 121-13.1 19795 . 6 1 2 - 7 1 3 12.3 -14.3 19786 . 6 2 0 - 6 4 5 12.5 -12.9 19807 6 2 0 - 6 4 5 12.5 -12,9 August 19818 650 -670 13-13.5 19799 7 0 0 14 1980aSoviet 011 production in 1980 was 603 million tons.

SOURCES1 CIA, as reported in Joseph A Licari Linkages Between Soviet Energy and

Growth Prospects for the 1980’s. paper presented at the 1981 NATO Eco-nomlcs Directorate Colloquium, Apr. 8-10, 1981 These numbers replace the1977 estimates of 400 to 500 mmt.

2 OECD, Committee for Energy Policy, ‘Energy Prospects of the U S S R andEastern Europe, ” June 26, 1981

3 Robert Ebel, “Energy Demand in the Soviet Bloc and the PRC,” June 19794 Leslie Dienes and Theodore Shabad, The .Soviet Energy .System (Washington,

D C V H Winston, 1979), table 53, p 2525 Herbert L Sawyer, “The Soviet Energy Sector Problems and Prospects, ” Har-

vard University, January 1978, quoted in George W Hoffman, “Energy Projec-tions —Oil, Natural Gas and Coal In the U S S R and Eastern Europe, EnergyPolicy, pp. 2 3 2 . 2 4 1

6 Soviet Eleventh FYP target7 U S. Defense Intelligence Agency, “Allocation of Resources in the Soviet

Union and China— 1981 Statement of Maj. Gen. Richard X Larkln before theJoint Economic Committee, Subcommittee on International Trade, Finance,and Security Economics, Sept. 3 1981

8 Jeremy Russell, Shell 0119 David Wilson, Soviet 0il and Gas to 1980, Economist Intelligence Unit Special

Report No 90. This report was published just after the Soviet plan target wasreleased In a foreword, the author reasserts his belief that 011 production of700 mmt IS achievable and attributes the lower Soviet plan to an apparent de-cision to divert resources from 011 to gas production

case hypothesis oil production remainingstable at the Soviets’ own 1985 productiontarget, and as a worst case, production de-clining, but remaining at a level above the 40percent drop forecast by CIA.

GasGiven the problems in the oil industry,

and the fact that it is possible—indeed like-ly–that oil production will not rise greatly,gas is the key to the Soviet energy future inthis decade. This is the energy sector with byfar the best performance record in the past 5years, and it appears to have been given pri-ority in investment in the present FYP.

Proven Soviet gas reserves are tremen-dous; they may be likened to the oil reservesof Saudi Arabia. Gas, therefore, has a goodpotential for replacing oil both in Sovietdomestic consumption and as a hard curren-cy earning export. Gains in gas output couldmore than compensate for the apparentslowing of growth in oil production. The ex-

Photo credit TASS from SOVFOTO

Coal-loaded trains leave Karaganda

tent to which the U.S.S.R. can capitalize onits gas potential will depend on its ability tosubstitute gas for oil. This in turn rests ontwo factors: its ability to convert to gas inboiler and industrial applications, and itsability to add to the gas pipeline network.The rate of construction of new pipelines,both for domestic use and for export, will bethe most important parameter in determin-ing the extent to which Soviet gas can be uti-lized.

CoalHigh-quality, easily accessible Soviet coal

reserves have become depleted, and the vol-ume of coal output in the last several yearshas actually declined. Even the relativelymodest coal production targets in the

Ch. l—Summary Issues and Findings • 9

Eleventh FYP seem excessively optimistic,and gains in overall coal production will beoffset to some degree by the fact that thequality of much of the new coal being minedis low, In fact, the quantity of coal minedcould increase at the same time as the totalenergy derived from it (its standard fuelequivalent) actually declined.

The difficulties facing the Soviet coal in-dustry are compounded by the fact that anumber of problems must be addressed si-multaneously if production is to increasemeaningfully. These problems include lowlabor productivity, lagging additions to minecapacity, insufficient quality and quantity ofmining equipment, insufficient coal trans-port capacity, and inability to use the low-quality Siberian coals that are making up anincreasing share of production. Massive in-vestment in the coal industry would be re-quired to achieve gains in most or all of theseareas, and even then success in terms ofdramatic production increases could not beassured. This point underlines the relativecost effectiveness of relying on gas, ratherthan coal, as a substitute fuel.

Nuclear

Soviet nuclear power production has in-creased greatly in the past 5 years, and theU.S.S.R. is committed to an ambitious nucle-ar program. It foresees nuclear energy con-tributing as much as 14 percent of electricityproduction by 1985, and perhaps 33 percentby 1990. But Soviet targets for installednuclear capacity, while attainable in princi-ple, are probably overly optimistic.

More than in any other energy industry,progress here will depend on the efficiencyand production capacity of equipment manu-facturers. The growth of Soviet nuclearpower will not be constrained by lack ofknow-how, nor is it likely to be inhibited bythe kind of safety and environmental con-cerns so prevalent in the West. Very little isknown about available Soviet uranium sup-plies, but it is probably safe to assume thatthese are adequate to support the nucleargrowth that the Soviets themselves envis-

age, even given the competing claims of themilitary sector. Thus, the critical variable forthe success of the Soviet nuclear power pro-gram will be the ability of support industriesto construct nuclear power stations and ofreactor and other equipment manufacturersto deliver on time and in sufficient quan-tities.

Electricity

To a great extent, the performance of theelectric power industry in the present decadewill be tied to the success of the nuclear pro-gram. Should planned additions to installednuclear capacity fall seriously behind sched-ule—not an unlikely eventuality—fossil-firedgeneration will be called upon to cover theshortfalls. This prospect raises potential dif-ficulties. Although, on the face of it, the in-dustry appears to be sufficiently flexible, theextent to which fossil-fuel capacity can serveas a buffer for nuclear capacity is limited, toan unknown extent, by the degree to whichlow-quality Siberian coal can be utilized andabsorbed by the electric power system, andby Soviet ability to complete the UnifiedPower System, which eventually will link allof the nation’s regional electricity grids.The fate of the grid will be tied to the futureof long-distance electricity transmission.The U.S.S.R. has amassed great experiencein power transmission, including long-dis-tance, high-voltage (250 to 1,000 kV) directcurrent transmission. However, Soviet pow-er engineering is moving into a relativelynew field—ultrahigh voltage transmission(over 1,000 kV)–which, at least initially, willentail high investment and operating costs.

Despite these problems, the evidence sug-gests that the U.S.S.R. will have sufficientreserve capacity in its power generationsystem in the 1980’s and will be able to com-pensate for some shortfalls in nuclear capac-ity—provided that the necessary fuel sup-plies are available. Given the problems of thecoal industry, however, meeting the lattercondition cannot be taken for granted-un-less gas can be used much more extensively.


THE CONTRIBUTION OFWESTERN EQUIPMENT AND

TECHNOLOGY TO SOVIETENERGY INDUSTRIES

Oil and Gas

There is no question that Soviet oil pro-duction has been assisted by American andother Western technology and equipment,although the impact of this assistance isimpossible to quantify. In 1979, the SovietUnion devoted approximately 22 percent ofits trade with its major Western tradingpartners (some $3.4 billion) to energy-relatedtechnology and equipment. The vast majori-ty of these purchases—about $2.7 billion—was destined for the Soviet oil and gas sector(and most of this was for pipe and pipelineequipment). Western exports in the pasthave helped to compensate for shortfalls inthe production of Soviet domestically pro-duced equipment, and for the fact that thequality of equipment is usually inferior tothat which can be obtained in the West.

It is also true, however, that the impact ofWestern assistance has been lessened by atleast two important factors. First, whetherfor lack of hard currency, a lack of perceivedneed, or a fear of dependence on the West,the U.S.S.R. has never imported massiveamounts of oilfield equipment. Second, im-ported equipment and technology is usuallyless productive in the U.S.S.R. than it wouldbe in Western nations. This may be due to acombination of factors. The Soviet Unionhas not often allowed hands-on training byWestern suppliers to be carried out in thefield, and suppliers themselves may be un-willing to meet Soviet conditions for the sup-ply of spare parts, maintenance, or trainingservices. In addition, Soviet maintenanceand production practices are often not con-ducive to prolonging the useful life and pro-moting the efficiency of imported equip-ment.

The one area in which Soviet petroleumequipment and technology purchases might

be described as “massive” is large diameterpipe and other equipment (compressor sta-tions and pipelaying equipment) for the con-struction and operation of gas pipelines.There is no evidence that reliance on theWest in this area will lessen in the presentdecade. Indeed, given the crucial importanceof increased gas production and gas exportsto the short- and medium-term Soviet energyfuture, there is reason to believe that suchdependence will increase.

There is no doubt that the Soviet petro-leum industry will benefit from continued–and increased—infusion of Western equip-ment and technology imports. But the ex-penditures of hard currency and the extentof the hands-on Western involvement neces-sary to make such imports maximally effec-tive would be unprecedented Soviet behav-ior. With the possible exception of gas pipe-line construction, there is little evidence thatthe U.S.S.R. is ready to make such changes.

Other Energy Sectors

In the past, the U.S.S.R, has been virtual-ly self-sufficient in coal, nuclear, and electricpower technology and equipment. Purchasesin these areas have been small and spottyand appear to have been intended to compen-sate for specific deficiencies in the quantityor quality of domestic equipment, ratherthan to acquire new technological know-how.

Should the U.S.S.R. decide to reverse pastpractice and begin purchasing significantamounts of equipment in these areas, thesepurchases might consist of surface miningequipment, complete nuclear reactors and/orplants, and computers. Although every ener-gy sector could profit from more extensivecomputerization and from the availability ofWestern (especially American) computerhardware and software, this would be of par-ticular benefit to the electric power industryfor management and control of the UnifiedPower System.

Ch. 1—Summary Issues and Findings • 11

THE PROSPECTS FORENERGY CONSERVATION ANDSUBSTITUTION IN THE U.S.S.R.

Conservation should be an extremelypromising policy for the U.S.S.R. It could beaccomplished both through a centralized“high-investment” strategy –i.e., throughindustrial modernization—and through a‘‘low-investment or housekeeping strat-egy— i.e., improving the efficiency of opera-tion of equipment already in place.

Despite evidence of interest in conserva-tion, emphasis to date has been on produc-ing, not saving, energy. To the extent thatthe latter has been accorded official atten-tion, stress has been on exhortation to indus-try and individual consumers to conserve, astrategy which is unlikely to produce majorresults quickly because of weaknesses in theprice structure, the prevailing incentivesystem, the enforcement mechanism, andthe ways in which consumption is monitoredand measured. In short, the U.S.S.R. has ac-complished major energy savings, and op-portunities for more still exist. But rigiditiesin the political and economic structure haveprevented Soviet policy makers from takingfull advantage of them. The situation maybe ameliorated somewhat by an increase inenergy prices scheduled for 1982, but the ex-tent of the impact of such a reform on energyconsumption cannot at this stage be pre-dicted.

In addition to policies that result in over-all energy savings, the U.S.S.R. is interestedin lowering domestic oil consumption inorder to free oil for highly lucrative export toworld markets. This can be accomplished bysubstituting other fuels for oil in domesticuse. Opportunities for substitution with coalare severely constrained both by the diffi-culties besetting coal production and by en-vironmental concerns. Gas is the most prom-ising alternative fuel but, as noted, the ex-tent to which it can be utilized domesticallyis limited by the internal gas pipeline net-work, expansion of which will encounter the

same difficulties as expansion of pipelinesfor gas exports.

THE FOREIGN AVAILABILITYOF WESTERN TECHNOLOGY

AND EQUIPMENT

The Concept of Foreign Availability

The Export Administration Act of 1979contains the provision that decisions regard-ing the control of U.S. equipment and tech-nology should be affected by the availabilityof similar or equivalent items in other coun-tries. It is left to the Department of Com-merce to establish the capacity to gather andassess the information upon which deter-mination of “foreign availability” will bemade. There remain serious conceptual andpractical problems that must be resolvedbefore “foreign availability” can become aviable criterion for export licensing deci-sions. As of this writing, these problemshave yet to be taken up in a comprehensiveor systematic manner by either Congress orthe Department of Commerce.

There is no commonly accepted definitionof “foreign availability, ” nor is there a cen-tral repository of information, or system forgathering such information, in place. OTA'sown judgments of the foreign availabilityof items of energy-related technology andequipment must, therefore, be understood tobe highly generalized. The term as it is usedhere denotes the existence in Western Eur-ope and/or Japan of items with similar tech-nical parameters and capabilities as thoseavailable from firms in the United States.

Oil and Gas Equipment andTechnology

The United States is not the predominantsupplier of most petroleum-related items im-ported by the U.S.S.R. OTA has identifiednumerous foreign firms which supply oil andgas equipment to the Soviet Union, reinforc-ing the theme of the international nature ofthe petroleum industry. Technology devel-


oped in the United States is quickly diffusedthroughout the world through an extensivenetwork of subsidiaries, affiliates, andlicensees.

There are a few items of oil and gas equip-ment and technology that are solely availa-ble from the United States, and a few othersfor which the United States is generally con-sidered a preferred supplier. With the excep-tion of advanced computers, however, theU.S.S.R. is either not purchasing theseitems, is on its way to acquiring the capacityto produce them itself, or has demonstratedthat they are not essential to its petroleumindustry. The United States continues torepresent the ultimate in quality for someequipment, but the extent of that lead is di-minishing, and the U.S.S.R. can and does ob-tain most of what it needs for continued de-velopment of its oil and gas resources fromoutside the United States. This is particular-ly true of what appears to be the most crucialimport for this decade—large diameter pipeand pipeline equipment. The Soviet Unionprocures these items from Japan, West Ger-many, Italy, and France. Indeed, the UnitedStates does not produce the large diameterpipe that constitutes the U.S.S.R.’s singlemost important energy-related import.

Other Equipment and Technology

As noted above, if the U.S.S.R. reversedits present policy and began to import moreextensively in its other energy sectors, onearea that might receive particular attentionis coal surface mining. The United States is aworld leader in this field, and should theSoviet Union seek large amounts of the bestand largest capacity surface mining equip-ment, it would be likely to turn to theAmerican firms.

THE POLICIES OF AMERICA’SALLIES TOWARD SOVIETENERGY DEVELOPMENT

OTA examined the energy relations (in-cluding trade in both energy-related equip-ment and technology and in fuel itself) be-

tween the U.S.S.R. and five of America’sprincipal allies—Japan, West Germany,France, Italy, and Great Britain. With theexception of Britain, trade with the SovietUnion has generally been more important forall of these nations than it has for the UnitedStates. While all cooperate in controlling theexport to the Soviet Union of equipment andtechnology with direct military relevance, itis nevertheless true that these nations arefar more inclined than is the United Statesto consider trade with the U.S.S.R. a desir-able element in their foreign policy and com-merce, and to eschew the use of export con-trols for political purposes.

Although trade with the U.S.S.R. makesup only a small portion of the overall trade ofthese countries, in 1979 energy-related ex-ports constituted nearly one-half of Japa-nese, one-third of Italian, approximately one-quarter of West German and French, andabout 10 percent of British exports to theU.S.S.R. The comparable figure for theUnited States was 7 percent. In absoluteamounts, this translates into more than $1billion worth of energy-related exports in1979 for Japan, nearly that amount for WestGermany, and almost one-half billion eachfor France and Italy. (This rank order haschanged markedly in the past 5 years, withJapan overtaking West Germany as theU.S.S.R.’s major Western trading partner.)Most of these exports were destined for theSoviet petroleum industry, and an importantpart of this trade was in the large diametersteel pipe used in the U.S.S.R. for gas pipe-lines. Indeed, West German steel corpora-tions are among the most vociferous in pro-moting such trade with the U.S.S.R. There isevidence that employment in several of WestGermany’s largest steel firms might be seri-ously affected by the loss of the Sovietmarket.

These nations also import energy from theSoviet Union. The most important Sovietenergy commodity for Western Europe nowand for Japan in the future is gas. In 1979,about 24 percent of Italy’s and about 16 per-cent of West Germany’s total gas require-

Ch. 1—Summary. Issues and Findings ● 13—

ments came from the U.S.S.R. These figuresmay be interpreted in several different ways,however. Italy, which had the highest reli-ance on Soviet energy, purchased about 10percent of all the primary energy it usedfrom the U.S.S.R. The comparable figuresfor West Germany, France, the United King-dom, and Japan respectively were 6,5, 1, and2 percent. In no country examined in thisstudy did Soviet energy constitute morethan 9 percent of 1979 total energy imports.But although overall “dependence” on theU.S.S.R. is low, some countries might facesignificant disruptions if Soviet gas becameunavailable.

The most important and controversial ex-ample of West European (and possibly Jap-anese) energy cooperation with the U.S.S.R.is the proposed new pipeline, which willcarry gas from West Siberia to as many as10 West European nations. (This pipelinewas originally planned to carry gas from theYamburg field. The U.S.S.R. has now de-cided to delay development of that field andconcentrate instead on further developmentof the Urengoy field, both for incrementaldomestic needs and export commitments. )The scale of this project guarantees that it .will raise the level of East-West energy in-terdependence in qualitative as well as quan-titative terms.

Barring unexpected political or economicdevelopments-probably even in the face ofactive diplomacy on the part of the UnitedStates–the gas pipeline project is likely toproceed. West Germany, France, and Italyall look to Siberia as a way to increase anddiversify energy supplies while at the sametime increasing energy equipment and tech-

nology exports. The latter considerationmay also be important for Japan. Moreover,the pipeline project has political implicationsfor each of the participants, and these tooare important motives for proceeding. WestGermany, for instance, has a vital interest inproviding the U.S.S.R. with incentives tomoderate its behavior in Europe and to helpto foster improved relations with East Ger-many. Japan looks to its trade and energyrelations with the U.S.S.R. as an importantcounterweight to its growing relationshipwith the Peoples Republic of China.

If the West Siberian Pipeline is developedas currently envisaged, West Germany,France, and Italy will certainly become moredependent on Soviet gas, although this gaswill to some extent replace the Soviet oilthey presently import. In any case, depend-ence on the U.S.S.R. would still be sig-nificantly smaller than dependence onOPEC. A cutoff of Soviet gas would impacteach country differently (each, mindful of therisks entailed in the deal, has made differentcontingency arrangements), but none wouldbe immune from hardship, particularly in thecontext of a tightened world oil market orother energy crisis. Each of the three wouldbenefit from the development of more effec-tive contingency plans, allowing for sub-stitution of alternative energy supplies inthe event of Soviet shortfalls, and therebydiminishing the opportunities for theU.S.S.R. to make use of any sort of “gasweapon” to exert political pressure on its gascustomers. The most effective contingencyplanning would be that undertaken by WestEuropean nations as a bloc–but as yet thereare no serious prospects that this will occurin any formal sense.

FOUR ALTERNATIVE U.S. POLICY PERSPECTIVES

Suggestions for U.S. policy regardingSoviet energy development can be catego-rized around four alternative strategies. Thissection briefly sets out the basic tenets es-poused by adherents of these strategies and

indicates OTA findings with respect toeach.

1 . The embargo perspective seeks toseverely curtail or eliminate the ability of


U.S. firms to sell energy-related (especiallypetroleum) equipment and technology to theU. S. S. R., either because these items mayhave direct military relevance or because oiland gas are considered to be strategic com-modities. In this connection, it is oftenasserted that helping the U.S.S.R. to developthese resources is helping bolster the econ-omy of an adversary nation.

OTA found that very few items of oil andgas technology and equipment could be di-verted to direct military applications. Com-puters are the most important exceptionhere, and these are already subject to bothU.S. and multilateral export controls. Exer-cise of this policy option, justified by the in-herent importance of petroleum, would betantamount to pursuing a policy of economicwarfare against the U.S.S.R. The UnitedStates attempted this after World War II. Itformally abandoned the effort in 1969, inrecognition of the facts that the UnitedStates was sole supplier of few of the itemssought by the U.S.S.R. from the West, andthat United States allies were not willing toparticipate in such restrictive policies. Theunenthusiastic response of Western Europeand, to a lesser extent, Japan to PresidentCarter’s post-Afghanistan technology em-bargo against the U.S.S.R. indicates thatthis attitude has probably not changed. It ispossible to posit circumstances under whichthe United States could persuade its allies toreverse their own policies, but this wouldlikely take a dramatic change in the politicalclimate as well as a major policy initiative onthe part of the United States. The lattermight have to include concrete suggestionsfor energy supply alternatives to Soviet gas.

2. The linkage perspective most closelydescribes present U.S. policy toward tradewith the U.S.S.R. Linkage is a policy thatseeks to use the prospect of expansion orcurtailment of trade as a “carrot”’ or “stick”to exact policy concessions from the tradingpartner. This perspective accommodates anumber of different opinions as to how andunder what circumstances linkage should beattempted, but in one form or another it has

influenced U.S. trading policy with theU.S.S.R. since at least the Nixon era.

There is no unambiguous evidence regard-ing the effects, if any, that linkage vis-a-visthe Soviet Union has ever had on Soviet do-mestic or foreign policies; thus, no finaldetermination of its success or failure can bemade. In the case of petroleum equipmentand technology, the effectiveness of a link-age policy would be limited by the fact thatthe United States is the sole supplier of veryfew items crucial to the Soviet oil and gas in-dustry, and in those cases in which it is apreferred supplier (e.g., pipelaying equip-ment), the U.S.S.R. has available alterna-tives that, albeit second-best choices, couldproduce the desired results. The limitation oflinkage are well illustrated by the fact thatthe import most crucial to Soviet energy de-velopment in the present decade—large di-ameter pipe—is not produced in the UnitedStates.

3. The energy cooperation perspective as-sumes both that American technology andequipment could make a significant positivecontribution toward increasing Soviet ener-gy availability in the present decade andthat such a development would be in the in-terests of the United States in that it wouldhelp to reduce Western dependence onOPEC and relieve pressure on world energymarkets.

OTA’s findings suggest that althoughAmerican technology and equipment haveassisted the Soviet petroleum industry, theUnited States is not the only–indeed, per-haps not even the most important–Westernnation to provide such assistance. ForUnited States exports to make more of a dif-ference, not only would the United Stateshave to be willing to sell massive amounts ofequipment and technology to the U.S.S.R.on attractive terms—probably involving ex-port credits—but the U.S.S.R. would itselfhave to be willing to purchase in largeamounts, to utilize the imported items in amore efficient manner, and to allow theUnited States and other Western firms to

Summary Issues and Findings ● 1 5

“\

provide greater hands-on training and to par-ticipate more fully in Soviet energy projects.

4. The commercial perspective rests eitheron the belief that trade and politics shouldremain separate and/or on the judgment thatregardless of the export control policy itadopts, the United States is unlikely to beable to significantly affect the U.S.S.R.

selling nonmilitarily relevant items to theU.S.S.R.

Such a policy might allow significant salesfor individual firms, but, unless it were ac-companied by the extension of official exportcredits, it is highly unlikely that it wouldresult in enough trade to have any direct im-pact on the overall foreign trade or competi-tive position of the United States. On theother hand, the lack of pronounced economicgains resulting from such a policy could beat least partially outweighed by potentialpolitical benefits derived from removing theissue of Soviet energy from the arena of con-flict between the United States and its allies.


U S pipelaying equipment used in the constructionof the Northern Liqhts gas pipeline

CHAPTER 2

The Soviet Oil andGas Industry

CONTENTS

PageINTRODUCTION . . . . . . . . . . . . . . . . . . 19

LOCATION OF MAJORPETROLEUM REGIONS . . . . . . . . . 20

West Siberia . . . . . . . . . . . . . . . . . . . . . . . 20Volga-Urals. . . . . . ., . . . . . , . . . ., , , ., , 25The Caspian Basin and North Caucasus. 26Ukraine . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Central Asia . . . . . . . . . . . . . . . . . . . . . . . 27Komi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Page

Sakhalin . . . . . . . . . . . . . . . . . . . . . . . . . . 30Summary. . . . . . . . . . . . . . . . . . . . . . . . . . 30

EXPLORATION. . . . . . . . . . . . . . . . . . . 31

Introduction . . . . . . . . . . . . . . . . . . . . . . . 31The Exploration Process . . . . . . . . . . . . . 31Evaluation of Exploration Efforts . . . . . 32The Contribution of Western Equipment

and Technology to Exploration. . . . 35Summary and Conclusions. . . . . . . . . . . . 37

Page

DRILLING. . . . . . . . . . . . . . . . . . . . . . . . 38

Introduction . . . . . . . . . . . . . . . . . . . . . . . 38The Drilling Process . . . . . . . . . . . . . . . . . 38Soviet Drilling Equipment and practice. 39The Contribution of Western Equipment

and Technology to Drilling. . . . . . . . . . 46Summary and Conclusions. . . . . . . . . . . . 47

PRODUCTION . . . . . . . . . . . . . . . . . . . . 48

Introduction . . . . . . . . . . . . . . . . . . . . . . . 48The Production Process. . . . . . . . . . . . . . 48Soviet Equipment and Practice. . . . . . . . 51The Contribution of Western Technology

and Equipmentto Production . . . . . . . 53Summary and Conclusions. . . . . . . . . . . . 55

TRANSPORTATION OF OIL ANDGAS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Introduction . . . . . . . . . . . . . . . . . . . . . . . 55Transportation of Oil and Gas by

Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . 56Soviet Oil Pipelines. . . . . . . . . . . . . . . . . . 57Gas Pipelines . . . . . . . . . . . . . . . . . . . . . . 60The Role of Western Pipeline Equipment

and Technology. . . . . . . . . . . . . . . . . . . 62Summary and Conclusions. . . . . . . . . . . . 64

REFINING . . . . . . . . . . . . . . . . . . . . . . . 64

Introduction . . . . . . . . . . . . . . . . . . . . . . . 64The Soviet Oil Refining Industry . . . . . . 64The Soviet Gas-Processing Industry . . . 67Western Technology in the Soviet

Refining Industry . . . . . . . . . . . . . . . . . 67Summary and Conclusions. . . . . . . . . . . . 68

OFFSHORE . . . . . . . . . . . . . . . . . . . . . . . 68

Introduction . . . . . . . . . . . . . . . . . . . . . . . 68Offshore Exploration and Production . . . 68The Soviet Offshore Industry . . . . . . . . . 69The Contribution of Western Offshore

Technology . . . . . . . . . . . . . . . . . . . . . . 70Summary and Conclusions. . . . . . . . . . . 70

THE PROSPECTS FOR SOVIET OILPRODUCTION IN 1985. . . . . . . . . . . 70

Soviet Oil Reserves. . . . . . . . . . . . . . . . . . 71Soviet Oil Production Capabilities . . . . . 73

Page

THE PROSPECTS FOR SOVIET OILPRODUCTION IN 1990. . . . . . . . . . . 74

THE PROSPECTS FOR SOVIET GASPRODUCTION, 1985 AND 1990... 75

SUMMARY AND CONCLUSION . . . . 76

LIST OF TABLES

Table No. Page

2.

3.

4.

5.

6.

7.8.9.

10.11.12.13.14.

15.

16.

17.

18.

Russian and Soviet Oil and GasProduction, Selected Years. . . . . . . .The Growing Importance of WestSiberian Oil Production. . . . . . . . . . .Production of Gas in TyumenOblast. . . . . . . . . . . . . . . . . . . . . . . . .Oil Production in the Volga-UralsRegion . . . . . . . . . . . . . . . . . . . . . . . .Oil Production in the CaspianRegion . . . . . . . . . . . . . . . . . . . . . . . .Gas Production in Central Asia . . . .Oil Production in Komi . . . . . . . . . . .Natural Gas Production in Komi . . .Average Bit Runs . . . . . . . . . . . . . . .Drilling for Oil and Gas. . . . . . . . . . .Waterflooding . . . . . . . . . . . . . . . . . .Transport of Oil and Oil Products . .Length of Oil and Oil ProductPipelines. . . . . . . . . . . . . . . . . . . . . . .Diameters and Capacity of OilPipelines. . . . . . . . . . . . . . . . . . . . . . .Length and Diameters of Gas TrunkPipelines. . . . . . . . . . . . . . . . . . . . . . .Soviet Oil Production Forecasts,1985 . . . . . . . . . . . . . . . . . . . . . . . . . .Soviet Natural Gas Production

20

20

24

25

2728292942445257

58

58

60

Estimates, 1985-90 . . . . . . . . . . . . . . 75

LIST OF FIGURES

Figure No. Page

2. Major Petroleum Basins, Oilfields,and Gasfields . . . . . . . . . . . . . . . . . . . . 21

3. Major Oil Pipelines . . . . . . . . . . . . . . . 594. Major Gas Pipelines . . . . . . . . . . . . . . 615. Soviet Oil Refinery Sites. . . . . . . . . . . 65

CHAPTER 2

The Soviet Oil and Gas Industry

In 1980, the Soviet Union was both theworld’s largest producer of oil and its largestgas exporter. It is ironic, therefore, thatmuch of the discussion of Soviet energy thathas taken place in the West centered untilrecently on a debate over the continuedviability of Soviet energy independence, atleast in the present decade. This debate wasoccasioned by the 1977 Central IntelligenceAgency (CIA) projection that Soviet oil pro-duction would peak and begin to declinesharply by the early 1980’s. It is by nowclear that this outcome is unlikely. The rateof growth of Soviet oil production has slowedmarkedly, but output does not appear tohave peaked. Indeed, the CIA has revised itsforecast, pushing back the anticipateddecline until after 1985. The focus of interesthas now shifted from oil to gas–and fromthe potential consequences of a Soviet oilshortage to the implications, both for the

U.S.S.R. and the West, of an abundance ofSoviet gas.

This chapter attempts to elucidate thegrounds of past controversies and illuminatepresent uncertainties. It examines the pres-ent condition of, and potential for, the Sovietoil and gas industries, with special emphasison the impact of the West on oil and gas pro-duction. After a brief historical introductionit surveys the U.S.S.R. oil- and gas-pro-ducing regions. It then describes the state ofeach industry sector—exploration, drilling,production, transportation of oil and gas,refining, and offshore activities—includingthe past and potential contributions ofWestern equipment and technology. Finally,it summarizes the controversy over thefuture of Soviet oil production and positsplausible best and worst case estimates of oiland gas output for 1985 and 1990.

INTRODUCTION

The Russian oil industry is one of theworld’s oldest. When Baku, the historicalcenter of the industry, was ceded to Russiaby Persia in 1813, oil was already being pro-duced from shallow hand-dug pits. Devel-opment of these sites near the Caspian Sealanguished until after 1862, when productionbegan to rise, aided by the introduction ofdrilling ( 1869), the end of the state monopolyon production ( 1872), and an influx of foreign

entrepreneurs, such as Robert and LudwigNobel (1873). Russian oil production peakedin 1901 at nearly 12 million metric tons peryear (mmt/yr) (240,000 barrels per day (bd)or 0.24 million barrels per day (mbd) (seetable 2) and then dropped rapidly. This dropwas due to a number of factors, includinglabor unrest surrounding the 1905 revolu-tion.

Although drilling technology was intro-duced at about the same time in the UnitedStates and in Russia, the Russians soon fellbehind. In 1901, the Russians relied onwooden drilling tools that could achieve welldepths up to 300 ft. In contrast, Europeanconcerns using metal drilling technologycould drill wells of over 1,800 ft; in 1909,rotary drills in the United States werereaching depths of 2,400 ft.

19

20 . Technology and Soviet Energy A Availability

Table 2.— Russian and Soviet Oil and GasProduction, Selected Years

(million tons, billion cubic meters)

Oil Gas—

—

—

——

Oil production fell precipitously after theBolshevik Revolution and the resulting con-fiscation and nationalization of the oilfields.Soon, however, the new Soviet Governmentbegan to open these fields to foreign tech-nology and investment, By 1927, with pro-digious Soviet effort and the help of Ameri-can, French, Japanese, German, and Britishfirms, production surpassed the 1901 levelBy 1932, with production at 22.4 mmt (0.45mbd), petroleum exports accounted for 18percent of Soviet hard currency receipts. Itwas at this point that foreign involvementwas curtailed.

The year 1940 marked the beginning ofanother temporary drop in Soviet oil produc-tion. During the course of World War II,many oilfields were destroyed, and postwarrecovery was slow. Indeed, this recovery wasonly accomplished with a second infusion ofimported equipment and technology, tech-nology that helped to create the presentmodern, nationwide industry.

The first important oil discoveries outsideof Baku had been made around 1932 in theVolga-Urals region. The war, as well as ashortage of drilling equipment, delayed fur-ther exploration and development in thisarea, but as the oilfields around Baku peakedand began to decline in the early 1950’s, theSoviet industry shifted its emphasis north-eastward to the Volga-Urals. By 1955, drill-ing activities were concentrated there, andthe rate of oil production again began toclimb sharply.

The pattern has repeated itself. As theVolga-Urals fields peaked in the 1970’s, theSoviets were able to offset declining pro-duction by bringing new discoveries online,this time in West Siberia. The first discoveryin West Siberia was made in 1960. As table 3shows, by 1970 its fields accounted foralmost 10 percent; 6 years later, over one-third; and now more than one-half of totalSoviet oil production. It is appropriate,therefore, to begin this chapter’s survey ofmajor oil-producing regions with WestSiberia.

Table 3.—The Growing Importance of West SiberianOil Production (million tons)

West Siberiaas a share of

Year U.S.S.R. West Siberia U.S.S.R. (O/. )

1 9 6 5 . 242.9 1,0 0.41 9 7 0 . 353.0 31.4 9.81 9 7 5 490.8 148,0 30.21976 . . . . . . 519.7 181,7 35,01 9 7 7 . . . 545.8 218.0 39.91978 . . . . . . . 571.4 254.0 44.51979 . 586 284 48,51 9 8 0 a , . . . 640 315 49,21 9 8 0b . 603 312 51.71985 (plan) 620-645 385-395 61-62

aOriginal FYP targetbActual production

SOURCE Wilson op. cit. pp. 56 Soviet Geography April 1981 p 273

LOCATION OF MAJOR PETROLEUM REGIONS2

WEST SIBERIA the Ural mountains on the west and the Cen-

The West Siberian lowlands lie betweentral Siberian Platform on the east (see fig. 2).The petroleum-producing regions are found

Throughout this report, “petroleum” is taken to mean in the Tyumen province (oblast) and part ofboth oil and gas. the adjacent Tomsk oblast. This area pre-


sents formidable natural obstacles to oil andgas exploration and production. The terrainis extremely flat, and most of the area isa vast swamp, interspersed with sluggishstreams and occasional dry ground. TheVasyugan swamp on the left bank of theMiddle Ob River alone covers 100,000square miles (mi2), equivalent in area to NewYork, New Jersey, and Pennsylvania com-bined. Other swamps and bogs abound.

Western Siberia typically has 6 to 8months each year of below-freezing tem-peratures. At high water in the Ob systemthere are 19,000 miles of navigable rivers,but the Ob is blocked for 190 to 210 days peryear with ice 30 to 60 inches thick. The ship-ping season thus lasts only about 5 months.In addition, much of the area is underlain bypermanently frozen subsoil (permafrost) thatimpedes drainage, stunts plant roots, andmakes forestry, farming, stock raising, min-ing, oil drilling, excavation, pipelaying, andmost construction activities difficult and ex-pensive,

The map in figure 2 shows few towns ofsignificance in this area; names on Sovietmaps often represent mere riverside clear-ings with a few houses. Large areas areunsettled, virtually inaccessible in summerbecause of swamps and mosquitoes. In theseinhospitable surroundings lies one of theworld’s largest oil- and gas-producing re-gions. Here the Soviet Union produced morethan one-half of its oil in 1980—312 mmt,about 6.24 mbd—and here too lie the enor-mous gasfields on which the future of theSoviet gas industry rests.

oil

Oil was first discovered in West Siberia in1960 near Shaim on the Konda river, atributary of the Ob. By 1969, after an inten-sive exploration effort, 59 fields had beenidentified in the Middle Ob River region.These included nine large fields (defined ashaving recoverable reserves of 50 to 100mmt or 366 million to 733 million barrels(bbl) each); nine giant fields (with recoverablereserves of 100 to 500 mmt or 733 to 3,665

million bbl); and the supergiant Samotlor.“Supergiant” is a designation for fields hav-ing recoverable reserves of more than 500million tons. In this case, the Soviets broketheir own self-imposed silence regarding thesize of reserves, reporting that Samotlor, thelargest oilfield in the U. S. S. R., contains“about 2 billion recoverable tons’ (14.7billion bbl) of oil.’

Soviet planners have concentrated onWest Siberian development in an effort tomaximize production, and Samotlor hasdominated Soviet oil production in the past 5years. In 1980, Samotlor alone yielded 150million tons (3 mbd), approximately one-quarter of total oil production for the year.Another way of describing the contributionof this field is through its contribution to in-cremental output. During the Ninth FiveYear Plan (FYP) (1971-75), Samotlor pro-vided over 65 percent4 of the production in-crease of West Siberia, and over half of thegrowth in oil output for the entire U.S.S.R.Much of the controversy over the future ofSoviet oil production rests on the question ofhow long output at Samotlor can be main-tained, and whether there is a sufficientnumber of small deposits to replace it once itdoes decline. The first billion tons of oil hadbeen recovered from Samotlor by July 1981.At the current rate of production, the field isexpected to give out by the late 1980’s.

The Soviets are anticipating the inevitablepeaking and decline of Samotlor, wheneverthat may be, by developing a number ofsmaller West Siberian fields. There is noquestion that there are many deposits, bothin the Ob Valley and in the more remote areaof the West Siberian plain, which will bebrought into production. One problem withdeveloping such fields, however, is the provi-sion of infrastructure, both to accommodateoilfield workers and to transport the oilitself.

‘Souetskaya Rossiya, Feb. 28, 1970, quoted in LeslieDienes and Theodore Shabad, The ,Yot)iet Erzerg>’ S?’stern. Re-sourc~ Use and Policies (Washington, D. C.: V. H. Winston &Sons, 1979), p. 58.

41~icnes and Shabad gi~re a figure of 66 percent; Ila~idWrilson, in So[ict Oil and (;u.s fo 1.990 (I,ondon: The k:con-omist Intelligence Unit 1,td, N ovemher 1980), p. 9 estimates78 pcrcen t.

Ch. 2—The .Soviet 0il and Gas Industry ● 23—

Photo credit Oil and Gas Journal

Oil rig near Surgut in West Siberia’s Middle Ob region


The pervasive permafrost conditions inSiberia require special, difficult, and expen-sive construction techniques. For this rea-son, railroad and road construction has beenkept to a minimum. The railroad reachedSurgut, for instance, only in 1975, 10 yearsafter the start of oil production there. Hardsurfaced roads are largely confined to thearea around Surgut and Nizhnevartovsk. Ithas been estimated that 1 mile of surfacedroad in this region costs between 500,000and 1 million rubles compared to 100,000 to150,000 rubles in the European part of theU.S.S.R.

The Soviets employ the “work-shift”method in West Siberia; crews are shuttledby helicopter from base cities like Surgut orNizhnevartovsk to isolated drilling siteswhere they live in dormitories for the periodof their shift.5 This is not very different fromindustry practice in the West in difficultareas such as the North Slope, but the ob-vious disadvantages of this life have re-quired substantial bonuses and incentiveschemes to attract workers. Nevertheless,there are still labor shortages and very highrates of labor turnover. As the depositsbeing worked move farther east, new basecities, or at least permanent settlements, willbe required.

GasThe gasfields of West Siberia extend for

over 1,000 miles from the Yamal Peninsulain the north deep into the Tyumen oblast.Production in the area did not begin in anysubstantial amount until after 1970, bywhich time pipelines had been constructed totransport the gas. The location of the Tyu-men fields is shown in figure 2 while table 4summarizes production from deposits thatare already online. The Tyumen fields are im-mensely important to the Soviet gas in-dustry. The increase in production of naturalgas at Tyumen between 1975 and 1980(about 120 billion cubic meters (bcm))amounted to more than 82 percent of the in-crease for the entire country (146 bcm), and

5 Ibid , pp. 59-60.

Table 4.—Production of Gas in Tyumen Oblast(billion cubic meters)

1981 19851975 1979 1980 (plan) (plan)

Medvezhe . . . . 29.9 71 70 70 NAVyngapur . . . . NA 13 15 15 NAUrengoy . . . . . NA 26 53 88 250Others. . . . . . . . . . . 3.6 2 2 NA NACasinghead gas. . . . . . . . 2.2 11 14 17 NA

Total gas production. . . 35.7 123 156 190 330-370

NA = not availableNOTE Totals may not add due to rounding

SOURCE Soviet Geography April 1981, p 276

1985 plans call for production here to nearlydouble.

Gas extraction in West Siberia began in1963 with a group of small gas deposits onthe left bank of the lower reaches of smallgas deposits on the left bank of the lowerreaches of the Ob River. Three years later,the world’s largest gasfield was discoveredat Urengoy. Urengoy is one of several super-giant fields (i.e., fields containing reserveslarger than 1 trillion cubic meters) in thisregion, and it is the focus of development forthe present FYP. Other large fields includeMedvezhye, which began producing in 1972,and Yamburg, for which the controversialplanned pipeline to Western Europe wasoriginally named. The gas for this pipeline,at least initially, will now come fromUrengov.

The West Siberian gas industry has beenbeset with problems that have caused Uren-goy to underfill its plan targets. These havenothing to do with the reserves, which makethe field the largest single concentration ofgas in the world, but rather are the result ofinadequate infrastructure. This rests in parton the difficult conditions described in theprevious section, exacerbated by the north-ern location of most of the gasfields, and alsoin part on the fact that the development ofgas has generally lagged behind that of WestSiberian oil because alternative sources ofsupply were already available from CentralAsia.6 But there is also evidence of planningfailures in the gas industry.7

—. . . ——.—6See Jonathan P. Stern, S’{){ i< I t ,1”(J t u m / (1’u \ /hJ ( ~à (~l(~pm (Ill t

((J 1!)!M) ( I.exington, ill ass.: 1,(IX ington llo(~ks, 19X()), pp f]~)-[;.7Ibid., pp. 13-14.

Ch. 2—The Soviet Oil and Gas Industry ● 25

Photo credit 0il and Gas Journal

Gas treatment facility in the Medvezhye field

One large problem, for instance, has beendelays in construction of gas-processingplants. These are necessary to treat the gasbefore it can be transported, Transportationitself can only be accomplished after the in-stallation of pipelines and the compressorstations that move the gas through the pipe.This sequence has not always been well-planned. Even with the entire infrastructurein place, there are reports of compressor sta-tions remaining idle because gas is beingsent in quantities insufficient to justify theiroperation. In addition, there are large short-falls in the construction of housing, medicalfacilities, places of entertainment, etc., forgasfield workers; and poor organization atdrilling sites that has led to difficulties inmoving rigs from one location to another andto accidents and blowouts. These problemswill have to be solved before West Siberiatremendous gas potential is fully realized.

VOLGA-URALS

The Volga-Urals region lies in the far moreaccessible and temperate European portionof the U. S. S. R., between the Volga River andthe western edge of the Ural mountains. Itsmajor petroleum producing areas are foundin the Tatar and Bashkir Republics, andKuybyshev, Perm, and Orenburg oblasts.

These provinces together formed theU.S.S.R.’s most important oil-producingregion until the late 1970’s. Volga-Urals pro-duction peaked in 1975 and was exceeded byWest Siberia in 1977. It is now in decline (seetable 5). But even today, the Volga-Urals ac-counts for about one-third of Soviet oil pro-duction and is the third largest oil-producingprovince of the world.

The climate of the Volga-Urals is similarto that of the Canadian plains, and the ex-treme conditions that hamper the extractionand transportation of petroleum in WestSiberia do not pertain there. In fact, exceptfor some areas of the Perm oblast, the Volga-Urals deposits are readily accessible by road,rail, the Volga and Kama rivers, and close tomajor petroleum-using industrial centers. Inaddition, a large part of the Soviet refiningindustry is located in the region, althoughsince the decline of the Volga-Urals fieldsthese refineries use oil brought in by pipelinefrom West Siberia.

OilAs was noted above, concentration on

Volga-Urals oil did not begin until afterWorld War II when development was fos-tered by the movement of heavy industryinto the region. The giant Romashkino fieldin the Tatar Republic was discovered in1948. Other large fields were found inBashkir Republic and in Kuybyshev oblast.Between 1956 and 1958, these three prov-

Table 5.—Oil Production in the Volga-Urals Region(million tons)

1980annual

1975 1976 1977 1978 1979 plan

Tatar Republic . . .103.7 1000 97.8 97.2 85.8 83Bashkir Republic . 40.3 40.2 40.1 39.6 39.7 38Kuybyshev . . 34.8 33 31 27 25 25

Perm . . . . 22.3 23.5 24 24 24 22Orenburg . . . 13.9 12.6 12.8 12 12 10U d m u r t R e p u b l i c . 3.7 4.4 5.5 6.5 7,4 8Volgograd . . . NA NA NA NA N A N ASara tov . . 8 8 8 7 7 7

T o t a l 2267 221.7 219.2 213.0 201.0 193

NA = not available

SOURCE Wilson op. cit. p. 15.


inces became the first, second, and thirdlargest producers in the Soviet Union, asituation that persisted into the late 1970’s.Even now, the Volga-Urals is important toSoviet oil industry planners, who hope toslow the region’s decline by allocatingresources to open new smaller and deeper de-posits and by applying tertiary recoverymethods in existing deposits.

Gas

Gas production in the Volga-Urals is cen-tered at Orenburg in the Orenburg oblast.8

Discovered in 1966, Orenburg is of specialimportance to the Soviet gas industry, for itis the latest supergiant deposit to be locatedin the more temperate European part of thecountry. Its gas is therefore more easily ac-cessible to industrial users. But only part ofOrenburg’s gas goes to domestic consumers.The rest is now being transported to EasternEurope through the 1,700 mile (2,750 km)Orenburg or “Soyuz” pipeline. This pipelinestretches from Orenburg to the Czecho-slovakian border at Uzhgorod where it con-nects with the existing Brotherhood or“Bratstvo” pipeline system. Orenburg wasbuilt as a joint Council for Mutual EconomicAssistance (CMEA) project, with East Euro-pean countries supplying labor and ma-terials in return for eventual repayment ingas deliveries. When it reaches full capacity,the Orenurg-Uzhgorod line is scheduled tocarry 28 bcm/yr of gas, nearly all of it to beexported; 15.5 bcm of this will be dividedbetween Czechoslovakia, East Germany,Hungary, and Poland, and the rest sold inWestern Europe. 9 Bulgaria and Romaniashares are being delivered in another pipelinefrom the Ukraine.

The advantages of Orenburg’s favorablelocation have to some extent been offset bythe technical obstacles posed by the factthat its gas contains both condensate andcorrosive sulfur. These must be removed in

‘See W’ilson. op. cit., pp. 21 -22; Stern, op cit., p, 31; andI)ienes and Shahacl, op. cit., pp. 77-79.

“1’jach I+;ast I+~uropwn countr~ will recei~re 2.8 bcm, exceptRomania which will receiie 1.5 hcm.

gas-processing plants before the gas can betransported. There are three processing com-plexes at Orenburg, two for treatment of gasused domestically and one that processesgas for the pipeline. Production is obviouslylinked to the capacity of these plants, as wellas to the capacities of the pipelines thatcarry the gas to both domestic and foreignconsumers. Construction delays occurred inboth of these areas. In addition, housing,transport, and equipment shortages ham-pered exploration and drilling activities.Meanwhile, Orenburg is providing valuableexperience in dealing with sulfurous gas, andreserves explored to date are sufficient tomaintain 1979 production rates (48 bcm/yr)until the year 2000.

An additional major source of gas, also sul-furous, has now been discovered southwestof Orenburg at Karachaganak. This field isexpected to be developed to replace anydecline in Orenburg production.

THE CASPIAN BASIN ANDNORTH CAUCASUS

As noted above, the first Russian oil wasproduced in the Baku district near the Cas-pian Sea. These sites are now part of an oil-producing region that spans the NorthCaucasus, Georgia, Azerbaidzhan Republic,Kazakhstan, and part of Turkmen Republic.At Baku, oil is being produced offshore inthe Caspian Sea. Together these areas forman oil province of over 1 million km3, contain-ing hundreds of oilfields.

OilThe importance of the Caspian basin oil-

fields has been steadily diminishing. Indeed,many of the older fields, producing since theturn of the century, are now virtually de-pleted. The Soviets have attempted to stemthe decline through offshore development,deeper drilling, and use of water injectionand enhanced recovery techniques, butnevertheless, production has continued tofall.’” Table 6 chronicles this decline during

‘(’tt’ilson, Op. cit., p. 17.

Ch. 2— The Soviet 0il and Gas Industry . 27

Table 6.—Oil Production in the Caspian Region(million tons)

1980a(annual 1985

1975 1979 plan) 1980 (plan)

Azerbaidzhan . . . . 17.2 14 19.7 14 NAKazakhstan . . . . . 23.9 18 26.9 18.4 23Turkmen Republic. . 156 95 18.6 8 6

Total . ., . . . . 56.7 41.5 65.2 4 0 . 4 N A

aEstimate from Wilson, op. cit., p. 17

NA = not avaiIable

SOURCE Soviet Geography April 1981 p 273

the last FYP period. The shortfall of 25 mmt(500,000 bd) between the 1980 plan and ac-tual production figures is a significant por-tion of the shortfall of 37 mmt (743,000 bd)from the original national 1980 plan (640mmt or 12.8 mbd planned; 603 mmt or 12.1mbd actual production. ) The entire Caspianregion produced less than 7 percent of thecountry’s oil in 1980; it is not expected toresume a major producing role.

Gas

The gasfields of the North Caucasus havedeclined in much the same fashion as thearea’s oilfields. Two important groups of de-posits at Stavropol and Krasnodar beganproducing in the late 1950’s. These fieldspeaked in 1968, and the rate of depletionsince then has been very high. Between 1970and 1975, output fell by 5 bcm/yr atStavropol and 16 bcm/yr at Krasnodar. Thetwo deposits combined now produce lessthan 20 bcm of gas and appear to be declin-ing at an ever-increasing rate. 11

UKRAINE

OilUkrainian crude oil is of high quality (i.e.,

it is low in tar, paraffin, and other pollutantsand has a high yield of light distillates) and islocated close to consumers in the EuropeanU.S.S.R. But the Ukraine’s oil industry isbeset with depleting reserves, new oil beingfound primarily at great depths and underdifficult geologic conditions, ” Ukrainian oil

11Stern, op CL(., pp .{()-) I\f Il+(In, (Ip (it , p. 2.). 1 )I(In(I\ and StIal Md, op (’it , p ,; :].

production peaked in 1972 at 14.5 mmt(0.291 mbd), and while the Tenth FYP calledfor a decline to 8.6 mmt (0.173 mbd) by 1980,production was 8.3 mmt (0.167 mbd) in 1979and 7.7 mmt (0.154 mbd) in 1980, TheUkraine has never contributed more than 4percent of Soviet oil production, and its im-portance is not expected to increase.

GasIn contrast, between 1960 and 1975, the

Ukraine was the major Soviet gas-producingregion, its output largely sustained by thegiant Shebelinka field, which came onstreamin 1956 and was supplying 68 percent ofUkrainian gas by 1965. The Ukraine also hasa number of smaller deposits. However,these were not able to stave off decline onceShebelinka peaked in 1972. Now, like theNorth Caucasus, the Ukraine’s gas produc-tion is in absolute decline, and output de-clined from 68.7 bcm in 1975 to 51 bcm in1980, There are indications that the Sovietswill continue to invest in the Ukrainian fieldsin order to maintain production in the ac-cessible west of the country for as long aspossible, Western analysts disagree, how-ever, over the potential of the area. On onehand, new deposits have been announced atShebelinka, in the Black Sea, and in theDnepropetrovsk oblast.13 On the other hand,a downturn in economic indicators over thelast plan period–e.g., production costsdoubled and labor productivity fell–to-gether with the continued declines in produc-tion, have led others to conclude that theregion will become increasingly less impor-tant in the future as rapid declines persist.Indeed, the 1981 annual plan foresees a pro-duction decline to 47 bcm.14

CENTRAL ASIA

GasThe Central Asian desert is a gas-, rather

than oil-, producing region, with vast fields


lying near the Iran and Afghanistan bordersin the Uzbek and Turkmen Republics. Cen-tral Asian gas has been important in theU.S.S.R. since the mid-1960’s when the giantGazli deposit in Uzbekistan was broughtonline. In 1965, Gazli alone produced 12 per-cent of Soviet gas. Since Gazli peaked in1971, the region has declined in relative im-portance, but as table 7 demonstrates, pro-duction there has remained stable, largelythrough the development of sulfurous gasreserves. The sulfur is being recovered at theMubarek gas-processing complex and thegas then transmitted into a pipeline systemthat extends from Central Asia to CentralRussia. Before the beginning of developmentof these sulfurous reserves, it was thoughtthat the level of output might not be main-tained much longer. ’5

Gas production in Turkmenistan rose veryrapidly in the early 1970’s, but the rate of in-crease now appears to have leveled off. Thisrepublic includes the giant Shatlyk deposit,one of the 10 largest in the world, whichalone accounts for nearly one-half of thearea’s production. Shatlyk is now producingat full capacity, and as table 7 indicates, out-put for the republic as a whole is increasingslowly. It is expected to rise to over 80 bcmas a result of the development of the newlydiscovered Dauletabad (Sovetabad) field. ”Thus, Central Asian gas may continue to re-plenish the southern supplies depleted bythe exhaustion of the North Caucasusfields. 17

Table 7.—Gas Production in Central Asia(billion cubic meters)

KOMI

The Komi Republic lies in the Timan-Pechora region, north of the Volga-Urals, onthe edge of the Barents Sea. It is an area oftaiga forest and tundra, technically part ofthe European U. S. S. R., but having a climatesimilar to that of West Siberia. Never-theless, this area of 250,000 km2 lies 1,000km west of Tyumen and is thus significantlycloser than Siberia to centers of energy con-sumption. Komi is one of the Soviet Union’solder oil and gas regions; its first commercialoil was produced in 1930. It is also virtuallythe only such older region that is not now indecline.

OilKomi’s first commercial oil was produced

near Ukhta in the southwest part of the re-gion, although yields were negligible untilthe development of three large fields (WestTebuk, Dzhyer, and Pashnya) between 1962and 1970. This development caused Komi oilproduction to rise sevenfold between 1960and 1970, from 0.806 to 5.6 mmt (from 0.016to 0.113 mbd).

Exploration efforts then shifted north-ward. There development of two large fields,Usinsk and Vozey, began in 1973, and pro-duction continued to rise. Table 8, whichshows Komi oil production over the TenthFYP period, reflects this growth in output.However, Komi failed to meet its 1980 FYPtarget. The shortfall appears to have beendue to such difficulties as early loss of reser-voir pressure and infrastructure problems.The latter included construction of a railwaybranch line, for as in West Siberia, thedevelopment of the region is hampered bylack of roads.

While output is continuing to increase inKomi, the long-term prospects for the regionseem to rest on exploration activities cur-rently centered further north at the mouth

1‘Kon]i liquid hydroc.art)ons” include a sul)stantia] amount( )f gas CO( )ndensate, ( )il (1u t pu t data for the region t hc~reforeoft en i ncludc condc*n sa t e. Th c 1970 figure for oil plus conden -sat e is 7,6 million tons. 1 1) id,, p. 5 h.

“1 l)id., pp. 55-6; \$’ ilson, op. c-it., p. 22.

Ch. 2— The Soviet 0il and Gas Industry ● 29

SOVFOTO

Oilfield equipment installation in the Komitaiga

Table 8 .—Oil Production in Komi(million tons, oil and gas condensate)

1975, . . . . . . . . . . ., ., . . ., ... 111979, . . . . . . . . . . . . . . . . . . . . . . . . .......191980 . . . . . . . . .......211985(plan). . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . ..26a

aEstimate

SOURCE Soviet Geography April 1981 p 273

of the Pechora river, and offshore in theBarents Sea. This activity is currently beingsupported by a settlement of some 20,000people, but the high expectations of theSoviets may perhaps be evidenced by re-ported plans for building a new town for60,000 people in an area presently occupiedmainly by tundra-dwelling reindeer herd-ers.20

‘l )ienesan[i ShalJa{i. (}p. cit.,p. 56.

GasKomi became an important producer of

gas after the giant Vuktyl gas and gas con-densate deposit came online in 1968. Vuktyl,which lies 120 miles east of Ukhta on theright bank of the Pechora River, accounts formost of the region’s natural gas production.As table 9 shows, this was scheduled toamount to some 22 bcm in 1980, but actual

Table 9.— Natural Gas Production in Komi(billion cubic meters)

1975 . ., 18.51 9 7 6 .18.91 9 7 7 . . . : : , : : : : : : ” ” , . , , , , . . ” : . . . . . . ’ , : . : : : : , : , 1 8 , 91978 ,, .. ..191979 (plan). . . ....,..191980 (plan).. ,, ..,,.,,22

SOURCE Wilson op cit p 22


output reached only 18 bcm. The outlook isfor a gradual decline in the 1980’s.

The development of Vuktyl led to the con-struction of another major gas pipeline, theNorthern Lights, which ultimately became asystem of pipelines carrying vast flows ofgas from West Siberia. The Northern Lightssystem was carrying 70 bcm in 1981 and isbeing expanded to a capacity of 90 bcm. Itstretches westward across the EuropeanU. S. S. R., intersecting with the Moscow-Leningrad line at Torzhok and going onthrough Minsk to the Czechoslovakianborder at Uzhgorod. The 1980 NorthernLights traffic included 18 bcm/yr of gas fromKomi (most of it from Vuktyl) and over 50bcm from West Siberia.21

The Komi region is rich in other gas de-posits, but aside from the further develop-ment of Vuktyl, its future is uncertain. Thisis due both to the fact that much of Komi’sgas lies in very deep reserves, and to the lackof infrastructure in this harsh, hitherto un-touched, territory. Soviet long-term planscalled for production to rise to 40 bcm by1990. This suggests that newly discoveredfields are expected to be brought onstream,but also that Komi will be depended on foronly a fraction of the amount of gas that isslated to come from West Siberia. 22

SAKHALIN

Sakhalin is a Far Eastern island situatedbetween the Sea of Okhotsk and the Sea ofJapan. It lies close both to the Pacific coastof Siberia and to the Japanese northernisland of Hokkaido. Commercial oil produc-tion in Sakhalin began in 1921 when theisland was under Japanese military occupa-tion. Onshore production amounted to onlyabout 3 mmt (0.06 mbd) in 1978, and off-shore exploration has yet to be completed.The major importance of Sakhalin lies in itspotential. Through Soviet-Japanese coopera-tion, it is hoped that Sakhalin may produce

21I bid., p. 86.“I bid., p. 87.

enough oil both to export to Japan and tosupply some of the needs of the Soviet FarEast, presently calculated at about 15mmt/yr (0.301 mbd).23 The Sakhalin projectis discussed in detail in chapter 11.

SUMMARY

The center of Soviet oil production hasmoved progressively eastward over the lastcentury. Once in the European portion of theU.S.S.R.–Baku on the Caspian Sea, andthen the Volga-Urals region—the focus ofthis production now lies in West Siberia.This shift has meant that, increasingly, oilmust be extracted far from major populationand industrial centers and transported longdistances to consumers. Moreover, condi-tions in West Siberia are harsh, the costs ofextracting the oil higher, and erecting the in-frastructure necessary to find, produce, andtransport it concomitantly more difficultand expensive than in older producing re-gions. These factors affect the rapidity withwhich Siberian oil can be exploited. For thesereasons, the Soviets continue to devote sig-nificant resources to slowing the decline andprolonging the productive life of the morewesterly fields, particularly in the Volga-Urals region. A small contribution to this ef-fort to maximize the production of relativelymore accessible oil is made by Komi, which isthe only producing area in the European partof the U.S.S.R. not yet in decline.

Similarly, the future of Soviet gas produc-tion lies in the less hospitable eastern re-gions. In the case of gas, however, signifi-cant contributions to production increasesmay be expected from the Volga-Urals, i.e.,from Orenburg. Some production can still bemaintained in older deposits in the Ukraineand North Caucasus, although this is becom-ing increasingly expensive, and there is dis-agreement over how long it can continue. Inaddition, Central Asian gasfields can con-tribute substantially to the gas available inthe southern part of the country.

“Wilson, op. cit., p. 24.

Ch. 2—The Soviet 01/ and Gas Industry ● 31

EXPLORATION

Having briefly surveyed the major oil- andgas-producing areas of the U. S. S. R., thischapter now examines the manner in whichoil and gas are discovered, produced, andtransported in the Soviet Union. For the pur-poses of this analysis, the oil and gas in-dustry has been divided into six segmentsor phases—exploration, drilling, productionand enhanced recovery, transportation of oiland gas, refining, and offshore activities.Each of these segments will be discussed interms of current Soviet practice, technologi-cal requirements, and the degree to whichthe U.S.S.R. has in the past or could bene-ficially in the future utilize Western tech-nology.

INTRODUCTION

In order for oil and gas production to besustained over the long term, additions mustbe made to reserves that compensate for thepetroleum taken out of the ground. Toreplace the reserves produced during theTenth FYP period (1976-80) the U.S.S.R.would have had to add to reserves, both fromnew finds and additions to existing fields, anadditional 2.9 billion tons of oil (21.1 billionbbl). This estimate exceeds estimated grossdiscoveries during 1971-75 by about 50 per-cent. ” Yet official emphasis in the U.S.S.R.in the last 15 years appears to have beenlargely on production from known deposits,rather than on exploration for and prepara-tion of new areas. It has, therefore, beencommon in the Western literature to find theU.S.S.R. criticized for neglect of explorationefforts.25 It could be argued that, until rel-atively recently, any lag in Soviet explora-tion activities was caused by the fact thatdiscoveries such as Samotlor made extensiveexploration efforts unnecessary, at leastfrom a short-term perspective. For the pastdecade, however, it is more likely that theprogress of Soviet oil and gas exploration—— . .—. —— —

‘‘c 1A, “ f’rospwts for So~iet oil [production: A Supplemen-tal Anal~sis,” .JuIJ 1977, p. !23,

‘‘(;oldman, op. cit., p, 121 ; Robert J!’. Campbell, ‘1’renff.s in(h r .S~)I IIC! ()/1 un{i (;as In(lu.str) ( Baltimore: ,Johns I ]opkins[Jni~ersit~ [’ress, 19’76), pp. 9- 10; CIA, op. cit.. pp. 1, 5.

has been impeded by a general lack of avail-ability y of appropriate equipment.

Exploration for oil and gas in the SovietUnion seems to be handicapped by a lag, notin knowledge, but in its application. TheU.S.S.R. has relatively few personnel skilledin advanced exploration techniques, and in-adequate stocks of technologically advancedequipment. Some of these problems couldcertainly be remedied in the short runthrough purchases of foreign equipment andtechnology. However, given the leadtimesnecessary to develop new fields, it may betoo late for such purchases—which mightenable the U.S.S.R. to explore at greaterdepths and in more difficult terrain—tomuch affect production prospects for the1980’s.

This section describes the methods bywhich exploration takes place; evaluates, tothe degree that this is possible, the Sovietstate of the art in these methods; anddiscusses the past and potential contribu-tion of Western technology in this area.More attention is paid here to exploration foroil than for gas. This is a reflection of thefact that gas reserves in the U.S.S.R. arecommonly acknowledged to be more thansufficient to sustain planned increases inproduction. This is not the case with oilreserves, the present extent and future pros-pects of which are matters of some con-troversy.

THE EXPLORATION PROCESS

Exploration for both oil and gas generallytakes place in three phases: regional surveysthat identify promising geological conditionsfor the presence of hydrocarbons; detailedgeophysical surveys that evaluate specificareas in the regions identified in phase one;and exploratory drilling to test the findingsof the first two phases.

Regional SurveysRegional surveys are conducted in an ef-

fort to outline areas that might contain thick

32 Ž Technology and Soviet Energy Availability

sediments of hydrocarbons in structuraltraps. This is done with instruments or sen-sors, usually mounted in aircraft, whichmeasure from the air changes in the mag-netic fields and variations in the Earth’sgravity. Sometimes, overflights of prospec-tive areas are supplemented by ground-levelmeasurements. Recently, both the UnitedStates and the U.S.S.R. have experimentedwith satellite surveys.

Detailed SurveysThe principle method of conducting a

detailed analysis of an area is by seismicsurvey. Either an explosive or a device thatvibrates the Earth is used to generate soundwaves, which are reflected and refracted bythe underground geological formations. Theechoes are detected by seismographs orgeophones, and recorded on magnetic tape.The result is a two-dimensional view of thesubsurface structures. Seismic surveys pro-duce large quantities of information thatmust be processed on large computers inorder to generate these maps of undergroundgeology, but minicomputers are now used topreprocess the data before it is passed on toa data processing center.

Drilling

Once a promising prospective area islocated, the next step is exploratory drilling.Indeed, despite the sophistication of muchgeophysical seismic work, drilling remainsthe only means of positively verifying thepresence or absence of hydrocarbons instructures. Exploratory drilling utilizes thesame technology and equipment as does pro-duction drilling, although decisions as to thenumber, location, and depth of the wells willnaturally differ depending on whether or notthey are being drilled for exploratory pur-poses. Drilling technology itself is discussedin a later section of this chapter.

EVALUATION OFEXPLORATION EFFORTS

The success of exploratory activities isdetermined by additions to reserves–the

amount of oil and gas found. In the case ofthe U. S. S. R., where oil reserves are a statesecret, it is obviously difficult to evaluatethe adequacy of exploration technology andequipment. The best that can be presentedhere are some qualitative impressions.

Exploration TechnologyThe U.S.S.R. is believed to possess ade-

quate domestic capabilities for regional sur-veys, but its detailed seismic work may beinhibited by equipment that Westernobservers describe as bulky, difficult totransport, and of comparatively low quality.In general, the U.S.S.R. produces detailedsurvey equipment inferior in accuracy andcapability to Western models. (For example,American experts who have examined Sovietgeophone cables have found that they in-troduce extraneous “noise” into the data, aproblem that makes results more difficult tointerpret.26) These models appear to havebeen adequate in the past, but as theU.S.S.R. is driven to explore for oil at in-creasing depths, the need for greater quan-tities of higher quality seismic equipmentwill grow. The capabilities of the Sovietseismic equipment manufacturers to meetsuch a need is uncertain.

In the United States, a shift to the collec-tion of seismic information by digital meansbegan in 1962 and was essentially complete10 years later (half of the crews had switchedby 1968; 80 percent by 1972). In theU. S. S. R., roughly 40 percent of collectionwork is still done by traditional analogmethods. Analog methods provide high-quality results, but these cannot easily besubjected to further processing, and they arefar less efficient than digital methods. Con-sequently, the amount of work that can bedone is smaller and the results are much lesssophisticated.

As important to the success of detailedsurvey efforts is the quality and availabilityof computer facilities. Geophysical explora-tion is extremely computer intensive, andSoviet planners seem to be aware of the im-

Ch. 2— The Soviet 0il and Gas Industry • 33

portance of making available both minicom-puters to produce a rough picture of thegeology of the area and large computers tofurther refine it. In each of these areas, theU.S.S.R. remains at least several years be-hind the West. However, it must be notedthat most of the large oil discoveries in theworld were made with seismic technologyavailable by 1960. There is, therefore, no nec-essary correlation between state-of-the-artequipment and the size of potential finds.

Two philosophies for the processing ofseismic information have emerged in theUnited States. In the first, a substantialamount of processing is done in the field atlocally based minicomputer-equipped com-puter centers. The second uses centralizedcomputer centers with large “number-crunching’ high-speed (and often state-of-the-art) computers. The former philosophyhas been mostly pursued by the independentgeophysical contractors in the UnitedStates, while a combination of both has beenemployed by the major or oil companies.

The Soviets have followed both paths.Thus, a small number of field systems uti-lizing minicomputers began to be introducedin the 1970’s. By 1978, the Minister of Oilnoted that second- and third-generationprocessing systems were being introduced, ”and 22 systems were to be added by 1980.Some of these systems must be operated byhighly skilled crews, which are in short sup-ply. In addition, problems have arisen incoordinating the production and supply ofspare parts and services for the minicom-puters.

The Soviets clearly wish to increase mini-computer use. A program has been initiatedto this end by encouraging the Ministries ofOil and Geology, Minpribor (Ministry of In-strument Making, Automation Equipment,and Control Systems), and the U.S.S.R.Academy of Sciences to work together on

“N. A. Maltsev, “From 1$’ell-site LO Ministry, ” Ekorz-omicheska)’a gazet% No. 32, 1978, p. 15; V. Knayzev, “GasUnder 13arkhany, ” Tr-ud, June 3, 1980, p. 1.

minicomputer standardization and produc-tion.28

The Soviet capability to process digi-tal seismic information using “number-crunchers also lags considerably behindthat of the United States. Until the mid-1970’s the development of advanced geo-physical techniques in the U.S.S.R. wasmade more difficult by an undeveloped com-puter base in general: only one high-speedcomputer model was known to be seriallyproduced.

Although this machine was almost theequivalent of Western computers in speedwhen it first appeared in 1964, limitedp e r i p h e r a l s , --a small core size, and verylimited software degraded its performancesignificantly. 29 The other machines that wereavailable were not well-suited for geo-physical processing. For example, programsthat take 45 minutes to run on a second-generation Soviet computer would take lessthan 2 minutes on a ‘modestly high-speedU.S. model.”) Furthermore, hundreds of theSoviet machines are needed just to processthe data from one oilfield.31 There is evidencethat a special processor for geophysical datahas been developed, but it is doubtful that ithas appeared in any quantities.32

Although third-generation Soviet comput-ers started appearing in 1972, the fastest,most powerful models were delayed until thelate 1970’s. In 1977, there were 18 process-ing centers for geophysical data in theMinistry of Oil.33 Financing for computer-

“Priht)r\! i .si.stcm> upra I ‘lc’fli~’a, No. 3, 1979, pp. 44-4!5; ().A. []otapo~, ‘‘Th(’ Prohlem of Prowssing I ,arge hlass(’s of (id-eological and ( koph? sical I )a t:1 and Jf’ajs t o .Sf)lie It, in S. 11.(lure~’ich, Pd., }folo,qraph” II a?l(i ()/)t/I)IuI /)rl)(~ISS/ll< f)/” lt/for-m a tio n in (i{IoloAr” I! a It(/ (; (’( Jp h \I \ I [’ <, ord~~r of I,(~nin 1’h}’sical-Twhnical Institute imeni A F’. ,Joff~’e, llos~.ow,” 1979.

“’(leorge Rudins, ‘‘Soliet Computers: :1 1 I istoric’al Sur-k’ey, ” Sfjr i(~/ C ‘)~)(]rff(~ti(i 1{(~{ II(I( . .Januar} 1970. pp. 6-4-I.

“’AYot. siali.s ti~h(~kcl Ja in[lrl v tn jIa, Ilar. 7, 1978, p. 2.‘1 I’otapoI, op cit.B~Raz[tec]ochna Y,a ~co[%~z>!k@ No. 77, 1977, PP. 27-33.

] ‘0, \l, R~’nski~, 4‘ Automation of Economic Planning Cal-culations—The hlost Important Directions in the ASU —Neft !‘ b.’tionomiku tleft)’anoi ]Irorrl?’.v)ti(’rlr lo.st>f,” 1977.


related expenditures in the Ministry ofGeology was substantially increased for1975-80, but by the late 1970’s, work wasjust beginning on using large computers forgeophysical processing.34 Thus, it is possiblethat between the two Ministries, the Sovietsreally only began to do a sizable amount ofdigital processing using large computers inthe past few years.

Activity LevelsSoviet economic planning places heavy

emphasis on attaining output targets. Thepractical consequence of this for oil and gasexploration efforts has been that thoseministries charged with exploration—theMinistry of Geology and the Ministries ofOil and Gas–tend to focus on fulfilling theirFYP targets, even when such relativelyshort-term considerations may be at oddswith the maximization of oil production overthe longest period of time. Those drillingteams and equipment devoted to explorationare unavailable for the drilling of producingwells—wells that yield petroleum thatcounts toward the fulfillment of output tar-gets. Therefore, it may be more attractive todrill appraisal wells close to already produc-ing regions than exploratory wells in remoteareas. Moreover, the fact that drilling tar-gets are expressed in terms of meters drilled,rather than oil or gas found, creates disincen-tives for deep drilling that is slower andmore difficult than drilling a greater numberof shallower wells.

At least partly as a consequence of sys-temic factors such as these, the number ofmeters drilled in exploratory wells actuallydeclined between 1967 and 1975,35 from 5.8million to 5.4 million meters. Whereas in1964 and 1965 Soviet oil output increased by13.6 mmt for every million meters drilled, in1976 this figure fell to 5.6 mmt.36 This is a—

34Potapol, op. cit.“>Campbell, Trends ..., op. cit., pp. 10-1 1; see a l s o

Goldman, op. cit., p. 122.“(; oldman, op. cit., 122,

reflection of the fact that no giant oil dis-coveries in the U.S.S.R. have been reportedsince the early 1970’s.

Moreover, drilling targets have been con-sistently underfulfilled. In West Siberia, forinstance, only about 80 percent of theplanned volume of exploratory drilling wascarried out in 1974, and drillers failed tofulfill their plans in each of the 5 years from1971 to 1975.37 During these years, largefinds compensated for the level of explora-tory effort and further encouraged the devo-tion of larger shares of drilling efforts todevelopment rather than exploration. Rigsengaged in development drilling are aboutfour times more productive than those usedfor exploration. This is because depths areshallower; the infrastructure is better; andless time is needed to move between loca-tions.38

The Tenth FYP (1976-80) obviously recog-nized the need to step up exploratory ac-tivities. It called for efforts to find additionalreserves in Siberia, Central Asia, and Ka-zakhstan, as well as offshore and in tradi-tional producing areas. Total drilling targetswere also raised significantly. In WestSiberia alone a more than threefold increasewas called for.39 Given past performance, thelikelihood of meeting such a target is at leastquestionable, but even a 10 percent increasein exploratory drilling would represent a sig-nificant investment in exploration activitiesthat have hitherto been stagnant.’” More-over, there is evidence that explorationteams have been moving further and furtheraway from the established centers of the in-dustry into more remote areas of Siberia andthe Arctic Circle.41

‘-W’ilson, op. cit., p. 45.‘“CI .4, op. cit., p. 23.“’Ibid.“)Robert W. Campell, “Implications for the Soviet Econ-

omy of Soviet Energy Prospects, A CA’S Bulletim 20(1),spring, 1978, p. 40.

‘l See W’ilson, op. cit., pp. 44-50,


THE CONTRIBUTION OFWESTERN EQUIPMENT AND

TECHNOLOGY TOEXPLORATION

The U.S.S.R. has been virtually self-suf-ficient in regional survey equipment. In thearea of detailed survey work, it has pur-chased geophones from the West, but not invery large numbers. Nor has it ordered thereplacement parts for these geophones thatU.S. industry experts assert must certainlybe required. This leads to the inference thatat least this Western equipment may now beinoperable or unreliable.

By far the largest contribution of theWest to Soviet exploration activities, how-ever, has been in the area of computers andrelated software and equipment. In general,the indirect reliance of the Soviets on U.S.computer developments has been large.42 Oiland gas exploration has benefited both di-rectly and indirectly from this dependence.

The advantage of Western computingequipment is that it can be purchased incomplete ready-to-use sets. The Soviets havemade major purchases of collection- andprocessing-related geophysical equipment,from firms, mostly in the United States. TheAmerican firm Geosource has completed a$5 million to $6 million deal that includedoutfitting three complete digital crews with24 off-the-road exploration vehicles, a por-table field recording unit, eight remote proc-essing minicomputer centers, and processorsused in conjunction with the minicomputersystem.43 An option for six more crews, in-cluding 49 additional vehicles, was exercisedby the Soviets as part of a $13 million salefor 1978 delivery .44 The post-Afghanistantechnology embargo has now put further

42“See Seymour ~:. ( ;oodman, ‘‘Soviet Computing and Tech-nolog~ Tra ns ter: .,4 n ( )Y’erl’iew, 11’orl(i P()/itic.s, vol. I(XXI,No. 4, ,Ju IJ, 1979, pp. 539-570; and N. C. Da~i~ and S. 1?.(~oodtnan, “’[’he Soyit’t Illoc Unified S~’stem of (’om-putt’rt, ” (’f~mpu ~~ n,~ .$//r/ Ic\,\, 10]. 10, No. 2, ,Jun~ 191’8, pp.9:1- 122.

“.Yc)[ict ll(i.sinfs~ an(l I’ra(ic, hla~r 25, 19’7’7, pp. 1, 3, andNlar, 2, 197’7, p. 10.

“I hid,, Aug. :], 1977, p. 1,

such sales in limbo, and automated displayequipment and geophysical equipment, in-cluding five more minicomputer systems,sold in 1979 for $9 million45 have not yet beendelivered. Even without this sale, a signifi-cant number of the estimated 300 digital col-lection crews in the U.S.S.R. have been out-fitted with equipment supplied, not only bythe United States but also by West Ger-many and France. However, the latter arealmost all based on American equipment;Hungarian and East German systems arealso available to the U. S. S. R., but these tendto be inferior to, and more costly than, thoseproduced in the West. In addition, theU.S.S.R. has purchased a fully equippedFrench exploration ship, and has had otherships outfitted in the West.

Through these purchases, the Sovietshave acquired advanced Western tech-niques. According to industry sources, thereare as many as 30 to 35 U.S. minicomputersystems in the U.S.S.R. that have beenspecially designed for geophysical work.These include simple 16-bit dedicated arrayprocessors.46 At least some of the U.S.minicomputer systems were shipped withsoftware packages and Geosource trained 80Soviet operators in the United States. Thisfirm also installed the systems in theU.S.S.R. and gave extensive field trainingthere.

As a result of these sales the Soviets are insome places using seismic techniques thatwere current in the United States about1975. Present practice in the United Stateshas moved far ahead of this level. In theUnited States array processors are now out-fitted with programmable microprocessorsthat increase throughput by a factor of five.Main and secondary storage sizes have beenincreased substantially. The Soviets had notas of 1980 mastered multichannel tech-niques, which enhance the exploration ofthose deep structures that lack shallower ex-

J ,(;e~fj~ur~e 1 IIC,., 1,97$1,4 nn Ual Rc’port, p. ~.~1’/l n arra }’ processor is a computer designed t o handle t’ery

computer-in tens i~’ e calculations I)y simultanwwsl~’ ma-nipulating large mat ric’es of numbers, and is trer?r useful forseismic applications.


pressions. 47 They only began serial produc-tion of their own array processors in 1980.4”Although geophysical array processor de-signs may have been available, it is unlikelythat a nonmilitary sector could have ac-quired them.

Again, however, any correlation betweenstate-of-the-art seismic equipment and sig-nificant oil production increases has yet tobe demonstrated. Thus, although the West-ern minicomputer systems that have beensold do not represent the state-of-the-art, itis not clear that the latest equipment is vitalto the U.S.S.R. On the other hand, the mag-nitude of these sales implies that U.S. com-puter technology has played a significantrole in aiding the Soviets to collect and proc-ess digital seismic data efficiently. This hasproven true in the area of large “number-crunchers” as well.

An indirect dependence on U.S. large com-puter technology is evident in the third-generation Soviet- and East European-madeRyad computers that gradually becameavailable in the 1970’s. These are essentiallyfunctional duplicates of IBM models. TheSoviets pursued this course in order tominimize risk and design decisions, to ac-quire the ability to tap the great body ofsoftware available in the West, and to useWestern secondary storage and peripheraldevices.” But it took the U.S.S.R. almost aslong to duplicate these models as it tookIBM to develop them. The first, smallmodels did not begin to appear until 1972.Thus, the gradual improvement in Sovietseismic data processing capability between1972 and 1980 can be equated to that ofsome of the major U.S. oil companies be-tween 1965 and 1973—with the exception ofarray processors.

The delivery of large U.S. computers forgeophysical processing began in the early1970’s, soon after the 1969 Export Admin-istration Act lifted more stringent export

‘-Ttd Agres, “U.S. Builds Soliet W’ar llachine, ” IndustrialK{~.s~’iIrch un(i l)(~[t~lc)[>r~zc’rlt, ,July 1980 p. 3.

“.S0{ if~t Bu,sin{j,s.v an[i Trade>, Aug. 1, 1979, p. 5.“’I)aI’is and (;oodman, op. cit,

control guidelines. so Several large computerswere purchased from Xerox in 1973, and be-tween 1975 and 1980 the Soviets purchasedat least six major U.S. computers from CDCand IBM. CDC supplied a computer for theMinistry of Geology’s All-Union ResearchInstitute; another was to be used for theprocessing of offshore drilling informationon Sakhalin; and two were for processingcenters in Irkutsk and Tyumen.51 Two IBMcomputers have been sold, one for use in theconstruction of offshore drilling rigs and theprocessing of information for offshore ex-ploration, and one to the Ministry of Oil.52

An export license for the latter sale was heldback until IBM agreed to scale down the ar-ray processors that were to be included.53

This also happened with other purchases de-scribed above.54 These computer sales haveall included software, supplied by bothFrench and American companies.55

The U.S.S.R. has never sent appreciableamounts of seismic data to the West forprocessing, although it has sent smallbatches, apparently to test-check its ownsoftware. Its reluctance to send data seemsto stem from a combination of secrecy, pride,and a reluctance to use hard currency forservices.

Although the Soviets have obtained U.S.computers and Western software, and maytherefore be able to do some sophisticatedprocessing, it seems that they have so farbeen unable to implement some of the mostadvanced algorithms. This is a reflection of amuch larger Soviet difficulty in softwaredevelopment, an area in which the U.S.S.R.has been notoriously weak. The reasons forthis weakness are largely systemic. TheSoviet economy is simply not structured tofacilitate—indeed, even to allow—the close

‘[’See office of Technology Assessment, Technology andEast- Wrest Trade (Washington, D. C.: U.S. Government Print-ing Office, 1979).

1’.S[~[i{~t Bu.~ine.s,s IIn(i Tra(ic, Julv 21, 1975, p. 2: hlar, 15,1978, p. 1; ,June 6, 1979, p. 2.

“JL~Oi’i<lt Bu.sirze.s,s un(] Trade, I)ec. 7, 1977, pp. 1-2,“’LS(j[ict Bli.sine,s.s an(i Tr-a(i<, Aug. 11, 1979, p. 7.‘X’.?c)(ict Biisines,s an~i Tru(ic, ,June 6, 1979, p. 2.‘‘Lf’(){iet Bu.sinc,s,s ar?~i ‘1’rafie, NoIr. 1 (), 1976, p. 1: Nokr. 8,

1978, p. 3.


and constant interaction between users andsuppliers which is necessary to the im-plementation of appropriate software. Scien-tists, designers, and theoreticians are unableto communicate directly with systems users.Moreover, these users have little or no incen-tive to risk even temporary productivity oroutput declines in order to assimilate innova-tions.

The software problem is pervasive and hasbeen felt in the seismic exploration area. OneSoviet author, for instance, has assertedthat “a number of important and necessaryalgorithms for the processing of geologicaland geophysical data are often not realizedin practice."56 Many of these applications arebased on the use of sophisticated multiple-function array processors and very largecapacity disks (in the range of 300 MBytesor more), which have not been made avail-able to the Soviets primarily because of theirimportance in military applications.

The need for large capacity disks stemsfrom the large size of data sets that are nowbeing collected at high sampling rates. Verythin structures, usually found in small fields,may be missed at lower sampling rates, butit is difficult or impossible to split up thedata sets taken at higher rates (such as 0.5milliseconds) onto separate disks for proc-essing. The Soviets have so far only beenable to master the production of small quan-tities of 100 MByte disks (with oxides fromWest Germany), but these have been of poorquality. An emerging technology in theUnited States is acoustic holography (three-dimensional wave analysis), which allows thegeophysicist to “see” structures three di-mensionally. Large capacity disks are indis-pensable for this application.

Array processors are used in conjunctionwith large computers as well as with mini-computers. They are critical for offshore ex-ploration, which yields roughly 50 times thedata of onshore operations. Permafrost alsopresents massive complications and require-ments for processing power. Since analog

“I(; urt~~r ich, op. cit.

methods are still used extensively in theU. S. S. R., the overall throughput for seismicexploration is much slower than in theUnited States, and the computing power inuse in the United States is still far greater.For example, a single oil company in theUnited States uses 10 large dedicated main-frames, 30 array processors, and overtwenty-five 300 MByte disks. As Soviethydrocarbons become harder to find, themore advanced computer-related technol-ogies will become more important.

Given the fact that the Soviets have beenvery slow to introduce digital seismic equip-ment, the paucity of suitable computers un-til very recently, and the volume of Westernsales, it is clear that Western equipment,especially U.S. computers and associatedhardware, has filled an important gap inSoviet ability to process geophysical infor-mation. Large U.S. computers are located inall the major oil-producing areas—the FarEast, Eastern and Western Siberia, in Balticand Caspian Sea offshore drilling—as well asin Moscow.

SUMMARY AND CONCLUSIONS

The Soviet Union has expressed its inten-tion to reverse past neglect of exploration ac-tivities. In this effort, it will face difficultiesassociated with the fact that it has insuffi-cient quantities of seismic equipment, thatthis equipment is not up to Western stand-ards, and that prevailing incentive systemstend to work against the allocation of re-sources to exploration. These problems willinhibit the U.S.S.R. in its attempts to surveymore territory, in harsh terrain, and to pros-pect for oil at increasing depths. But it is notclear that improved seismic equipment alonewould necessarily lead in the end to higheroil production. The number of giant oil dis-coveries remaining and the environments inwhich they most likely exist (both subjectsof controversy among Western geologists)are at least as important in determining thesuccess of exploration activities as theavailability of the technology and equipmentto identify them.


The Soviet Union has relied on the West,and particularly on the United States, forassistance in developing the computers andcomputer-related equipment necessary tosophisticated seismic work. Although theWestern equipment in the U.S.S.R. does notrepresent the state-of-the-art, such equip-ment has not been necessary in the past tolocate major oil deposits. The U.S.S.R. isstill seeking Western aid in this area, but itis unlikely that it will feel pressured to turnto the West in the 1980’s to the same degreethat it did in the previous decade. In the nearterm, Soviet ability to explore for new re-serves is likely to hinge at least as much onthe number of field crews it can deploy, theavailability of highly skilled personnel, andits ability to assemble integrated sets ofequipment for data collection in the field.

In the United States, experience hasshown that computer techniques have al-lowed production declines to slow. In the

U.S.S.R. such techniques might improve theefficiency of exploratory activities (i.e., thesuccess rate), and thus, as the decade pro-ceeds, advanced computer systems and soft-ware could similarly help to sustain produc-tion. Although it appears that the U.S.S.R.is moving ahead with the development of itsown systems, systemic problems may delaytheir development and introduction. If thisis the case, there will be significant pressureto acquire such systems from the West,probably toward the end of the decade. TheSoviets may seek high-density, fast-transfersecondary memory devices, programmablearray processors, integrated sets of equip-ment for data collection, and informationdisplay devices. The prime motivating factorfor hardware purchases may be to get work-ing software. If such items are unavailable,and if past practice continues, the U.S.S.R.will likely do without or use what is avail-able, albeit in a suboptimal, more expensivemanner, after significant delays.

DRILLING

INTRODUCTION

It is common in the West for energy ex-perts to be critical of drilling practices in theU.S.S.R. It has been asserted that the in-ferior quality of Soviet-made drilling equip-ment will hinder progress in drilling unless“quantum improvements” are made; andthat weaknesses exist in all elements ofSoviet drilling technology and in the or-ganization and supply of drilling opera-tions.57 In part, these evaluations rest on thefact that the U.S.S.R. has chosen a dif-ferent–and demonstrably less efficient–technological path in its drilling operationsfrom that pursued in the West, and on theunevenness of Soviet industrial standardsand production which creates obstacles fordrilling teams.

This section describes the methods bywhich oil and gas wells are drilled, evaluates

““~ 1A, op. cit., p. 21; (’ampbell, T’rends ; op. cit., p. 19.

the Soviet state-of-the-art in these methods,and discusses the past and potential con-tribution of Western technology to Sovietdrilling. It must be noted that this discus-sion rests on incomplete and sometimes in-consistent data. Recent information on theannual number of meters drilled or drill bitsproduced is difficult to obtain from Sovietsources, but it is also surprisingly difficult toacquire similar figures for the United States.The data provided here have been verified tothe degree that this was possible, but shouldnot be considered conclusive beyond an in-dication of orders of magnitude.

THE DRILLING PROCESS

Oil and gas wells are drilled with a bit, i.e.,a tool that bites into the earth and progres-sively deepens the bore hole. In the earliestdays of the petroleum industry, hand dig-ging was replaced by a system utilizing achisel-shaped bit that traveled up and down

Ch. 2—The Soviet Oil and Gas Industry . 39

on the end of a rope and simply pounded thewell deeper. Today, technology has pro-gressed to the point where sophisticatedmetals and alloys are used to create a widearray of precision tools, designed specificallyfor different types of rock and drilling condi-tions.

Equally important developments havetaken place in the other technologies andequipment necessary for drilling. The ropesby which drill bits were raised and lowered inthe well have evolved into drill pipe (stillsometimes referred to as drill “string”) madeof high-quality steel; the muddy water thatwas pumped into the well to cool the bit andhelp to flush up debris has been replaced by“drilling mud” that is a chemically designedmixture of water and/or finely divided ma-terial such as special clays, barites, andchemicals. Drilling rigs—the hoists and der-ricks from which the drill pipe and bit aresuspended and which support, raise andlower them—have developed into large,heavy-duty structures capable of bearingand hoisting weights of several hundredtons. Wooden stakes, inserted into the wellto prevent it collapsing, have disappeared infavor of tubular steel casings that arecemented in with special oil-well cement toprevent corrosion and leakage and to rein-force the structure; a safety device called ablowout preventer may be attached to thiscasing at the surface of the well to preventsudden explosive escapes of gas or liquidcaused by high pressures. Finally, sophis-ticated electronic “well logging” instru-ments are now available. These are loweredinto the well on cables and measure the den-sity and permeability of the geological struc-ture surrounding the well, allowing geo-logists to estimate the quantity and re-coverability of potential reserves.

In the West, the most commonly useddrilling technique employs a rotary drill.This is a system in which both the hollowdrill pipe and the bit are rotated at the sur-face of the well by a rotary table, Drillingmud is pumped down the pipe and outthrough fluid courses in the bit, and this

fluid conveys the rock cuttings to the sur-face where they can be examined for earlytraces of oil. With this method, the bit usual-ly remains in the hole until it becomes toodull to be effective. At that point, the drillpipe and bit are drawn up together and thebit replaced. During the drilling process ad-ditional lengths of pipe may be added whilethe bit remains in the ground. A variety ofdrill bit designs make rotary drilling effec-tive in both soft and hard rock formations.

SOVIET DRILLING EQUIPMENTAND PRACTICE

TurbodrillingAlthough the Soviet Union originally em-

ployed rotary drilling techniques, it provedunable to produce sufficient quantities of thehigh-quality pipe necessary to withstand thetorque applied in rotary methods. ” Use oflow-quality pipe leads to pipe breakage andthe consequent loss of drilling time inretrieving the remaining pipe and bit fromthe borehole. To overcome these problems,the Soviet Union developed the turbodrill.

The turbodrill is a series of multistage tur-bine sections through which the drilling mudor fluid is passed. The turbine is placed atthe end of the drill pipe, just above the bit,and the power required to rotate the turbineis provided by the fluid. The need to turn theentire drill string is thus eliminated, and farless stress or torque is applied to the pipe,which is either not rotated at all or is rotatedonly very slowly.

The turbodrill is a major Soviet engineer-ing feat, one that was achieved at a time (thelate 1940’s) that Western engineers were try-ing and failing to resolve the problems asso-ciated with the turbine concept. This systemhas enabled Soviet drilling teams to dig far-ther and deeper than would otherwise havebeen possible given the stress on the drillpipe entailed in the rotary method. The tur-bodrill works particularly well in soft rock

—“q(’ampbell, op. cit., p. 21.


formations and is well-suited to directionaldrilling, a technique which allows the bit tobe oriented at the bottom of the borehole in apredetermined direction. Directional drillinghas been particularly useful to the Soviets inoffshore Caspian drilling.59 At one time,about 86 percent of Soviet drilling was doneby turbodrill; this may now have fallen toabout 80 percent.60

But the turbodrill is not without draw-backs, and it is responsible for much of thecriticism leveled at the performance of theSoviet oil and gas industry. The efficient useof turbodrills requires high capacity rig mudpumps, the best of which are produced in theUnited States. Soviet mud pumps are great-ly inferior to these. More importantly, tur-bodrills operate at three to four times thespeed of rotary drills (120 to 600 rpm v. 30 to150 rpm), a fact that promotes more rapidwearing of the drill bit, especially in hardrock. Replacing the bit is a time-consumingprocess, as the bit and drill string must bewithdrawn from the ground. As well depthsincrease, time loss becomes even more of aproblem. Thus, drilling in the U.S.S.R. takeslonger than elsewhere in the world. Sovietdrilling teams are said to devote an averageof only about 15 percent of their time to ac-tually drilling; the remainder is spent with-drawing and reinserting the drill string andreplacing the drill bit.61

Other problems associated with the tur-bodrill are the fact that it cannot be usedunder high-stress conditions; that it requiresmore frequent maintenance when operatedin high temperature formations; and that itsefficiency deteriorates when it is used withcertain drilling muds.62

Given these problems, several options areopen to the Soviets. A turbodrill could bedesigned that would operate at lower

““V. 1. Mishchevich, “1)rilling operations in the U.S.S.R.for 60 Years,”’ Neft?’ano?’e khozj’a?’.vt{ c), No. 10, 1977, pp.24-30.

‘(’Goldman, op. cit., p. 42.‘“ I bid., p. 41.‘“R. N’. Campbell, The l?conomic.s of ,So[’iet oil and Gas

(F3altimore: Johns Hopkins University Press, 1968), pp.106-114.

speeds and withstand higher bit weight; thequality–and hence the longevity–of thedrill bits could be improved; or rotary drill-ing could be substituted, at least for deeperwells. Each of these would entail basic im-provements in Soviet drilling equipment andtechnology, a subject that is discussed inmore detail below. However, it must benoted that there is no evidence to suggestthat the U.S.S.R. plans a wholesale replace-ment of turbo with rotary drilling.

Although rotary drilling has been in-troduced in those areas where local condi-tions provide a particularly strong rationale(e.g., in areas with deep wells and hightemperatures), this has been the exceptionrather than the rule. Not only do the prob-lems that initially led to the development ofthe turbodrill persist, but much of the ex-isting stock of ground equipment wouldhave to be replaced to be compatible withrotary drills. Moreover, the U.S.S.R. has asignificant amount of pride invested inturbodrilling. In short, it seems more likelythat the Soviets will push for incremental im-provements in their existing equipmentrather than replace it with essentiallyWestern technology.

Drill BitsContradictory reports have appeared in

the West over both the number and thequality of Soviet domestically produced drillbits. In 1977, the CIA estimated that theU.S.S.R. was producing 1 million rock drillbits annually, compared with only about400,000 in the entire rest of the world.63 Thismay be contrasted with a more recent reportthat cites Soviet production figures of421,000 in 1970; 352,000 in 1975; and ap-proximately 400,000 in 1980.64 Part of thediscrepancy here lies in the fact that the CIAfigure is for rock bits “of all types, ” i.e.,those used for other purposes than oil andgas drilling. Similarly, the latter figures arefor one type of drill bit only–rolling cutterrock bits. These, it is true, are used in the

“’CIA, op. cit., p. 26.“W’ilson, op. cit., p. 60.

Ch. 2— The Soviet Oil and Gas Industry • 41

vast majority of Soviet oil and gas drilling—96 percent of development and 88 percent ofexploratory drilling; nevertheless the outputfigure is somewhat understated.

It has been claimed that these outputfigures may be misleading, not only becausethe quality of the bits produced is so poor (amatter discussed below), but also becausethe U.S.S.R. may not produce a sufficientvariety of bits to allow the sophisticatedmatching of drilling equipment to drillingconditions that is standard practice in theWest. In this connection, it has been claimedthat “a typical Soviet factory produces255,000 bits a year, but only two models. Inthe United States, a typical factory producesonly 70,000. In part this is because produc-tion is frequently interrupted to allow thefirm to tool up for the 600 models it offers."65

If this is meant to imply that only a fewtypes of drilling bits are available in theU. S. S. R., it is clearly misleading. There isevidence that between 1971 and 1975, 35new types of bit were produced in the SovietUnion, and that during the last FYP period,more than 30 new models were developed, in-cluding 20 models of a bit made fromultrahard alloys, designed to drill to depthsof 4,000 to 5,000 m and to operate at a fasterrate of penetration than conventional rockbits.66 Whether this variety is sufficient tomaximize efficient bit use is another matter,however.

The number of bits or of models availablemay be less important than the quality ofthe bits produced. Quality is clearly an issuethat has troubled Soviet planners, and mayhave been one of the chief motives for the im-port of a facility for the production oftungsten-carbide drill bits from Dresser In-dustries in the United States (see below).Whereas the majority of drill bits producedand used in the West are “journal bearing, ”the U.S.S.R. continues to employ an oldertechnology, i.e., most of the bits used are

‘ ( ;ol(lman. op. [’it,, p. 41‘‘11’ilw)n. op. (’it,, p 6[).

“roller-bearing’ models. The chief differencebetween these two designs is that roller bear-ings contain a number of small rotating ele-ments, whereas the more technologically ad-vanced journal bearing appears simpler, con-sisting mainly of two close-fitting parts.Journal bearing bits offer a larger surfacearea and they tend to be longer lived thanroller bearing bits. The fact that the majori-ty of the bits to be produced in the Dresserplant are roller bearing suggests that theU.S.S.R. may find these more suitable foruse with the turbodrill.

Soviet efforts to improve the quality ofdomestically designed drill bits have cen-tered in at least three areas: development ofnatural and synthetic diamond bit tech-nologies; improvement of roller bearing de-signs; and work with hard alloy based andcoated bits.

Natural diamond bits have been in use inthe U.S.S.R. for some 25 years, but theirutility has been limited by both economicand technical considerations. Natural dia-mond bits are costly to produce. In addition,they are prone to failure under the highvibrations that are a byproduct of turbodrill-ing. On the other hand, diamond bits re-portedly last longer than other models, andmay therefore be better suited to deep drill-ing. The U.S.S.R. is now testing syntheticdiamond bits that could be produced morecheaply than natural ones.67

The Soviet literature also records effortsto improve roller bearing technology. In1979, the Minister of the Oil Industry re-ported that Soviet research institutes haddeveloped 122 varieties of new bits suitablefor both low- and high-speed drilling, andthat 75 of these were being put into produc-tion. 68 There are already indications of im-proved results with such new bits, including

‘ Camphell, Trends , op. cit.; 1). I)adshel “An 1 nlpor-tan L Reserlre for I)wp I)rillin~, ” t’\. shka, ()(’t. 20, 1978, p. !?:l’. J’, 1)(’tro~, ( “1’htI I )rill[’r~ of (’hecheno 1 ngusht’ti~’a in t h(’St ruggl~~ for ‘l’tw>hni~’al I)rogr(Js\, ” JJ’(’ff )’(J) IOJ’(” /i IIOJ)’O )’.i (( ‘(),N(), 1 (), 19’7’7, pp. 67-70.

‘“N ~~ . h!alt SOY , “h’(~w Irront it>rs of th(’ (1. S,S. R. oil 1 n-du St r>’, ” ,1’(’ft \’a)/OJ’(” k ho: }’(1 }’ \ / { ‘(), No. 9, 1979, pp. 5-10.


a report of 20 percent improvement in aver-age meters drilled per bit.69

In addition to new designs, the U.S.S.R. isalso developing more durable materials forits bits. Since 1977, about 30 percent of allbits produced have had hard alloy teeth intheir rock-crushing elements, and as of 1979,factories were reportedly beginning to pro-duce bit parts from steels that had under-gone electroslag and vacuum arc remelting.70

These are processes that remove impuritiesfrom the molten metal.

The most promising results have comefrom bits incorporating new superhardalloys that have a high resistance to wear.Claims for one bit utilizing such an alloy in-clude the assertion that it can replace 40 to70 conventional or two to three diamondbits, and that individual models have lastedover 1,100 m in production and 500 m in ex-ploratory drilling. These bits are expensiveto produce and have been found to be mostcost effective at depths of 2,000 to 5,500 m.When used with turbodrills, it is claimedthat they can reduce operating costs be-tween 27 and 51 percent, largely because ofreductions in downtime. Such bits are re-processed to recover the alloy.”

In the final analysis, however, the real testof improved bit quality is the number ofmeters drilled each year in both development(producing) and exploratory wells. Sovietstatistics show a marked improvement indrill bit productivity over the past 10 yearswhich, as table 10 indicates, more thandoubled between 1970 and 1978. Whetherthe U.S.S.R. can achieve the extremely am-bitious target of raising this productivity afurther 2.6 times by 1985 seems more prob-lematic, given past performance. In general,bit productivity has been higher in WesternSiberia than in the country as a whole be-cause wells there are drilled into formations

““XI, Ahramson and V. Pozdnj’ako~, ‘‘The Series 1 A N BitsAr(> Also h~ffecti~rc’ for Tuhine Ih-illing, ” .l’eftl’unik, No. 9,1977, pp. 10-11.

‘(I\’. 1. Pa\lo\r, K, A. Kuzn~’tsok, and N. P. Umanchik, “oilIndustrjr Machine Building,” h’hinzi(>}lt’.~koj’(” i r[~~ftjp(ltlolr(>mash i~)n~).s tr~)}’enij’c No. 11, 1977, pp. 18-22: hlaltse~”, op. cit.

‘l)adashe~’, op. cit.; Pral(lu ( Jkruin}’, Jan. 13, 1980, p. 2.

Table 10.—Average Bit Runs (meters per bit)

1970 1975 1978 1980a 1985a

Development drilling . . . . . 33.7 54.2 76.1 77.2 198.5b

Exploratory drilling . . 19.8 26.6 28.1 33.6 —

aPlan.bpledge in Trud, June 6.1980

SOURCE Soviet data reported in Wilson, op. clt., p 59

that are softer than those encountered else-where. However, as depths increase, hardrock is encountered even in these deposits. Itis significant, therefore, that bit productiv-ity here has grown in spite of increasingaverage well depths. In other regions of theU. S. S. R., such productivity declined as wellsgot deeper.72 Whether these trends will con-tinue in the face of the probability that newfinds in Western Siberia are likely to come ateverincreasing depths remains to be seen.

Drilling MudBoth rotary and turbodrill equipment re-

quire lubrication with drilling fluid or mud.It is important to use muds that are chemi-cally appropriate, i.e., which will not reactwith the underground rock formations insuch a way that the formations are damagedor oil and gas zones overlooked. Scientifical-ly designed muds are known in the U. S. S. R.,and their production was slated to increaseduring the Tenth FYP as a number of newcompounds became available. However, So-viet practice with respect to the use of thesefluids is uneven. Western experts haveobserved cases of drilling crews simply usingwater mixed with local clay when properchemical muds were in short supply.Whether or not this practice is widespread orconfined mainly to remote exploration sitesis unknown, but it is certain that it can causedamage to subsurface strata. Moreover, thecareless reuse of poor mud—apparently apractice more common in the U.S.S.R. thanelsewhere in the world—can inhibit the effec-tiveness of well logging equipment. Usedmud, unless properly treated and processed,

72Wilson, op. cit. p. 59.

Ch. 2— The Soviet Oil and Gas Industry ● 43

contains oil, gas, or rock from previouslydrilled sites, thus distorting the datagathered from the present site.

Drill Pipe

Soviet difficulties in producing adequatequantities of high-quality drill pipe are well-documented in both Western and Soviet lit-erature. At its most general level, this prob-lem is part of a set of difficulties common tothe entire Soviet civilian economy: an incen-tive structure that emphasizes quantity overquality, combined with a complex array ofinfrastructural problems that leads to short-ages of the materials, workers, and equip-ment necessary to fulfill production targets.The result is often pipe with defectivethreads and joints that cannot withstand ex-treme temperatures and fail to protect pipesfrom corrosion and paraffin buildup.73 Poorquality pipe can cause the drill string tobreak, dropping the bit and other parts intothe well and requiring time consuming“fishing expeditions’ to recover them. Wellsthen remain idle while replacement parts—which are not always available—are sought.

Soviet drill pipe seems to be adequate forwells down to about 2,500 m, but the weightand stress on the string at greater depthslead to frequent pipe failures. This has ob-vious implications for the average welldepths achievable in the U.S.S.R.–an issuemade all the more important by the fact thatnew finds are likely to be made at deeperlevels. There is ample evidence that theSoviets are able to drill very deep wells–8,700 m and greater74-and the averagedepth of wells75 has been increasing. Fordevelopment wells the average grew from1,772 m in 1970 to 1,994 in 1978; and for ex-ploration wells from 1,928 m in 1960 to 2,775in 1975. The average depth of explorationwells has now stabilized (it was 2,797 in

“N, Safyullin, “W’here Metal ‘Flies ’,” I%a~dG Feb, 28,1978, p. 2.

‘S(XI ‘‘Transf(’r of ‘1’et’hnt)lf)g~ and the 1 )ressw 1 ndustrit+I’;xpf)rt I ,ic’ensing Act ions, h(’arin~ Ix’for[’ the l)ermanentSulxonlnlit t~~t~ on I ntrest igat ion~ (Jt the (’ommit t e(I on ( ;oJ-IIrn n~(’n t al )1 ffa i r<, [I. S Sena t (’, ( )It, ~1, 1 WH, pp. 1 7;], 1 ‘7S.

\\’ i]w)n, op. c’i L,, p, ,“)~).

1978), but it is impossible to determinewhether this is the result of an inability todrill deeper or a decision that deeper wellsare not necessary. In any case, Soviet abilityto provide enough quality equipment (in-cluding both bits and pipe) to quickly and ef-ficiently drill a large number of deep wellshas been questioned. In 1977, CIA estimatedthat on average it took Soviet drillers morethan a year to drill 3,000 m,76 while in theWest this could be accomplished in one-halfto one-quarter of that time.

It is difficult to evaluate these figures.While deep drilling claims a great deal of at-tention because of its cost and complexity, in1981 only about 1 percent (some 800) of thewells drilled in the United States will bedeeper than 4,840 m. In 1979, the averagedepth of a United States exploration wellwas 1,811 m and of a development well 1,361m. The key question is not the depth atwhich technology allows one to drill, butrather the depth at which resources will befound. Moreover, most “deep” drilling is forgas–economic oil finds are generally madeat shallower depths. Generalizations aboutthe relation of Soviet deep drilling capa-bilities to oil production prospects should,therefore, be made with extreme care.

Rigs and Hoisting Equipment”The U.S.S.R. has produced about 500 oil

drilling rigs per year over the past 30 years,but output has been declining since 1975,from 544 rigs in that year to 505 in 1978.Similarly, the size of the Soviet “rig park”has declined. In 1970, 2,083 rigs were op-erating in the U. S. S. R., 1,124 of them be-longing to the Ministry of Oil; in 1978, thetotal had declined to 1,915, of which 1,013belonged to the Ministry of Oil. One impor-tant determinant of the size of the rig park isthe number of rigs retired each year. Theaverage life of a rig in the United States,where older equipment is repaired, is 15 to 20years. In the U. S. S. R., where scrapping ap-

“CI +1, op. cit,, p. 26.~1’ils[)n, op. cit., pp. 55-59. [ lnl(~ss ot hwwisc nottd, Sotiet

da L a in L his sect-ion is from this wu rcc.


pears to be far more common, the averagelife of a rig is about 6 years. This does havean advantage. If the entire rig park is re-placed nearly twice in every decade, its quali-ty can be rapidly upgraded.

The declining size of the rig park is ap-parently of some concern to Soviet planners,who have included increases in rig produc-tion in the Eleventh FYP. On the other hand,the Soviet Union has consistently exportedabout a quarter of its domestically produceddrilling rigs each year. Presumably, if con-cern about the number of rigs available forexploratory and development oil and gasdrilling were intense, a portion of thosedesignated for export could be diverted.There is no evidence that this is occurring.

Moreover, despite a smaller rig park, thetotal number of meters drilled has increasedover the past 10 years. Table 11 showsselected data which demonstrate this in-crease in drilling rig productivity. If thesefigures are accurate, they show a phenom-enal rise in such productivity, particularly incontrast to what has been achieved in theUnited States.

The U.S.S.R. appears to be counting onimproving the average size and technicalcharacteristics of the new rigs that are slatedto replace those being scrapped. Plans in-clude producing new models for deep drillingadjacent to the Caspian (up to 15,000 m);modifying existing rigs for rotary drilling;and designing rigs especially for “clusterdrilling” in West Siberia. Cluster drilling is a

Table 11 .— Drilling for Oil and Gas (thousand meters)

Exploration - Development Total

1950 ..., . . . . . . . . - ‘2,127 -- ‘- 2,156 4,2831960 .., . . . . . . . . 4,023 3,692 7,7151970 .., . . . . . . . . . 5,146 6,744 11,8901975 . . . . . . . . . . . . . 5,419 9,751 15,170

Drilling by the Ministry of Oil only1975 .., . . 2,733 8,927 11,6591976 ..., . . . . 2,500 9,600 12,0701977 . . . . . . . . . . . 2,400 10,400 12,8001978 ..., . . ... . 2,400 11,700 14,1001979 . . . . . . . . . . . . 2,500 13,000 15,5001980 plan . . . . . . . . . 2,500 17,000 19,500

SOURCE” Soviet data In Wilson, op cit , p 56

process particularly suited to the soft rockconditions of West Siberia. It entails build-ing artificial islands from which clusters ofup to 20 inclined wells are drilled in the clayor sand. However, it must be noted that atleast some of the “improvements” to Sovietrigs consist of additions to rig design-suchas higher horsepower motors for hoisting,improved brakes, and increased diesel en-gine performance–which are incrementalchanges to basic rig designs of the 1950’s. Amore revolutionary change—shifting fromtraditional block and tackle hoists to ahydraulic hoist system–appears to be sty-mied by bureaucratic problems.78

Although both the quality and quantity ofrigs are increasing, there is evidence too thatthe U.S.S.R. has not always achieved an op-timum mix of equipment. In 1976, for in-stance, one drilling association complainedthat it was oversupplied with rigs designedto drill wells below 5,000 m, but did not haveenough lighter rigs for the shallower depthsnormally required.79

One important barrier to increasing drillrig productivity is the time entailed in set-ting up and tearing down rigs as they movefrom one exploratory site to another. Thus,the availability of portable or “unitized” rigsis important. The U.S.S.R. has attempted toimprove its situation with respect to unit-ized rigs both by importing them from theWest (see below), and by creating its ownunitized rigs with new cranes and transportequipment. These rigs can reportedly beassembled by a single crew (as opposed toseveral different crews of carpenters, earthmovers, etc.), are 60 tons lighter than otherSoviet , rigs, and can drill to 3,300 m atspeeds 33 percent faster than were hithertoachievable. But while experimental modularrigs have been successfully tested, serial pro-

— — —“A. Sherstnev, “Extra-Plan Innovation, ” Souetskaya

RossiyG Dec. 11, 1977, p. 2. Courtesy of Battelle ColumbusLabs.

79A. P. Gorkov and G. F, Lisovskaya, “Analysis ofEstimated Costs of Drilling and Ways of Reducing Them inthe ‘Ukrneft’ Association, ” Ekonomika neftyanove pro-mysh Zerznosty, No. 5, 1976, pp. 7-11. Courtesy of Battelle Col-umbus Labs.

Ch. 2— The .Soviet Oil and Gas Industry • 45

duction is only just beginning, and it is notclear how long it will take to produce suchrigs in significant numbers.

Well Logging Equipment

The poor quality of Soviet well logginghas been attributed to two basic problems:the extensive use of the turbodrill, and thelack of quality field instrumentation. The ac-tion of the turbodrill is such that it occa-sionally produces erratic and irregular wallsin the borehole. Uneven walls cause the drill-ing mud to be forced into the resultingcracks and fissures. When probing this typeof borehole for hydrocarbon content orpermeability, it is difficult to separate thecontributions from the mud from the actualgeological structure. Soviet domestic welllogging instruments in the field are essen-tially copies of American equipment ac-quired as part of lend-lease after World WarII. Although Soviet research institutes havedeveloped instruments comparable to theWestern state-of-the-art, these do not appearto have been tested or put into operation.The result is that the accuracy of availableSoviet well logging instruments is generallyinferior to that of Western models.

Blowout Preventers

In the United States, blowout preventersare considered basic safety devices, and theiruse is required by law. In the Soviet Union,they are employed usually only in initialdrilling in new regions or where undergroundconditions (mainly very high pressures) orcorrosion are expected to cause problems.Once these initial wells are drilled, the use ofblowout preventers is infrequent. Althoughthis equipment may be necessary to caprunaway wells, it does not boost production.

Computers

In the United States, a comprehensive setof computer-based aids is usually used tooptimize drilling operations. This consists ofboth onsite and remote monitoring, includ-ing online systems connected to a large cen-tral data base for advice on drill bit and mud

selection and other parameters, and fasterthan real-time analysis. Computer-baseddrilling systems to select correct muds andbits and optimize equipment maintenanceschedules can speed up the drilling processand help to eliminate drilling deficiencies—provided that crews have the incentive to domore drilling and have the appropriate rangeof muds and bits from which to choose. It isnot clear that these conditions always per-tain in the U.S.S.R.

The available evidence indicates that thedegree of onsite Soviet drilling optimizationis not very great. Applications are primarilyrelated to data processing and acquisition,which involve calculations of geological for-mations and conditions, well-angling, andthe selection of muds and drill bits.80 It hasbeen claimed that remote monitoring of drill-ing paramters is taking place on a “widerand wider” scale in the U.S.S.R.,81 but theavailability of sensing devices is limited, andindeed this practice is relatively new in theUnited States. The Minister of the Oil In-dustry in 1978 pointed out that althoughdesigns exist, output of “the necessary ap-paratus has not been organized."82 There isavailable a system to monitor and controldrilling, and another that predicts drill bitwear on the basis of drill stem torquemeasurements,’ } but it is impossible to saywhether these are in widespread use.

Similarly, there is little indication of theuse of computerized well-logging devices.The reservoir modeling routines that existare unable to handle complicated structures.There is evidence only of a few instances ofcomputers being used for the overall plan-ning of drilling strategies.

“’Yu. V. Vadetskiy, The Drilling of Oil and Gas Wells: 4thEdition With Additions and Corrections (Moscow: Izd.“Nedra” 1978), p. 289.

“ I bid,, p. 302.“Ibid., p. 303; Maltsev, “From W’el]-Site ,” op. cit.,

p. 15.‘Wadetskiy, op. cit.; and P, h!. Chegolin, A. G. Yaruso~,

and E . IN. Ye fimov, Upru [ Il?’a>ta.veh i,ve si.s tenz~l i ma.vhin?,, No.4, July August 1977.


THE CONTRIBUTION OFWESTERN EQUIPMENT ANDTECHNOLOGY TO DRILLING

Drill Bits

Although the U.S.S.R. has not purchaseda significant number of drill bits from theWest, Soviet concern about drill bit qualityis obviously reflected in the purchase of aU.S. drill bit manufacturing facility fromDresser Industries. Once fully operational,this plant will produce 100,000 bits eachyear, 86,000 of which are to be tungsten car-bide insert bits (10,000 journal bearing,74,000 sealed roller bearing, and ‘2,000 non-sealed roller bearing). In all, Dresser fur-nished designs for 37 separate bits to be pro-duced in the plant. According to the com-pany, all designs incorporated technology asit existed in Dresser plants at the time thecontract was signed (1978). In addition tomanufacturing equipment, the sale includedproduct drawings, bills of materials, ma-terial specifications, and inplant process andheat treatment specifications for the 37specific designs.

Soviet motives for acquiring this facilityare open to differing interpretations. Thedecision might indicate that the planners arereasonably satisfied with domestic capa-bilities to produce more conventional milledtooth bits, but lack the manufacturingcapacity for the tungsten carbide designs.On the other hand, once the need for moreand better tungsten carbide bits was rec-ognized, a new plant might have been seen assimply the most expeditious way of acquir-ing additional capabilities.

The bits to be produced in the Dresserplant should operate for long periods at thehigh rotation speeds of Soviet turbodrills.In fact, it has been estimated that each ofthese bits will substitute for at least two,and perhaps as many as four, Soviet-madebits. It is a highly speculative exercise totranslate this into estimated production in-creases, but a rough idea of the potentialcontribution of this technology transfer maybe gleaned by assuming that, once the plant

is producing at full capacity, and without ad-ditional rigs, the new bits allow an increasein meterage drilled of 10 to 20 percent.Assuming that this equates to 10 to 20 per-cent more new wells with a 30 percent suc-cess rate, oil production increases of 3 to 6percent as a result of this plant are possible.(This assumes constant productivity.)

But such increases are by no means cer-tain. Improvements in drill bit quality can-not be translated directly into production in-creases in isolation from such factors as theincentives provided to drilling teams and theavailability and quality of rigs and otherequipment. In addition, even if the Dresserplant opens as originally scheduled in 1982,it is not clear that it will achieve the samevolume and quality of bits as would be thecase in the United States. This problem maybe exacerbated by the fact that, as part ofthe post-Afghanistan technology embargo,the U.S. Government prevented Dresserfrom providing onsite training of Soviet per-sonnel. (This occurred despite the fact thatall licensed equipment had been delivered. )The most that can be said with confidence isthat, all other things being equal, the newplant should eventually have measurable im-pact on Soviet ability to drill more efficient-ly. Whether this additional drilling capacitycould translate into significantly higher pro-duction would, however, depend on trends inwell productivity y.

Drill Pipe

Recent purchases of drill pipe from Japan,Germany, and France have allowed theSoviets to drill deeper than is generallypossible with domestically produced pipe.Western exports of drill pipe are included inmore comprehensive categories in tradestatistics (see ch. 6), and it is therefore dif-ficult to estimate the magnitude of Sovietdrill pipe imports. It is probably safe toassume that this pipe is reserved for deeperwells, which presently account for about 5 to10 percent of Soviet oil production. The im-portance of Western pipe will increase if thisproportion changes in the future.

Ch.. 2— The Soviet Oil and Gas Industry ● 47

RigsAside from rigs used in offshore opera-

tions, a subject discussed separately below,the U.S.S.R. is believed to have purchased asizable number of drilling rigs from Canadaduring the 1970’s, and at least 15 portablerigs from Finland. Soviet emphasis on drill-ing faster, deeper, and in more locations inthe present decade will require additionalchanges in the composition of the rig park(i.e., the variety and quality of available rigs)as well as increased rig production. It is like-ly that these demands will lead to continuedimports.

Well Logging Equipment

Soviet logging instruments, as Sovietseismic hardware, lag Western equipmentboth in accuracy and efficiency, i.e., thenumber of sensors downhole at a given time.The U.S.S.R. has purchased items of thisequipment from both U.S. and French firms,but in amounts that do not seem to sig-nificantly alter its overall capabilities. Log-ging operations in those wells supplied withWestern equipment may be completed 3 to10 times faster and with greater accuracythan otherwise, but this does not necessarilycontribute to production. In order to sig-nificantly increase its overall logging time,the U.S.S.R, would have to purchase enoughhardware to equip at least 100 crews andalso allow Western technicians in for train-ing and to operate the equipment. Even thisnumber of crews would have difficulty log-ging the more than 20,000 new wells drilledannually.

Blowout Preventers

The U.S.S.R. has purchased small quan-tities of American blowout preventers, butprobably imports most of this equipmentfrom Romania. U.S. industrial representa-tives who have examined both Romanianand Soviet-made blowout preventers havefound them inferior to those produced in theUnited States, a situation that may changein the future, as a U.S. firm has sold to

Romania a new design for blowout pre-venters which may improve their quality.


Although Soviet commitment to theturbo—as opposed to rotary—drill makesgood sense given the U.S.S.R.’s presentmanufacturing capabilities, the speed and ef-ficiency of Soviet drilling have been in-hibited by this commitment, as well as bythe low quality of drill bits and drill pipe, andthe size and composition of the rig park.There is no reason to believe that theU.S.S.R. will attempt a wholesale switch torotary drilling, but it has placed increasedemphasis on improving the quality of bitsand pipe. In the former case, this has con-sisted of both stressing domestic design andproduction of new types of higher qualitybits, and more importantly of importing anAmerican-designed facility for the produc-tion of large numbers of high-quality bits. Inthe case of drill pipe, the U.S.S.R. has reliedalmost entirely on imports from Europe andJapan to compensate for domestic produc-tion. Some imports have augmented theSoviet rig park.

In none of these cases does the problemappear to be a lack of scientific or technicalknowledge on the part of the Soviet Union.Rather, drilling equipment deficiencies seemto stem from the same systemic problemswhich pervade all Soviet industries, amongthem the continued emphasis on quantityover quality of output. The Soviet Unionproduces drill bits in very large quantities,but there are indications of insufficientvariety, and evidence that many bits are sopoorly made that they may last one-tenth toone-half as long as Western bits.

Despite these problems, the Soviet Unionhas managed increases in meterage drilled,drill rig productivity, and in its accomplish-ments in deep drilling. However, plans forthe 1980’s call for enormous improvementsin each of these areas, improvements at leaston the scale of those achieved in the 1970’s.Clearly, increased investment is being


devoted to the oil and gas sector, but it is industries and in those industries that manu-possible to determine how much of this will facture equipment for oil and gas drilling, itgo into manufacturing drilling equipment. is difficult to see how dramatic improve-There is no sign of impending basic changes ments in production will be accomplishedin the incentive system. Thus, given past without stepped-up imports of Western drill-performance, both in the oil and gas ining equipment.

PRODUCTION

INTRODUCTION

Perhaps even more controversial thanSoviet drilling practices and capacities areSoviet oil production techniques. These candiffer considerably from those common inthe West and have occasioned the chargethat in the interest of obtaining maximumshortrun output to achieve plan targets, theSoviets have consistently employed meth-ods that damage their fields and ultimatelylead to less oil being recovered. Much of thedebate over the future of Soviet oil produc-tion, in fact, centers on the practice ofwaterflooding. Equally, much of the claimfor the importance of Western oilfield equip-ment concerns the provision of Westernpumps and other technology for use in fieldswhere substantial waterflooding has takenplace.

This section briefly explains the petro-leum production process and the role ofwaterflooding in this process; describesSoviet methods for developing fields, in-cluding the level of Soviet domestic produc-tion technology; and discusses the past andpotential role of the West in this area.

THE PRODUCTION PROCESS84

Oil and gas production are affected by theporosity and permeability of the reservoir inwhich they are found, by the water and gascontent of the reservoir, and by the viscosity(i.e., thickness) of the oil. The way in whichpetroleum deposits must be developed andthe extraction techniques applied vary im-

“See the British Petroleum Co., I,td., our Zndustr.vPetroleum (London: The British Petroleum Co., I.td., 1977),pp. 124-136.

portantly according to these factors. Apetroleum reservoir consists of a stratum ofporous rock, usually sandstone, limestone,or dolomite, capped by a layer of imperviousrock. Oil and gas are stored in the smallspaces or pores in the porous layer and con-tained by the cap rock. Fractures or fissuresadd to the storage capacity of the reservoir.In order for oil to enter or leave porous rock,there must be free connection between thepores. The ability of the rock to allow thepassage of fluids through its intersticesdepends on the size of the channels whichconnect the pores, i.e., on permeability. Therate at which petroleum can be extractedfrom a reservoir depends largely on itspermeability, but both porosity and perme-ability may vary over relatively small areas.Thus, wells located in different parts of thesame reservoir may have different producingrates.

The first stage in the process of develop-ing oilfields and gasfields is to drill appraisalwells. These are used to determine the per-meability of the rock, the amount of water inthe reservoir, the properties of the petro-leum, etc. Such information helps to dictatethe size of the surface production facilitiesbrought to the field. Actual development of afield may begin before the appraisal processis complete. Development wells are drilled inpatterns that reflect the contours of thereservoir: they may be in grid formations,straight lines, or rings. In general, the loca-tion of the wells is such as to enhance theproducing life of the field. This might mean,for instance, that wells be initially drilledclose to water zones so that as oil or gas inthe area is depleted they can be turned intowater injection wells. Numerous items of

Ch. 2— The Soviet 011 and Gas Industry ● 49

equipment are required at the wellhead to“complete’ the well. These include a varietyof valves, casings, and tubings designed tocontrol the well and the petroleum it is pro-ducing.

Oil

Oil that collects in structural traps usuallyoccurs in association with both water andgas. The pores in the reservoir rock wereoriginally occupied by water, which was par-tially displaced when petroleum migratedinto the upper part of the rock. The percent-age of remaining water is obviously an im-portant factor in determining the volume ofoil in the reservoir, Sometimes the waterunderlays the entire oil zone. When a con-siderable body of water underlays the oil inthe same sedimentary bed, it is referred to asthe “aquifer.”

Oil under pressure contains dissolved gasin amounts governed by reservoir pressureand temperature. The oil is “saturated” if itcannot dissolve any more gas at a particulartemperature and pressure; it is “under-saturated if it could dissolve more gasunder the same conditions. In those caseswhere there is more gas in the reservoir thanthe oil is capable of holding in solution, theextra gas, which is lighter than the oil, risesand forms a “gas cap” above the oil ac-cumulation. Moreover, if for any reason thepressure in a saturated oil reservoir is re-duced, gas will come out of solution andchange the production conditions.

The viscosity of oil can depend on thequantity of gas that it holds in solution.Crude oil in a reservoir can range from veryviscous (if it contains little or no dissolvedgas) to extremely light and thin (containinglarge amounts of gas under high pressure).The thinner the oil, the more readily it willflow through the pores and interstices of therock into the bottom of the well.

In order for this movement of the oil totake place, the pressure under which the oilexists in the reservoir must be greater thanthe pressure at the bottom of the well. So

long as this difference in pressure can bemaintained, the oil and its associateddissolved gas will continue to flow into thewell hole. The rate at which oil or gas movestowards the borehole depends on the reser-voir permeability and, in the case of oil,viscosity.

As the well begins producing, reservoirpressure decreases, and the rate of produc-tion will decline unless the pressure cansomehow be sustained. There are threenatural ways in which reservoir pressure ismaintained: hydrodynamics, dissolved gasassociated with the oil, and the free gas inthe gas cap. These production mechanismsare referred to as “water drive, ” “solutiongas drive, ” and “gas cap drive. ” The naturaldrainage of the oil through the reservoir rockunder its own gravity provides a furthermechanism, and a combination of any or allof these may operate in the same reservoir.The oil obtained as a result of these naturalproduction mechanisms is known as “pri-mary recovery, ” and a field is said to be inthe primary phase of recovery so long asthere is sufficient pressure left in the reser-voir to bring the oil to the bottom of the pro-ducing well without outside interference.

At some time in the life of a producingwell, primary recovery mechanisms willbecome insufficient and the reservoir pres-sure will fall to the point where it can nolonger force the oil from the rock into thewell. This stage can be reached long beforethe reservoir is depleted, but it once meantthe abandonment of the well. There are nowartificial means, known as secondary andtertiary recovery, of maintaining reservoirpressure and forcing more oil out of the porespaces of the reservoir rock. As much as 50to 90 percent of the oil in a reservoir may beleft in place after the end of the primaryrecovery phase. Secondary and tertiary re-covery techniques now make it technicallypossible to recover 30 to 90 percent of the oilin a deposit.

Secondary recovery involves the directdisplacement of oil with a fluid which ischeaper and easier to obtain than the oil


itself. The obvious substances are thosethat imitate the primary production mech-anisms—water and gas. When water is used,the secondary recovery process is known as‘‘waterflooding; when gas is used the proc-ess is called “gas drive’ or “gas injection. ’85

Waterflooding is the most successful andextensively used secondary recovery tech-nique—so much so, in fact, that it is now con-sidered an integral part of the developmentof most fields. Water is introduced underpressure into the reservoir via injectionwells. These wells may be located adjacent toproducing wells to penetrate the reservoirbelow the oil/water level in the periphery ofthe oil zone, or they may be drilled in a lineacross the reservoir or in a grid pattern. Themethod chosen usually depends on the typeof reservoir and rock and fluid charac-teristics. In some reservoirs, there is con-siderable variation in the permeability of therock, and in these instances the rate of injec-tion must be carefully controlled to avoidtrapping and leaving behind large quantitiesof oil. Similarly, it is important to ensurethat the injection water is compatible withthe natural reservoir water and that it is freefrom impurities that might block the poresin the reservoir rock. Filters and forms ofchemical treatment may be employed toachieve maximum efficiency in this respect.

Where waterflooding has been employed,it is likely that the reservoir pressure will beso low that mechanical assistance will be re-quired to bring the oil and water to the sur-face. This is usually accomplished withpumps, the simplest and most commonbeing sucker-rod pumps, which work likeplungers. They are run into the well at thebottom of a length of tubing, and powered bya pumping jack at the surface. Far more effi-cient, especially for deep wells, are electricsubmersible pumps which, together withtheir motors and electric cables, are lowered

“’Some experts would hold that secondary recovery islimited LO waterflooding and that the use of gas is a “ter-tiary’ recovery technique. (3TA here follows the industryusage as expressed in British Petroleum, op. cit.

into the well on the tubing through whichthe oil is to be produced. Electric pumpshave a much greater capacity than those ofthe plunger type and are used when highpumping rates are desired. An alternative topumps is gas-lift equipment, which injectsgas into the oil column in the well bore. Thismethod is preferred where the crude oil con-tains considerable amounts of sand or sus-pended solids that could damage mechanicalpumps.

More complex and sophisticated varia-tions of these secondary recovery techniquesmay be applied to achieve an even greaterdegree of recovery of the oil in the reservoir.Known as “tertiary” recovery, these usuallyinvolve the treatment of reservoir rock withchemicals or heat. Research and field testingare being conducted in these techniques, buttertiary recovery is relatively new and is stillseeing rather limited commercial applica-tions in the West.

Gas

It is possible to have a free gas accumula-tion with no underlying oil zone, especially indeeper portions of basins. Sometimes gas iscontained in a closed reservoir where there isno water closely associated with it, and isdriven out of the pores of the reservoir rockby its own expansion. As gas escapes, thereservoir pressure declines. It is possible tomaintain reservoir pressure through waterinjection, but unlike oil, gas recovery as suchis not improved sufficiently by water dis-placement to justify the expense of thisoperation. It is preferable, therefore, for thegas to be contained in a reservoir where it isin direct contact with an aquifer possessinga sufficient natural water drive mechanism.The process here is the same as in oil wells—the gas is driven out by the expansion of theaquifer water into the vacated pores, andthere is no marked decrease in the reservoirpressure or in the producing capacity of thewell. Care must be taken that productionrates are not so high as to cause damagefrom infiltrating water, a considerationwhich applies equally to oil wells.


SOVIET EQUIPMENT ANDPRACTICE

Secondary Recovery: WaterfloodingGas injection is not an important form of

secondary recovery in the Soviet Union,86

but in 1980 over 85 percent of the oil pro-duced in the U.S.S.R. (v. about 50 percent ofthe oil in the United States) was extractedwith the aid of waterflooding. In WestSiberia, 99 percent of all oil is obtained withwaterflooding. 87 Soviet oilfields are often in-jected with water at high pressures from thebeginning of their development. The dual ef-fect has been both to raise initial recoveryrates and to reduce the number of producingwells required per unit of land. The latterallows the U.S.S.R. to conserve capital andreduce the amount of drilling per ton of oilproduced.

There is little doubt that waterfloodingproduces more oil in the short run, but con-troversy exists over the degree to which thispractice contributes to maximizing the ulti-mate recovery possible from a given field.Western observers have argued that, de-pending on the rate of injection and fieldpressure, water can prematurely breakthrough the oil-bearing formations into theproducing wells. The net result is that totaloutput over the life of the field is reduced.Soviet experts, however, contend that water-flooding allows the U.S.S.R. to ultimately re-cover a much higher percentage of oil inplace than has been possible in the West.Soviet ultimate recovery rates of 50 to 60percent have been claimed, with the averagereportedly as high as 40 to 50 percent.89 Thismay be compared to a U.S. average in 1977of 32 to 33 percent.90

It may well be that these figures are notdirectly comparable, and that the U.S.S.R,

86W. Kelly, H. L. Shaffer, and J. K. Thompson, Energ~~Research and l)e~’eloprnent in the U.S.S.R. (Battelle Colum-bus Labs, 1980), pp. IV 14-IV 32., unpublished manuscript.

“ 1$’ ilson, op. cit,, p. 75.““(’l :\, op. (it., p. 1 :1.‘‘Kell~r, (’t a],, op. cit , p, I ;’-;] (); Jf’ilson, op. cit., p, 78.‘{(’ 1 ~1, op. cit.

calculates its ultimate recovery by using abase other than that employed in the West.91

Moreover, there is evidence in the Soviettechnical literature of numerous and increas-ing problems associated with waterflooding,and indications that at least some ultimaterecovery targets have been scaled down.92

On the other hand, the Soviet Union showsno sign of abandoning its long-held water-flood practices. Indeed, current plans are toraise recovery rates still more, and it hasbeen announced that this will be achievedthrough more intensive waterflooding, albeitwith “improved” methods. 93 With Soviet oilproduction in mid-1981 still not havingpeaked, it would appear that this is one areaof disagreement in which no final verdict isyet possible.

A similar debate concerns the level of the“water-cut” in the U. S. S. R., i.e., the percent-age of water in the oil-water mixture thatcomes out of producing wells. Table 12shows Soviet water-cut figures for the past15 years.

It is clear from table 12 that the averagewater-cut has been increasing, and that atleast between 1965 and 1976 the increasein Western Siberia particularly was precip-itous. These figures show that for theU.S.S.R. as a whole in 1980, 57 percent of thetotal output of producing wells was expectedto consist of water. If the 1980 water-cuttarget of 57 percent were reached, this wouldmean that in order to produce 603 milliontons of oil, over 1,400 million tons of oil andwater had to be extracted. Moreover, thewater-cut of individual fields can far exceednational or regional averages. There arefields in the Ukraine, for example, in whichby 1975 water represented from 60 to nearly80 percent of total output.94

Such figures are difficult to interpret orextrapolate, however. In 1977, CIA attempt-ed a simple extrapolation based on assumedincreases in water-cut of, alternatively, 3 and

9’ Kelly, et al., op. cit.“Ihi(i,, pp. 1 ;1-:12: (’1 /\, op. cit , p. 14.“{\\’ ilson, op. cit,, pp. 78-81,“Ken}, et al,, op. cit., p. It’-;] 1,


Table 12.—Waterflooding

1965 1970 1975 1976 1977 1978 1980a

Average-water-cut . ., 412 43.9 48.2 49.9 50.8 51,8 57.0Average water-cut, West Siberia ., 1 1 5,0 14,5 15.8 NA NA NAAverage water-cut, U.S.S.R. excluding

West Siberia, ., ., ., 412 46.2 57.0 59,0 NA NA NA

NA = not availableaAnnual plan target

SOURCE Wilson, op cit p 76

6 percent per year. This exercise yielded pro-jections of average water-cuts of 65 and 80percent respectively for the U.S.S.R. in1980. In fact, the 1978 average nationalwater-cut was 51.8 percent and the actual1980 figure probably somewhere betweenthat and the target of 57 percent.95 Indeed,projections of this sort are complicated bythe fact that the water-cut does not riseregularly for the country as a whole, or evenfor individual deposits or wells. Large annualincreases may be recorded at certain re-covery rates, but these may fall to between 1and 2 percent per year at certain points inthe life of a deposit. Nor do the Soviets ap-pear to operate on the basis of a simple orsingle cutoff point beyond which the water-cut makes further production uneconomic.Eventually, the water-cut may rise to 97 or98 percent, in which case the cost of pump-ing fluid will exceed the value of the oil ob-tained, and the well will be shut down. Whenthe water-cut in an entire field reaches thispoint, the field may have to be redrilled.(Romashkino has been redrilled four timesfor this reason). But Soviet experts con-tend—and U.S. practice has verified–thatsome deposits can operate for many yearswith water-cuts of 80 or 90 percent, depend-ing on the value of the oil produced and thecosts associated with the waterflooding.

Fluid Life and Pumping RequirementsRegardless of the unresolved issue of the

wisdom and propriety of waterflooding,there is general agreement that presentSoviet practice entails enormous fluid-lift re-quirements, and that the higher the water-

cut in the future, the greater this problemwill become. Both sucker rod and electricsubmersible pumps are produced and used inthe Soviet Union, but the latter have a fargreater capacity and are much preferred,especially in Siberia where wells have highwater-cuts and therefore high fluid-lift re-quirements. But electric pumps are in rel-atively short supply. In 1975, for instance,there were 68,000 producing oil wells in theSoviet Union. Some 54,000 of these werebeing pumped–9,100 with electric pumpsand the rest with sucker rod pumps. In all,the U.S.S.R. had an inventory of about60,000 of the latter, about 75 percent ofwhich were operational. 96

The U.S.S.R. has also encountered dif-ficulties with the quality of its domesticallyproduced electric pumps. One problem ispump capacity, which hitherto has been in-sufficient for use in West Siberia. Many ofthe wells at Samotlor, for instance, yield2,000 m 3 or more of fluid (petroleum pluswater) a day. Soviet pumps have capacitiesof only 700 ins/day, although a 1,000 m 3

model has very recently been tested. Anoth-er problem is the frequency of equipmentbreakdowns, particularly in areas with highsalt deposition where the average interrepairperiod lasts 60 days. Improvements in bothquantity and quality of electric submersiblepumps are apparently being sought in thepresent FYP period.

Gaslift has not been employed extensivelyin the U. S. S. R., but there are indicationsthat plans now call for an acceleration in itsuse, particularly in those areas where sub-

‘ ‘(’1 :\, op. cit., pp. 16-17: Wilson, op. cit., p. 77.““}$’ilson, op. cit., p, 68.‘- ItJid,, p. 66.

mersible pump capacity has been inade-quate. There has been some urgency, for in-stance, in attempting to transfer gaslift toSamotlor where, as described above, bothhigh salinity and fluid lift requirementsmake Soviet submersible pumps ineffective.Gaslift has been used in West Siberia for atleast 10 years, but it has been introducedslowly and accounts for only a small volumeof the fluid raised. Part of the reason may bethe high capital cost, particularly of install-ing the necessary compressor units. If this,rather than inadequacies in the design andquality of Soviet-built equipment, is theprimary difficulty, there is a chance that theincreases in the price of crude oil scheduledfor 1982 may make gaslift more practicable.Meanwhile, the U.S.S.R, has ordered gas-liftequipment from France and is also attempt-ing to improve the quality of its domesticallybuilt equipment.98

Tertiary Recovery99

Tertiary recovery techniques are very ex-pensive and many are still relatively ex-perimental, even in the West. There is evi-dence of Soviet experimentation with avariety of methods, including steam injec-tion and polymer flooding, and indicationsthat attempts will be made to apply tertiaryrecovery in older producing regions duringthe 1980’s. The Soviets themselves havereported that, on the basis of experiments intertiary recovery techniques, a 10 to 15 per-cent increase in recovery rates can be fore-cast and “billions of tons” of oil can bereclassified as active reserves. It seemshighly unlikely, however, given the Sovietsystem, that the experiments carried outduring the Tenth FYP could affect produc-tion significantly for several years at least.

In the long run, there appears to be noserious technical barrier to an expansion inthe role of tertiary recovery. Rather, there isan economic barrier in the high cost of ter-tiary methods. Tertiary recovery must be ac-corded adequate investment, and economic

Ch. 2—The Soviet Oil and Gas Industry • 53

considerations will influence which methodsand geographic sites are developed. Perhapsmore important, tertiary recovery resultsmay be affected by the same systemic prob-lems, particularly those stemming from theincentive system, that crop up continually inexplanations for Soviet inefficiency. Thevariety of conditions encountered betweenand within petroleum fields means that ter-tiary recovery methods must be chosen andused sparingly and with care. Lack of skilledpersonnel together with incentives for max-imum output over the short term, however,have tended in the past to cause Sovietpetroleum industry workers to apply crudeand unsuitable techniques in efforts toachieve “quick fixes.

ComputersComputers can be used in oilfield and

gasfield operations to monitor wells bysignaling when flow rates change, to controlthe action of pumps, and to optimize en-hanced recovery techniques. The increase inproduction made possible by oilfield automa-tion can be substantial. For example, one oilcompany in Texas was able to get within 3bbl of the maximum allowable rate per dayusing computers, an increase of about450,000 tons per year. Soviet systems seemto be limited to monitoring flow rates. Thelargest saving here is in personnel. TheSoviet news agency TASS has claimed thatby 1980, 85 percent of Soviet oil outputwould be automated,100 presumably with thissystem. However, the head of the Ministryof Oil has noted that the lack of terminals ishindering its operation,’”] and in any case itfalls well short of Western standards.

THE CONTRIBUTION OFWESTERN TECHNOLOGY ANDEQUIPMENT TO PRODUCTION

Submersible PumpsThe Soviet Union obviously has a sub-

stantial domestic capacity for producing

‘.so r /(’ t /;//\/ //(’\ ~ (/ //(/ /’)’(/(/(’, Y() 12, NOI” :), 1 $)77, r), H.‘1 \lalt ~(t, op. (’it


electric submersible pumps, but since thesehave lower capacities and require moremaintenance than their Western counter-parts, it has in the past purchased quantitiesof pumps from the United States—the onlyother country in the world where they aremanufactured. U.S. pumps lift up to 1,000tons of fluid per day, and can last up to fivetimes longer than Soviet pumps.

By 1978, the U.S.S.R. had purchasedabout 1,500 American pumps, with deliv-eries staggered over several years. Onlyabout 2,000 pumps are produced each year inthe United States, and back orders andlimited manufacturing capacity had re-stricted deliveries to the U.S.S.R. to about30 pumps per month. The CIA has estimatedthat these American pumps may have en-hanced Soviet oil production by as much as 1mbd.

In retrospect, this figure seems mislead-ing. The U.S.S.R. has purchased no sub-mersible pumps since 1978, yet its oil pro-duction has not only failed to decline by 1mbd; it has risen. The American pumps seemto have a lifetime of 3 to 6 months in Sovietservice before major overhaul is required.But although the Soviets asked their Ameri-can suppliers for training in pump repair, theU.S. firms refused. This suggests that, un-less the U.S.S.R. has developed unprece-dented capabilities in learning to repair for-eign equipment with no information from thesupplier, the U.S. pumps were probably useduntil they failed and then put aside. If this isthe case, it is likely that no American pumpswere still in service by 1979, and theU.S.S.R. must have been able to substituteits own equipment.

This is not to suggest that U.S. pumpswere not important to the Soviets or thatthey might not be so in the future. If pumpscould be purchased at previous rates or in-creased by a factor of two or three and ifthese pumps were replaced or repaired whenthey failed, the impact on Soviet oil produc-tion could be substantial, although difficultto quantify. Estimates by U.S. industry ex-

perts show an enormous range–from 8 to 20percent increases in production.

Gaslift EquipmentSoviet gaslift efforts have been important-

ly enhanced by the sole gaslift sale reportedin the West—a $200 million deal made withtwo French firms in 1978 for equipment forapproximately 2,400 wells, including gascompressors, high-pressure manifolds, andcontrol valves. (Although the French firmswere the general contractors for this project,American equipment, built in Ireland,formed part of the package. U.S. computershave also been used for operating the gasliftequipment at the surface.) This equipmenthas been employed at the high-prioritySamotlor where the downhole life of sub-mersible pumps is particularly short. How-ever, this quantity of equipment will equiponly about 20 percent of Samotlor’s wells,and probably has accounted for some 1 to 3percent of current production.

ComputersThe Soviets have purchased sophisticated

automation systems for oilfields and gas-fields from the United States and France.Much of this has gone to Western Siberianoilfields (Samotlor and Fedorovsk), includinga multimillion dollar multilevel process con-trol system that regulates and optimizesgas-lift operations on several thousand oilwells. Another gas monitoring system waspurchased for the Orenburg gasfield. Theequipment used in these systems only re-cently went into production in the Sovietbloc, and considering the leadtimes neededto develop such systems, it is clear thatthese purchases allowed capabilities far inadvance of those that would otherwise havebeen possible. The Samotlor and Fedorovsksales are particularly important becausethose fields are entering critical secondaryrecovery stages.

These systems may not be necessary if thefields are pumped continuously at maximumpossible rates. But if the Soviets door intend


to plan oilfields so as to optimize overallrecovery rates, automation equipment willbe needed. Automated systems for waterand gas injection operations will also be ingreater demand as more and more fieldsenter these stages of production and as laborbecomes scarce.

The Soviets have recently started produc-ing the computers needed for sophisticatedreservoir analysis, i.e., computers with large,fast main memories. Damaged (over-flooded)fields and overestimates of reserves havepartially been due to poor reservoir model-ing. Future needs will be increased by thenumber of fields entering secondary and ter-tiary recovery phases, and by the switch inthe late 1980’s to fields with more difficultand complex geologies.

Although the U.S.S.R. has been produc-ing all the equipment needed for such multi-level oilfield and gasfield control systems, itdoes not have much experience in buildingthem, and it may be several years before theSoviets can organize such systems them-selves. They may, therefore, continue to turnto the West for such systems over the shortterm. Over the long term, the U.S.S.R. isunlikely to purchase large computers forreservoir modeling, since it has recentlymastered their production. However, pur-chasing the software may save considerabletime and lend new insights into reservoirmodels, especially since combining verycomplex geophysical know-how and softwareis one of the most difficult tasks in thegeophysical field. The United States remainsthe world leader in this technology.


Oilfield development in the Soviet Unionemploys different techniques than are com-mon in the West. Most importantly, theU.S.S.R. initiates secondary recovery, andparticularly waterflooding, at an earlierstage in the producing life of its fields.Although this practice is widely used in theWest, the extent to which it is employed inthe U.S.S.R. together with documentedcases of its misuse have led Western expertsto label it potentially damaging to overall ex-traction prospects. On the other hand, manySoviet petroleum experts continue to believethat extensive waterflooding actually en-hances ultimate recovery rates. So long asSoviet oil production continues to rise infields like Samotlor, which as a high water-cut, this debate is unlikely to be resolved.

While it is misleading to generalize aboutthe water-cut rate for the U.S.S.R. as a wholebecause of important variations between re-gions and fields, there is no doubt that poormanagement has led to damage in somefields; or that the fluid-lift requirements oc-casioned by waterflooding are burdensome.This problem is intensified in the U.S.S.R.because of its poor domestic capability forproducing large numbers of high-qualityelectric submersible pumps for removing theoil and water mixture from wells. Pumps im-ported from the United States have been im-portant in alleviating this problem, but theU.S.S.R. has demonstrated that it is not en-tirely dependent on such imports,

TRANSPORTATION OF OIL AND GAS

INTRODUCTION most efficient and cost-effective mode oftransport. To a large extent, Soviet plans for

Once oil and gas are brought to the sur- increased gas production and gas exportsface, they must be conveyed to processing rest on the further extension of the gas pipe-facilities and then to refineries, storage, or to line system. The length and capacity ofports. In the U. S. S. R., as in the West, this is Soviet pipeline networks has expanded sig-accomplished by rail, road, water, and pipe- nificantly, an achievement that has been ac-line, although the latter has proved to be the complished with extensive imports of West-


ern equipment and technology, particularlylarge diameter pipe. This section describesthe way in which petroleum pipelines func-tion, details Soviet progress in constructingand operating them, and discusses the role ofthe West in oil and gas transportation.

TRANSPORTATION OF OIL ANDGAS BY PIPELINE

Pipelines are generally the most cost ef-fective way of conveying large volumes ofpetroleum over long distances by land. Al-though they require a high initial capital in-vestment, in the long run operating andmaintenance costs are low, and the cost ofpipeline transport drops rapidly with in-creases in the diameter of the pipe, andtherefore the quantity of petroleum that canbe transported. A difficulty with pipelines istheir inflexibility. Once laid, it is impossibleto change their routes, although provision

can be made for additions to pipelinecapacity.

Pipelines carry oil from the well to fieldprocessing centers, and from there to re-fineries and onward. Sometimes these pipesare lined to protect them from corrosivematerials in the petroleum; sometimes theymay require insulation or the installation ofheating facilities along their route to preventoil from congealing.

Separate gas pipelines transport gas,which may be independently produced,found in association with crude oil, or pro-duced during the refining process. In thepast, associated gas produced in oilfieldswas often flared off or allowed to escape intothe atmosphere. With higher gas prices, thisnatural gas is now transported to markets.

Important characteristics of the pipe fromwhich oil and gaslines are constructed are

Ch. 2— The Soviet Oil and Gas Industry . 57

the strength of the material, the techniqueof manufacture, and the diameter. Oneimprovement in pipe technology has been toachieve strong pipe with thin walls, thusallowing a decrease in production costs. Asecond has been the introduction of seamlesspipe, which avoids the weaknesses intro-duced by welded seams. Seamless pipe ofwide diameter (40 inches and above) is dif-ficult to manufacture, but advances in metal-lurgical technology have led to the ability toproduce long lengths of wide diameter, thin-walled rolled pipe that can withstand highpressures.

Both oil and gas are moved along the pipe-line with the aid of mechanical devices–pumps and compressor stations. Oil pipe-lines may be equipped with any of a varietyof pumps—centrifugal, steam turbines, die-sel engines, etc.—the appropriateness ofwhich are determined by the volume to betransported, the viscosity of the oil, the pres-sure required, and the availability of fuel.Pumping stations situated along the route ofthe pipeline can be maintained manually bymechanical controls, but as distances in-crease, remote automation becomes moreefficient.

Natural gas is pushed through the pipe-line by the pressure obtained from compress-ing the gas. Gas from the pipeline itself isnormally used to fuel the compressor en-gines. Valves are installed every 10 to 30miles along the pipeline to make it possibleto isolate sections for maintenance and re-pair and to close automatically in responseto rapid large drops in pressure. Whereas ina level oil line of constant diameter, pressurewill decrease uniformly with distance, in agas line it decreases according to paraboliclaw. Pressures are highest at the outlet of acompressor station and drop between them.The efficiency of gas compressors dependson where along the line they are situated.The result is that gas pipeline capacity,unlike that of oil lines, is related to routelength as well as pipe diameter. The capacityof a gas pipeline can be increased by addingcompressor stations at close (50 to 100 mile)intervals along the route.

SOVIET OIL PIPELINES

West Siberian oil has constituted an in-creasing share of total Soviet production inthe past decade. This has necessitated theconstruction of major oil pipelines to bringthe crude hundreds of miles to refineries andconsumers.102 Nevertheless, rail has re-mained an important means of transportingoil products in the U.S.S.R. The usual Sovietpractice is to use pipelines to carry crude oilfrom field to refinery and the railroad there-after. (Truck transport, which is used ex-tensively in the United States, is confined tothe distribution of products over relativelyshort distances to consumers. ) This heavyuse of rail transport is expensive and ineffi-cient, particularly for the usually shorthauls. Product pipelines (i.e., pipelines de-signed to carry refined products from therefinery to local distribution points) wouldrapidly pay for themselves, but delays inpipeline construction have meant that thevolume of oil and products carried by rail-road has continued to grow. In 1979, 35 per-cent of all oil freight was transported in thismanner 103 (see table 13).

Present Soviet policy appears to place pri-ority on phasing out the use of rail for crudeoil transport before extending product pipe-line capacity. In any event, establishing anextensive products system will require in-tricate planning, as such a system mustserve a variety of distribution points andcope with a number of different products.

““’1’hi~ is bt~c’ausLI th(’ (Jnl~I railwal running from L h(~ oil-pr(du(ing r(~gion of il’(~st Sit)(>ria is working a t full (Oapac>itj,l!’ilson, op. c.it., p. 32.

“ ‘1 }Jid., p. 2fJ,

Table 13.—Transport of Oil and Oil Products(million tons)

1975 1976 1977 1978 1979

Volume of 011 and products transported by:P i p e l i n e 499 532 559 589 609aRail : ., 389 394 406 412 NARiver .. . 39 38 37 40 NASea . : 91 101 104 109 NA

T o t a l 1,018 1,065 1,107 1,150 NA

NOTE Totals may not add due to roundingNA = not avaiIablea Cited in IZ ves t(y,i Jan 26 1980

SOURCE WiIson oo. cit., p. 25

58 ● Technology and Soviet Energy Availability—

Despite the fact that 1980 plan targets foroil pipeline construction were not met,104 thelength and capacity of the Soviet oil pipelinesystem have grown extensively over thepast 20 years (see table 14). By the end of1979, there were 67,400 km (about 41,900miles) of crude oil and product pipeline in theU.S.S.R.

The rate at which additions to oil pipelinecapacity can be made depends importantlyon the terrain to be covered and the diameterof the pipe being laid. Pipelines are expen-sive and slow to build in the difficult condi-tions of West Siberia, where high winds,sand erosion, and swamps inhibit construc-tion. The larger the diameter of the pipe, thehigher the capacity of the pipeline, and theU.S.S.R. has placed emphasis on increasingits use of wide diameter pipe. This growth, aswell as the corresponding increase in pipelinecapacity, is shown in table 15.

The location of major Soviet oil pipelinesand their capacities is shown in figure 3. Aswould be expected, the evolution of this net-

‘“1[ hid., p. 26.

Table 14.—Length of Oil and Oil Product Pipelines(thousand kilometers)

19801960 1965 1970 1975 1978 1979 (plan)—

Crude. . . 13 22 31 - 46 NA NA NAProducts . . . . . 4 7 7 10 NA NA NA

Total. . . . . . . 17 29 ‘- 37 56 64 67 75

NOTE Totals may not add due to roundingNA = not available

SOURCE Dienes and Shabad OP cIt P 62. Wilson OP clt p 26

work has been dictated by the movement ofthe center of Soviet oil production from theCaucasus to the Volga-Urals, and then toWest Siberia; and by the location of re-fineries and export markets. Lines from theVolga-Urals fields, for instance, followedthree basic directions before the develop-ment of West Siberia:105 eastward into Sibe-rian refineries at Omsk and Angarsk; west-ward to Eastern Europe (this is the Friend-ship pipeline that carries crude oil to re-fineries in Poland, East Germany, Czech-oslovakia, and Hungary; branch lines alsoserve domestic refineries); and northwest-ward to refineries in the central and north-west portions of the country.

The onrush of West Siberian oil requiredlarge-scale network expansion using increas-ingly large pipe diameters. West Siberianlines also now follow three basic directions:southeastward into eastern Siberia;106 south-ward to Kazakhstan and Central Asia; andsouthwestward to the European U.S.S.R. Inaddition, a new pipeline corridor runs duewest across the Urals. Construction on a 48inch, 3,300 km (over 2,000 mile) segment ofthis line began in 1977. It would appear thatthis line is intended to handle expected in-creases in West Siberian production. Thefirst stage (from Surgut to Perm) was com-pleted in 1979 and, despite the difficulties ofconstruction, the entire pipeline was finished.—.

‘ ‘ ‘[hid., p. 66.“’’)’I’his line appears to have been planned as the initial link

in a sJstenl carrying L1’est Siberian oil to the Pacific coast forexport to Japan. This plan has heen dropped and such oilflows, if and when they exist, will be handled hj the Ba?kal-,~mur hlainline ( llAhl ) railwaJr. [)ienes and Shahad, op. clt.

Table 15.—Diameters and Capacity of Oil Pipelines

Annual capacity Length of pipelines (thousand kilometers)

Diameter (inches) (million tons) 1940 1950 1955 1960 1965 1970 1975

Below 20. . . . . . . . . — 4,1 5.4 75 9.2 9.5 10.8 12.120 . . . 8 — — 3.0 6.3 9.9 10,3 15.92 8 17 — — — 1.7 6.1 9.5 11.03 2 . . . 25 — — — 0.05 1.8 2.9 5.940 . . . 45 — — — — 1.3 39 6.448 . . . . 75 — — — — — — 4.9

Total length of pipelines . . . . . 4.1 5.4 105 17.3 28.6 37.4 56.2

SOURCE D[enes and Shabad OP cI\ p 63


in 1981.107 The completed line will both serverefineries and provide oil for export throughthe Baltic Sea terminal at Ventspils.

GAS PIPELINES

In 1980, the U.S.S.R. produced 435 bcm ofgas and the Eleventh FYP has called for a50-percent increase in gas production,mostly from West Siberia, in part to supportgreatly expanded gas exports. The successof these plans will largely rest on the ca-pacities of the pipelines that are required totransport this gas. The existing gas pipelinenetwork grew from about 99,000 km (61,000miles) in 1975 to about 130,000 km (80,000miles) in 1980, (see table 16) and has increas-ingly employed large diameter pipe. Never-theless, the low capacities of gas pipelinespresent particular problems. A 48-inch oilpipeline, for instance, can carry 75 mmt of oileach year; a 56-inch gas pipeline can carryonly 23 mmt of oil equivalent (23 bcm of gas).Present plans to raise West Siberian gasproduction, therefore, require enormous in-creases in the length of the pipeline network.The Eleventh FYP calls for about 40,000 kmof new pipeline, an increase of 30 percent, in-cluding 25,000 km of 56-inch pipe carryinggas from the Urengoy field.108

The Soviet gas network is shown in figure4. While important lines in this system serve

‘“ Theodore Shahad, “ News Notes,’” .So{ ict (;cc)gruph>’,April 19S 1, p. 275.

“’”[bid.

the fields of Central Asia and the giant Oren-burg deposit in the Volga-Urals (from whichgas is carried to Eastern Europe), the mostimportant part of the network connects theenormous West Siberian fields to consumers.These fields will be supplying most of the in-crement to production in the next decade.

Three Siberian trunk systems presentlycarry most of this burden. They are theNorthern Lights system, one branch ofwhich runs to the Czech border from whencegas is exported; the Tyumen-Moscow line;and the Tyumen-South Urals system, whichmay be able to feed Siberian gas to theCaucasus to makeup for the cessation of Ira-nian gas imports. (A pipeline project thatwould have supplied Iranian gas to theU.S.S.R. has now been abandoned. ) Branchlines from these major systems serve anumber of major towns along their route. Allof these lines employ 56-inch pipe. An impor-tant projected pipeline is the one which willbring additional gas to Western Europe.This is discussed in detail in chapter 12.

Given the fact that pipe with diametersexceeding 56 inches has not been mass-pro-duced anywhere in the world, there are threeways in which the U.S.S.R. might improveits pipeline capacity: cooling the gas to in-crease its density, raising the pressure ofpipelines from the present 75 atmospheres to100 or 125 atmospheres, and reducing thedistance between (and therefore increasingthe number of) compressor stations. Whileresearch into the technology for the first two

62 ● Technology and Soviet Energy A Availability

of these options is ongoing, and cooling tech-nology in gas transportation appears par-ticularly promising, their widespread appli-cation does not appear to be imminent. In-creasing the number of compressor stationswill therefore play the most crucial role in in-creasing gas pipeline capacity.

Unfortunately, the design and quality ofSoviet compressors are poor and construc-tion of compressor stations has chronicallylagged behind plan. Moreover, there is ap-parently an ongoing debate within theU.S.S.R. as to whether or not the distancebetween compressor stations should indeedbe shortened. The argument against suchpractice is that construction of these sta-tions is highly labor intensive. Reducingtheir number will shorten constructionperiods and accelerate the delivery of gas.109

Whether or not this view will prevail remainsto be seen. Should a decision to increase thenumber of stations be reached, however, it islikely that this is another area in whichWestern equipment might play an importantrole.

Other factors inhibiting the constructionof West Siberian gas pipelines are laborshortages, the inadequacy of electricity sup-plies, and shortages of excavating and pipe-laying equipment. Delays in the construc-tion of permanent settlements for the largenumber of workers required to lay gaspipelines have contributed to constant laborturnover. Meanwhile, the North Tyumenregion of West Siberia, location of the mostimportant giant gasfields, does not have apermanent electricity supply. Not only doesthis mean that each compressor stationmust have its own mobile power unit and thepersonnel to maintain it, but frequent powerfailures cause expensive interruptions incompressor operation and can damage com-

pressor units. Finally, pipeline constructionis seriously affected by the failure of enter-prises producing engineering, excavating,and construction equipment to fulfill theirobligations.

It has been asserted that despite these dif-ficulties, Soviet pipelaying work is “fast andefficient." 110 It is difficult to evaluate thisstatement. Certainly Siberian conditions im-pose constraints that should affect the suc-cess criteria by which any such enormousenterprise is measured. However, the ulti-mate test will be the extent to which theU.S.S.R. is able to meet its own goals–withor without massive purchases from theWest.

THE ROLE OF WESTERNPIPELINE EQUIPMENT

AND TECHNOLOGYPipe111

The Soviets have been heavily dependenton imports of Western pipe of 40 inch andgreater diameter, most of which seems to beused in main-line high-pressure transport ofnatural gas, and on Arctic quality pipe. Com-parisons of Soviet domestic pipe productionand import figures suggest that, at leastthrough 1975, this dependence exceeded 50percent and was growing. In 1979, the valueof steel pipe imported by the U.S.S.R. roseby 29 percent over 1978.112

The Soviet steel industry is capable of pro-ducing, 40-, 48-, and 56-inch pipe, and indeeda substantial part of the domestic gas dis-tribution system uses domestic pipe, albeitmostly of small diameter. It would thereforeappear that the massive imports are de-signed to avoid bottlenecks arising from in-sufficient production capacity and to com-pensate for the fact that Soviet domesticpipe is of lower quality in yield strength, wallthickness, and general workmanship thatthat which can be purchased abroad. Soviet

‘“’~f’ils(~rl, (~p tit,, ~)1). 2\)-;l 1.1‘ ‘This section is based on Campbell, “Soviet Technology

Imports . . .,” op. cit., pp. 10-12.‘‘ lf’ils~)n, op. Lit,, p 27,

Ch. 2— The Soviet Oil and Gas Industry . 63

welding practices apparently add to theproblem of quality. The U.S.S.R. is attempt-ing to upgrade its pipe manufacturing capa-bilities. To this end, it has purchased aseamless pipe manufacturing plant fromFrench and German firms. The plant has anannual capacity of 170,000 metric tons (in1976, Soviet domestic output of 40 inch andlarger pipe was 2.6 million tons113). In addi-tion, a new pipe-rolling plant destined to pro-duce 56-inch pipe for use at 100 atmospheresis using imported steel plate.

Pumps and (’Oppressors

The U.S.S.R. has purchased pipelineboosters, pumping stations, and gas com-pressors from the West, but the area inwhich Western technology appears to havebeen most important is in compressors forgas pipelines. These do not seem to be pro-duced in adequate quantity and quality inthe U.S.S.R. itself. In 1976, the average sizeof a Soviet turbine-powered centrifugal com-pressor unit (produced under license fromthe U.S. Dresser Industries and making up71 percent of installed gas compressioncapacity) was slightly over 4 MW. TheU.S.S.R, now widely produces units of 5-, 6-,and 10-MW capacity, but ones of 16 and 25MW, mass-produced routinely in the West,were only scheduled to begin serial produc-tion in 1981.114 The large units needed to in-crease installed capacity must, therefore,still come almost entirely from the West.

The U.S.S.R. has been importing substan-tial amounts of gas-turbine-powered com-pressor equipment since 1973; by 1976, 3,000MW of such units (about one-third of in-stalled capacity of all types of compressorequipment) had been imported from Austria,Great Britain, ,Japan, Norway, and theUnited States.

115 While it is obviously impos-sible to quantify the net benefits generatedby these purchases, one Western expert has

‘(’amphcll, ‘ ‘ S C J J it’t ‘1’t’lhntllt)g? 1 nlports ,‘ op. (’it.,[) 12.

1‘Ifilson, op. (i L., p. 29.‘‘ (’arnpt)(’11, ‘ ‘S()\i(~t ‘1’(~(hnol(~g~ 1 rnpt)rts ,‘ op. {’it..

pp I 5, 21.

estimated that pipe and compressor importstogether may well have paid for themselveswithin 2 years, given the acceleration of gastransport capacity they allowed.116

Other Equipment

The U.S.S.R. has purchased Americanpipeline inspection equipment, but in generalhas not relied extensively on the West forother material for pipeline cleaning. More im-portant are imports of pipelaying and ex-cavation equipment, particularly that de-signed for cold climates. Pipelayers havebeen purchased both from the West andfrom Eastern Europe, but there are signsthat the U.S.S.R, may wish to acceleratesuch imports for construction of the pro-posed new pipeline to Western Europe (seech. 12).

Computers

The U.S.S.R. has the ability to build rea-sonably advanced computer-based controlsystems for oil and gas pipelines, but the ma-jority of pipelines probably still employolder, less efficient and more labor-intensivetechnologies. For instance, even the bestSoviet systems do not use microprocessorsand minicomputers as they are used in West-ern state-of-the-art systems. These are con-nected in a multilevel hierarchy with a cen-tral mainframe, and produce greater reli-ability, quicker response times, and lowerlabor requirements.

The U.S.S.R. has purchased in excess of$10 million of pipeline-related computerequipment from the West, mostly for pipe-lines such as Orenburg, for which largeamounts of other Western equipment hasalso been purchased. Announced plans callfor the introduction of at least 10 domestical-ly produced oil pipeline automation systems.Such systems could reduce operationalmistakes and allow better pipeline main-tenance, speedier leak detection, and betteroverall management of oil and gas flOWS. Ifthese systems are indeed about to be intro-

‘ ‘“I hid., pp. 22-24.


duced, and if delays in the provision ofdomestic equipment for them occur, theU.S.S.R. may turn to the West for assist-ance. However, it is not clear if this is apriority area for the acquisition of Westerncomputers or the expenditure of hardcurrency.


The Soviet oil and gas pipeline system hasgrown extensively in the past decade. But ifthe large increases in West Siberian naturalgas production so important to Soviet en-ergy plans as a whole are to be realized, fur-ther expansion of the gas pipeline network iscrucial.

oil and gas pipelines have benefited exten-sively from Western pipe and compressionequipment. Although the U.S.S.R. doesmanufacture some large diameter pipe and isseeking to upgrade its capabilities in thisarea, no end to its dependence on Westernimports of such pipe is in sight. Similarly,although there are Soviet-made compres-sors, including some new models with ca-pacities that were hitherto available only inthe West, Soviet purchases of such equip-ment from the West still appear to be cost ef-fective. Indeed, for some time to come, suchpurchases will probably also be necessary asdomestic manufactures remain inadequatein both quality and quantity.

REFINING

INTRODUCTION

Crude oil is not a homogeneous substance.Depending on the nature of the deposit fromwhich it comes, it can consist of a variety ofcompounds and exhibit a wide range of prop-erties. These properties determine a numberof both liquid and gas products which can beproduced from the crude in primary distilla-tion. The refineries at which these productsare made can employ both primary and sec-ondary processing techniques so that ideallyeach refinery can produce the optimum prod-uct mix for the crude oil which comes to it.Common products are jet, diesel, and re-sidual fuel oil; gasoline; kerosine or paraffin;lubricating oils; and bitumen. During the oilrefining process, considerable volumes ofgas may also be released. These gases—methane, ethane, propane, and butane—canbe used as fuel for the refining process ormarketed separately.

Natural gas too is processed both to ob-tain marketable products and to purify it.Some gases have a high content of naturalgas liquids, which can be separated out. Inaddition many natural gases contain hydro-gen sulfide, sometimes in amounts rangingto more than 75 percent. “Sour” gases, i.e.,

those with high hydrogenare toxic and corrosive, andbefore they are used.

sulfide content,must be treated

Relatively little is known about the Sovietrefining industry. The U.S.S.R. issues nostatistics on oil refining, and information onthroughput—in terms of both product quali-ty, variety, and quantity—must be gatheredfrom indirect sources and based on esti-mates. This section will briefly summarizemajor characteristics of this industry.

THE SOVIET OIL REFININGINDUSTRY

Major difficulties in the Soviet refining in-dustry have resulted from the geographicdistribution and capacity of existing re-fineries, and from the quality and mix of therefined products produced. There are indica-tions that the U.S.S.R. recognizes and is at-tempting to remedymuch improvementstill necessary.

Figure 5 shows

these problems, but thatin the refining sector is

the location of majorSoviet refineries. There are some 44 op-erating refineries in the U.S.S.R.117 These are

‘‘“W’ilson, op. cit., p. 37.


well distributed, with some bias toward theolder producing regions-Central Russia,Volga-Urals, North Caucasus, and Azerbaid-zhan regions in the western part of the coun-try. One very large refinery is situated inWest Siberia. The geographic distributionputs a heavy strain on the overburdenedSoviet rail system which, as the previoussection indicated, is relied upon for thetransport of refined oil products. This factmay have contributed to an apparent changein refinery building policy. While the Sovietpredilection has been for expanding refinerycapacity by adding to existing sites, thereare now plans for the construction of newrefineries. Four of these came onstreamduring the Tenth FYP period in the Ukraine,Belorussia, northeast Kazakhstan, and Lith-uania,118 but plans for others in Central Asia,Eastern Siberia, and southern Kazakhstanhave experienced delays.

The quality of Soviet refined products isnotoriously poor, the result of inadequateplanning and investment in a sector that wasill-prepared to deal with the rapidly increas-ing volume and variety of the crude oil thatbegan to be produced in the 1950’s and1960’s. A large share of refinery output con-tinues to be in the form of residual fuel oil(called “mazut”) that is used extensively inelectricity generation. One consequence ofinadequacy in the refining industry has beenan emphasis on the export of crude oil ratherthan products. Even with the enormous in-crease in oil prices after 1974, the U.S.S.R.could earn more hard currency from refinedproduct exports. However, export potentialis constrained by product quality and prod-uct mix.

Nor has the refining industry in the pastcoped in an altogether optimum fashion withdomestic needs. A chronic and pressingproblem, for instance, is the large share ofheavy fuel oil in the product mix. This is ac-counted for by the lack of appropriate sec-ondary refining capacity to produce otherproducts. One result is that fuel oil is burnedin cases where natural gas would be a more

118 ‘m Ibid.

rational and economic fuel. The task facingthe U.S.S.R. is to lower the overall share offuel oil in the product mix and raise that ofother products. This will require rationaliz-ing selected refineries through the installa-tion of secondary refining equipment.

The quality as well as the mix of productsmust also be raised. One example can befound in motor fuels and lubricants. In thepast, poor quality automotive products havetended to decrease the efficiency and lifespan of the machinery and to increase the re-quirements for repairs and maintenance. TheU.S.S.R. has thus made a concerted effort toimprove the quality and quantity of suchproducts. In 1970, for instance, the share ofhigh-octane gasoline in total gasoline outputwas 50 percent; in 1979, this share reached94 percent.119 Similarly, the quality of dieselfuel, as measured by its sulfur content, hasbeen improving. In 1965, only 40 percent ofSoviet diesel fuel had a sulphur content of0.5 percent or less. The rate is now over 95percent, and about 47 percent of Sovietdiesel fuel has a sulfur content of less than0.2 percent. Some sense of the practical con-sequences of such an improvement may begleaned from the fact that, according toSoviet calculations, an engine that will runsome 57,000 km on diesel fuel with a l-per-cent sulfur content will last nearly 89,000 kmon diesel with 0.2 percent sulfur.120 In addi-tion, reductions have been made in the lossesof oil and oil products during the refiningprocess.

Such improvements have required ad-vances in refining technology and consider-able investment in the refining industry.Further alteration and improvement of therefined product mix will require additionallarge capital expenditures and additional ef-forts to improve technology. The past andpotential contributions of the West in theseefforts are discussed below.

‘19Campbell, Trends ... , op. cit., p. 47; Wilson, op. cit.,p. 39.

‘ ‘(’1 b id.


THE SOVIET GAS-PROCESSINGINDUSTRY

The associated gas produced with oil,“casinghead gas,” can be used in unproc-essed form to fuel power stations or it can beprocessed to separate the liquid petroleumgases. In the past, the U.S.S.R. typicallyvented or flared this gas. Now, however, ef-forts are being made to collect and process it.Between 1975 and 1979, production ofcasinghead gas rose from 29 to 36 bcm, anoverall utilization rate of some 69 percent.The Tenth FYP specifically addressed theproblem of utilizing the large amounts ofcasinghead gas being produced (and flared)in West Siberia by planning construction ofgas-processing facilities in that region. Thiswork has fallen behind schedule, but thepresent FYP calls for additional refineriesand envisages that by 1985 West Siberiancasinghead gas will be fully utilized,

WESTERN TECHNOLOGY INTHE SOVIET REFINING

INDUSTRY

The U.S.S.R. has purchased largeamounts of oil refining equipment and tech-nology from East Germany and Czecho-slovakia, as well as from Japan, France,Italy, and Britain. Western purchases havetended to consist of entire refineries ratherthan of component parts, and the primaryU.S. contribution has been in provision ofdesign and engineering services to Italianand Japanese construction firms (see ch. 6).

To implement planned improvements inrefining, the U.S.S.R. will probably requireadditional Western assistance, althoughwith the exception of computing that mightboost efficiency, the technologies involvedare not advanced. These include secondaryrefining techniques such as hydrocrackingand catalytic cracking. In the West, micro-processors and minicomputers are used ex-tensively in refinery operations. Althoughthe Soviets use computers in all of theirrefineries, microprocessors are found only inthe largest and most important, and are, con-


French technicians at a French hydrocracking plantin the Bashkir ASSR

servatively speaking, several years behindthose used in the West. The need for micro-processor- and minicomputer-based refinerycontrol systems will continue to grow in theU. S. S. R., particularly as the product mix isrestructured. So far, the purchase of suchsystems does not seem to have been ac-corded high priority, although some mini-computer- and microprocessor-based sys-tems have been included in sales of largerunits destined for refineries. The U.S.S.R.has the hardware base to design and imple-ment such systems itself, but it lacks ex-perience in building the software and asso-ciated control devices.

It is likely that systemic constraints andincentives will impede the development andintroduction of computerized refinery proc-


ess control systems much more than willproblems with the technology. Western pur-chases may accelerate improvements in effi-ciency, but from the present signals, it ap-pears that the U.S.S.R. will continue to relypredominantly on domestic developments.


Discussion of the Soviet oil refining in-dustry is inhibited by lack of data, but a fewgeneralizations are possible. Soviet priorities

in this sector lie in building more new re-fineries in West Siberia and the East, nearsources of supply and markets. In addition,emphasis is now being placed on improvingboth the refinery product mix and quality. Ifpast patterns persist, these changes in therefining industry will take place with the aidof infusions of Western technology andequipment, particularly of complete re-fineries. On the other hand, if oil productiondoes not continue to increase, expansion inrefining capacity will not be necessary.

OFFSHORE

INTRODUCTION

The extensive development of offshore oiland gas deposits, i.e., deposits in lakes, seas,and oceans, is a relatively new phenomenonin both the U.S.S.R. and the West. Althoughit is generally believed that the U.S.S.R. hasa promising offshore potential, productionfrom offshore deposits has not yet made avery noticeable impact on overall output.

Most of the equipment and technologyemployed in the Soviet offshore sector hasbeen either directly purchased from theWest or reproduced from Western designs.As new offshore deposits are identified anddeveloped, the need for additional sophis-ticated offshore equipment will grow. Thedegree of priority to be accorded offshoredevelopment in the Eleventh and TwelfthFYP’s is not clear.

This section briefly reviews the tech-niques and equipment necessary to find, pro-duce, and transport offshore petroleum, sur-veys the state of Soviet practice in theseareas, and describes the past and potentialcontribution of Western technology to off-shore development.

OFFSHORE EXPLORATIONAND PRODUCTION

Offshore and onshore exploration of oil in-volve essential the same processes. An en-

ergy source, usually compressed air, is usedto generate an impulse capable of pene-trating the Earth’s crust. As the energy isreflected and refracted by the underlyinggeological structures, it returns to the sur-face in the form of echoes that are detectedby sensors (hydrophones). Arrays of hydro-phones towed behind a seismic survey shipare used to detect the returning echoes. Theinformation is then processed in roughly thesame manner as onshore data are processed.

Modern seismic survey ships employ so-phisticated computer systems to control theprecise timing of the bursts of compressedair and to preprocess the data collected fromthe hydrophores. Computers, linked withsatellite navigation systems, provide aprecise fix on the position of the ship. Thepositioning of the hydrophone arrays is alsocontrolled by the computer.

Offshore exploratory drilling is accom-plished using basically the same equipmentas onshore, the major difference being theplatform on which the drilling equipmentis placed. Three major types of movableplatforms are presently available—jackups,semisubmersibles and drilling ships.

Jackup rigs generally employ three or fourhydraulically operated “legs.” The rig istowed to the drilling site where the legs areextended downward to the ocean floor. Theentire rig is then raised clear of the water lineto permit drilling operations. Modern jack-


ups are currently limited to working indepths no greater than 300 ft.

The semisubmersible rig is a refinementof the jackup. Semisubmersibles are con-structed on two or more pontoons on whichthe rig floats, and either self-powered ortowed to the drilling site. Once over the site,the pontoons are partially flooded to providea stable platform from which to drill. Theserigs are either anchored into position oremploy a dynamic positioning system. Theyoperate in water depths up to 1,500 ft andcan drill to 25,000 ft.

Drill ships represent the state-of-the-artin offshore drilling. The ship is usually ofstandard design with a drilling rig mountedin the middle of the deck. When the ship isover the drill site, it is either moored with an-chors or a dynamic positioning system is em-ployed. A dynamic positioning system usesa series of computer-controlled thrusters inconjunction with a set of sonar beaconsplaced on the ocean floor to maintain theship’s position over the drill site. A moderndynamically positioned drill ship is capableof exploratory drilling in water depths up to6,000 ft.

After the exploratory drilling phase iscomplete, the same well logging process as inonshore wells is used to determine the size ofthe reservoirs and the possible flow rates. Ifproduction is warranted, the reservoir can bedeveloped from an artificial island or a fixedplatform production rig, the latter beingmost common. Once the well is dug and thecasing cemented, special subsea wellheadcompletion equipment is fastened to the cas-ing. This unit is remotely controlled andestablishes the rate of production from thewell.

Fixed platform rigs differ from explora-tion rigs in their degree of mobility. Theserigs are erected on platforms that have beenfirmly embedded in the ocean floor. Once theplatform is in place, up to 65 developmentwells may be drilled from the platform usingoffset directional drilling techniques. Whereice floes make the use of a fixed platform im-

practical, however, artificial islands may beemployed. Artificial islands and fixed plat-forms are limited to use in water depths of nomore than 1,500 ft. Production drilling togreater depths will require new designs suchas tension leg platforms or compliant guyedtowers. Finally, the petroleum is brought toshore either via pipeline or tanker.

THE SOVIET OFFSHOREINDUSTRY

The offshore regions of the U.S.S.R. offerenormous potential for oil and gas produc-tion. It has been estimated that of the 8million km2 of total Soviet shelf area, 2.5million km2 are promising for the discoveryof petroleum. The most attractive regionsare the Arctic, Baltic, Black, Caspian, andOkhotsk Seas.121 Some drilling has takenplace in the Sea of Okhotsk off SakhalinIsland (using Japanese equipment; see ch.11), and in the Black and Baltic Seas, andlimited exploration of Arctic waters in theBarents and Kara Seas has begun, butSoviet offshore experience so far has beenlargely confined to production from shallowwaters in the inland Caspian Sea.

Development of the Caspian dates to the1920’s, when earthen causeways were builtinto the Sea. These were later replaced byfixed pile-supported and trestled platforms,and drilling proceeded from these and fromsmall natural islands. The full potential ofthe Caspian is only now beginning to berealized, however, as the U.S.S.R. developsthe capacity to explore and drill in watersgreater than 200 m (600 ft). A major dis-covery in 1979, the ‘‘28th April” deposit, hasspurred interest in continuing Caspian ex-ploration and development,122

Exploitation of the Caspian, and evenmore importantly, of the other promising off-shore regions is constrained by the status ofSoviet deep-water technology. Although the


Tenth FYP called for the modernization andaugmentation of offshore drilling capacity,this upgrading has not proceeded as rapidlyas planned. The Soviet stock of domestic off-shore equipment currently consists of sevenjackups (three of which are obsolete) and twosemisubmersible rigs.123 The inadequacy ofthis equipment base is attested to by the ex-tent of Soviet dependence on Western off-shore equipment.

THE CONTRIBUTION OFWESTERN OFFSHORE

TECHNOLOGY

The U.S.S.R. has purchased or contractedfor offshore exploration, drilling, and pro-duction equipment from a wide variety ofcountries, including the United States,France, Holland, Finland, and Japan (see ch.6). Its own recently acquired ability to buildjackups and semisubmersibles is the productof Western technology imports, and it hascontracted with a Finnish firm for threedynamically positioned drill ships for use inArctic waters. These ships are based on aDutch design, and are being fitted with thelatest Western drilling and subsea comple-tion equipment. It is believed that theseships will provide the Soviets with their first

123Ibid.. p. 96.

deep drilling and subsea completion ca-pabilities. 124

In addition to purchases of equipment andtechnology, the U.S.S.R. has entered intojoint offshore development projects withother nations. These include the Sakhalinproject with Japan, and the Petrobaltic con-sortium, which at present involves coopera-tion between the U.S.S.R., Poland, and EastGermany in exploring in the Baltic Sea. Theconsortium is now using a jackup rig built bya Dutch firm and furnished with drillingequipment of U.S. origin.


The U.S.S.R. obviously wishes to expandits offshore activities and capitalize on itsgreat potential. However, its own offshorecapabilities are still in their infancy, and pur-chases of Western equipment and tech-nology will probably continue to be crucial tooffshore development in the foreseeablefuture. Given the fact that exploration inmost offshore regions has not even begun, itis difficult to imagine significant offshoreproduction occurring before the end of thepresent decade.

THE PROSPECTS FOR SOVIET OIL PRODUCTION IN 1985

The prospects for Soviet oil production inthe next 5 years have been the subject ofcontroversy ever since CIA’s 1977 predic-tion that Soviet oil output would peak at 550to 600 mmt (11 to 12 mbd) and then dropsharply to 500 mmt (10 mbd) or less by 1985.The CIA has since revised its estimates, butthe fact remains that its original work haslargely set the terms for the entire Sovietenergy debate, with experts ranged on dif-ferent sides of what have become the centralSoviet energy questions: will oil output peakin the 1980’s, and if so, when; can a produc-tion plateau be maintained, and if so, how

long; if oil output begins to drop, how sharpa decline can be expected?

Leaving aside for the present the issue ofwhether oil production does indeed con-stitute the key to the future of the Sovietenergy balance (this point is treated below),this section will discuss the prospects forSoviet oil production in 1985 and 1990, iden-tifying for the purposes of this analysisreasonable best and worst case estimates.

Table 17 summarizes recent projections ofSoviet oil production. As the table shows,the lower limit is represented by the most re-


Table 17.–Soviet Oil Production Forecasts, 1985(million metric tons)

cent forecast of the CIA and the upper by apublication from the British Economist In-telligence Unit (EIU). The U.S.S.R. ownEleventh FYP figures fall between. Usingthis universe, OTA has posited best andworst case scenarios for Soviet oil produc-tion in 1985 of 645 and 550 mmt (12.9 and 11mbd) respectively. These are not predictions.Rather, OTA has selected plausible high andlow output figures that can be used to il-luminate the energy problems and oppor-tunities facing the U.S.S.R. The basis forthese scenarios can best be understoodthrough an examination of the assumptionsand reasoning behind the differing forecastsshown here. The following sections, there-fore, compare the arguments bolstering thetable’s high and low estimates–700 mmt (14mbd) and 500 to 550 mmt (10 to 11 mbd).

Differing estimates of future Soviet oilproduction have been based on two separatebut related sets of arguments. one concerns

Soviet oil reserves; the other the state ofSoviet oil production practice and tech-nology. Seemingly irreconcilable differencesbetween diverging forecasts can be traced todifferent assumptions and expectations withrespect to each of these.

SOVIET OIL RESERVES

Introduction

Oil production over any given period oftime obviously depends in part upon thequality, quantity, and accessibility of theresources in the ground, Reserves are theportion of this resource base that has beenidentified. They are important in determin-ing both cumulative production and annualrates of output. Unless the rate of additionsto reserves keeps pace with or exceeds therate of production, output cannot remainstable indefinitely or rise over long periods.

Discussion of oil reserves anywhere in theworld can be confusing, first because thestandards of classification and definitionemployed by analysts are not always iden-tical; and second, because the concept of areserve is meaningful only within the con-text of some standard of economic feasibili-ty. This means that as economic conditionsor available technology change, amounts ofoil ascribed to different reserve categorieswill change. This complex situation is com-pounded in discussions of the U.S.S.R. bothbecause the Soviet system of reserve clas-sification and nomenclature is very differentfrom that employed in the West, and be-cause Soviet oil reserve information is an of-ficial state secret. Western analysts must,therefore, calculate their estimates of Sovietreserves from intermittent and sometimesinconsistent bits of information. It is hardlysurprising that analysts working from dif-ferent data bases should arrive at differingconclusions.

In sum, two major points must b estressed. First, estimates of reserves are notstatic. As additional research, exploration,and development drilling proceed, reservesin any category may be redesignated to

72 • Technology and Soviet Energy Availability

higher or lower classifications. Second, giventhe variety and subtlety of reserve classifica-tion systems, extreme care must be taken ininterpreting differing reserve estimates. It isimportant to ascertain the definitions andother assumptions upon which such esti-mates are based.

The U.S. and Soviet Systems ofClassification

Briefly, two different nomenclatures areemployed in the United States. According tothe American Petroleum Institute, reservesmay be either measured, inferred, or in-dicated. These are referred to as proved,probable, or possible by the U.S. GeologicSurvey. In both cases, categorization is bytwo sets of criteria, the degree of geologicalassurance that the oil exists, and the eco-nomic feasibility of producing it.

Soviet categories–A, B, C1, C2, D1, andD2— are also broken out according to thedegree of exploration and appraisal drillingthat has been carried out and some inexplicitcriteria of economic recoverability. Only inthe most general sense can Soviet reservecategories-be made to correspondused in the West. Indeed, Westernhave disagreed over the relationsthe two classification systems.

Low and High Soviet ReserveEstimates

to thoseanalystsbetween

The CIA and EIU figures for Soviet oilreserves for the most part form the lowerand upper limits of the estimates that haveappeared in the West. While the CIA hasestimated approximately 4.1 bmt (30 billionbbl) of what it calls “proven” reserves, theEIU study gives a range of 14 to 15 bmt (102to 110 billion bbl) of what it calls “provenand probable” reserves. Only one reservefigure has slightly exceeded EIU’s–16 bmt(120 billion bbl), published by the Swedishgroup Petrostudies.125 On closer examina-

1’5Petrostudies has received widespread publicity for forecasts of Soviet oil reserve and production potential far in ex-cess of those found elsewhere. Most Soviet energy expertsregard Petrostudies’ claims as so sweeping as to be highlyunreliable.

tion, these figures appear to be based on dif-ferent nomenclatures, different standards ofcomparability between Western and Sovietdefinitions, and different evaluations of theabilities of the Soviet oil industry.

The CIA produced a figure for proved re-serves that it believes represents a realisticestimate of economically recoverable oilgiven present technology. It must be notedthat this definition yields a conservativeestimate. Nor is CIA sanguine about Sovietprospects for additional to reserves. Toreplace the oil produced between 1976 and1980, the U.S.S.R. would have had to havefound 2.9 bmt (21 billion bbl). According toCIA, this amount exceeded gross discoveriesduring 1971-75 by roughly 50 percent.126

Reversing the decline in discovery rateswould require increasing exploratory drillingto what CIA believes to be an unlikely ex-tent. The best hope for reserve additions inthe 1980’s in this analysis, therefore, be-comes luck—new finds of giant or supergiantfields near enough to existing infrastructureto allow their quick development.

At the opposite end of the spectrum, EIUdoes not believe that the present Soviet oilreserve situation is a constraint on near- andmedium-term production. The EIU studyadopts the same vocabulary as the CIA—“proved,” and “probable’ ’-but it offers noexplanation of the meanings assigned tothese words or how they are correlated toSoviet categories.

Conclusions

The basis on which these high and lowreserve estimates rest is in large part that ofsubjective judgments about the level oftechnology, the production costs, and theamount of time necessary to exploit depositsof oil in different stages of development andexploration. CIA, given its own evaluation ofSoviet petroleum technology, has appliedvery strict criteria to its estimate. EIU ap-pears to be far more sanguine about the abili-ty of the Soviets to recover more oil fromtheir existing fields and to develop new fields

‘2’(’1 A, “Prospects . ,“ p. 23.


within the time frame of current planningperiods. This difference in outlook and inter-pretation is also reflected in the two assess-ments of other aspects of Soviet oil industrypractice.

SOVIET OIL PRODUCTIONCAPABILITIES

In addition to its low estimation of Sovietability to make sufficient additions toreserves to support increased production inthe absence of new giant discoveries, CIA’sanalysis of the prospects for Soviet oil out-put rely heavily on its evaluation of Sovietproduction practices and its expectationsthat the U.S.S.R. would be unable to sig-nificantly improve these by 1985 or 1990.The EIU study on the other hand is op-timistic about Soviet ability to meet plans toimprove its oil industry performance andtechnology. Among the most importantareas of disagreement between the twoanalyses are waterflooding and other en-hanced recovery techniques, drilling, andequipment manufacture.

CIA appears to have departed from someaspects of its original 1977 treatment ofwaterflooding which, as noted above, pre-sented an overly simplistic—and thereforemisleading—picture of the magnitude,trends, and consequences of this practice.But the overall judgment would seem to re-main: The U.S.S.R. has engaged in a basical-ly short-sighted policy of overexploiting itslargest deposits through a method that canlead to sharp production declines once a fieldhas been exhausted. Should this occur atSamotlor, the consequences for the entireSoviet oil industry would be immense—particularly since new finds do not appear tohave been keeping pace with the rate of pro-duction. Moreover, emphasis on maximumproduction has led to concentration ondevelopment drilling over exploratory drill-ing. CIA doubts the Soviet’s ability toachieve the increases in both of these ac-tivities necessary to improve the discoveryrate and to continue to increase production.This judgment rests in turn on doubts over

the availability of Soviet drilling crews andthe quality and quantity of Soviet drillingequipment—including bits, pipe, and rigs—which can be produced during the presentplan period. Nor does CIA believe thatWestern equipment and technology can beimported in sufficient quantities and utilizedefficiently enough to make up for theselacks.

The EIU analysis takes precisely the op-posite tack. Although it notes past cases ofunderfulfillment of oil industry targets, itemphasizes those areas in which theU.S.S.R. has made progress (in number ofmeters drilled, for instance) in the past 5years. More significantly, it reports SovietEleventh FYP targets and developmentplans–for number of drilling crews, numberof new exploratory and development wells tobe drilled, drill crew productivity, averagenew well yield, production of more and/orbetter bits, drill pipe and rigs, utilization ofsophisticated tertiary recovery techniques—and forms its assessment of the future of theindustry on the assumption that these willbe fulfilled.

These “pessimistic” and “optimistic”assessments of Soviet oil production pros-pects therefore rest in large part on judg-ments of Soviet ability to greatly improve ona wide variety of oil industry parameters inthe next 5 years. Past patterns of planunderfulfillment, poor performance in anumber of areas (equipment quality, drill rigand crew productivity, for example), andabove all the inefficiencies and obstacles in-troduced by the nature of the Soviet econ-omy and incentive system, all tend to advisecaution in counting too heavily on fun-damental changes in likely Soviet achieve-ments, On the other hand, improvementshave been made in a number of areas, andthere is enough evidence of increased invest-ment in the oil industry to suppose that suchimprovements will continue.

The Soviets’ own Eleventh FYP reflectsdiminished expectations for oil production.Its upper limit of 645 mmt (12.9 mbd) is,after all, only slightly higher than the


original underfulfilled 1980 target of 640mmt. Moreover, the average annual rates ofgrowth envisaged in the plan are substan-tially lower than the rate of 1.9 percentachieved between 1979 and 1980. Whetherthe new target is more the reflection ofa deliberate investment decision to grantlower priority to oil in favor of gas (andpossibly nuclear power development) ormore a response to Soviet recognition thatgreater oil production would be unachievablein the absence of giant new finds, it is im-possible to tell. In any case, those who beforethe plan targets were revealed believed thatgains to as high as 700 mmt by 1985 weretechnically achievable are unlikely to aban-don that view.

OTA has chosen the Soviet Union’s owntarget of 645 mmt for its best case scenario.

Such an outcome seems achievable if anumber of things go well for the U. S. S. R., in-cluding new finds, improvements in domes-tic manufacturing capacities, improvementsin oil industry productivity, and continued—if not greater-imports of Western equip-ment to compensate for domestic shortfallsand inadequacies. The CIA projection is aplausible worst case, given the opposite setof expectations about Soviet domestic ac-complishments and the continuation of pres-ent relatively modest levels of Western im-ports. However, the likeliest outcome isprobably somewhere between 550 and 645mmt— i.e., for the next 5 years, the U.S.S.R.through increased effort and investment inits oil industry may well be able to hold pro-duction fairly stable at 1980 rates.

THE PROSPECTS FOR SOVIET OIL PRODUCTION IN 1990

The variables affecting possible Soviet oilproduction in the latter part of the decadeare numerous and complex, and the exerciseeven of selecting plausible best and worstcases for analytic purposes is highly spec-ulative. Here too, the universe of responsibleestimates that have appeared in the Westare bounded by CIA and EIU, CIA pro-jecting a fall to about 350 to 450 mmt (7 to 9mbd) and EIU an increase to 750 mmt (15mbd). The central question once again iswhether production will fall, rise, or remainstable. Assuming no new giant finds in theimmediate future, no massive infusions ofWestern equipment, and no hands-on assist-ance in offshore development, OTA believesthat projections that see Soviet oil pro-duction rising significantly between 1985and 1990 are excessively optimistic. A morerealistic best case assumes that output could

be held stable at 1985 levels or slightlybelow. A plausible worst case would see anabsolute decline in production, althoughperhaps not as serious as that envisaged byCIA. However, it must be emphasized thatthe difficulties that the U.S.S.R. will prob-ably still be experiencing in 1990 may not bepermanent. As the U.S.S.R. develops capa-bilities to explore and exploit its offshoreand East Siberian resources, oil productioneventually could begin to rise once more.This at least is the expectation of both theU.S. Defense Intelligence Agency and theU.N.’s Economic Commission for Europe.’*’

“-U.S. Defense Intelligence Agency, “Allocation of Re-sources in the Soviet Union and China— 1981. Statement ofMaj. Gen, Richard X. I,arkin before the Joint Economic Com-mittee, Subcommittee on International Trade, Finance, andSecurity Economics, Sept. 3, 1981.

Ch. 2—The Sovlet Oil and Gas Industry ● 75

THE PROSPECTS FOR SOVIET GAS PRODUCTION,1985 AND 1990

The attention surrounding the Soviet oilproduction controversy has until recentlyobscured the significance of gas in the Sovietenergy future. That significance should notbe underestimated. Gas has been called the“ace in Soviet energy plans . . . a criticalcushion for the uncertainties faced by theplanners with respect to other sources of(energy) supply."128 Indeed, the key questionfor Soviet energy availability in the presentdecade may not be whether oil production isabout to decline, but rather whether theU.S.S.R. can exploit its tremendous gasreserves quickly enough for gas to becomethe critical fuel in t h e C M E A e n e r g ybalance. While it is important that gas notbe regarded as the U.S.S.R.’s easy energypanacea–as this chapter has pointed out,gas development faces numerous obstacles—discussion of the prospects for gas produc-tion to 1990 is essential to understanding theopportunities confronting the Soviet Unionduring this period. This section discusses therange of estimates of Soviet gas productionin 1985 and 1990 and, as with oil, positsOTA’s best and worst case scenarios.

Soviet proven natural gas reserves areenormous. This fact is uncontroversial. In1980, these were variously estimated in theWest at 25 to 33 trillion cubic meters (tcm),some 40 percent of the world’s proven re-serves.129 The U.S.S.R.’s own estimate issome 39 tcm. This is the thermal equivalentof 31.6 billion tons or 231.6 billion bbl of oil.These orders of magnitude have not beendisputed, and the size of the proven reservebase alone is enough to support many yearsof substantially increased production. In-deed, Soviet gas reserves are equivalent inmagnitude to Saudi Arabian oil reserves.

Constraints on gas output, therefore, restnot on resources, but on the ability of the gasindustry to deliver its product to consumers

‘ -“ 1)it’nt’\ and Shatmd, op. t>i[,, p. 2H7.1-’’ Strn,n, (~p (“it., pp. 22-;1: \\’ i]w)n, fjp (i(., p 44

in the U.S.S.R. and in Eastern and WesternEurope. Specifically, these constraints con-cern the ability of the U.S.S.R. to substan-tially increase its gas pipeline network—andthis in turn entails obtaining quantitiesof large diameter pipe and compressorstations—and to provide adequate infra-structure for the industry and its workers.These problems are exacerbated by the factthat the bulk of the U.S.S.R.’s establishedreserve base lies in West Siberia.

The Eleventh FYP calls for increasing gasoutput from its 1980 level of 435 bcm to 600to 640 bcm by 1985, and Soviet projectionssupplied to the Secretariat of the United Na-tions Economic Commission for Europe for1990 are 710 to 820 bcm. These and therange of production estimates that have ap-peared in the West are summarized in table18. As this table shows, there is very littledisagreement over these figures. For 1985, itseems reasonable to adopt the range in theSoviet plan as worst and best cases. Actualproduction will probably fall in between. The

Table 18.—Soviet Natural Gas Production Estimates,1985-90 (bcm/mbdoe)

(bcm) 1985 (mbdoe) (bcm) 1990 (mbdoe)

1. 605 9.9 750 12.32.600 9.8 700 11.53.660 10.8 — —4. 600 9.8 750 12,35.598-647 9.8-10.6 – —6.600 9.8 765-785 12.5 -12.97.600-640 9.8-10.5 710-820 11.6-13.4

SOURCES:1 Leslie Dienes and Theodore Shabad, The Soviet Energy System (Washington.

D C V H Winston, 1979), table 53 p 2522 CIA, as reported in Joseph A Licari, Linkages Between Soviet Energy and

Growth Prospects for the 1980’s, paper presented at the 1981 NATO Eco-nomics Directorate Colloquium, Apr. 810, 1981

3 Herbert L Sawyer, “The Soviet Energy Sector Problems and Prospects, ” Harvard Unlverslty, January 1978, quoted In George W Hoffman “Energy Projectlons —011, Natural Gas and Coal In the U S S R and Eastern Europe, Energy~0//Cy Pp 232241

4 David WI/sorr Soviet 0// and Gas to 7980 Economist Intelligence Unit SpecialReport No 90

5 “Sltuatlon et Perspectives du Bllan Energet{que des Pays de L’Est,” LeCourier des Pays de L ‘Es(. No 216, March 1978, median and low hypothesesonly

6 Jonathan P Stern, Sov/ef Natural Gas Deve{oprnenl to 1990 (Lexington,Mass Lexington Books, 1980), table 151, p 178

7 Soviet Eleventh FYP and prolecllons submlfted to the Secretariat of the U NEconomic Commlsslon for Euro De


situation for 1990 is more complex. Gas pro-duction in the 1980’s will be determined,above all, by the level of Western exports ofp ipe and compressors ava i lab le to theU. S. S. R., and a worst case should posit littleor no Western assistance. OTA has, there-fore, chosen as its worst case assumptionproduction of about 665 bcm. This level of

output is approximately halfway betweenthe high case for 1985 and the low end of theSoviets’ own 1990 projection. OTA’s bestcase for 1990 is 765 bcm, the midpoint of theSoviet range. The midpoint, rather than theupper end of the target was chosen in theface of the extraordinary magnitude of theSoviet range.

SUMMARY AND CONCLUSION

The heart of the Soviet oil and gas in-dustry is now firmly established in W e s tSiberia. Despite the harsh climate, difficultterrain, and the remoteness of this region,the U.S.S.R. has over the past 10 years builtan extensive petroleum industry there, In1980 West Siberia accounted for over half ofoil and nearly 36 percent of gas output.While there is general agreement that theprospects for gas are bright, the continuedviability of the oil sector, as well as the abil-ity of the U.S.S.R. to remain the world’sforemost oil producer and a net oil exporter,has recently been the subject of controversyin the West.

This controversy was initiated by a 1977CIA report that contended that Soviet oilproduction would drop precipitously to aslow as 400 mmt (8 mbd) by 1985, occasioningthe possibility that the CMEA as a bloc oreven the U.S.S.R. itself would have to im-port oil. CIA has now raised its estimatesand has clarified its position on CMEA oilimports, i.e., it does not foresee the U.S.S.R.itself buying oil on world markets althoughit still contends that the CMEA as a blocwould be in a net deficit position. In fact,CIA’s basic argument has changed little: itbelieves that in the absence of new majorfinds, Soviet oil output will peak and declinesharply before the end of the decade.

CIA production estimates are the lowestto appear in the West. Others have projectedsubstantial increases in Soviet oil productionin the present decade. These judgments ap-pear to be based on a different interpretationof the available Soviet reserve data, different

evaluations of Soviet oil industry practice,and a higher estimation than CIA’s of theability of the U.S.S.R. to overcome its owninstitutional problems in improving a varie-ty of industry parameters.

OTA’s own survey of the state of Sovietoil equipment and technology has shownthat, while the U.S.S.R. has selectively uti-lized Western imports in a number of areas,it produces large quantities of most of theitems it needs. For the most part the Sovietdifficulty is not that it lacks the know-how toprovide for itself, but that the structure ofits economy and its incentive system aresuch that it has difficulty producing suffi-cient quantities of high-quality equipment.Items purchased from the West are usuallyof higher standard than those that can beproduced at home, and this reinforces theirability to compensate for domestic short-falls. In addition, there are three areas inwhich the West probably can make contribu-tions to the Soviet state-of-the art. These arecomputers, associated software, and inte-grated equipment sets for oil exploration;offshore technology, still in its infancy in theU. S. S. R.; and high capacity submersiblepumps.

Soviet oil industry performance asmeasured in equipment productivity andnumber and depth of new wells is improving,and Western equipment must clearly havecontr ibuted to these improvements , a l -though such contributions are impossible toquantify. There is every sign that theU.S.S.R. would like to continue to benefit

Ch. 2—The Soviet Oil and Gas Industry . 77

from Western help, but it does not appear tobe ready to depart from past practice and im-port massive volumes of equipment or re-quest hands-on assistance.

OTA believes that CIA’s estimates maybe taken as a worst case outcome for Sovietoil production, but that it is also possiblethat the Soviets could achieve their owntarget for 1985 of 645 mmt (12.9 mbd), whichwould represent a modest increase over 1980production of 603 mmt. Likelier than eitherof these extremes, however, is that produc-tion will remain about stable. This assumesno major changes in Western export orSoviet import policy, and no major newdiscoveries of oil.

Gas production is far less controversial.Here the proven reserve base is immense andproduction is constrained mainly by the lackof pipelines to carry the gas to consumers.

Western large diameter pipe and pipelinecompressors have made dramatic contribu-tions in the past, and there is every indica-tion that continuation of such imports willbe crucial throughout the decade. TheSoviets’ own plan targets of 600 to 640 bcmgas production in 1985 (equivalent to 9.8 to10.5 mbd of oil, up from 435 bcm in 1980)seem to bound plausible worst and best out-comes in this sector. By 1990, productioncould exceed 750 bcm (12.3 mbd of oil equiv-alent), contingent on continued infusions ofWestern pipe and pipeline equipment.

While these large increases in Soviet gasproduction will not signify the end of theU.S.S.R.’s near- and medium-term energyproblems, gas can certainly help to com-pensate—both in domestic consumption andin export—for oil production that has leveledoff or even slightly declined.

CHAPTER 3

The Soviet Coal Industry

CONTENTS

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

MAJOR SOVIET COAL-PRODUCING REGIONS . . . . . . . . . . . . . . . . . . 84

Bituminous Basins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84Subbituminous and Lignite Basins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

SOVIET COAL INDUSTRY TECHNOLOGY–PROBLEMSAND PROSPECTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Surface Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91Underground Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

SOVIET COAL INDUSTRY INFRASTRUCTURE ANDRELATED AREAS: PROBLEMS AND PROSPECTS . . . . . . . . . . . . . . 93

Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94Mine Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97Capital Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

WESTERN TECHNOLOGY IN THE SOVIET COAL INDUSTRY . . . . . 102

PROSPECTS FOR THE SOVIET COAL INDUSTRY . . . . . . . . . . . . . . . . 103

1981-85 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1031986-90 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

SUMMARY AND CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

LIST OF TABLES

Table No. Page

19. Estimated Coal Reserves of the World . . . . . . . . . . . . . . . . . . . . . . . . . . . 8220. Coal Production in Natural Units and in Standard Fuel . . . . . . . . . . . . . 8321. Geographical Distribution of Soviet Recoverable

Coal Reserves,1967 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8422. Soviet Coal Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8423. Characteristics of Major Soviet Coal Deposits . . . . . . . . . . . . . . . . . . . . 8924. Labor ProductivityinSoviet Coal Mining . . . . . . . . . . . . . . . . . . . . . . . . 9525. Capital Investment in Leading Fuel Industries . . . . . . . . . . . . . . . . . . . 10026. Soviet Imports of Equipment for Underground and Surface

Mining of Minerals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10227. Estimated Soviet Coal Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

LIST OF FIGURES

Figure Page

6. Soviet Coal Basins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 857. Estimated Mine Depletion, 1975-80 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

CHAPTER 3

The Soviet Coal Industry

Prior to World War II, coal was the domi-nant source of fuel in the Soviet Union, as itwas elsewhere in the world. In 1940, it sup-plied 75 percent of Soviet energy needs.Since then, oil and natural gas have becomeincreasingly important and by the late1970’s, coal’s share of total Soviet energyconsumed had fallen to approximately 29percent. There are incentives now to reversethis trend. Oil exports earn the Soviet Unionthe hard currency it needs to finance importsof Western grain and technology, and it isnot surprising that Soviet energy plannershave shown a strong interest in substitutingother fuels for oil, particularly in electricpower generation and in boiler applications.l

Coal is such a substitute.

‘See A. Troitskiy, ‘‘Ellectric Power: Problems and Perspec-tives,”’ Planlo[()>c khoz?’aj’.st[’o, No. 2, February 1979, p. 20.

Unfortunately, the Soviet Union’s re-serves of easily obtainable high-quality coalare now seriously depleted, and the Sovietcoal industry has experienced serious dif-ficulties in simply maintaining production.The expansion of the industry which wouldbe required for coal to be widely substitutedfor oil now seems extremely unlikely. Thepurpose of this chapter is to describe the cur-rent state and potential of the Soviet coal in-dustry, including: 1) the characteristics ofmajor coal deposits; 2) the technological andinfrastructure problems facing the coal in-dustry; 3) the degree of reliance of the Sovietcoal industry on Western technology; and4) the prospects for the industry in the nextdecade.

INTRODUCTION

Soviet coal production increased steadilybetween 1970 and 1975, growing approx-imately 16 million metric tons (mmt) peryear. The Tenth Five Year Plan (FYP) (1976-80) proclaimed that coal would replace oilwherever possible, and additional yearly in-creases averaging about 20 mmt were tar-geted. But the coal industry has encounteredproblems. Production peaked at 723.6 mmtin 1978, far short of the original goal, andhas been declining since. Production in 1980(716 mmt) was 89 mmt short of the originalplan target and 29 mmt below the revised1980 annual plan (see table 22, below.) Thecoal industry has consistently had difficul-ties meeting its output goals, and these diffi-culties cannot be expected to disappear inthe foreseeable future.

In terms of sheer magnitude, the U.S.S.R.has substantial coal reserves. Table 19shows the World Energy Conference Survey

of Energy Resources estimates of world coalreserves. According to this survey theSoviet Union has over half of the world’sresources of coal that could be successfullyexploited and used within the foreseeablefuture, and approximately one-quarter ofworld explored reserves recoverable underpresent local economic conditions and avail-able technology.2 The difficulties faced bythe Soviet coal industry lie not in the size ofthe resource base, but rather in the locationof coal reserves and in the quality of the coalnow being or expected to be mined in theforeseeable future.

The first coalfields to be exploited in theU.S.S.R. were located near the major popula-tion centers of the Western European part of

2For the purposes of this chapter, Soviet “explored” coalreser~’es, i.e., those rele~’ant for present planning purposes,are roughly equi~ralent to proved, probable, and possible cat-egories in M’estern nomenclature.

81

82 ● Technology and Sov!et Energy Availability

Table 19.— Estimated Coal Reserves of the World(billion tons)

Percent Percent PercentRecoverable world Total world Total world

reserves a total reserves b total resources c total

U.S.S.R. . . . . . . . . . . . . . . . . . . . . . . 150.6 23.1 %United Statesd . . . . . . . . . . . . . . . .

301.2 19.20/o 6,298.2 53.1 0/0

200.4 30.7 400.8 25.6 3,223.7 27.2Canada . . . . . . . . . . . . . . . . . . . . . . 6.1 0.9 10.0 0.6 119.9 1.0

People’s Republic of China. . . . 88.2 13.5 330.7 21.1 1,102,3 9.3India . . . . . . . . . . . . . . . . . . . . . . . . . 12.8 2.0 25.5 1.6 91.5 0.8Rest of Asia . . . . . . . . . . . . . . . . . . 6.6 1.0 19.1 1.2 27.6 0.2

Federal Republic of Germany . 43.6 6.7 109,7 7.0 315.4 2.7United Kingdom . . . . . . . . . . . . . . 4,3 0.7 109,0 7,0 179,5 1.5Poland . . . . . . . . . . . . . . . . . . . . . . . 250 3.8 42.9 2,7 66.8 0.6Rest of Europe . . . . . . . . . . . . . . . 66.9 10.3 91.0 5.8 108,0 0.9

South Africa. . . . . . . . . . . . . . . . . . 11.7 1,8 26.7 1.7 48.9 0.4Rest of Africa . . . . . . . . . . . . . . . . 5.6 0.9 6.7 0.4 16.0 0.1Australia 26.8 4.1 81,9 5.2 218.9 1.8Rest of Oceania . . . . . . . . . . . . . . 0.2 — 0.4 —. 1,2 —

Latin America . . . . . . . . . . . . . . . . 3.1 0.5 10.1 0.7 36.3 0.3

World Total . . . . . . . . . . . . . . 651.7 1 00,00/0 1,565.6 1 00.00/0 11,854.1 1 00,0%

a Amount of reserves in place that can be recovered under present local economic conditions and available technologyb The Portions of total resources that have been carefully measured and assessed as exploitable under local economic conditions and available technologYc Total amount available in the Earth which can be successfully exploited and used within the foreseeable futured Estimates of U.S. coal reserves here may not agree with other domest IC data‘Does not Inc Iude addlt!onal resources for Queensland

SOUR(; E N afional Coal Assoclat!on Coa/ Facts

the country. Some of these have been minedfor so long that the thick, easily accessiblecoal seams are rapidly nearing depletion.The remaining seams are not readily suscep-tible to existing methods of mechanization.They are one-third thinner than the nationalaverage and lie considerably deeper in theground. As mine depths increase, so do thecosts of extraction and the risks from gasand explosions. Further problems arise be-cause the equipment installed in these mineshas become increasingly seam-specific. Asseams are worked out, the equipment cannotbe transferred.

As many mines have become difficult orexpensive to operate, new ones have beenopened. Those in the eastern part of thecountry, like the eastern oilfields andgasfields, are located in sparsely populated,inhospitable regions from which the cost of

transporting coal to consumers is muchhigher. The Soviets now look increasingly tosurface mining as a source of growth in coalproduction because surface-mined coal ischeaper to extract than underground coal—it can be mined with higher productivityequipment requiring less labor. But therelative share of surface mining in theU.S.S.R. is still low—about 37 percent in1980 (as opposed to about 52 percent in theUnited States in 1978.)3 For the present, thislow level is adversely affecting overall laborproductivity growth and output in the in-dustry. For the future, the Kansk-Achinsk,Ekibastuz, Kuznetsk, and South Yakutiabasins are the favored sites for expandedsurface mining. But these basins are all

Ch. 3 —The Soviet Coal Industry ● 83

located at considerable distances from theconsuming centers in the European U.S.S.R.and high transportation costs would at leastpartially offset the lower costs of extraction.

Moreover, the quality of the coal in someof these new basins is very poor. Coal, whichis formed as the result of millions of years ofphysical and chemical changes to moist veg-etable matter, is a complex heterogeneousmaterial.’ It varies by type (depending onthe kind of original plant materials fromwhich it was formed), rank (based on the car-bon and oxygen content, degree of moisture,volatile matter, etc.), and the type andamount of impurities that it contains. Ingeneral, anthracite and various grades ofbituminous coal are preferable to lignite orbrown coal because they have a higher heatcontent per unit. Large portions of Sovietcoal reserves are comprised of the lessdesirable deposits, and the calorific value ofan average ton of Soviet coal has been de-clining (see table 20). Between 1970 and

‘ S e e C h a r l e s Simeons, [ ‘C)al Its Role in Tomorro(i ‘.sTechno/ogj’ (oxford: Pergamon Press, 1978): and BernardCooper, “Research Challenge: Clean E;nergy From Coal, ”Physics Today, January 1978.

Table 20.— Coal Production in Natural Unitsand in Standard Fuel

(million metric tons, except calorific value)

Coal in Coal in Caloriflcnatural units standard fuela value,

Year (1) (2) kcal/kg b

1940 . . . . . 165.9 140,5 5,9281945, , , . . 1493 115,0 5,3921950 . . . . . 261 1 205.7 5,5151955 ...., 389.9 3108 5,5801960 . . . . . 509.6 3731 5,1251965 . . . . . 577.7 4125 4,9981970 . . . . . 624.1 4327 4,8531975 . . . . . 701.3 471.8 4,7091976 . . . . . 711 5 479.0 4,7131977 . . . . . 722.1 486,0 4,7111978 . . . . . 723.6 4870 4,7111979 ...., 718.7 483.9 4,7131980 . . . . . 716.0 479.7 4,690

aone ~etrlC tOn of standard fuel equals 278 mllllon Btu or 7 9W@0r’es

bcolumn (2) dlvlded by column ( 1 ) and mult[plled by 7 a 10’ kcal kg of

standard fuel

SOURCES U S S R Central Statlstlcal Admln[stratlon, ?darodnoye khozyaystvoSSSR v 1978 g ( Moscow Izd Statlstlka 1979) p 144 /bfd ( 1975) p219 and ( 1980) pp 170-171

1978, the calorific value of Soviet coal de-clined from 4,853 kilocalories per kilogram(kcal/kg to 4,711 kcallkg, a drop of 3 percent.The decline could be even greater in the fu-ture. This is due, in part, to the depletion ofhigher grade coals and the increasing role oflignite, primarily from the Kansk-Achinskbasin. In consequence, part of any futuregrowth in coal production will be offset bydeclines in the calorific content and thus inthe heat value of the coal shipped to con-sumers.

Indeed, Soviet coal production figuresmust be treated warily, for they are given interms of “run-of-mine,” i.e., coal which hasnot yet been cleaned. This may cause outputfigures to be overstated by as much as 20 to40 percent.’ The most common impuritiesfound in coal are sulfur, stones, and ash.Sulfur forms oxides which cause pollution;stones and ash (noncombustible materialthat remains after the coal has been burned)provide no heat and add to transportationcosts. Coal, particularly lignite, may alsocontain considerable moisture which inflatesits true weight.

In sum, the success of the Soviet coal in-dustry seems to rest on the expansion of sur-face mining. Although the Tenth FYPsought to raise underground output, this ac-tually fell by 23 mmt during the plan period,while surface mining production rose some36 mmt and came closer to meeting its tar-get. Unfortunately, however, Soviet surface-mined coal is often of poor quality. The pros-pects for the industry, therefore, stronglydepend on the degree to which surface min-ing can be expanded and the success withwhich the coal thus mined can be treated,transported, and used. The survey of the ma-jor Soviet coal basins which follows providesthe context for evaluating these two issues.

‘See Robert W’. Campbell , .~o[liet Energ?l T~ch nologie.s.”Planning, I>olic?’, R~.~earch, and Ile[eloprnent (Bloomington,[rid.: Indiana University Press, 1980); and V. V. Strishkov,George Markon, and Zane E. Murphy, “Soviet Coal Produc-tivity: Clarifying the Facts and Figures, Societj of AliningEngineers Journal, Nlay 1973.


MAJOR SOVIET COAL-PRODUCING REGIONS

Figure 6 shows the location of the SovietUnion’s major coal-producing areas. Thegeographic distribution of Soviet coal is un-fortunate. The heavily populated and in-dustrialized European part of the U.S.S.R.contains only 6 percent of the nation’s coalreserves. The rest are located in the Arctic,Siberia, or Kazakhstan where climatic condi-tions make coal extraction and transporta-tion difficult and expensive. Tables 21 and22 summarize the extent of explored re-serves and recent coal production by basin.The following survey briefly describes thechief characteristics of each of these basins.

BITUMINOUS BASINS

Donets (Donbass) (No. 2 on map)The Donets basin covers some 60,000

square kilometers (km 2) mainly in theUkraine, and has explored reserves of over40 billion metric tons (bmt) (see table 21). It

Table 21 .—Geographical Distribution of SovietRecoverable Coal Reserves, 1967 (billion metric tons)

Basin/field Proved, probable, possible Potential

U.S.S.R. total 255 (180) 170 (99.8)

Kansk-Achinsk . . . . . . . 72.6 (71.1) 43.0 (35.4)Kuznetsk . . . . . . . . . . . . . 59.5 (33.0) 60.8 (25.1)Donets . . . . . . . . . . . . . . . 40.4 (7.7) 17.2 (1.2)Pechora. . . . . . . . . . . . . . 7.9 (4.1) 6.9 (1.9)Ekibastuz . . . . . . . . . . . . 7.4 ( – ) ( – )Karaganda . . . . . . . . . . . 7.6 (3.5) 1.8 (0.1)Irkutsk . . . . . . . . . . . . . . . 7.1 (7.1) 13.3 (13.2)Turgay . . . . . . . . . . . . . . . 6.3 (5.6) 0.4 (0.4)Moscow . . . . . . . . . . . . . . 4.8 (4.8) 2.3 (2.3)Minusinsk . . . . . . . . . . . . 2.8 (2.8) 43.0 (35.4)Dnepr. . . . . . . . . . . . . . . . 2.6 (2.6) – ( – )South Yakutia. . . . . . . 2.6 (2.5) 3.2 (3.0)Tungus . . . . . . . . . . . . . . 1.9 (1.7) 3.0 (2.9)Maykyuben. . . . . . . . . . . 1.8 (0.9) – ( – )South Urals . . . . . . . . . . 1.3 ( – )Lena . . . . . . . . . . . . . . . . . 1.1 (0.7) 1.4 (1.4)

NOTE Column figures in parentheses ( ) denote coal down to 300 meters

(–) denotes not available.

SOURCES V A Shelest, Reglona/nyye energoekonorrricheskiy eprob/erny.SSSR( M o s c o w Izd “Nauka,” 1975), pp 113-116, and Sovetskayageologiya (April 1970), p 57

Table 22.—Soviet Coal Production(million metric tons)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981

U.S.S.R. totala . . . . . . . 624.1 640.9 655.2 667.6 684.5 701.3 711.5 722.1 723.6 719 716(748) (752) (790-810)

Minugleprom SSSR, — 634.3 648.9 661.4 678.1 694.6 704.7 715.7 – – –of which

Donets . . . . . . . . . . . . 218.0 217.5 217.4 219.4 219.5 221.5 223.7 222.0 – 208 203 (213)Kuznetsk . . . . . . . . . . 113,3 115.5 119.2 123.3 128.3 134.0 138.9 141.9 (153,7) (154.9) (162.4) (149)Karaganda . . . . . . . . 38.4 39.8 41,7 43,3 45,3 46.3 47.4 48.2 – (47) (48.6) (49)Pechora. . . . . . . . . . . 21.5 22,0 22,5Ekibastuz . . . . . . . . .

23.0 23.4 24,2 25,8 26,7 28.9 28 (29)22.6 — — — — 45,8 (49,4)(50-53.5) (57.0) 59.2 66.8 (72)

Kansk-Achinsk . . . . — — — — — 27.9 29.1 31.6 — 33 34.5 (46)Moscow . . . . . . . . . . . 36.2 36.7 36.7 36.1 35.1 34.1 30.9 29.5 — 27 25 (23)

Degree of planfulfillmentpercent . . . . . . . . . . . — 103.5 103.5 103.2 102.5 102.5 102.4 101.7 96.7 95.6 88.2 -90.5b –

NOTE Column figures in parentheses ( ) denote plan targets

aTotal ,ncludes coal ~rc du~ed outside M Inugleprom, the Sowet Coal Ministry. Figures taken from ~arodrroye ~~ozyawwo for various years.

bBased on original FYP targets.

SOURCES Most production figures are from the Aprtl Issues of Ugo/ for given years Other data are from the followlng—

1979 plan figures Ekonorn(cheskaya gazeta, No 5 (February 1979), p 11979 total production Pravda Ukra(na, (Jan 26, 1980), p 21980 plan total Narodnoye khozyaysfvo Kazakhsfana, (October 1978), pp 38-451977 Eklbastuz plan Partlynaya zhizn Kazakhsfana, (January 1978), pp 34-35 [JPRS 71, 127, (May 17, 1978), p 9 ]1976 and 1977 Eklbastuz plan targets Ugo/’, (January 1978), pp 16-201970 production V A Shelest, Reglona/nyya energoekononrlcheskfya prob/erny SSS/?, (Moscow Izd “Nauka, 1975), p 261975 Kansk-Achlnsk and Ektbastuz production and 1980 basin plan targets A M Nekrasov and M G Pervukhln, .r3wrgetika SSSR v 1976-1980 g,, (Moscow: Izd,“Statlstlka, 1977), p 1461981 plan Ekonornlcheskaya gazefa, No 15 ( 1981), p 2See also Sov/ef Geography, April Issues


is one of the oldest sites of underground min-ing in the U. S. S. R., and, as table 22 shows,the country’s leading producer. The basincontains high-grade coals, including cokingcoal and anthracite, and is located close toconsuming industries. It is, therefore, par-ticularly important to the Soviet coal in-dustry.

Past mining in the Donets concentratedon thicker coal seams close to the surface.Much of this coal is now depleted, andminers must work thin seams at ever-increasing depths. In fact, the average depthof working faces in 1978 was well over 500meters (m), and this depth was increasing at15 m per year, nearly twice the nationalaverage. In addition over 80 percent ofDonets coal lies in seams less than l-m thick(coal which would not even be counted inU.S. reserves), and many of these are steeplypitched which makes them difficult to work.Deteriorating mining conditions have alsoled to increasing ash and stone contents inDonets coal.’

It is not surprising, therefore, that pro-duction in the Donets has declined over thepast decade, from 216 mmt in 1970, to 203 in1980. The 1981 production target is 213mmt, lower than actual 1970 output.7

Kuznetsk (Kuzbass) (No. 10 on map)The Kuznetsk basin is the Soviet Union’s

second largest hard coal-producing region,covering some 26,000 km2 in southwestSiberia. This basin is especially importantbecause of its reserves of high-quality cokingcoal, much of which can be surface mined.Explored reserves at Kuznetsk are some 60bmt (see table 21). Production here rose by

‘A. V. Sidorenko, hlining Science un(i the Rational Utiliza-tion of Rau’ Mineral Resources (Moscow: Izd. “Nauka,”1978), p. 47; Joseph K. ~’ilkinson ted.), “Soviet Coal Strivesfor Expansion, ” (’ou1 Age, April 1978, p. 86; A. V. Tyzhnov,‘L(leological Reserves of Coal in the U. S. S.R., ” So[etskayageologija, No. 4, April 1970, p. 64; and I,eslie D i e n e s ,“Regional Dimensions of Soviet ~~nergy Policy, ” paper pre-pared for the American Association of Geographers, 1979, p.38.

‘Sol ie t (ieograph,}t, April 1 W 1, p. 276: Ek on om ich e.ska.)~agazeta, No. 15, 1981, p. 2.

25 percent between 1970 and 1977, reaching141.9 mmt. The 1980 plans called for 162.4mmt. However, the latter were almost cer-tainly underfulfilled (see table 22), and latelySoviet literature has been reporting produc-tion problems in the basin. These seem to beat least partly due to failure to introduce newmine capacity. Indeed, in the past 18 years,only one new mine has gone into operation. a

There are also indications of labor shortagesin the basin. The 1981 plan target was only149 mmt.9

Pechora Basin (No. 6 on map)The Pechora basin covers 120,000 to

130,000 km2 in the extreme northeast of theEuropean U. S. S. R., north of the Arctic Cir-cle. Much of the coal here is located in per-mafrost areas, and has been only superficial-ly studied. The basin contains explored re-serves of 7.9 bmt, much of it coking coal (seetable 21). A large percentage of this liesbelow 300 m, but in general, the coal is closerto the surface than in the Donets basin.

Development of the Pechora basin beganin the early 1940’s, using forced labor. Butalthough the basin was able to supply coal tonorthern Russia during World War II, theextremely cold climate has made mine con-struction difficult. Pechora mines are alsosusceptible to gas explosions. Productionhere rose from 21.5 mmt in 1970 to 26.7 mmtin 1977, and was slated to reach 29.8 mmt by1979, but in recent years the basin has failedto meet plan targets. About two-thirds ofPechora’s output is high ash content cokingcoal, which requires cleaning before use; therest is steam coal.

Karaganda Basin (No. 7 on map)The Karaganda basin, covering 3,000 km2

in northwest Kazakhstan, contains 7.6 bmtof explored reserves. Over half of this liesbelow 300 m. Karaganda has both cokingand steam coal. Here, the steam coal is highin ash content and difficult to enrich.—- —

“C;. Shum—kin, “1.et’s Look For and Find the Reserves, ”Trud, Sept. 15, 1978, p. 1.

‘fi~konovli(heska~a” gazeta, No. 15, 1981, p. 2.

Ch. 3—The Soviet Coal lndustry ● 87

Large-scale production in Karaganda be-gan in the 1930’s, when the area was firstreached by railway and coal could be shippedto the iron and steel industries in the Urals.Now local iron and steel plants are majorconsumers. Karaganda’s output grew stead-ily between 1970 and 1977, reaching 48.2mmt. No production figures after 1977 havebeen published, but it is highly probable thatgrowth in output has been slowing since themid-1970’s, a fact reflected in the 1981 pro-duction target of 49 mmt.10 In March 1979, itwas reported that the “Karagandaugol”mining association was producing belowplan goals in January and February of thatyear, and that the association had also beenunder plan for 1978.11 A Kazakh Party of-ficial reported in October 1978, that the“50th Anniversary of the U.S.S.R.” mine,one of the basin’s best, was below plan fornearly all indicators, including output, andwas even producing below the 1977 level forthe same months.12 There are indications ofequipment problems, shortages of labor, andinadequate new mine construction.13 Pastplanning mistakes also haunt the Karagandabasin. The city of Karaganda is located overvaluable reserves—1 1 beds with 1 bmt ofcoal. Consequently, mined-out seams herehave been packed with rubble to preventsubsidence of the city, an operation whichdiverts needed labor away from production.

South Yakutia (No. 17 on map)The South Yakutian basin lies in a remote

area of the Soviet Far East. In 1967 exploredreserves here were set at a relatively lowlevel, 2.6 bmt, but more recent work mayhave significantly expanded these estimates.

‘“I b id , ; I.eslie I)ienes a n d ‘1’heodore Shabad, The So[’ietEnerg>’ .V?’.stern. Iiesourcp II,se and Policies ( W a s h i n g t o n ,r),c.: V. H. W’inston & Sons, 1 979), p, 114.

‘ ‘B. Gloto\’, “In Iiope of a Sunday Assault, ” Sot.siali.s-tiche.~ku~a in(iu.stri?’u, hlar. 15, 1979, P . ~.

110. Nlulkibay’ey., “W”hy Are the hlines G i~ring Up the Posi-tions ‘rhe~’ ‘~rc }+’on A’urc)dno?e h h OZVC1?.Y tt <) h“uzakh.<tanu,No. 10, oct,otwr 1978, pp. 38-4.5 in .JPRS 72,902, ~lar, 1, 1979,p, 9H.

1‘I bid., p. W; (iloto~, op. cit., p. 2.‘ 4 B. (lloto~’, “Arguments Instead of Action, ” .% Jt-

.siuli.s tich e,sh u) a in dlf .i tri?w, tJ u ne 6, 1980, p. 2, in tJ P KS76,242, Aug. 18, 1 WO, p. 43.

In any case, the contribution of SouthYakutia lies in the future. Although it isnow producing only very small amounts ofcoal, it is the site of a major Soviet-Japaneseenergy cooperation project that is expectedto yield about 85 million tons of medium-quality coking coal for export to Japan bythe year 2000. (For details of this project, seech. 11. )

SUBBITUMINOUS ANDLIGNITE BASINS

Ekibastuz (No. 8 on map)Ekibastuz is a small—160 km2—area in

northeast Kazakhstan containing 7.4 bmt ofexplored reserves. Production here rose from22.7 mmt in 1970 to 59 mmt in 1979 (6 mmtshort of the plan target). Ekibastuz hasabundant coal suitable for surface mining,and in 1978, it alone accounted for 22 per-cent of Soviet surface-mined coal.15 Laborproductivity in Ekibastuz is high, but theease and consequent low cost of extraction issomewhat offset by the poor quality of thecoal, which has a high ash content (averag-ing 40 percent, but reaching as high as 48 to56 percent in some cases) and thus a lowcalorific value per unit. Some Ekibastuz coalis used locally as steam coal, but in 1979,over 60 percent of the basin’s output wasshipped outside Kazakhstan.16

Kansk-Achinsk (No. 11 on map)

The Kansk-Achinsk basin is located to theeast of the Kuznetsk basin. Its exploredreserves, the largest in the U. S. S. R., havebeen set at 72.6 bmt. This coal can be surfacemined at low cost. Unfortunately, however,it is mostly lignite, which is characteristical-ly low in heat value, and high in moisturecontent. Kansk-Achinsk coal also tends toself-ignite when dried. For these reasons, itstransportation is difficult, and demand for itis low. In 1975, about 90 percent of thebasin’s output was used 1ocally. This coal isdifficult to use even locally, however, and

power stations refuse shipment wheneverpossible. Kansk-Achinsk lignite cakes ontoboilers and has highly variable ash meltingpoints.17

About 32 mmt of coal were extracted herein 1977, and the 1981 target is 36 mmt (seetable 22). This basin is considered by manySoviets to be the best hope for expanded coalproduction (production that has been fore-cast as high as 1 bmt/yr nationwide18), andthere are plans for a large fuel, energy, andindustrial complex to be built in the area.However, the feasibility of this venture willrest importantly on the development ofboilers suitable for the coal (see ch. 5.)

“{~~{}1’, No. 12, December 1975, p. 62; Dienes and Shabad,op. cit., p. 251; Campbell, op. cit., pp. 175-6.

1“l,. Sizov, “Fuel Base of Siberia: Ilow to I)e\elop Kansk-Achinsk Fuel-17 nergy (’omplex, ” Trud, June 27, 1980, p. 2.

Moscow Basin (No. 3 on map)This basin, covering 120,000 km2 south of

Moscow, contains some 4.8 bmt of low-quali-ty coal, having high ash and sulfur contentsand low calorific value. Production peaked in1958 when new underground mine construc-tion stopped,19 and has been declining since1971. Output fell from 36.2 mmt in 1970 to29.5 mmt in 1977, and plan targets envisagea further reduction in 1981 to 23 mmt. Giventhe high cost of this coal, underground pro-duction probably would have ceased alto-gether were it not for the proximity to con-sumers. (In addition, there is relativelycheap coal suitable for surface mining in the

“A. D. Breyt,erman, The Economic Geogruph>+ of Heut J)lndu,str~ (Moscow: Izd. “Vysshaya shkola, ” 1969), in JI]RS49,321, Nov. 26, 1969, p. 66.

Ch. 3— The Soviet Coal Industry • 89

southern part of the basin. ) The Moscowbasin’s output is largely of local importance,serving the industrial regions around Mos-cow primarily as boiler fuel.

SUMMARY

Although the U.S.S.R. has large coal re-serves, their geographic distribution is un-favorable, with most of the coal lying inlittle-studied basins in remote areas withadverse climates. Not only has coal produc-tion declined over the past several years, butthe calorific value of a ton of Soviet coal hasdecreased and probably will continue to doso.

Major characteristics of the primary coalbasins are summarized in table 23. Impor-tant features to note include the fact that theDonets basin, the major coal producer inthe U. S. S. R., has an unfortunate geologicalstructure. More than 80 percent of the re-

maining coal is in seams less than 1 m thickand only 19 percent of this coal is betweenground level and 300 m. Coal from Ekibastuzis very high in ash content, which meansthat Soviet output figures for the basinoverstate its contribution to the productionof energy. Kansk-Achinsk coal is low in heatvalue and cannot be transported economi-cally to the central industrial region in un-treated form.

In short, despite large reserves, coal out-put has been falling and the outlook for thefuture is not as bright as one might expect.Increasingly, the unfavorable geographicaldistribution of unexploited coal reserves willhave its effect on the costs of production andutilization, especially in view of continuingdepletion of the Donets reserves. Most ofthe major underground mining basins arehaving difficulty meeting output goals.Soviet hopes therefore rest on coal which canbe surface mined.

Table 23.—Characteristics of Major Soviet Coal Deposits

Explored Averagereserves Average Average caloriflc Share of(billion thickness depth of value Moisture Ash productionmetric of seam mine (Btu per content content in 1980

Type of mining tons) ( meters) (meters) pound) (percent) (percent) (percent)

Donets . . . . . . . . . . . Underground 40 0.9 566 10,900 6.50/o 19.20/.Kuznetsk . . . . . . . . . Underground

and surface 60 2 5 262 9,990 10.2 19.0Pechora. ., , . . . . . . Underground 8 2.4 454 9,390 8.3 25.1Karaganda . . . . . . . Underground 8 2.5Ekibastuz . . . . . . . . Surface

384 9,250 7.5 28,84 10-40 — 7,250 7.7 39.1

Kansk-Achinsk . . . Surface 72 — — 6,490 33,0 10,7Moscow . . . . . . . . . . Underground 5 2.5 135 4,550 32.3 35.5

280/o

2247

1064

SOURCE Off Ice of Technology Assessment CIA USSR Coal Industry Problems and Prospects, "ER 80-10154 (March 1980)

SOVIET COAL INDUSTRY TECHNOLOGY –PROBLEMSAND PROSPECTS

The technological level of Soviet-designed the better equipment, while some minesand produced coal mining equipment is un- must make do with old, deteriorated machin-even. At its best, the Soviet coal mining cry.equipment industry has produced sturdyand well-designed equipment. But the tech- Soviet coal mining equipment stocks arenological level of equipment in place varies. large, greater in fact than American stocks,Major basins can be expected to command yet the U.S.S.R. produces less coal than the

90 Technology and Soviet Energy Availability

United States. Despite the large inventoryof equipment, the level of mechanization isoften low, including the main extractionoperations in some basins. This is due in partto failure to produce needed quantities ofequipment of proper quality; failure to main-tain equipment properly; lack of sufficientparts or repair crews; and neglect of main-tenance schedules. Anomalies abound. Inunderground mines, coal may be extractedand the mine roof supported with sophisti-cated pieces of equipment—which operatealong roadways prepared by hand. In thecountry’s open-pit or surface mines, largecapacity excavators may be teamed withtrucks mismatched in size and strength.Such examples are not isolated extremes;technological inconsistencies of this type arewidespread and chronic. In short, despite aseemingly abundant stock of equipment, thefailure to produce an appropriate mix ofmachinery models for the special conditionsimposed by different coal seams has led toshortages in some basins.

Production of coal mining equipment has,in the past, been of secondary priority toSoviet planners, subordinate to oil and gasdevelopment. The quality of Soviet ma-chinery reflects this. The older equipmentthat makes up the bulk of the stocks isequivalent to models produced in the UnitedStates 10 to 20 years ago, smaller and lessproductive, although apparently mechanical-ly reliable. This has been due in part toSoviet reluctance to adopt new technologiesin coal mining, even technologies that wouldbe readily available outside the U.S.S.R.Plants continue to produce equipment thatis no longer in great demand, while produc-tion of new equipment, to mine thin seamsfor example, is lagging seriously.

The failure to change products has twomajor causes. Perhaps most important is thepervasive reluctance of plant managers tojeopardize output plan fulfillment by inter-rupting production to retool for a new prod-uct. A change in the product line not onlymeans risking bonuses given for plan fulfill-ment, but also requires new supply arrange-

ments, possible changes in profitability, andrisk associated with new production tech-nology and new products. Soviet managershave little incentive to incur such risks andso prefer to continue to use and produce es-tablished models, even if they are outmodedor unwanted.

An additional problem stems from the factthat the Ministry of the Coal Industry hasbeen in a relatively weak position vis-a-visits equipment suppliers. Responsibility forproducing coal mining and transport equip-ment was scattered among many factories,all of which also produce a variety of othermachines for other customers. Nor can theministry participate in the research, design,and testing of new mining equipment—asdoes the Ministry of the Power Industry, forinstance, with respect to power generation.

The current renewed interest in coal hasled to some attempts to alleviate these prob-lems. In the early 1970’s an effort was madeto make both manufacturers of some miningequipment and coal mine construction or-ganizations more responsive to the needs ofthe industry, and administrative respon-sibility for these activities was transferredto the Ministry of the Coal Industry, knownas Minugleprom. (Underground equipmentis handled by Minugleprom, but the produc-tion of surface mining equipment is underthe Ministry of Heavy and Transport Ma-chine Building. ) This has produced some im-provement: production of modern equipmenthas increased in recent years and the qualityof output has reportedly risen. For instance,between 1973 and 1977, the number of min-ing equipment models awarded the StateSeal of Quality, the U.S.S.R.’s highestcategory of product quality, increased 2.4times. 20 However, demand is still not beingsatisfied.

Nor does it seem that investment in pro-ductive capacity in underground coal miningmachine building is sufficient to support in-———————

‘ (’’’ hlake Decisions of the 25th Congress of the CPSU aReality, ‘! IIg,j/+, N{), 4, April 1978, pp. 3-7 in ,JPRS 7 1,~~~~,Jun(l 22, 1978, pp. 3-’7.

Ch. 3— The Soviet Coal Industry ● 91

creased output. It was hoped that trans-ferring coal machinery plants to Minugle-prom would eliminate administrative bar-riers frustrating the satisfaction of demandfor equipment. Minugleprom, already re-sponsible for the fulfillment of coal outputtargets, would itself set the production pro-grams of the equipment plants and overseetheir fulfillment. Instead, it appears thatMinugleprom may be diverting capital awayfrom the machinery plants in an attempt toassist the fulfillment of short-term coal min-ing targets.

Inability to produce appropriate miningequipment in the required quantities and ofrequired reliability is only one aspect of theequipment problem facing the industry. Per-haps even more serious in the long term isthe seeming inability of miners themselvesto use and maintain equipment properly. Inlarge part, the difficulty stems from the in-attention to maintenance and repair sched-ules, lack of spare parts, improper opera-tions, and use of equipment inappropriate togeological conditions. As a result of poormaintenance, downtime on machinery is seri-ously in excess of established norms.21

Several examples may be cited. Equipmentfailures in the Karaganda basin have in-creased by 27 percent in recent years.22 In1978, one Soviet journal reported that coalmining equipment idleness had reached 25percent, 23 while another reported 350 workstoppages due to equipment failure in oneDonets mine alone.” Poorly maintainedequipment is also leading to an increasedrate of accidents in the labor force. Sovietfatalities per million tons of coal mined wereseveral times greater than the U.S. rate inthe mid-1 970’s.25

—‘“(; lOto\’,” op. (’it., p, 2.‘JJI ulkitmy(~i, (}p (’it.L‘(;, I )f~rf)ft’~[~~, ‘‘1 ,()<[ I]ersptlc>t if(~, ” .$’,)( sl(lli ~ t i(/ltj ~ku?’u

[ncl(~ i tri LIU, 1 )ec. ;1, 197H, p. 2“/1. Zharkikh, ‘‘ I;ar Il(hind, l’r{ll(iu 1‘Aru/H), l)ec. 1 6 ,

1978, p. 2.‘‘“ hlore (’ml f o r the (’t)untr}, ( ‘~1)1 ( ‘Lrurn ), N(). 1 ,

.January’ 1979, pp. 1-4, in J [’1{S 1. H:)70, Apr. :1, 1979, p, 54;,Jowph J. }’ancik. “SOmt~ I mpr(~ssif)ns and ot]st~rkations” o fSokiet (’(ml 111 ining, ” .~’()( i~ t 1’ of ,111 tling l<flgin{c>r,~ ,Ioli rnul,.Ju I.Y 1974, p. 65.

The following sections briefly describe themost important technology and equipmentin both surface and underground extractionof coal, summarizing the state of the Sovietindustry, and identifying the major dif-ficulties it is encountering.

S U R F A C E M I N I N G

Surface or strip mining in 1980 accountedfor 37 percent of Soviet coal production. Insurface mining, the rock and earth above thecoal seam, called overburden, is removed toexpose the coal, which is then broken up,loaded onto transport, and hauled away. Sur-face mining equipment ranges from con-struction bulldozers or front-end loaders, toenormous draglines, the largest moving landmachines in the world. Large shovels anddraglines remove the overburden so the coalcan be picked up by smaller shovels andfront-end loaders, although the latter arerelatively little used in the U.S.S.R. Largepower shovels work from the floor of the coalpit, taking bits of earth from one wall of thepit, pivoting and dropping the load on theother side. Larger draglines work from thesurface at the edge of the pit. Buckets aredropped from the ends of long booms and arefilled by dragging them back toward themachine. Draglines then turn, reach acrossthe pit, and drop their loads. Shovels anddraglines are generally preceded by verticalor horizontal drills that bore holes for ex-plosives that can shatter the earth and rockfor easier digging.

From an engineering standpoint, the So-viet Union is generally capable of fulfillingits surface mining needs. (The exception tothis rule is equipment for operating in ex-tremely cold temperatures, as in the Ya-kutsk basin. Such equipment has yet to bedeveloped anywhere in the world. ) But equip-ment is slow in reaching production and sup-plies are chronically short. In 1980, draglinesaccounted for about 33 percent of strippingwork, but there have been production short-ages and the demand for draglines is notbeing met.26 Lack of haulage capacity is a—

‘“l ‘(qo/’,- IN:. 1, 1 9/+1, p, 5.


serious problem, and there is also a need forexcavators of greater bucket capacity andcutting force. With the development and in-troduction of 120- to 180-ton trucks, the im-portance of large bucket capacities in-creases, because of the need to match equip-ment productivities and achieve more effi-cient (i.e., uninterrupted) operations. Al-though some giant (5,000 m3/hr) rotary ex-cavators exist—two are in operation at theBogatyr Mine in Ekibastuz and one is op-erating at the Irsha-Borodino pit in Kansk-Achinsk—there remains a general deficit intheir supply and capacity.

Climate plays a special role in contri-buting to downtime and constraining the ef-ficiency of Soviet equipment. Cold climatesrequire special design features. Electricalsystems are adversely affected by the cold,and when the temperature drops below

–40 ‘, the conveyer belts on rotary ex-cavators become virtually inoperable. Theseeffects are very serious in Siberia wheremuch of the U.S.S.R. surface mining is car-ried on. For example, around 70 percent ofthe coal in the Kansk-Achinsk basin is pro-duced through these methods.27

As in other energy industries, part of theproblem of supply relates to the inadequacyof facilities to produce large pieces of equip-ment. In an effort to alleviate this problem,work has begun on the development of amachine building industry in Siberia. Con-struction of the Krasnoyarsk Heavy Ex-cavator Plant is now underway and is sched-uled to be completed by 1984.28 The plant isto produce mechanical shovels with bucketcapacities of 12.5 m3, walking excavatorswith 40 m3 buckets, and rotary bucket equip-ment with capacities of 5,000 to 12,500m3/hr.

The success of these and other attemptsto improve the quality and quantity of sur-face mining equipment are crucial to the coal

“B. Pichugin, “Coal Made Ready During the Summer, ”Sotsiaiisticheska}!a industn”va, July 17, 1980, p. 2.

W. Lisin, “A Second ‘Uralmash’ on the Banks of theYenisey River, “ 7’nld, Feb. 25, 1979, p. 1.

industry as a whole. As mentioned above,Soviet plans to increase coal output restultimately on the expansion of surface min-ing. To a large degree, therefore, the fate ofthe Eleventh FYP for coal will depend on theavailability of sufficient and appropriate sur-face mining equipment with adequate capac-ities to deal with increased output.

U N D E R G R O U N D M I N I N G

The most common technique for miningcoal underground in the U.S.S.R. is by con-tinuous mining machines built into longwallsystems. 29 Longwall mining utilizes a steelplow or rotating cutting drum that movesback and forth across a coal face several hun-dred feet long. As the machinery moves, itcuts the coal, which falls onto a conveyer.Broad steel beams set a few feet apart pro-vide ceiling support. These supports aremoved by self-advancing hydraulic jacksthat change their position during or aftereach pass of the cutting machine along thecoal face. This change in position is ac-complished by releasing the pressure exertedon the roof and moving the machinery for-ward one beam at a time. The unsupportedportion of the roof then collapses. A con-tinuous mining machine tears the coal fromthe face and loads it for transportation in oneoperation.

Only about 4 percent of U.S. undergroundproduction comes from longwall mining. Incontrast, it is the predominant method in theU.S.S.R. (as in Western Europe), accountingin 1979 for over 65 percent of total Sovietunderground output.30 In some basins, thispercentage is even higher, (reaching 96 per-cent in Moscow, 90 percent in Pechora, and86 percent in Karaganda), the national aver-age being held down by a relatively low levelof longwall mining in the Donets basin. This— — — —

See Simeons, op. cit.,29 pp. 94-95; Environmental andNatural Resources Policy Division, Congressional ResearchService, Library of Congress, The Coal Industry: Problemsand Prospects, a background study prepared for the Perma-nent Subcommittee on Investigations of the Senate Commit-tee on Governmental Affairs, 1978, p. 26.

30"Make Decisions of the 25th Congress . . . . ,“ op. cit., pp.12-20.

Ch. 3—The Soviet Coal Industry ● 93

is probably due to the lack of longwallminers designed for work on thin seams.

The Soviet equipment stock in under-ground mining is large and increasing, butits quality is declining. Although the numberof mechanized complexes in use over the 4years from 1975 to 1978 (inclusive) went upby 24.4 percent, the amount of equipmentrecorded as nonoperational went up by 73.7percent.31 This can be explained by the age ofthe equipment in use, the use of equipmentunsuited to worsened geological conditions,and equipment repair and servicing prac-tices.

Soviet sources point repeatedly to under-ground equipment requirements that are notbeing met. In particular, miners in theDonets basin are faced with the increasinglypressing need for equipment suited to newgeological conditions. Sixty percent of Do-nets coal is being mined from thin seams lessthan 1.2 m thick, 50.7 percent of which aregently sloping, and 9.3 percent of which aresteep. 32 At the beginning of 1978 thin seamsalready constituted 83 percent of the com-mercially recoverable coal reserves. Yet of atotal of 50 working faces at one Donets mine,only 12 were being worked with appropriateequipment. Shortfalls in production by themachine building industry are blamed for—

31Ye. h’. Rozhchenko, “on Some Problems of the I)e\’elop-men t of LJnderground Coal NI ining, 1‘gIJ1 No, 8, A u g u s t1979, p. 6,

1’.+%. I . Basho\’, “Dongiprouglemash’s L)e\’elopers A r ekf’orking for I)onbass illiners, “ 1‘~ol’, No, 10, octoher 1979,pp. 41-46, in .JPRS 75,145, Fel), 15, 197s, p. 25,

“J’. I)eshko, “Fjquipment for Thin Seamsq ”’ Rabocha?af.ylz(’1(1, Dec. 14, 1979, p. 1.

this problem. Past emphasis on productionof machinery for excavation of thicker andmore productive seams had relegated thinseam equipment to a secondary, nonpriorityrole. Despite official recognition now of theneed for thin seam excavators, equipmentfor thicker seams has continued to bedeveloped. ”

In addition to not meeting the presentequipment needs of the coal mining in-dustry, machine builders are criticized for alack of attention to quality, reliability, andease of repair.

35 Their seemingly slow re-

sponse to changing needs in the industry is afunction of a mix of operational constraints:a shortage of labor, insufficient productionspace in factories, pressures of shortrun pro-duction targets, and the fact that the coal in-dustry is not the sole (nor even, in somecases, the primary) customer for their prod-ucts.

Other deficiencies that continue to becited include a shortage of equipment for thetransport of support materials and person-nel, drills of insufficient power and produc-tivity, highly labor-intensive timbering tech-niques, low mechanization of tunneling op-erations, and ventilating systems of inade-quate power and efficiency. The claim ismade that while technical solutions for theseproblems have been developed, the nec-essary equipment for implementing changeis not yet being produced.36

“liabochaja gazeta, hla~r 27, 1980, p, 1,‘5 Rozchenko, op. cit., p. 7,‘b Ibid., p. 9.

SOVIET COAL INDUSTRY INFRASTRUCTUREAND RELATED AREAS: PROBLEMS AND PROSPECTS

Aside from the quantity and quality of new mines; in the transport of coal; and inmining equipment, the major problems fac- the amount of capital investment availableing the Soviet coal industry lie in labor sup- to the industry. The following sections dealply and productivity; in the construction of with these issues.


LABOR

The labor force employed in the Sovietcoal industry is enormous. It has been es-timated that in the early 1970’s there weremore than 1 million workers involved in theproduction of coal.37 In comparison, the U.S.coal mining industry required only 159,000people in 1972.3’ And despite the high ab-solute level of employment, Soviet laborshortages in the coal industry are becomingincreasingly serious.

The major reason for the coal industry’svoracious requirements is the low level ofmechanization. Over 50 percent of thoseemployed are still engaged in manual labor.Even in the more highly mechanized long-wall mines, one-third of the work performedis manual. Much of this labor relates to aux-iliary operations. Mine repair, roof control,and even some coal and rock loading is donemanually .39

Labor shortages affect both coal extrac-tion and coal mining machine building. Prav-da noted in 1979 that in the Kuznetzk basin,the work force was 5,000 short in the under-ground mines alone. Labor shortages arealso reported for the Karaganda basin. Thedirector of the Gorlovka Machine BuildingPlant, a major coal mining equipment pro-ducer, recently complained that productiontargets cannot be met because the plantlacks workers. In October 1978, M. I.Shchadov, a deputy minister of Minugle-prom, indicated that the industry as a wholewas facing labor shortages and that theshortages were impeding output.40

‘ 7 SLephen Rapawy, “Estimates and Projections of thelabor Force and Civilian Employment in the U. S. S. R., 1950to 1990, (Washington, D. C.: U.S. Department of Commerce,Bureau of Economic Affairs , September 1976), p. 31:Strishkov, Markon, and Murphy, “So\iet (’oal Productivi-ty . . ., ‘‘ op. cit., p. 48.

“Campbell, op. cit., p. 132.W’. P, Podgurskiy and A. S. Nlinevich, “Reserves of I,abor

Productivity Growth, ” Llgol’, No. 7, July 1980, p. 43.4 “ Bogachuk. op. cit.; Mulkiba.vev, op. cit., p. 99; V. Vylgin,

‘4 In F;vw-y Column-A Nlinus, ” Rabochu?w gazeta, hlay 27,1980, p. 1; h!. 1. Shchadov, “Coal: Increase Extraction, Ac-celerate Deliveries, ” (judoh, oct. 12, 1978, pp. 1-2 in ,JPRS72,821, Feb. 14, 1979, p. 66.

These shortages may be exacerbated bythe progressive reductions in the length ofthe workweek. Before 1956, mines operated7 days a week. Between 1956 and 1958, ex-traction and development work began toshut down 1 day a week and the workdaywas reduced to 6 hours for some workers. In1967, a 2-day weekend was introduced andminers doing heavy labor underground weregiven a 30-hour workweek. These reductionshave created a demand for additional laborthat is not likely to be met in the next fewyears, for the industry is experiencing dif-ficulty in recruiting and keeping workers. Atone time, coal miners were among the high-est paid workers in the U. S. S. R., but now thedifference between coal miners’ wages andthose of the average industrial worker isdecreasing. Housing for coal miners is inshort supply and this does little to attractworkers. Shortages of labor are especiallyacute in the eastern regions of the country41

and are affecting mine construction as wellas coal output there. Labor turnover is also asubstantial problem. In early 1980, turnoverran at about 20 percent of the total workforce per year.42

Problems of this kind are not unique to thecoal sector; they pervade all Soviet indus-tries and the situation is likely to grow worsein the years ahead. The probability that thecoal industry will have sufficient labor tosolve its problems without other reforms islow. Thus, in coming years solution to thelabor problem will rest on increases in laborproductivity.

Table 24 gives official Soviet productivityfigures for 1971 to 1977, the last year forwhich they are available. The amountsshown here are inflated by the fact that, likeoutput data, Soviet productivity statisticsare in terms of “raw” (i.e., uncleaned) coalmined per “production” worker, a categorythat excludes workers who would be countedin the West. Nevertheless, several trends areclear. Labor productivity for the industry as

41 Kurnosov, op. cit.42 Podgurskiy, op. cit.


Table 24.— Labor Productivity in Soviet Coal Mining(metric tons mined per person per month)

1971

Minugleprom . . . . . ., ., ., . 62.3Underground mlnlng. . , . , . 48.0Surface mining . . . . . . . . . . . . 310.0By basin.

Donetsk (underground) . . . . . . 39.9Kuznetsk ., . . . . . . . . . . . . . . 74.1

Underground . . . . , . . . , —

Surface . . ., . .Karaganda ., ., . . . . . . . . . . 73.5

Underground . . . . . . , —

Surface . . . . . . ., . . —Moscow . . . . . . . . ., . . 74.0

Underground . . . . . . . . . . . . . —

Surface . . . . . . . . . . . . . . . . . .Pechora (underground) . . . . . . 61.0Kansk-Achlnsk (surface) . . . .

SOURCES April issues of Ugol

1972 1973 1974 1975 1976 1977 1979—

66.340.5

335.1

69.752.6

362.5

73.154.3

391.2

75.455.2

428.3

75.154.6

435.5

75.353.7

454.0

70.248.6

448.0

41.778.6

43.382.7

43.987.070.4

231.391.286.7

295.187.280.2

306.570.6

43.792.874.2

253.596.291.3

316.490.583.4

303.475.0

42.595.175.7

260.098.693.7

328.287.480.4

283.677.8

929.9

41.496.375.9

271.998.993.9

338.486.078.8

272.279.1

909.3

—

——

—

—

— —84.5

—79.4

—78.4 82.7

—

64.4 67.5—

a whole rose through 1975, but since then ap-pears to have stalled at around 75 mt perperson month. Labor productivity in under-ground mining has decreased since 1975,although this decline has been offset bygains in surface mining, where productivityis 8.5 times higher. Continued gains in sur-face labor productivity must be countedupon to offset underground declines such asthose apparent in the Donets and Moscowbasins. Labor productivity in Donets is noteven one-half as great as in the other majorbasins, due largely to a relatively low level ofmechanization of mining operations. Sincethe Donets basin employs about 55 percentof the industry’s labor force,43 improvementsin labor productivity here are particularlyimportant.

MINE CONSTRUCTION

Coal mine construction organizations, likeunderground mining equipment manufac-turers, were transferred to the administra-tion of Minugleprom in the early 1970’s, Buthere too, there have been complaints that noimprovements have resulted. Instead, theconstruction firms have been cut off from

‘‘(’(~ntra] 1 ntt’lli~[~nce .4gLInc~, ‘‘[ 1, S.S. 1{ : (’{la] I ndustr?’I)rt~lJl~,nl< an[i f’rf)+p((’ts. [~ 1{ H()-I()151, !Iarth 19H(). p, H,

their old ministries and suppliers, and do nothave production capacities of their own.44

They are inhibited by lack of resources andlabor shortages. In addition they must stillcontend with all the traditional impedimentsto the conduct of business in the Sovieteconomy: lack of cooperation from otherorganizations, poor plan development, short-ages of labor and funds, and improper workpractices.

The Central Intelligence Agency (CIA)has reported that additions of new coal min-ing capacity between 1976 and 1979 fell tothe lowest level in nearly a decade. At thesame time the rate of mine depletion hasrisen, and it has been estimated that overthree-quarters of new mine capacity nowmerely offsets mine depletion .45 Estimates ofrecent yearly mine depletions are given infigure 7. The depletions shown for 1978through 1980 are substantial and may pose aserious impediment to coal output growth inthe next 5 years. Since new Soviet minecapacity is taking 10 to 11 years to in-troduce, the Soviets will be largely depend-ent, for many years to come, on assimilatingmines currently under construction.

“N Klunduk, ‘‘Is ‘l’his Really F~cononli(’/ }’r~/ { (ju, I)ec’, 1 1 ,197s, p. 2,

4 (’1 ,1, ‘4 [ 1SS[{: Cm] Industry , ‘“ op. Lit , p. 3.

1975 I New capacity added

I replied depletion

Increment in coal production

1978

\

I

Ch. 3— The Soviet Coal industry ● 97

Mine reconstruction is also lagging, Ac-cording to Soviet norms, a mine with acapacity of up to 3 mmt per year should re-quire 5 to 7 years for reconstruction. In prac-tice, reconstruction of many mines takesthree times longer.46 Due to shortages of ap-propriate new capacity, mine operators whomust fulfill their output plan targets minewhatever coal is available, often damaginglongrun development plans in the process. Intheir attempts to maintain output, theypush mining into ill-studied coal seams anduse machines in conditions for which theywere not designed.

The severity of the problem may be sug-gested by the following example fromKuznetsk. In this leading Soviet coal regiononly one new mine has gone into operation inthe past 18 years in two of the biggest pro-duction units–the Kuzbassugol and Lenin-skugol mining associations. At present, notone mine is under construction in the prov-ince that includes much of the basin.47

T R A N S P O R T

The bulk of growth in coal production iscoming from Siberian basins. The limitationsposed by transport conditions were officiallyrecognized by the November 1979 Plenum ofthe Communist Party Central Committee inthe emphasis it placed on solving transportproblems associated with the growing flowand volume of freight. Basically, there arethree choices open to the U.S.S.R. for thetransport of coal from remote regions: rail,slurry pipeline, and the conversion to elec-tricity at source and transmission by wire.This latter option is discussed in chapter 5.

Rail

At present, coal is transported almost en-tirely by rail and a number of factors hinderits delivery. These include losses of coalduring shipment, and more important, theinefficient management and insufficient ca-pacity of the rail system.——

‘“S. Za~gan O\, et al., ‘ ‘on NI ining Technology, IJra I (ia,

oct. 14, I 979, p, 2,‘-Shunlkin, op. cit., p, 1, “

First, some Soviet coal is difficult to trans-port economically. Ekibastuz and Kuznetskcoals, for instance, can be transported inrun-of-mine form, but Kansk-Achinsk coal,which tends to self-ignite when dried, can beshipped only 1,500 to 2,000 km in untreatedform. Longer distances will not be practicaluntil beneficiation technologies have beendeveloped and put in place. This is not likelyto occur until the latter part of the 1980’s.

Second, loss of coal from rail cars is amajor problem. Some rail cars leaving theDonets basin arrive at the power stationwith only one-half their cargo remaining, andabout 4 percent of the coal shipped from theKaraganda basin is lost during transport.Aside from theft, coal is lost in two ways. Iteither leaks out of the bottoms and sides ofthe cars or it is blown out of the open cars bythe wind. The introduction of continuousmining machinery has led to shipments con-taining finer coal than was the case previous-ly. Consequently, during transport in openrail cars 1 ton of coal may be blown away ineach car for every 1,000 km traveled. The

‘“l’. %nin, “The Tracks Are Sown R’it h (’ml, ” l}rul(la,

~ov, 1, 1979, p. 3; “ [{ussians I’lan Surface hline Complex forPower (generation, (’fMJ/ Ag{I, Oc’tolxJr 19’7H, p 47,


Coal-loaded trains leave Karaganda


Ninth FYP (1971-75), called for Minugle-prom to construct eight facilities in theDonets basin to coal the coal in the rail carswith a protective film, but as of late 1979none had been built.49

Third, there is substantial evidence of mis-management in the rail transport of coal.While there is a shortage of rail cars inSiberia to transport coal to the Urals, railcars are standing idle on sidings in otherregions. In 1978, the Soviet paper Izvestiyareported that coal from Uzbekistan was be-ing shipped to electric power stations inKirgiziya, while coal from Kirgiziya wasbeing shipped to electric power stations inUzbekistan. This was because coal had to beshipped to the Angren electric power stationto maintain operations during the peakloadperiod. When the station returned to normaloperation the coal shipments continued (andthis despite the fact that the coal hadalready damaged station equipment). Coalcontinued to arrive from Kirgiziya for thenext 2 years and piled up at the station.50

Again, such anecdotes are not isolated in-stances. They reflect deep systemic prob-lems.

The most important constraints in theability of the existing rail system to handlecoal shipments, however, lie in factorsrelated to rail management and engineering.These difficulties are not grounded in theSoviet Union’s capability to solve technicalproblems in rail transport. The technologyfor electrification, double-tracking, and loco-motive and freight car design and construc-tion is well-established. The real constraintlies in a past heritage of mismanagementand in the inadequacy of capital investmentfunds allotted to the rail system, manifest inthe railroad’s poor economic performance inrecent years.51

—.——— ——.%lonin, op. cit., p. 3.‘(’G. Dimov, “Wrhy Take Coal to Coal?” lz[(~.sti~w, Sept. 5,

1978, p. 2.“Central Intelligence Agency, “’rhe Soviet Economy in

1978-79 and Prospects for 1980,:’ June 1980, p. 8.

The engineering and technical improve-ments needed to increase coal’s share of totalrail freight would include:52

increasing the length of jointless trackon improved roadbeds;increasing track capacity at arrival anddeparture points;increasing the share of eight-axle railcars in the rolling stock fleet in com-bination with locomotives of increasedpower;continuation of ongoing and planneddouble-tracking and electrification; andimprovements in freight car and trackrepair and maintenance practices tocurb coal losses en route.

The Eleventh FYP calls for constructionof only 3,500 km of new mainline and 5,000km of secondary rail line.” Much of thisrelates to the Baikal-Amur Mainline (BAM)railroad in the Far East, and will contributelittle to facilitating the transport of Siberiancoal to the European U.S.S.R. Thus, whilemarginal improvements in the system maycontinue, the improvements necessary tosupport an increased flow of Siberian coalare not likely to be met in the near future.Expansion of the rail system to allow forgreater coal freight may be hindered by areluctance on the part of the Soviet leader-ship to commit itself to Siberian coal devel-opment (see ch. 8).

Slurry Pipelines

Coal slurry pipelines are a possible solu-tion to the transport problem posed by thesubstantial distance separating primarysites of energy consumption and the coun-try’s largest fuel reserves. Although the ini-tial capital investment for such pipelines ishigh, operational costs relative to rail trans-

52T. M. Borisenko and V. P. Vodyanitski~’, “k:valuation ofPossible J$’ays of Increasing the Economic Effectiveness ofSystems of I,ong-Distance Hydraulic Transport of Coal, ”Iz[e.stij’u un .S.Y,9R: J;nergetika i trun.vporf, No. 4, April 1979,p. 44.

‘] ‘lzl’e.stija, I)ec. 2, 1980, p. 5.


port are low.54 Pipeline transport of coalwould also circumvent the problem of step-ping-up use rates on an already intensivelyoperated rail system.

While underground slurry pipelines holdcertain advantages over rail for long-dis-tance coal transport (no loss of transportedmaterial en route; reduction in noise andpollution; increase in land made available foralternative uses; and greater process auto-mation) several problems remain to be re-solved. There has been little study of thephysical-technical processes of pumping coalslurry through the large diameter pipes re-quired for efficient pipeline transport overlong distances. 55 Moreover, the Soviet Uniondoes not now produce the basic equipmentneeded for slurry preparation plants, pump-ing stations, and end-of-line installations forpreparation of the coal for burning. These in-clude high-capacity slurry pumping units,centrifugal pumps capable of handling largeamounts of slurry, and dependable wear-resistant fittings (flush ball cocks, refluxvalves, etc.).56

Two industrial coal slurry pipelines havebeen built and are in operation in the Kuz-netsk basin. The large particle size of thecoal being pumped through these lines (up to50 mm) has led to significant wear in thepipes and has required that they be peri-odically turned and replaced.57 These pipe-lines are short (not over 10 to 11 km) and lieabove ground, facts that facilitate main-tenance. Nevertheless, pipeline erosion ofthis type would have significant impact onthe cost of operating coal slurry pipelines ofgreater lengths.

Construction of a 250-km pipeline, con-necting the hydraulic underground mine In-skaya in the Kuznetsk basin to a thermalelectric power and heat station in Krasn-syarsk, was scheduled to begin in 1982, but

there are now indications that the projectwill be delayed until 1984.58 This line is toserve as the prototype for 2,000- to 4,000-kmpipelines connecting the Kuznetsk basin tothe western U.S.S.R. The earliest date givenfor creation of long-distance coal slurry pipe-lines is 1990. Additional constraints on de-velopment of long-distance coal slurry pipe-lines arise from the need to prevent theslurry from freezing in cold weather, and thehigh-volume water requirements associatedwith hydrotransport. These caveats are par-ticularly important for pipelines originatingin Siberia.

In short, there is a disparity betweenSoviet progress in slurry theory and prac-tice. On the one hand, the Soviet Union hasled the world in development of hydrotrans-port theory. “Soviet insight into the struc-ture of fine coal slurries is of the highestorder, ’59 even in the absence of a long-distance pipeline of a length comparable tothe U.S. Black Mesa coal slurry pipeline. YetSoviet domestic capabilities for constructionof pumping equipment remain undeveloped.

CAPITAL INVESTMENT

Annual investment in the coal industryrose from 1.4 billion rubles in 1965 to 2.0billion rubles in 1979 (see table 25), but coal’sshare in total investment in industry fellfrom 6.9 to 4.5 percent. In comparison, in-vestment in the petroleum industry rosefrom 10.0 percent of all industry investmentin 1965 to 12.9 percent in 1979, while invest-ment in the gas industry rose from 3.0 to 4.5percent. The coal industry has thus failed tokeep pace with the other fuel sectors, and thecurrent state of the industry reflects thisfact. Its recent poor performance supportsthe judgment that past investment has beentoo small and too irregular to maintain, let

‘)’ K u z ba ss - No~’osi hirsk Coal P i p e l i n e , .$ot.sia/i.s-

tic}~{’ SAU }’(I [rl(iu,stri?a Sep t , 12, 19N(), p, 2 in ,J 1)RS 76,654,oct 20, ‘1 980, p. 50; I)/(/r/()( ()( k hoz)[~}’,sr( (), N(), 5, hIaJ’ 19/+1,p. 25.

‘i’.John \\’, Kiser, 1 II, “ Report on the Potential for Twh-nolog~ Transfer from the .Soy’iet 1 In ion to the L1 nited States, ”{Santa hlonica, Calif.: Rand, .+lu~wst 19’74), p. 40.


Table 25.— Capital Investment inLeading Fuel Industries

Year Coal Oil Gas

(million rubles, constant prices)

1965, . . . . 1,426 2,070 6151970 . . . . . 1,541 2,527 1,0411975 . . . . . 1,759 3,853 1,7981976 . . . . . 1,747 4,066 1,8351977 . . . . . 1,848 4,503 2,0311978 . . . . . 2,035 5,270 2,2101979 . . . . . 2,020 5,860 2,020

(percent of to ta l investment in Industry)

1965 . . . . . 6.9% 1 0.0% 3.0%1970 . . . . . 5.3 8.8 3.61975 . . . . . 4.4 9.7 4.51976 . . . . . 4.3 10.0 4.51977 ...,. 4.5 10.6 4.81978 . . . . . 4,5 11.6 4.91979 . . . . . 4,5 12.9 4.5

SOURCE Narodnoye khozyaystvo, various years

alone expand, productive capacity. The sit-uation is aggravated by constantly risingcosts of mining and mine construction in theEuropean basins.

Evidence of insufficient investment in thecoal industry can be seen in a number ofareas: 1) the extremely low level of introduc-tion of new mine capacity at many basins;2) the insufficient productive capacity atplants producing mining equipment; 3) thelack of repair facilities at many basins andthe attendent rise in machinery downtimes;4) the shortage of enrichment facilities; 5)the ill-repair of rail cars; 6) the shortages oflocomotives and rail cars; 7) the short sup-plies of spare parts; 8) the lack of equipmentsuitable for working thin or pitching seams;9) the low level of mechanization of manybasins, including the Donets; and 10) thelack of large capacity trucks and rail cars atsurface mines. Probably the two most impor-tant of these areas are mine capacity andtransport.

Mine Capacity

One of the most serious effects of the pres-ent low level of investment in the coal in-dustry has been the failure to prevent adecline in productive mine capacity. The

Soviets hope to achieve greater increases inproductive capacity per ruble of investmentby switching from underground to surfacemining. At present, the share of surface min-ing in total mining is substantially lower forcoal production than for the mining of fer-rous and nonferrous metal ores, and forchemicals. Soviet industry officials believethat a l-percent increase in the share of sur-face mining in total output (accompanied bya l-percent decrease in underground mining)could save 80 million rubles per year, lowerthe capital intensity of the industry by 1 per-cent, and raise labor productivity by 1.4 per-cent.60 It must be noted that increases in sur-face” mining would have to be substantialbefore such an effect would result in de-creased expenditures by the industry, but in-creases here would help the Soviets toachieve greater increases in capacity perruble spent.

The differences between surface andunderground mining have an important geo-graphic dimension. Coal production fromthe underground mines in the EuropeanU.S.S.R. is stagnating or falling. At thesame time, production is becoming increas-ingly costly as mines go deeper and thequality of mined coal falls, and as thin orsteep seams account for greater shares ofoutput . The cost of coal mined in thesebasins is now as much as several timeshigher than the cost of coal mined at Kansk-Achinsk and Ekibastuz, even when com-pared on a calorific basis.

In the mid-1970’s, the required capital in-vestment for introducing new mine capacityin the Donets basin was 64.3 rubles/ret ofnew capacity and in the Moscow basin, 89.7rubles/ret. By comparison, the required capi-tal investments in the Ekibastuz and Kansk-Achinsk basins were 8.2 rubles/ret and 9.6rubles/ret, respectively. The cost per ton ofcoal mined from new capacity was corre-spondingly high in the Donets and Moscow

60M. I. Shchadov, “Improving Equipment and Technologyfor Surface Mining of Coal Deposits,’< U~O/: No. 1, January

1981, p. 1.


basins (17.0 rubles/ret and 24.1 rubles/ret,respectively), and low in the Ekibastuz andKansk-Achinsk basins (2.5 rubles/ret and 2.4rubles/ret). Extraction of Kansk-Achinskand Ekibastuz coal is thus economicallymore attractive than extraction of any othercoal in the U. S. S.R.61

The relatively large investments thatwould be required to maintain Donets andMoscow basin production are a serious deter-rent to production there. This fact is largelyresponsible for the turn to eastern coal inSoviet economic planning.

Coal Transport

A recent Soviet source has given roughcost estimates for various options for trans-porting coal from Siberia to the Urals or far-ther west. These options include: 1) railtransport of coal not requiring beneficiationbefore transport (presumably Kuznetskcoal); 2) transport of coal requiring beneficia-tion, i.e., Kansk-Achinsk coal; and 3) trans-port of coal as electricity. This assumes avolume of traffic on the order of 250 to 300mmt of coal per year. 62

Rail transport of Kuznetsk coal to theUrals or the European U.S.S.R. is an attrac-tive option. Coke from Kuznetsk is sig-nificantly less expensive to produce thancoke from Donets, and is competitive withthe latter anywhere in the U.S.S.R. How-ever, expansion of rail traffic from the

61 These cOStS are termed pn”[ Veden n)’ I’P Za tru t}’. a cost that. .includes direct costs, plus a capital charge at an interest rateappropriate for the given industry. Ya. Mazover, ‘‘ Perspec-tives of the Kansk-Achinsk Coal Basin, ” Pkzno[w.ve khoz.v-aj. st[ o, No. 5, May 1976, p. 66.

‘W. E, Popov ( c d . ) , .qihQn”an b’uel-llnerg~ Complexes,(Novosibirsk: Izd. “Nauka, ” 1978), p. 207; See also A. Probst,“W”ays of Developing the Fuel Economy of the U. S. S.R., ”Vopro.s}r ekonomiki, No. 6, June 1971, p. 57; Ya. Crantman,“Structural Changes in the Fuel Balance of the U. S. S.R., ”Plano[o,ve khoz.va.v.st[o, No. 11, N’ovember 1971, pp. 88-91.

Kuznetsk basin would call for substantial in-vestments in the rail system, and would in-crease the rail sector’s demand for heavy-duty steel rails, labor, and improved freightcars and locomotives. This would place addi-tional stresses on the already strained steeland machine building industries, and on anincreasingly tight labor market.

Building a railroad, even in the morefavorable terrain of the area, might cost upto 1 million rubles/km.63 (It probably wouldnot be necessary to build completely new raillines, since junction with existing railroadswould be possible at certain points. ) In-creased traffic on the railroads will also leadto faster depreciation of the track. Presentrails handling 100 to 120 mmt of traffic ayear wear out in 4 to 5 years. Their life woulddecrease to 2 to 3 years if 320 to 350 mmt oftraffic were carried,64 and steel rail demandwould therefore remain high after construc-tion of the initial rail line was completed.

Transport of 250 to 300 mmt of coal peryear from Kansk-Achinsk would entail notonly upgrading or expansion of the rail sys-tem, but also the expenditure of huge sumson coal beneficiation facilities. Since the coalis of such low quality, about 600 to 700 mmtwould have to be mined in order to obtain250 to 350 mmt of upgraded coal. No lessthan 25 treatment plants would have to bebuilt at a total cost of 10 billion to 12 billionrubles. The investment in the treatmentplants alone is enormous and is on a levelwith the required investment for the pro-posed Siberian natural gas pipeline toWestern Europe.65

‘3B. S. Filippov, “The Effectiveness of Transporting Kuz-netsk Coals and Coke to the Center of the EuropeanU. S. S.R., ” Koks i khirniya, No. 3, March 1977, p. 51.

“Popov, op. cit., p. 207.‘5 David Brand, “Soviet Slip-Up, ” 14’a/l Street JournaL Jan.

23, 1981, p. 1.


WESTERN TECHNOLOGY IN THE SOVIETCOAL INDUSTRY

As the above analysis has indicated, theSoviet coal mining machinery industry iscapable of producing—and does produce—equipment of sufficient quality to meet theneeds of the industry. The power and capaci-ty of this machinery often tends to be belowthe best Western models, but the Soviets areimproving in this respect. For all the short-comings described above, the production ofmany types of machinery increased at sub-stantial rates between 1970 and 1979. Con-tinuous miner production was up 5 percent;heading machines were up 78 percent; andloaders were up 28 percent. In addition, theU.S.S.R. actually exports mining equip-ment, and the share of annual production ofmining machinery exported has risen. Forexample, the export of continuous minersrose from 5 percent of production in 1970 to9 percent in 1979. Overall, in 1979, theSoviets imported about 74 million rublesworth of mining equipment (all types), whilethey exported about 211 million rublesworth.66 This reinforces the impression thatthe Soviets suffer not so much from an

—.M> CI, s s [{ M in istrv of ~’oreign Trade, VIZ (’s )Z TZ )IU I’U torgo ~‘-

lj’u S.%SR”l’ “1979 g. (hloscow: lzd. “Statistika,” 19~0), pp. 21,34.

overall equipment shortage as from the lackof capacity to produce specific models. Theseareas of need—in which thin-seam minersand surface mining equipment (power shov-els, draglines, drilling equipment, bucket ex-cavators, trucks, and rail cars) figure prom-inently—have been supported by modest im-ports.

Table 26 shows official Soviet foreigntrade statistics for imports of all types ofmining machinery. These statistics shouldbe treated with some caution. First, they arecertainly incomplete. For instance, Japan isnot listed as a source of imported machinery,but significant amounts of Japanese equip-ment are known to be in use in the SouthYakutian basin. Second, the figures arehighly aggregated; they do not break outcoal from other mining equipment.

The volume of Soviet mining equipmentimports rose dramatically during the 1970’s,peaking at about 92.6 million rubles in 1978.In 1979, 38.3 percent of these were from theWest (8 percent of total imports were fromthe United States); 47.5 percent were fromEastern Europe; and 14.2 percent were un-identified. It would appear, therefore, thatpurchases from the United States are neg-

Table 26.—Soviet Imports of Equipment for Underground and Surface Mining of Minerals(thousand rubles)

SourceTotal

Year U.S.A. Poland G.D. R. F.R.G. France Sweden Czechoslovakia

1970 . . . . . . .1971 . . . . . . .1972 , . . . . . .1973 . . . . . . .1974 , . . . . . .1975 . . . . . . .1976 . . . . . . .1977 . . . . . . .1978. , ., . . .1979 . . . . . . .

2,045338353377438

7,8587,287

6742,8369,984

————————

11,42610,624

7,9873,3832,0262,6063,4494,0175,4618,826

33,09824,504

5561,7921,5522,022

10,34420,515

6,9648,676

20,71014,104

9691,8682,2502,3701,0683,9739,999

8511,898

449

1,5151,925

4042,1177,432

10,1087,9611,4199,9233,798

6,3941,3431,0332,687

—————

19,85710,7687,623

12,35626,71958,18149,97636,30392,63673,935

SOURCE U S S R Ministry of Foreign Trade Vneshnyaya forgovlya SSSR (Moscow Izd "Statistika") for various years


ligible and that Eastern Europe figures moreprominently as a supplier of Soviet miningequipment than does the West. Poland, forinstance, is an important producer of under-ground equipment. The U.S.S.R. has alsopurchased excavators from East Germany.

Western trade statistics and trade jour-nals provide more information on the precisenature of imports from the West, The twomajor areas here are equipment purchasedfrom Japan for development of South Ya-kutian coal, and trucks for use in surfacemining operations. (Meanwhile, the U.S.S.R.is attempting to increase its own capacityfor the production of large–up to 180tons—dump trucks.) In general, compared tothe oil and gas industries, the Soviet coal in-dustry shows little reliance on Western tech-nology and equipment. The Soviets haveopted largely for domestic development andproduction of equipment, despite the factthat superior models may be available in theWest.

Nor is there evidence of much use ofWestern computers in the Soviet coal in-dustry. Underground and surface mining arenot particularly amenable to the applicationof computers. The Soviets would only belikely to turn to the West in these areas ifthey could acquire breakthroughs in auto-mated mining. Given the low level of mecha-nization in the industry and its secondarypriority after petroleum and nuclear power,such a development is unlikely. Comput-erization in Soviet coal mines is, therefore,not expected to be important in the next 10years, although it could contribute to the ra-tionalization and management of the in-dustry. Given the pervasive systemic prob-lems described above, the coal industrywould at best benefit slowly and indirectlyfrom transfers of software. It has not soughtsuch technology itself, and is not likely to doso in the near future.

PROSPECTS FOR THE SOVIET COAL INDUSTRY

The Eleventh FYP calls for the productionof 770 to 800 mmt of coal per year by 1985.Achievement of output in this range, whichis lower than the original 1980 goal (790 to810 mmt), would represent the reversal ofprevious trends of declining production andrestore a modest rate of growth for the in-dustry as a whole. Most of this growth wouldbe achieved by expanding surface mining.The FYP targets envisage surface miningconstituting 39 to 40 percent of total output(300 to 320 mmt), leaving 470 to 480 mmt ofunderground production. 1980 undergroundoutput was 451 mmt. Thus, the intention isto at least hold underground productionstable.

Soviet targets for the Twelfth FYP (1986 -90), if they exist, have not been published.However, the literature does support thequalitative judgment that the Eleventh FYPperiod is intended to be a time of preparationfor a period of more intense growth to follow.

The 1981-85 respite will hopefully allow timeto permit the expansion and upgrading ofsurface mine capacity, coal processing ca-pacity, the stock of surface mining equip-ment, and the rail transport system.

In this section, OTA has attempted toevaluate these goals and to provide esti-mates of plausible levels of production in1985 and 1990. As with all of the projectionsin this report, the figures provided here arenot predictions. Rather, they are projectionsbased on OTA’s judgments of likely out-comes, given explicit accompanying assump-tions. These estimates, together with 1980production figures, are given in table 27.

1981-85

OTA believes that the production rangefor the Soviet coal industry specified in theplan is unrealistically high, and that the best


Table 27.—Estimated Soviet Coal Production(million metric tons)

– Years

19851985 (best case Percentage

1980 (plan) projection) change

U.S.S.R. total . . . . . . . 716 (770-800) 765 + 7Major basin a:

Donets . . . . . . . . . . 203 195 - 3Kuznetsk . . . . . . . . 154 (167) 160 + 4Ekibastuz. . . . . . . . 67 (85) 85 + 20Kansk-Achinsk . . . 40 50 + 25Karaganda . . . . . . . 49 (49) 49 0Pechora . . . . . . . . . 30 26 – 13MOSCOW . . . . . . . . . 26 25 – 4South Yakutia. . . . 3 + 267

By surface mining. . 264 (300-320) 320 + 21

aEstimates

SOURCE Off Ice of Technology Assessment, Soviet Geography, April 1981,p. 280

that could be expected is production of 765mmt. This growth of roughly 7 percent isshort of the low end of the range specified inthe plan, but even this figure should beregarded as a highly optimistic best case,which might be possible if the U.S.S.R. couldfulfill announced plan targets for surfacemining and halt the decline in undergroundoutput. Some experts believe that the latteris impossible and that a more realistic pro-jection would be some 20 mmt lower.

OTA’s most optimistic scenario corre-sponds closely to recent CIA projections,67

and is based on the following assumptions:●

●

●

No dramatic changes in the presentorganization of the economic system asit affects coal production.No dramatic change in the priority to beaccorded to the coal industry; i.e., OTAassumes that coal will retain its “sec-ond-class” status, at least for the next 5years, while attention is concentratedon nuclear power and gas development.This subject is discussed in more detailin chapter 8.No major labor shortages. Growth incoal output will come almost exclusive-ly from Siberian surface mines that

67The CIA in ‘‘U.S.S.R.: coal Industry . . . ,‘ Op. cit., positsa range of 765-785 mmt.

●

●

●

●

A.

have a labor productivity nearly ninetimes as great as underground mines.The shift to surface mining, coupledwith continued mechanization and auto-mation of underground operations,should, therefore, help to alleviate laborshortages.Few, if any, new measures taken to pro-vide greater protection of the environ-ment. OTA assumes that despite of-ficial rhetoric affirming the need forgreater environmental protection, onlythose measures that would not lead tosignificant sacrifices in output will beinstituted.Investment resources increased suffi-ciently to provide for a low level ofgrowth.Expansion of coal mining equipmentproduction in the following areas: largercapacity power shovels and draglines;excavating equipment and electricalsystems for Siberian climate; specialsubcomponents, lubricants, ventilationand other systems for excavators; largediameter steel cables and rolled metalfor excavators; spare parts; drillingequipment with improved productivity;larger capacity mine trucks; conveyerbelts with improved strength; andequipment for mining coal from thinand steeply pitched seams.Continuation of present levels of equip-ment and technology imports, i.e., ofthe policy of relying heavily on do-mestic technology. Specifically, the pro-jections assume that the U.S.S.R. con-tinues to import Japanese equipmentfor development of Yakutia; to purchaselittle or no Western underground equip-ment; and to expand imports of surfacemining equipment, mainly from EastGermany and Poland.

major industry concern will be themaintenance of coking coal production. Vir-tually all Soviet coking ‘coal is minedunderground, and underground mining willdecline in many basins. Yet, even with sub-stantial declines, four factors suggest thatindustry need not suffer from a lack of coke:


1) there is reason to believe that domesticconsumption of coke will rise by only 4.5mmt between 1977 and 1985, and by only 0.5mmt between 1986 and 1990;68 2) about 44 to

56 mmt of coking coal per year are burned atelectrical power generating plants (due to in-sufficient enrichment capacity to renderthese coals suitable for coking);69 3) somecoking coal being mined is improperly cat-egorized as steam coal;70 and 4) of totalcoking coal mined each year, about 4 percentmay be lost in transport.71 The latter “use”represents a potential source of coking coalfor productive domestic consumption if theSoviets are willing to make necessary but ex-pensive improvements in the transportationsystem.

The best case growth in output projectedhere would be largely supported by a growthin surface mined coal from about 264 mmt in1980 to about 320 mmt in 1985, in accord-ance with the FYP target. The share of sur-face mining in total output would thereforerise from 37 percent to about 410 percent.These coal increments could come almost ex-clusively from Siberia. The following devel-opments seem likely in individual basins:

DonetsMine depletions here will probably exceed

the introduction of new capacity. The shareof coal mined from deep, thin seams will in-crease, resulting in slower rates of coal ex-traction. At the same time, the cost of coalmined will continue to rise, and this will pro-mote increased substitution in consumptionof cheaper eastern coals. Production in thebasin will probably fall to 195 mmt or less by1985.

68Bakinskiv rabotn+vv, Apr. 19, 1981, p. 1.69The slowing of growth in coke consumption is due to like-

ly reductions in the requirements for coke per ton of pig ironproduced. This conclusion is based on the finding of a 1980Battelle report on energy efficiency in the Soviet iron andsteel industry. See ch. 7.

7 0M. V. Golitsyn and V. F, Cherepovskiy, “Analysis ofU.S.S.R. Coal Reserves and Main Directions of GeologicalProspecting Works, ” .70 ve tsk aya geologi.va, No. 4, April1980, pp. 25-28.

711 bid., pp. 27-28.

KuznetskThis basin has vast reserves, and coal

mined here is cost competitive with Donetscoa l in many reg ions o f the EuropeanU.S.S.R. It is likely to become the U.S.S.R.’sleading producer of coking coal before 1985.However, the growth in new mine capacityhas been slow and more coal enrichment ca-pacity is needed. Only a small increase inoutput —from 154 to 160 mmt—can be ex-pected by 1985.

KaragandaIntroduction of new mining capacity has

lagged seriously. Much of the coking coalcannot be coked without prior enrichmentand, due to insufficient enrichment capacity,is not being mined. As in the Kuznetskbasin, only a small increase in productioncan be expected by 1985. Output may rise to49 mmt by 1985, but stagnation or a declinein production at the basin cannot be ruledout .

Moscow

Possibilities for increased coal productionhere are virtually nonexistent. The coal has ahigh ash and sulphur content and is be-coming more and more expensive to mine.Annual production should fall by at least 1mmt—and perhaps by as much as 5 mmt—by 1985.

Pechora

The Pechora basin contains large reservesof high-quality coking coal and productioncould have been substantially expanded, butlittle new mine capacity has been added inthe last 15 years. The basin probably willlose 4 to 5 mmt of yearly capacity by 1985.

Urals

The coalfields in the Urals are beingdepleted and production will decline. Currentproduction is not sufficient to meet evenlocal needs.


Kansk-AchinskProduction could grow rapidly, but prob-

lems of transport and use will remain. Thecontribution this coal can make to theenergy supply of the central regions or theUrals before 1985 therefore is highly ques-tionable. In any event, annual productioncould increase by 10 mmt by 1985.

Ekibastuz

Plans for Ekibastuz production have beenannounced and call for increases of some15 mmt by 1985. However, the quality ofEkibastuz coal is extremely low.

South Yakutia

Development of this basin is behindschedule, but production could grow to 11mmt by 1985. However, a large share of out-put will be exported to Japan as compensa-tion for developing the basin (see ch. 11.)

It is at least possible that the SovietUnion could come close to reaching its 1985coal output targets. But the significance ofthis growth in output should not be overesti-mated. First, as noted above, the calorificcontent of Soviet coal has been falling steadi-ly. If past trends continue, it will probablyfall by roughly 1 percent per year between1980 and 1985. Gains in run-of-mine outputwill therefore be largely offset by declines incalorific content. Fuel output, if calculated intons of standard fuel, could actually declineunless output at high-quality coal basins re-mains at least relatively stable.

Second, the fact that much of the increasein coal output is to come from Kansk-Achinsk and Ekibastuz puts severe limita-tions on the use to which the coal can be put.Kansk-Achinsk coal cannot at present betransported to the Urals or the EuropeanU. S. S. R., let alone to export markets. Pro-duction is soon likely to exceed local demandand, as chapter 5 discusses in detail, genera-tion of electricity at the mine site creates anumber of other problems for Soviet plan-

ners. Ekibastuz coal is also of very poorquality, some of it nearly half ash.

In sum, even an increase in production ofcoal to 765 mmt per year, very close to plantargets, may mean an absolute decline instandard fuel produced. Moreover, much ofwhat is mined cannot at present contributeto fuel supplies in consuming centers of theEuropean U.S.S.R. because it is uneconom-ical to transport in untreated form. Achieve-ment of 1985 plan targets, therefore, willcontribute little to efforts to substitute coalfor oil in existing powerplants or the few newones to be constructed in the European partof the country.

1 9 8 6 - 9 0

Projections for the Twelfth FYP periodare necessarily highly speculative and mustremain sketchy. In general, however, if pres-ent trends continue, and if the U.S.S.R. cancome close to realization of 1985 targets, out-put could continue to grow. The amount ofthis increase would depend on the success ofsurface mining operations, although gains insurface mining would continue to be offsetby declines in underground production.

The most likely areas in which to expecthigh rates of growth in the latter half of thedecade are the Kansk-Achinsk, Kuznetsk,Ekibastuz, and South Yakutian basins.Stable or declining production can be ex-pected in the Moscow and Donets basins,but the Soviet literature hints at investmentplans that could lead to a small growth inoutput at Karaganda and a recovery atPechora to about the 1980 level.72

Even assuming very high rates of growthin surface mining basins, however, (50 per-cent in Kansk-Achinsk, 25 percent in Kuz-netsk, 35 percent in Ekibastuz, and 35 per-cent in South Yakutia)—a highly optimisticassumption—it is difficult to imagine coal

‘z’’ Russians Plan Surface Mine Complex for Power Genera-tion, ” Coal Age, October 1978, p. 47.


output rising over 1985 levels by more than cess in cons t ruc t ing the coa l t rea tment100 mmt. Surface-mined coal would thus plants necessary for making use of Kansk-have to constitute about one-half of all coal. Achinsk and Ekibastuz coal , and on theThe significance of this level of output for fate of plans for long-distance electricitythe Soviet economy would depend upon suc- transmission.

SUMMARY AND CONCLUSIONSThe Soviet coal industry has encountered

serious problems in the past few years forwhich no solution is yet in sight. These haveto do with the declining output of under-ground mines located near centers of con-sumption; the fact that new deposits lie inremote areas of Siberia; and the decliningquality of the coal that is being produced.

The Eleventh FYP establishes goals thatare dramatically less ambitious than those ofprevious plans, a fact that may reflect arealization and acceptance by planners of thereal limits placed on growth of output by thecombination of problems facing the in-dustry. Even so, these targets are probablyexcessively optimistic, and even gains inoverall coal production will be offset to somedegree by the fact that the quality of muchof the new coal being mined is low. In fact,coal output could increase and its standardfuel equivalent actually decline.

The Soviet coal industry suffers frommany of the same ailments afflicting mostsectors of the economy. The problems are toa large degree systemic and have no perma-nent solutions short of major reforms of thesystem itself. The time has come for the coalindustry to “fine tune” its operations. Un-fortunately, the Soviet economy is ill-suitedto such a task. The situation here has beenaggravated by the low priority assigned tothe coal industry in the past, and the factthat in order to achieve meaningful increasesin output, a number of problems must besimultaneously addressed. These includelabor productivity, additions to mine capaci-ty, increasing the quality and quantity ofmining equipment, resolving coal transportproblems, and devising ways to use the low-

quality coals that are making up an in-creasing share of production.

It is the combination of these difficultiesthat has led to the declining performance ofthe coal industry as a whole. There is littlereason to expect that such obstacles will beovercome in the present decade. Nor is itclear that even massive improvements in oneor several of these areas (e.g., labor produc-tivity) could do more than increase coal in-dustry efficiency, without necessarily sig-nificantly affecting output.

At present, there is no evidence to suggestthat extensive Western participation inSoviet coal development would greatly boostproduction. Aside from the South Yakutianbasin, which is being developed with theassistance of the Japanese, the Soviets havemade little use of Western coal mining equip-ment and technology. Most such importshave been in the area of surface mining,especially large capacity mining trucks. Thecessation of these supplies could have an im-pact on the efficiency of Soviet surfacemines, but it is unlikely that the conversewould hold, i.e., that more Western truckswould alone lead to increased coal output.The Soviets, moreover, have recourse totheir own truck industry. If sufficientresources are allocated to production of suchdomestic models (something that cannot betaken for granted), the Soviets could satisfydemand for large-capacity trucks them-selves. The Soviets are constructing a plantnear Kansk-Achinsk to manufacture heavyexcavators. Its successful completion wouldbe another step towards independence fromWestern surface mining technology.


An embargo now, therefore, of all Westerntrade with the U.S.S.R. would inconvenienceit—but would not seriously impair coal pro-duction. Similarly, Western assistance aloneis unlikely to be able to boost coal produc-tion. Possibilities for expanded domesticproduction of equipment and for importsfrom Poland and other East European coun-tries would compensate for losses of Westernequipment. The longer run impact of such anembargo is more difficult to predict. If theU.S.S.R. places priority on expanded coal

output, this growth will have to come largelyfrom surface mining, since it appears thatunderground mining capacity has irrevers-ibly peaked. If later in the decade bottle-necks in surface excavation and haulageequipment become troublesome, it is possi-ble that the U.S.S.R. would look to the Westfor significant amounts of this equipment.However, these imports would have to be ac-companied by serious efforts to solve a muchwider array of coal industry problems.

CHAPTER 4

The Soviet Nuclear PowerIndustry

CONTENTS

PageSOVIET POLICY CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

PRESENT NUCLEAR POWER CAPACITY AND PRODUCTION INTHE U.S.S.R. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

1980 Capacity and Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113Reactor Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114Reactor Manufacture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116Past Contribution of Western Equipment and Technology . . . . . . . . . . . . . 1181980 Plan Fulfillment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

NUCLEAR CAPACITY AND PRODUCTION: FUTURE PROSPECTS . 120

Targets for 1985 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120Targets for 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120Soviet Ability To Meet Plan Targets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

REQUIREMENTS FOR NEW EQUIPMENT AND TECHNOLOGY . . . 137

Nuclear Capacity and Production: Likely Achievements . . . . . . . . . . . . . . . 137

THE POTENTIAL ROLE OF WESTERN EQUIPMENT ANDTECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

SUMMARY AND CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

LIST OF TABLES

Table No. Page28.29.30.

31.

32.

Production of Electricity by Soviet Nuclear Power Stations . . . . . . . . . 114Soviet Nuclear Power Stations in Operation , . . . . . . . . . . . . . . . . . . . . . 115Estimated Total Operating Electric Generating Capacity of SovietNPSs as of Dec. 31, 1980 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116Planned New Nuclear Electric Generating Capacity in the U.S.S.RV

Post 1980 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124Projected Production of Nuclear Reactors and Export Potential . . . . . 131

LIST OF FIGURES

Figure No. Page8. Soviet Nuclear Reactor Sites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1179. Past and Projected Additions to Nuclear Generating Capacity . . . . . . . . 123

Chapter 4

The Soviet Nuclear Power Industry

Soviet planners see nuclear energy as anincreasingly important source of electricity.Current plans call for nuclear power to gener-ate most of the incremental electricity pro-vided to the European U.S.S.R. in thisdecade. The Soviet nuclear program haslogged impressive gains. The portion of elec-tricity supplied by nuclear power rose from0.5 percent in 1970 to more than 5 percent in1980; and production increased more thantwentyfold, from 3.5 billion kilowatt hours(kWh) to as much as 73 billion kWh, over thesame period.l Moreover, the current FiveYear Plan (FYP) calls for nuclear’s share ofelectricity production to more than double to14 percent by 1985 and estimates for theyear 2000 have ranged as high as 33

— . — —1‘}!~(jrt{)n2ic’h{~.sh{l>u ~Tuzetu, ,Y{). 12, 1 !)H 1, p, 1, git’es a figure

of 7 ~] billion kW’h. F:arlier estimates were 70.5 billion kt$”h.

percent.2 The ease with which the U.S.S.R. isable to adjust to its problems in the coal andoil industries will depend in part on its abil-ity to fulfill—or at least approach—thesetargets.

This chapter summarizes Soviet policytoward nuclear power, describes the presentstate of the Soviet nuclear power industry,and evaluates Soviet planners’ goals for thecontribution of nuclear-generated electricityto the energy balance in 1985 and 1990. Italso examines the past and potential con-tribution of Western equipment and tech-nology to that industry.

U’. I.epkowski, “U. S.S. It. Reaches ‘1’akeoff in NuclearPower-, (’hern[ca/ ar~d fi,’ng(n<><>rlrt,hr .l’tii ,s, Not, 6, 197H, pp.31-36.

SOVIET POLICY CONSIDERATIONSThe Soviet Union has generated electrici-

ty from nuclear power since 1954, when itsfirst nuclear power station (NPS) came on-line at Obninsk, near Moscow. The Sovietsare proud of the fact that the U.S.S.R. wasthe first country in the world to producecommercial nuclear-powered electricity. Atthe same time, development of the nuclearindustry was slow, and Soviet-installednuclear capacity at the end of 1980 wasabout one-fourth that of the United States inthe beginning of that year–13,460 mega-watts (MW) as opposed to 52,300 MW.3 Thetwo industries have also experienced dif-ferent patterns of growth. While nuclearcapacity in the United States expandedrapidly in the 1960’s and early 1970’s, the

I I“jric \lorgenthaler, “ I+; astern f+;nergJ’: S(lIriet Hloc isI)ushin~ Nuclear [)owerplants Fj~en as LJ. S. Pulls Back, ”1! ‘ull i~’trc{t ,J<jurrlal, ,Ian. 4, 19R(), pp. 1, 4, op. cit.

pace of the Soviet industry did not begin toaccelerate until middecade, just the time, infact, that the program in the United Stateswas beginning to slow.

There are several factors that have con-tributed to the Soviet Union’s policy to ex-pand its nuclear industry. Its growth isrelated to the recognition that fossil fuelresources have become increasingly difficultand expensive to exploit. As the oil, coal, andgas of the European U.S.S.R. have been de-pleted, production has shifted northwardand eastward to Siberia, causing both ex-traction costs and the cost of transportingenergy to the consumer to rise greatly.Nuclear power has therefore become an eco-nomically viable option, particularly sincepower stations are largely located in themore densely populated European part ofthe country.

111


Soviet nuclear policy is also marked byrelatively little anxiety over safety and en-vironmental issues compared to the West.Soviet ideology has characteristically re-flected a boundless faith in technology andthe beneficial effects of technological de-velopments on the welfare of mankind. Ac-cidents such as the one that occurred atThree Mile Island are attributed by theSoviet press to the irresponsible behavior ofprofit-seeking private firms, rather than toany dangers inherent in nuclear power. Thepress assumes that in the U.S.S.R.—whereprivate enterprise does not officially exist,and production is carried out by plannersarmed with what are considered rational,scientific methods—the welfare of thecitizenry and of the environment will becarefully considered.4 The official Sovietposition is that concerns over the safety ofnuclear power are founded on ignorance.This point is illustrated in a 1971 statementof A. M. Petrosyants, Chairman of the StateCommittee on the Utilization of Atomic En-ergy:

It can be stated that nuclear power sta-tions are no more dangerous than any otherindustrial type plant, and can be sited in anydensely populated area and even within theconfines of large cities . . . Widespread pub-licity on the safety of nuclear power stations,explanations of the facts with demon-strations of how nuclear power stationsoperate, are indispensable measures insweeping away the skepticism and lack ofconfidence observed in some parts of thepopulation in some instances.5

Despite recent publicity in the West overalleged large-scale nuclear accidents in the

Soviet Union,’ there is no evidence that thisposition has changed.

Soviet nuclear policy may also be at leastpartly driven by a desire to demonstrate con-spicuous technological achievement in alarge-scale program that the U.S.S.R. itselfregards as necessary to its role as a worldsuperpower. A successful nuclear program isseen as a means of enhancing the prestige ofthe nation and providing visible evidence ofthe superiority of socialism. The power sta-tion at Obninsk, for example, has been hailedas “a triumph of advanced Soviet scienceand technology. It confirmed with newstrength the indisputable advantages andthe richest creative potentialities of thesocialist society.”7 This is not so much areflection of any Soviet world lead in termsof installed nuclear capacity—in 1980, theU.S.S.R. lagged behind the United States,Japan, and France in this respect–as muchas an affirmation of the fact that Soviet ad-vances in this area have proceeded with littledirect technical help from the West. Thistechnical independence is underscored bythe fact that the Soviet Union has had recentsuccesses exporting its nuclear reactors(e.g., to Finland); that breeder technology ismore advanced in the U.S.S.R. than in theWest (with the possible exception of France);and that Western scientists are quite im-pressed with Soviet fusion research.

Factors such as these have contributed tothe rapid growth of the nuclear sector in theU.S.S.R. and to the formulation of ambitiousplans for the next decade. The following sec-tions describe the present state of the atomicpower industry and discuss and evaluatethese targets.

‘Gloria Duffy, Soviet Nuclear Energy: Domestic and Inter-national Policies (Santa Monica, Calif.: Rand Corp.,December 1979), p. 38.

‘A. M. Petrosyants, ‘“Nuclear Power in the Soviet Union, ”So ~’iet A tornic Erzergj’, No. 3, March 1971, pp. 297-302.

‘See, for example, John R. Trabalka, L. Dean Eyman, andStanley I. Auerbach, “Analysis of the 1957-1958 Soviet Nu-clear Accident, ” Science, July 1, 1980, pp. 345-353.

701eg Kazachkovskiy, “Condition and Outlook for W’orkTo Create AES With Fast Neutron Reactors, ” Ekono-micheskoye sotrudnichest~~o stran-chlenol S’E V, No. 2, 1980,p. 1, in JPRS 76,135, July 30, 1980, pp. 1-8.

Ch. 4—The Soviet Nuclear Power Industry ● 113

PRESENT NUCLEAR POWER CAPACITY ANDPRODUCTION

In 1976, the 25th Party Congress adoptedthe Tenth FYP (1976-80), which called forthe production of 1,340 billion to 1,380billion kWh of electricity in 1980. Of this, 80billion (about 5.8 percent) was to be providedby nuclear power stations.’ Although pro-duction failed to meet this ambitious target,Soviet accomplishments in the area of nu-clear electrification over the plan period wereimpressive.

1 9 8 0 C A P A C I T YA N D P R O D U C T I O N

As table 28 demonstrates, Soviet nuclearpowerplants produced 73 billion kWh (or70.5 billion kWh, depending on which Sovietsource is used) in 1980, nearly 3 % times asmuch as in 1975 and over 25 percent more—————

‘~. ~~. Jack, J, R. I*e, and H. H. Lent, “Outlook for SovietEnergy, ” in Joint Economic Committee, U.S. Congress,Sotiet Econom>’ in a IVFu P~r.<pecti[e (Washington, D. C.:U.S. Government Printing Ofice, 1976), p. 466.

IN THE U.S.S.R.

than in 1979. Installed capacity at the end of1980 reached 13,460 MW, having nearlydoubled in 3 years. Nuclear powerplants ac-counted for 5.6 (or 5.4) percent of all electrici-ty produced in 1980 and 5.1 percent of in-stalled electrical capacity as of December 31,1980.9 On a Btu basis, it is estimated thatnuclear energy accounted for a little over 1percent of Soviet primary energy output in1980. ’0

This energy is currently being producedfrom at least 29 online reactors that aredistributed among 13 sites. These sites arelisted in tables 29 and 30, and shown in

‘Total installed capacity (all sources) as of Jan. 1, 1981, wastaken from Ekonomicheskajla gazeta, No. 12, March 1981, p.2. The installed nuclear capacity ( 13.5 million kW) was thendivided by this total (267 million kW) to derive the indicatedpercentage.

1 olJ M e]entve~, and A. Makarovt “Future Development ofthe Fuel-Ene&y Complex, “ ~~/arlo[()},e k hozya},.st[o, No. ~,

April 1980, pp. 87-94, in JPRS 75,903, tlun”e 19, 1980, pp.13-22.

,, . ..


The Novovoronezh NPS


Table 28.—Production of Electricity by SovietNuclear Power Stations

Installed –

nuclearcapacity

Percent of (end ofProduction total year,

Year (billion kWh) production million kW)—

1960 . . . . . . . . . .1965 . . . . . . . . . .1970 . . . . . . . . . .1975 . . . . . . . . . .1976 . . . . . . . . . .1977 . . . . . . . . . .1978 . . . . . . . . . .1979 . . . . . . . . . .1980 (plan) . . . .1980 (actual) . .

Negligible1 .4b

3.5b

20 2b

26.4 c

34.8 d

44.8d

54.8 f

80.0b

70.5J

(73.0) k

—0.3g

0.5g

1.9g

2.2g

3.0g

3 7g

4.4 h

5.8 b

5.4J

(5.6)k

—0.3c

0.9b

4.7b

5.7c

7.1 c

9.1 e

1 1.4i

18.4 b

13.5

SOURCES aE.E. Jack, J R Lee and H H Lent Outlook for Soviet Energy InJoint Economic Committee U S Congress Sov/et Economy In a NewPempect/ve (Washington DC U S Government Prlntlng Off Ice,1976) p 462

bEnergeflka SSSR v 1976-1980 g A M Nekrasov and M GPervukhln, (eds ) (MOSCOW Izd Energtya 1977), pp 11 61 and 62

C L D[enes and T Shabad The Soviet Energy System (WashingtonD C V H Winston and Sons 1979), p 153

dEkonom{cbeskaya gazeta No 7 (February 1980) P 1

‘E/ekfrlcheskfye srar]tsll ( J anuary 1979 ) pp 2 and 3fElektr,chesklye sfarrts(t (Apr(l 19813) p 7

gCalculated by dlwdlng the figure In column 2 by total elect r(cltyproduced In the given year as reported In the Sov(et statisticalyearbook Narodnyoye khozyaystvo SSSR v 1978 g (Moscow IzdStatlstlka 1979) p 142

hcalculated by dlvldlng the figure !n column 2 for 1979 by the totalelect rtclty produced In that year as reported In The U S S R InFigures for 1979 ( MO S C O W Izd Statlstlka 1980) p 107

I The Co/urn bus D/spafch (Columbus Oh to) Jan 29, 1980, p A-6

IE/ektr~chesklye sfanfslj (January 1981 ) p 2

kEkonom,cheskaya gazefa NO 12 (1981 ) P 1

figure 8. Most Soviet nuclear power stationsare located in the European portion of thecountry, primarily to the west of the VolgaRiver, where electricity demand is concen-trated, but there is also some demand fornuclear plants in remote regions (e.g., theBilibino NPS), apparently because of thehigh cost of other energy sources.

In both regions, the Soviets are interestedin using nuclear energy to provide districtheating as well as for generating electricity.The first heating plants may already be inoperation, and it is claimed that six atomicheating and cogeneration plants will be builtduring the Eleventh FYP. Because of Sovietconfidence in the safety of nuclear power,

there is little written about the environmen-tal implications of locating nuclear powerstations in populated areas. In fact, in thecase of nuclear district heating (where heatlosses are highly sensitive to transmissiondistances), the plants are actually to be sitedwithin urban areas.

R E A C T O R T Y P E S

The Soviets have experimented with anumber of types and sizes of reactors, butthey are now concentrating on two modelsthat will be standardized to facilitate massproduction: large capacity channel reactorsand pressurized water reactors. The formerare the most commonly used. Called RBMKs(the initials stand for the Russian words for“large capacity channel reactors”), they sup-ply approximately 8,000 MW or 61.6 percentof the total capacity of operational nuclearpower stations. RBMKs are boiling waterreactors; they are light-water cooled andgraphite moderated. The reactor consists ofa large pile of graphite with small tubedchannels running throughout. Some chan-nels house the fuel rods while others allowfor coolant flow.

There are several advantages to theRBMK. Its modular design allows the reac-tor to be almost entirely assembled on thestation site, with only a few componentsrequiring preassembly at the manufacturingplant; it is capable of online refueling; and itprovides the capacity to detect a failed fuelelement in a given pressure tube duringoperation. This latter characteristic permitsimmediate removal and reinstallation ofthe fuel element without shutdown.11 TheRBMK also uses lightly enriched uraniumand produces more plutonium than the othermost common model. The U.S.S.R. is nowthe only country actively engaged in the con-struction of this type of reactor, the UnitedStates having abandoned plans for its com-mercial development some years ago.

11‘Joseph D. I.afleur and Victor Steno, “NRC Team Visit toU. S. S. R., Feb. 5-18, 1978, ” information report No. SECY-78-1113, hlar. 21, 1978, p. 11.

Ch.. 4—The Soviet Nuclear Power Industry • 115

Table 29.—Soviet Nuclear Power Stations in Operation

Year ofReactor initial

Station name Location No.

Obninsk Obninsk 1

Siberian Troitsk h 1

Dimitrovgrad Dimitrovgrad 1(Formerly Melekess) 2

Beloyarskiy Zarechnyy 123

Novovoronezhskiy Novovoronezhskiy 12345

Shevchenko Shevchenko 1

Kola Polyarnyye Zori 12

Bilibino g Bilibino 1234

Leningrad Sosnovyy Bor 123

Kursk Kurchatov 12

Armenian Metsamor 12

Chernobyl Pripyat 12

Rovno Kuznetsovsk 1

operation

1954

1958

19651969

196419671980

19641969197119721980

1973

19731974

1974197419751976

197319751979

19761979

19761979

19771978

1980

Hatedreactor

Reactor capacity, Reactordesignation) MW(e) type)

— a

—

VK-50BOR-60

AMB-100AM B-200BN-600

VVER-21OVVER-365VVER-440VVER-440

VVER-1000

BN-350

VVER-440VVER-440

EGP-6EGP-6EGP-6EGP-6

RBMK-1000RBMK-1000RBMK-1000

RBMK-1000RBMK-1000

VVER-440VVER-440

RBMK-1000RBMK-1000

VVER-440

5

600 b

5 0c

12

100200600

210 d

365440440

1,000

350 e

440 f

440 f

12121212

1,0001,0001,000

1,0001,000

405 i

410 i

1,0001,000

440

BWR

BWR

BWR (Vessel)Breeder

BWRBWR

Breeder

PWRPWRPWRPWRPWR

Breeder

PWRPWR

BWRBWRBWRBWR

BWRBWRBWR

BWRBWR

PWRPWR

BWRBWR

PWR

aln U S sources this reactor has been designated as the AM1 (Dlenes and Shabad, OP clt p 156) and !he VAM 1 (Sutton OP cIt p 243)bThe station reportedly has a total capac[ty of 100 MW In 1958 At present the station IS said to have a capacity which significantly exceeds 600 MW’ (A M Petro

syants op cit p 123

c4ccordlng to Petrosyants op CII p 171 the VK 50 reaclor was upgraded to 65 MW(e) In 1974

‘This capacity reportedly was raised to 240 MW (n February 1965 and briefly to 280 MW In January 1969

‘If the Schevchenko reactor were used exclusively to produce electricity Its capacity would be 350 MW(e) In fact, only 150 MW(el of capacity are devoted to qeneratlonof electricity wh I Ie the balance IS used to produce 120000 metric tons of desal Inated sea water per day

‘These two reactors of the station s f~rst phase reportedly have been operating at capacities as high as 470 MW each (940 MW totall since December 1978

gThls station generates commercial heat as well as e(eCtrl City

hAccording to Dlenes and Shabad OP cIt p 153 this Iocatlon IS given In U S lists of foreign reactors Soviet sources have not ldentlfled the Slberlan statton’s Iocatlon

iIt IS not clear why these two reactors are rated at lower capacities than other VVER 440’s, one source [A fomnaya energfya (May 1977) p 419] relates the lowercapacities to cool lng conditions of the reactors

jpwR = press ur,~ed water reactor ~vessel type) which IS Cieslgnated VVER In Russ Ian, BWR = bolllng water reactor one Series of Which Is designated ~BMK ‘n Rus

slan tn the West the RBMK often IS described as a Ilght water-cooled graphfe moderated reactor (LGR or LWGR)

SOURCES A M Petrosyants Sovrerner?rryye problerny afornrroy naukl I fekhnlk/ v SS’SR (Moscow Atomlzdat 1976) PP 1181921 Sovefskak’a atomnaya nauka / fekhnjka( M o s c o w Atom!zdat 1967) pp 91-110 /zvesf(ya akademll nauk SSSR energef~ka f fransporf NO 5 (1977). PP 13-31 E/ekfr~f/kafs/Ya SSSR ( ~967 1977991P S Neporozhnly ted 1 ~Moscovv Izd Energlya 1977), p 50 E/ektr~chesklye stanfslf No 2 (February 1978) pp 8 13 No 2 (February 19801 pp 711, and NO

6 (June 1980) PP 28 Kornrnunfsf (Jan 1 1980) P 1 and Feb 29 1980), P 1 Afomnaya energlya tApr!l 1980). PP 220-223 Sfro/fe/na Ya 9azefa (Apr 9 1980) PI L Dlenes and T Shabad, The Sov(ef Energy System (Washington D C V H Winston & Sons, 1979} PP 153 156. and 157 A C Sutton Wesfern Techflo/ogv arrd Sovlef Econornlc Development [Stanford Call f Hoover lnstltut~on Press. 1973) p 243 Trud (June 1 1980) p 1 /zvesf(ya (Dee 25, 1980) p 1


Table 30.—Estimated Total Operating ElectricGenerating Capacity of Soviet NPS’s as of

Dec. 31, 1980a

Total capacity,Station MW(e)

Obninsk. . . . . . . . . . . . . . . . . . .Siberian. . . . . . . . . . . . . . . . . . .Dimitrovgrad . . . . . . . . . . . . . .Beloyarskiy . . . . . . . . . . . . . . .Novovoronezhskiy . . . . . . . . .Shevchenko . . . . . . . . . . . . . . .Kola . . . . . . . . . . . . . . . . . . . . . .Bilibino . . . . . . . . . . . . . . . . . . .Leningrad . . . . . . . . . . . . . . . . .Kursk . . . . . . . . . . . . . . . . . . . . .Armenian . . . . . . . . . . . . . . . . .Chernobyl . . . . . . . . . . . . . . . . .Rovno . . . . . . . . . . . . . . . . . . . .

Grand total.... . . . . . . . .

5600

77900

2,485150940

483,0002,000

8152,000

44013,460

aThese are not rated capacltles, but OTA’S best estimates of the actual operattngcapacities at each station

SOURCE Table 29.

The next most commonly used reactors,pressurized water reactors, supply approx-imately 4,200 MW or 31 percent of currentcapacity. They are known as VVERs in theSoviet Union (for the Russian words ’’water-water power reactors”), and are similar tomodels available in the West. Light water isused in these reactors as both moderator andcoolant. A large, cylindrical, steel pressurevessel houses the fuel and control rods alongwith other necessary internal apparatus. Thehigh pressures involved dictate that majorcomponents, including the reactor vessel, bemanufactured and tested before shipment tothe station site for final assembly.

REACTOR MANUFACTURE

Thus far, the expansion of Soviet nuclearcapacity in 1,000-MW increments has beenbased almost exclusively on the RBMK-1000reactor, the components for which can beproduced at ordinary manufacturing plants.Pressure vessels for reactors of the VVERseries require specialized production fa-cilities.

One enterprise that produces pressurevessels and equipment for reactors of bothtypes is the Izhora Plant Production Asso-

ciation near Leningrad. Izhora began pro-ducing main power equipment for NPSS in1964. In order to manufacture this equip-ment, it has had to undergo extensive expan-sion and retooling, and it is now the mainsupplier of nuclear power reactors. Izhora isproducing 1,000-MW VVER reactors to beinstalled at NPSS under construction in theSouthern Ukraine and at Kalinin, and it hasbegun making an RBMK-1500 unit for theIgnalina NPS.12 However, this enterprisealone will not be able to produce all the re-actors required in the next decade. Some ofthis burden has been shifted to Czech-oslovakia’s Skoda Works, which has beenassigned the task of producing the smallerVVER-440 pressure-vessel reactors. In theSoviet Union, a major share of the burdenis to be assumed by the gigantic new Volgo-donsk Heavy Machine Building Plant, betterknown as “Atommash."14 As Atommashreaches full capacity (by 1990), more andmore reliance will be placed on the VVER-1000.

When Atommash is fully operational, itwill produce VVER-1000 pressure-vessel re-actors on an assembly-line basis, at the rateof eight reactors per year. Since Atommashis designed to specialize in reactor produc-tion, this rate of output, if achieved, un-doubtedly will outstrip that of a more con-ventional (albeit upgraded) manufacturingenterprise like Izhora.

In addition, the Soviets have long been in-terested in introducing commercial breederor fast-neutron reactors (designated either

12Yu. Sobolev, “The Direction for the Search, ” Sot.sialis-ticheskayu irzdustriy~ Nov. 3, 1979, p. 2 in JPRS 75,069, Feb.5, 1980, pp. 1-3); “Heroes of Izhora, ” Lenirzgradska.va pruvda,Dec. 19, 1980, p. 2.

IsVarious item9 of largely Soviet-designed equipment torNPSS arb being or will be produced in East European CMEAcountries, for use both in these countries and in the SovietUnion. For a description of this “division of labor, ” seeVyacheslav Zorichev and Yevgeniy Fadeyev, “The Course forAccelerated Growth of Atomic Power, ” Ekonomicheskovesotrudnichestuo stran-chlenou SEV, No. 6, 1979, pp. 51-55.

1 iI~~aUSe Of the growth in size and scope of operationssince its inception, this plant has been redesignated as a pro-duction association. See Anatoliy Mashin, “First Phase, ”Zrzamv~ No. 3, March 1979, pp. 190-199, in JPRS 73,863,July 19, 1979, pp. 1-13.

L’

0.

,’

/.. ,-


BOR or BN in Soviet terminology) in orderto make better use of available nuclear fuelsupplies. The major characteristic of thistype of reactor is that it “breeds” or pro-duces more fuel than it consumes. Sys-tematic investigation of fast-neutron reac-tors began in 1948, and the first Soviet reac-tor of this type was started up at Obninsk in1956. In 1969 the BOR-60 went into opera-tion in Dimitrovgrad, and in 1973 the firstdemonstration breeder reactor began op-erating in Shevchenko on the east coast ofthe Caspian Sea. This reactor has a gen-erating capacity of 150 MW, as well as theability to desalinate 120,000 cubic meters ofseawater per day. In April 1980, the BN-600,with an electrical generating capacity of 600MW, went into operation as Unit 3 at theBeloyarskiy station.15 These three reactorscurrently account for 5.8 percent of Sovietnuclear generating capacity.

At one time it was expected that large-scale commercial stations equipped withbreeders would be ready by the early 1980’s.However, recent Soviet literature suggeststhat this stage will not be reached until theend of the 1990’s. Technical difficulties withthe use of sodium and other liquid metals asheat-transfer agents are the primary prob-lem (no moderator is used in breeders andthe high temperatures involved necessitatethe use of liquid metal, usually sodium, asthe coolant), but unexpectedly high costsassociated with all basic processes in the ex-ternal fuel cycle have also been cited.16

PAST CONTRIBUTION OFWESTERN EQUIPMENT AND

TECHNOLOGY

Although the U.S.S.R. collaborates withits East European allies on nuclear develop-——————

“Kazachkovskiy, op. cit, pp. 3-4: Peter I’euz, “The NuclearPush in the [J. S,S. R. and P;astern I+; urope, ” P{~//er Engineer-ing, No. 8, AUK, 1978, pp. 100-1()1; ‘‘ I,ate Breeder in the Uralhlountains, ” 11’irt,s(ha~t,sr(f)ch~~ (I)usseldorf), N o . 18, May 2,1{)80, pp. 1 ~- 16, in ,JPRS 75,973, (July 2, 1980, pp. ~-1~.

“IN, I)ollezha] and Y. Koryakin, 4 ’ Nuclear Power I?ngineer-ing in the So\riet ( J nion, ‘The Bulletin c]f the .s1 tornic .Vc’icrt-

ti.s (.$, No. 1, ,January 1980, pp. 33-3’7, loriginall~ published inthe S(’pt(’nllwr 1979 issue of lt’(~n~ rnu nist. )

ment, its progress has been largely auton-omous. The Soviet nuclear power industryhas relied heavily on domestic equipment,purchasing relatively little from the West.Western controls on the export of nucleartechnology have almost certainly been animportant reason for this self-sufficiency,although shortages of foreign exchange andpride in Soviet technology would probablyhave led to some restraint in purchases ofWestern equipment in any case.

Soviet purchases of primary nuclear com-ponents such as reactors and reactor partsfrom the West have been infrequent andpoorly documented.17 However, the U.S.S.R.has purchased equipment that could be usedin nuclear powerplants. Although evidence isincomplete,18 documented purchases consistmostly of machine tools, heavy equipment,and engineering services slated for Atom-mash and Izhora. These have been sold byfirms in Italy, West Germany, Japan, Swe-den, France, and the United States. Italyseems to be the country most heavily in-volved in such trade; several Italian com-panies have supplied equipment, mainlymachine tools, to Atommash and Izhora.

Besides heavy manufacturing equipment,Atommash and Izhora are said to be receiv-ing well-outfitted quality control labora-tories, including large destructive-testingequipment, from European, Japanese, andNorth American sources. The Soviet nuclear

17‘U.S. Department of Commerce trade statistics reportonly two entries under SITC Code 7117, “nuclear reactorsand parts thereof. ” one is a 1978 export of $448,700 from theUnited States; the other $329,000 from Wrest (;ermany in1976. No further unclassified information on either sale couldbe found. OTA has been told, however, that a Wrest (lermanfirm was to deliver all fittings and equipment for the nuclearcycle in three Soviet powerplants with a combined generatingcapaci ty of 1,880 NIP$’; the deli~rery was to be completedbefore the end of 1980.

18The remainder of this section is based on various issues ofSoliet Busine.s.s an(i Tra(lp and on A“ucleonic.s lf’m~k, Nov. 8,1979, p. 12. In general, Soviet sources make no mention oronly passing reference to the use of foreign equipment. Forexample, one Soviet source noted in passing that tnetal refin-ing equipment from a Swiss firm is used at the 1 zhora PlantAssociation. See V. P. (;olo\riznin, “So\’iet P o w e r F;quip-ment-The Basis for the De\’elopment of Power h; ngineeringin ( )ur Country, ” filrlc~rg(jnlcl.s)l irtc).vtro?rc~rli >tc>, INo. 4, A p r i l1 9 8 0 , p p . 2-4 in JPRS I, 9176, Jul~ 2, 1980, p p . 1 1 - 1 8 ,especiall~’ p. 14.


industry has also been acquiring valves fromat least one Western source, a Canadian firmthat has supplied valves for the Novo-voronezhskiy NPS; and the Belgorod PowerMachine Building Plant reportedly has in-troduced technology for automatic argon-arcwelding of austenitic steel pipeline units forNPSs. The technology uses AM-11 auto-matic welding units manufactured by a U.S.firm.19

The U.S.S.R. also may be purchasinglarge capacity cranes, both for buildingNPSs and for handling heavy items at manu-facturing plants. In 1976, there was specula-tion in the industry that foreign bids wouldbe solicited for 1,200-ton cranes for Atom-mash, but OTA has been unable to confirmany completed transactions. Similarly, in1979 the U.S.S.R. reportedly ordered three300-metric-ton truck-mounted cranes from aWest German firm. These cranes are tech-nically well-suited for use at nuclearfacilities.

It is important to note that none of thesepurchases appears in an area in which theSoviets lack technology. Moreover, OTAfound no evidence that equipment of the sortdescribed has been sought or purchased inmassive amounts or that the Soviets havethus far sought large-scale active Westerncooperation in their nuclear industry.

1 9 8 0 P L A N F U L F I L L M E N T

As table 28 shows, the Soviet nuclearpower industry was originally charged withproducing 80 billion kWh of electricityduring 1980, and completing some 18,000MW of installed capacity by the end of thatyear. By early 1980, it was clear that thesetargets could not be reached and in Februaryof that year a revised production goal of 71.9billion kWh was published. As of December31, 1980, installed nuclear capacity was ap-

proximately 13,460 MW, a figure that takesinto account the start of unit 1 (440 MW) atthe Rovno NPS in December 1980.20 This iswell below the plan target of 18,400 MW.

Failure to meet the plan was largely due todelays in the installation of nuclear powerstations. These delays were apparently theresult of a variety of systemic problems andwere more closely associated with the con-struction industry and suppliers of materialand equipment than with technological dif-ficulties. Although one of its productionlines has been opened, Atommash is nowseveral years behind schedule. The long lead-times required to install reactors and tomake nuclear power stations fully opera-tional make it unreasonable to blame Atom-mash for past failures to meet goals for in-stalled capacity or production of nuclearelectricity. However, problems in bringingAtommash online may become a major fac-tor in any failures to meet nuclear targets inthe 1980’s.

Soviet literature provides numerous ac-counts of the difficulties encountered in thebuilding of nuclear power stations,21 includ-ing poor organization of labor, as well asdelays on the part of ministry officials,designers, builders, and suppliers of ma-terials, construction modules, and equip-ment. Similar complaints can be found evenin the construction of the BN-600 breederreactor (unit 3 at the Beloyarskiy NPS)—where the Soviets felt themselves to be in

20~~t all sources agree with this 13,460-hl W’ figure. .4 So~i-et article, ‘‘ Results of t hc’ ,+ld~rancement of ~; lect ric’ I’ower in1980 and Tasks for I !)N 1, ” h,’lck tri[>}le.ski \ItI \ fu n t ill, No. 1,

J a n u a r y 1981, pp. 2-4, r~’ports the total (apacit~ of S()\i(~tNPSS at the end of 19H() as 12, :100” hl J!’ I n part . this dis-crepanc.v can he explained h> lower .So~’iet i i~~u re~ for [ he (’a-pacities of t h e Din]iLro~”grad, Kola, a n d Nt)~’()~’()r{Jr~t’z}lski~N PSS, which w(mld ac(~)un t for a differ(~nce of I (),-) h] ii (seetables 29 and ;10). I n addition, the Soy’iet total may’ (Jxcludethe capacitv of the Siberian N PS (600 NIM’), Finall~r, the So-viet figure may not take into account unit 1 of the new }{()~n()N 1)S. P’or purposes of this report and on the basis of d(M’-umented e~’idence, ( )’1’,1 includes the capacit}r increments ap -parentl~ omit ted from the reported %~riet figure for total nu-clear capacit~.,

‘(;. I)olzhenko, “ S a n c t i o n s ’ ! I’or~et I t!” Str~ji([,~n~~ }(I

~~{Iz~ta, ,Jul~r 16, 1980, p, 2.: Zh. ‘1’kachenko, ‘‘Y”ou (’an n(>t 1{(1-pla(’t~ 1$1[’tal \$’it h kl(’ssa~es, Sot %i(]il \ t][ll{) ~ki] jfa [rI(lii 5 [r! )fw

Apr. 2, 1980, p. 2, in ,J PRS 75,9’711, .July 2, 1980, pp. 17-20.


the international technical spotlight.22 Inthis case, the general contractor was severalmonths late in issuing technical documenta-tion; equipment and materials were late ordefective; there was a shortage of spareparts; and when equipment did arrive at theconstruction site, managerial personnel andskilled workers were in such short supplythat there frequently were long delays beforethe equipment was installed or even properlystored.

Such problems are not peculiar to theSoviet nuclear power industry, althoughthey may be exacerbated by the high tech-nological standards required for nuclearequipment. Similar sorts of complaints arepublished regularly in the Soviet press and

2"Late Breeder . . . ,” op. cit.

cover a variety of industries. To a certain ex-tent, too, these problems may be seen as“growing pains.” Installed nuclear capacityrose an average of 1,760 MW per year duringthe period 1976-80, v. only 760 MW per yearin 1971-75. As computed from table 28, theannual rate of addition continued to increaseduring the late 1970’s, rising from 1,000 MWin 1975-76 to 2,300 MW in 1978-79. TheEleventh FYP (1981-85) projects continuedrapid growth and it is clear that nuclearpower’s contribution to the Soviet energybalance will accelerate in the next decade.Nevertheless, it is likely that this rapidbuildup in the rate of construction of nuclearpower stations has itself created numerousproblems for the future and that the dif-ficulties described above will persist as theindustry struggles to meet the 1985 and1990 targets.

NUCLEAR CAPACITY AND PRODUCTION:FUTURE PROSPECTS

TARGETS FOR 1985

Soviet goals for nuclear power are am-bitious. The draft of the Eleventh FYP callsfor the generation of 1,550 billion to 1,600billion kWh of electricity from all sources in1985, of which 220 billion to 225 billion kWh,or about 14 percent, are to be generated atnuclear power stations.23 In order to achievethese goals, 24,000 to 25,000 MW of addi-tional nuclear generating capacity are to beinstalled during the FYP. If these installa-tion goals are achieved, the U.S.S.R. willhave about 38,000 MW of installed nuclearcapacity by the end of 1985.24 (The UnitedStates had 52,300 MW of nuclear capacity asof January 1980.25)

“’ i Draft of the Main Directions of Economic and Social De-velopment of the U.S.S.R. for 1981-1985 and for the Period of1990, ” lz~lesti-ya Dec. 2, 1980, pp. 2-7.

“This assumes that the Soviet Union had 13,460 MW of ef-fective nuclear power generating capacity, as of Dec. 31,1980. Addition of 24,000 to 25,000 MW of capacity during theEleventh FYP would result in total nuclear capacity at theend of 1985 of 37,460 to 38,460 MW. OTA has used theapproximate midpoint of this range—38,000 MW.

“hlorgenthaler, op cit.

These targets assume a high utilizationrate for nuclear generation facilities. Therate for 1985, calculated as the ratio ofplanned nuclear electricity productionduring 1985 to estimated midyear plannedcapacity in 1985, implies that the Soviets ex-pect to operate nuclear stations for anaverage of about 6,250 hours per year during1985. This rate is not impossible, but it issubstantially higher than the utilization rateof 5,420 hours achieved in 1980.26

TARGETS FOR 1990

Current Soviet goals for 1990 are less ex-plicit. One Western journal cited a 1990 nu-clear capacity target of 80,000 MW in oneissue, while another issue 6 months later re-ported a goal of 90,000 MW.27 In a speech de-

“Calculated from table 28 using estimated capacity as ofJu1y 1, 1980, 13,020 MW.

“’’Afghanistan Imperi ls Co-operat ion on Soviet I+o-gramme, ” Nuclear Engineering Internationa~ February1980, p. 5; Richard Knox, “Pro~ess in the U, S, S.R., ” Aluc/earEngineerin g International, August 1980, p. 14.

Ch.. 4—The Soviet Nuclear Power Industry • 121

livered in December 1978, P. S. Neporo-zhniy, the Minister of Power and Electrifica-tion, spoke of reaching 100,000 MW ofnuclear capacity in the following 10 to 12years,28 and a West German newspaper hasquoted 1990 targets of 100,000 and 110,000MW, concluding that one “cannot accurate-ly determine from Soviet data what theU.S.S.R. wants to have ready or wants tobuild by 1980 or 1990.”29

Soviet goals for 1990 are contingent onthe achievements of the industry by 1985.Reported downward revisions in the 1985goals make it likely that targets for 1990also have been adjusted and that any ex-isting plans for 100,000 to 110,000 MW havenow been abandoned. Barring large-scale in-fusions of Western equipment (e.g., turnkeyNPS projects), a possibility that will bediscussed in more detail below, the publishedgoal that OTA regards as being most reason-able is 80,000 MW. The discussions thatfollow assume this figure, which would re-quire the addition of 42,000 MW of nuclearcapacity during the Twelfth FYP (1986-90),given that 38,000 MW of capacity were inplace at the end of 1985. If these capacitygoals are achieved by 1990, the Sovietswould have the ability to generate approx-imately 410 billion to 475 billion kWh ofnuclear electricity per year, depending onone’s assumptions regarding utilizationrates. 30

SOVIET ABILITY TO MEETPLAN TARGETS

The following sections evaluate the poten-tial for success of these plans, identifyingthe major obstacles likely to be encountered,and noting the areas in which Western tech-

28"Speech of P. S. Neporozhniy, ” lz[e.sti.sa, Dec. 1, 1978,p. 4.

“’’F’rom Lake Baikal to the Elbe River, ” bl’irt.schu ft.~uoche(Dusseldorf), No. 46, Nov. 12, 1979, pp. 64, 68, 70, 71, 74, and76, in JPRS 674,792, Dec. 19, 1979, pp. 20-29.

‘(’The low end of the range assumes an operating rate of5 , 4 2 0 hryr, the rate achieved in 1 9 8 0 , w h i l e t h e u p p e rassumes the operating rate apparently sought for 1985, 6,250hours. Mid-1980 capacity is estimated as 75,300 to 76,300Mk$’.

nology and equipment might make the great-est contribution. This evaluation is orga-nized around four key areas:

1.2.

3.

4.

construction of the stations;manufacturing reactors, steam equip-ment, and electrical machinery;facilities for the external fuel cycle,which include supply of enriched ura-nium for reactor fuel and the storageand disposal or reprocessing of spentfuel; andcomputer technology to support stationoperation. (Electricity transmissionlines and pumped storage electricitygenerating capacity are discussed inch. 5).

For purposes of this discussion, OTA hasassumed a profile of yearly additions tonuclear capacity. This profile is illustrated infigure 9, which also shows the actual annualadditions between 1975 and 1980. The latterincreased from about 1,000 MW in 1976 toabout 2,300 in 1979, falling to 2,040 in 1980.In order to add 24,000 to 25,000 MW by1985 and 42,000 more by 1990, the Sovietscould proceed at any of a number of differentpaces. The one shown in figure 9—successiveincrements of 3,000, 4,000, 5,000, 6,000, and7,000 MW to 1985 and 7,000, 8,000, 8,000,9,000, and 10,000 MW to 1990—is not theonly possible profile, but it is a reasonableone to serve as an illustration of thedemands that will be placed on the Sovietnuclear industry to achieve a total of 80,000MW installed capacity by 1990.

Table 31 presents much of the publishedinformation on nuclear power stations thatare now under construction or planned.Rated reactor capacities have not been pub-lished for all of these, but those that havebeen released total 41,820 MW (excludingunit 6 at Rovno)—enough to cover the entirecapacity addition called for in the EleventhFYP and roughly 40 percent of the likely ad-dition during the Twelfth FYP.

Several features of these planned addi-tions are noteworthy. First, only three moreVVER-440 reactors are scheduled to be built


Photo credit TASS from SOVFOJO

NPS control room in the U. S. S. R., 1980

for domestic NPSS, two for the Kola NPSand one for Rovno. Production of this type ofreactor is to shift to the Skoda Works inCzechoslovakia, and such reactors will be in-stalled in Eastern Europe and exported else-where, e.g., to Cuba or non-Communist ThirdWorld countries. Second, most announcedcapacity additions will involve 1,000-MWreactors. Of the 31 reactors of this size thathave been scheduled, nine are RBMKs and22 are VVER units, the latter to be producedprimarily by Atommash. Third, there areplans to install four RBMK- 1500 reactors atthe Ignalina NPS in Lithuania,” and—

31A tomic Science and Technology in the U.S.S.R. (Moscow:Atomizdat, 1977), p. 26. The RBMK-1500 is an upgraded ver-sion of the RBMK-1OOO. See A. M. Petrosyants, Problems ofAtomic Science and Technology (Moscow: Atomizdat, 1979),p. 139.

possibly several more at the Smolensk andKostroma NPSS.32 Finally, there are plans toeventually build on RBMK-2400,33 but nodetails on the installation of such reactorsbefore 1990 have been published.

Construction

Time.–Plans that call for the addition of24,000 to 25,000 MW of nuclear capacity by1985, and an additional 42,000 MW by 1990can only be realistic if they allow sufficienttime for the construction of new plants. TheSoviets themselves have maintained thatthe construction time norms are 6 years for

“F. Ovchinnikov, “By Advancing Tempos, ” Sotsialistich-eshaya industn”yq Jan. 30, 1981, p. 2.

“N. A. Dollezhal, “Atomic Power Engineering: Scientific-Technical Tasks of Development, ” Vesti”k ti~”i nu.ukSSSR, No. 7, July 1978, pp. 46-61.

Ch.. 4—The Soviet Nuclear Power Industry . 123

10,000

9,000

8.000

7,000

0

6,000

5,000

4.000

3.000

2,000

1,000

Figure 9.— Past and Projected Additions to Nuclear Generating Capacity

I

I

124 . Technology and Soviet Energy Availability. .— —

Table 31.— Planned New Nuclear Electric Generating Capacity in the U. S. S. R., Post-1980

RatedYear of reactor

Reactor Initial Reactor capacity, Reactortype e

Station name

Existing StationKola

Location No operation designation MW(e)— —

VVER-440VVER-440

RBMK-1000

RBMK-1000RBMK-1000

RBMK-1000RBMK-1000

PWRPWR

Polyarnyye Zori 34

19811982

440440

1,000

1,0001,000

1,0001,000

4401,0001,0001,0001,000

1,0001 0001,0001,000

1,0001,0001,0001,000

1,0001,0001,0001,000

1,5001,5001,5001,5001,0001,0001,0001,000

10001,000

—

1,0001,0001,0001,000

1,000

1,000

1,000—

1,500

Leningrad

Kursk

Sosnovyy Bor 4 1981 BWR

BWRBWR

Kurchatov 34

1981By 1985

Pripyat 3d

1981By 1985

BWRBWR

Chernobyl

New Stations:

Rovno a VVER-440VVER-1 000VVER-1000VVER-1000VVER-1000d

VVER-1000VVER-1000VVER-1000VVER-1000


RBMK-1000RBMK-1000RBMK-1000RBMK-1000

RBMK-1500RBMK-1500RBMK-1500RBMK-1500


VVER-1000VVER-1000

—

—

PWRPWRPWRPWRPWR

Kuznetsovsk 23456

19811983

——

By 1992

1981By 1985

—

PWRPWRPWRPWR

PWRPWRPWRPWR

BWRBWRBWRBWR

BWRBWRBWRBWR

PWRPWRPWRPWR

PWRPWR

Southern Ukrainiana Konstantinovka 1234

Kalinina Udomlya By 1985By 1985By 1985By 1985

1981By 1985By 1985By 1985

By 1985By 1985

1234

Smolensk a Desnogorsk 1234

Ignalina a Snieckus 1234

By 1985By 1985

—

Western Ukrainiana Khmeinitskiy 1234

Near Odessa 1

Gorkiy 2Odessa b

Gorkly b

Minsk b

Kharkov b

Volgograd b

Zaporozhye a

— c

Minsk —-Kharkov —

Volgograd — —- —VVER-1000VVER-1000vVER-1000vVER-1000

VVER-1000

VVER-1000

VVER-1000

Energodar 1234

PWRPWRPWRPWR

—c

——

Balakovo a

Rostov a

Crimeana

Balakovo —c PWR

PWR

PWR

Near Volgodonsk

Aktash —

—c

—c

Tatar

Bashkir

Kostroma

Nizhnekamsk —

Nertekamsk —

——

RBMK-1500

—BWR—

a The station reportedly are under constructionbThe Odessa station IS to be the first of a series of large nuclear heat and power stations (NHPS) located near major urban centers, A small (48.MW) NHPS IS in operation

at Bilibina. Although virtually any type of reactor theoretically can be adapted to this type of station, preference reportedly IS being given to PWR’s, but evidence sug-gests that there wiII be at least two. Plans for the period 1981-1985 also call for NHPS’s to be built in Minsk, Kharkov, and Volgograd, the reactor type for these stationsIS not known.

cUnspecifiednamounts of capacity are to be Introduced at these stations during the period 1981.1985.dThe Rovno NPS IS to have SIX units by 1992, starting with Unit 3, they are to be based on the VVER-1000 reactor

‘See notes to table 29

SOURCES A M Petrosyants, Prob/emy afornrmy rraukl j tekhrrM/ (Moscow: Atomlzdat, 1979), p 139 .4tomrraya nauka / tekhnik~ v SSSR (Moscow Atomlzdat, 1977), p 26Aforrrrraya energlya, Vol 43, No 5 (November 1977), pp 418.420 E/e/rtr/chesk/ye Sfan?s/1, No 6 (June 1980), pp 2-5, No 10 (October 1980), pp 10.14; and No12 (December 1980), pp 60-63. Tep/oenergef/ka, No 7 (July 1979), pp 2-9; and No. 8 (August 1980), pp 2.5 Ekonommhes/raya gazeta, No 1 (January 1981), pp11 and 12, and No 12 (March 1981), p 2 /zvest/ya (December 2, 1980), pp 2.7 Pravda (Jan 6, 1981), p 1. Sots/a//st/c/reslraya /rrdustr/ya (Jan 30, 1981), p 2Strolte/naya gazefa (July 16, 1980), p. 2 Sov/ef Geography, various Issues.


an NPS equipped with two VVER-1000 re-actors and 6 years, 3 months for an NPSwith two RBMK-1000 reactors.34 While onlyone VVER-1000 has been installed to date,experience with smaller VVER reactors andwith the RBMK-1000 suggests that theseestimates may be optimistic.

Unit 1 at the Novovoronezhskiy NPS(VVER-210) was begun in 1957, but did notgo into operation until 1964.35 The firstphase of the Leningrad NPS (equipped withtwo RBMK-1,000 units) was under construc-tion for 7 years, as was the first phase of theChernobyl NPS (also equipped with twoRBMK-1000 units).36 Unit 1 (an RBMK-1000) of the Kursk NPS took 6 years to buildand unit 2 (also an RBMK-1000) required 3years, stretching the total time of phase 1 to9 years.37 In the case of the Armenian NPS,where construction began in 1971, unit 1(VVER-440) achieved criticality in December1976 and full-power operation in November1977; however, unit 2 (VVER-440) did notcome online until 1979—8 years after con-struction began.38 These experiences wouldsuggest that 7 years is a more realisticestimate of the time required to bring thefirst two units of an NPS online.

According to F. Ya. Ovchinnikov, DeputyMinister of Power and Electrification, inmid-1979 the U.S.S.R. had 20 NPSs with atotal rated capacity of over 60,000 MW inoperation or under construction.39 If addi-tions to capacity proceed at the rate sug-gested in figure 9, the Soviets could have60,000 MW installed capacity before the end

“ N . Ya. Turchin, et al . , B[~[lclirlg 1+’ue[ arl(i ,4 tc>nlic l)cjiier

Stations { Nloscow: Stroyizdat, 1979), vol. II, p, 505,1’)I,afleur and Steno, op. cit,, app. B, p. 20.‘h}$’illiarn F’. Say’age, “ Report of the Second hleeting of the

(). S.-[ J.S.S. R. .Joint (’ommittee for Cooperation in the Field of~lnerg~” (J$rashington, 1), (7.: U.S. Department of P:nergy,Dec. 1 !5, 1977), p. 12: T“. P. Akinfi~e~, A D. Czellerman, andJ’. K, Bronniko~r, ‘ (~; xperience in Assimilating the Rated(’apacity of t h e I’irst Phase o f t h e (’hernoh.vl N P S , ’F.’leh [n”ch~.<hi?e vtun t.~ii, No. 2, Feb. 1980, pp. 7-11.

‘-S. ‘11-~~’an, “1, ah~r M’atch of the .Atom, ” l:{e.sti}a, Fell. 1,1979, p. 1,-in tJPRS 73,092, Nlar, 28, 1979, pp. 39-41.

‘“U.S. !Nuclear R e g u l a t o r y (’omrnission, op. cit., app. B,p. 26,

“F, Ya. Ovchinniko~’, “Nuclear Power Engineering 1s aQuarter Century Old, ” ~eploenergctik[l, No. ‘7, July 1979, p p .2-5, in ,J PRS I, 8700, oct. 4, 1979, pp. 1-8.

of 1988. This allows over 9 years for comple-tion of all of the nuclear power stationsreported by Ovchinnikov. On the surface,therefore, the contemplated additions to ca-pacity are consistent with Soviet experienceand seem realistic in terms of constructiontime.

There is an additional dimension, how-ever. Expenditures for construction andassembly work are not spread evenly overthe time required to build an NPS. Rather,they begin at a low level, rise steadily untilthe fourth and fifth years of construction,and then fall off. During construction of anNPS equipped with two VVER-1000 reac-tors, for example, only 4 percent of total con-struction and assembly costs is incurred inyear 1, but 24 percent of total costs is in-curred in year 4 and a similar amount in year5. In the case of an NPS equipped with twoRBMK-1000 reactors, the percentages risefrom 7 percent in the first year to 20 percentin year 4 and 20 percent in year 5.40

As a result, it may be relatively easy tobegin the construction of an NPS, and it maybe easy to complete one that is in the latestages of construction, but great effort onthe part of the construction industry is re-quired during years 3 to 5. Based on theirpast experience with the construction of nu-clear power stations, it is possible that theSoviets could succeed during the 1980’s inbeginning the construction of all plannedNPSs, and could complete by 1990 thosethat are nearly finished. But, the U.S.S.R.might still reach the end of the decade with agreat deal of unfinished construction be-cause many NPSs were stalled in the de-manding third to fifth construction years.

Required Investment.–Although Sovietdata on per unit investment cost is noto-riously unreliable, OTA has attempted toconvey a rough idea of the order of mag-nitude of investment entailed in Sovietnuclear plants. A number of estimates of theinvestment cost per kilowatt of nuclear

‘“V. 13, I)uhro~’skiy, et. al , B/iil(iirz,q .4 tornic Is’lectn’c IJorier

.$tuti~~r~.s ( Nloscow: Izd. “h~nergi~’a, ” 19791, p. 187,


capacity have appeared in Soviet publica-tions and have ranged from as low as 175rubles/kW to as high as 413 rubles/kW,depending on the date of the estimate, thecost categories encompassed by the esti-mate, the assumed size of the power station,and the prospective site.41

The most authoritative recent estimatesof specific capital investment are probablythose that appeared in a February 1979 arti-cle by A. Troitskiy, a deputy head of theDepartment of Power and Electrificationof Gosplan.42 Troitskiy’s estimate for the“Center,” which best typifies the EuropeanU. S. S. R., where most plants are likely to bebuilt, is 380 rubles/kW. This figure includesall associated costs—transmission lines,mining uranium, providing housing for con-struction workers, etc.

Assuming that the Soviet Union does addthe 24,000 to 25,000 MW of capacity calledfor in the Eleventh FYP, and using Troit-skiy’s figure, the total cost of additions tonuclear capacity during the period 1981-85should be 9.1 billion to 9.5 billion rubles. TheEleventh FYP target for planned capital in-vestment in the period 1981-85 is 711 billionto 730 billion rubles. Given that industry hasusually been accorded about 35 percent ofthe total, planned industrial investment inthe period is probably about 250 billionrubles. The cost of additions to nuclearcapacity therefore constitutes about 3.6 to3.8 percent of industrial investment. How-ever, investment in the electric power in-dustry as a whole has been usually about 4.6percent of the total. This means that thenuclear program, which will account for 45 to50 percent of new electric capacity by 1985(see ch. 5), could take up about 80 percent ofall electric power investment.

41 Turchin, et al., op. cit., vol. 1 I, p. 894; A. Troitskiy, “Elec-tric Power: Problems and Perspectives, ” Planovoye khozyay-stvo, No. 2, February 1979, pp. 18-25. For a thorough dis-cussion of Soviet estimates of nuclear power costs, seeWilliam J. Kelly, Hugh L. Shaffer, an J. Kenneth Thompson,“The Economics of Nuclear Power in the Soviet Union, ” pre-sented at the 55th Annual Conference of the Western Eco-nomic Association, San Diego, June 1980. (Forthcoming inSovie t Studies. )

4Troitskiy, Op. Cit., p. 20.

This is a large burden indeed—and if evengreater increases in nuclear capacity are tobe realized in the 1986-90 period, the invest-ment problem can only intensify. Nuclearplant construction on this scale will there-fore place much greater demands on the So-viet economy in the coming decades. On theone hand, it is hard to argue from thesefigures that the aggregate investment de-mands cannot be met, if the U.S.S.R. is pre-pared to rearrange its priorities and direct alarger share of total investment funds to thissector. On the other hand, such a realloca-tion is likely to cause painful readjustmentsin the Soviet economy and “losers” in thesystem can be expected to resist the change.

Labor Requirements.—Although data onthe construction labor requirements in thenuclear power industry are scarce, availableinformation suggests that these require-ments are heavy. An idea of their order ofmagnitude might be gleaned from the fol-lowing calculation. In nonnuclear power sta-tions, the lowest levels of labor expenditureachieved in construction were 2.4 to 2.7person-days/kW of installed capacity.” Ifthe Soviets were able to add nuclear capacitywith a rate of labor expenditure of only2.5 person-days/kW of capacity, addition of24,000 to 25,000 MW during the period1981-85 would require 60 million to 62.5million person-days of construction and in-stallation work, while the indicated additionof 42,000 MW during the Twelfth FYPwould require about 105 million person-days. 44 If the time profile shown in figure 9were followed, the construction labor em-bodied in annual commissioning would rise

43 Turchin, et, al., op. cit., vol. II, p. 896.44 Interestingly, the figure of 2.5 person-days/kW is approx-

imately correct for construction of nuclear power plants inthe United States, if U.S. figures are revised to make themmore compatible with Soviet practice. See L.M. Voronin (cd.),Atornnyye elektricheskive .stantsii, No. 2 ( MO S C O W: Izd.“’Energiya, ” 1979), p. 47. However, the 2.5 person-day figure(derived from Soviet fossil-fired power construction) under-states labor requirements for construction of Soviet NPSS, ifone can judge from figures on labor requirements per ton o fequipment. As an example, it is estimated in Voronin that theamount of installation labor required per metric ton of equip-ment installed is 2 to 2.5 times greater for an N PS than for ananalogous fossil-fired power station. Ibid., p. 68.

Ch. 4—The Soviet Nuclear Power Industry • 727

from 5.8 million person-days in 1979 to 7.5million in 1981 and 25 million in 1990.Assuming, further, that the average con-struction worker provides 250 person-daysof labor per year, a work force of 23,200would have been required to deliver the 1979total, while 30,000 workers would be re-quired in 1981 and 100,000 in 1990.

This growing need for workers to buildnuclear power stations comes at a time whenthe total demand for construction labor ap-pears to be outstripping the supply. It istrue that the Soviet Union has a large con-struction labor force. In 1979, 11.2 millionworkers and office employees were employedin construction, 10.1 percent of all employ-ment in the national economy. But the rateof growth of construction employment hasbegun to slow,45 and in the last 3 years theabsolute increment to total constructionemployment has fallen successively. Thesedeclining growth rates do not signify a di-minished interest in construction on the partof Soviet planners, but rather a necessaryadjustment of the economy in general toslow growth in the labor force.46 As a result,all sectors of the Soviet economy are underpressure to achieve output gains through in-creases in labor productivity rather thanthrough expansion of employment.

The use of mechanization and automationas solutions to these problems has met withlimited success in the construction industry.F. Sapozhnikov, Deputy Minister of Powerand Electrification, has observed that “non-industrial and technologically ineffectivesolutions”’ still are used in the constructionof nuclear power stations, and that the shareof manual labor remains high.47 One reasonfor this seems to be that specially developedequipment and tools for installation work

“AI] figures from U.S, S. R., op. cit., pp. 387 and 388.“’See Murray Feshhach and Stephen Rapawy, “ S o v i e t

Population and Manpower Trends and Policies, ” in So[’ietEcon(Jmy in u ,~’~uI Pe.specti[e, compendium submitted to the,Jo int F; conomic Corn mittee of the U, S. Congress, Oct. 14,1976 (Washington. 1). (’.: [J. S. (;o\ernment Printing Office,19761, p. 13,3.

“F. Sapozhniko~’, “F~nergy, Ileat, a n d I.ight f o r A l l , ”.Strf~itelna\’a g(lzetu Dec. 21, 1979, p. ‘2, in ,J PRS 75,069, F’eb.5, 1 980! pp. 1 H-20.

have not been introduced into practice fastenough to keep up with the rapid growthrate of nuclear construction projects.48

Other approaches to productivity im-provements have been tried, including an ef-fort to reduce onsite labor requirements byincreasing the amount of assembly work car-ried out at factories before components areshipped to the construction site. It has alsobeen suggested that the turnover rate forconstruction labor could be reduced (andlabor productivity increased) if more atten-tion were paid to the needs of constructionworkers for housing, health care, entertain-ment, and other social amenities. 49

Despite the growing demand for workersto build nuclear power stations and thedeclining rate of growth of the total con-struction labor force and of the nonagri-cultural labor force, overall labor shortagesneed not impede nuclear power developmentif Soviet authorities plan ahead and allocatetheir available workers carefully. Accordingto the rough estimates above, nuclear plantcommissioning in 1979 would have requiredan aggregate amount of construction and in-stallation labor equal to only 0.2 percent ofthe 11.2 million worker construction laborforce available in that year. Projected com-missionings in 1985 and 1990 would repre-sent only 0.3 and 0.9 percent of the 1979labor force, respectively. Although there ap-pear to be limited opportunities to shiftworkers from construction of fossil fuel orhydroelectric power stations, the aggregatelabor requirements to support NPS con-struction need not pose a serious problem.

While the Soviet construction labor forceas a whole may be adequate, shortages of in-dividual skills could well arise. Installation isa crucial part of the activity involved inbuilding a nuclear power station, and when

Wu, S. hledvedev, “hlethods of Increasing the Efficiencyof TES, A E S Equipment I ntallation, Energetiche.skoyestroitel.st[’o, No. 11, November 1979, pp. 7-11, in JPRS1, 8955, Feb. 28, 1980, pp 7-16. Medvedev implies that this lagexists.

‘qOvchinniko~,, “F3y Advancing ‘1’empos, ” op. cit., p. 2.


construction reaches the heavy installationstages at a large plant, more than 2,000 in-stallation workers may be needed onsite forup to 1 to 1.5 years.50 If a number of plantswere to reach the installation stage at aboutthe same time, a severe shortage of installa-tion workers could result.

Construction Support.–Besides labor, theSoviet nuclear program will require adequatesupport in the way of equipment and fa-cilities for construction and installationwork.51 An important equipment category atnuclear construction sites is large cranes andother hoisting equipment to move buildingmaterials such as steel structures and to in-stall heavy components such as reactorvessels. This equipment will become increas-ingly important as the construction ofnuclear plants is based more and more onstandardized modular components—large,prefabricated pieces—which reduce laborcosts and speed the work at the site.52

Available hoisting equipment may alreadybe in short supply; one source mentions thepossibility of using this equipment for bothconstruction and installation work by com-bining these two phases of operationswherever possible.53

Besides more and better constructionequipment, the Soviet Union sees a need toimprove the organization and managementof construction operations in order to effi-ciently utilize both equipment and availablelabor. One form of improvement, as men-tioned above, is the timely scheduling of con-struction and installation operations at anNPS site so that scarce equipment can beshared. On a larger scale, an attempt is being

‘(’ Medvedev, op. cit.‘] Russian construction terminology distinguishes the work

of “constructing” or erecting the buildings of a nuclear sta-tion from the work of “installing” the reactors and otherequipment housed in these buildings. Installation (rnontazh)often is more specialized and intricate work and, thus, re-quires more highly skilled labor than does construction(stroitelstvo). As an industry, “construction” takes in bothtypes of work, and it is in this sense that the word is usedhere.

“D. B. Fedorchukov, “Basic Directions for Raising the Ef-fectiveness, Quality, and Rates of Construction of NuclearPower Stations, ” in Voronin (cd.), op. cit., pp. 49-57.

5’Medvedev, op. cit., p. 13.

made to organize nuclear station construc-tion work on a “flow-line” basis, much likethat in the housing construction industry .54As a model for further efforts in this direc-tion, a new type of facility called a nuclearpower construction combine (NPCC) is beingcreated in the city of Energodar, at thesite of the Zaporozhye plant, now underconstruction. The NPCC is to manufacturemetallic and reinforced-concrete structuraland, presumably, to assemble these piecesinto buildings at the plant site.55

More NPCCs will probably be organized,56

but it is not clear how many constructionprojects would be supported by each com-bine and, therefore, how many combines willbe needed to support the entire nuclear pro-gram to 1990. Nor has the level of capitaland labor investment in NPCCs been deter-mined. While additional staff and equipmentwill no doubt be required, it is conceivablethat the combines could be formed, in part,on the basis of existing construction or-ganizations and equipment. The aim is tosave time and money by using labor andequipment efficiently. Since construction de-lays have been a major source of bottlenecksin the Soviet nuclear program, these aimstake on particular significance.

Plant and Equipment Requirements

This section discusses plant and equip-ment requirements for the U.S.S.R. to meetits nuclear targets for 1985 and 1990. Theserequirements include major components ofNPSs—reactors, turbines, and generators.

Reactors.–As noted above, the growth ofSoviet nuclear generating capacity over thenext 10 years will be based on 1,000-MWreactors of the RBMK (graphite-moderated)and the VVER (water-moderated) series, andalso on the RBMK-1500. The announcedplans for expansion and new construction ofSoviet nuclear power stations summarized intable 31 more than cover the capacity needed

54Fedorchukov, op. cit., p. 56.“A. Podgurskiy, “NPS’s-On a Flow Line! ‘“ .Stroite/naj~a

gazet~ May 5, 1980, p. 1.“Fedorchukov, op. cit., p. 56.


to reach the 1985 goal of 24,000 to 25,000MW of additional capacity. At stationswhere the types and capacities of new reac-tors are known, the new capacity planned by1985 amounts to at least 27,320 MW—some780 MW more than needed to achieve theassumed goal of 38,000 MW by the end of1985. Table 31 also shows at least ten 1,000 -MW units (including units 3 and 4 at Rovno)and three 1,500-MW units to be added,presumably after 1985. Together with theaforementioned 780 MW, these additionalunits give a total of 17,280 MW of capacityto apply toward the anticipated growth in1986-90, leaving some 24,720 MW of newcapacity unaccounted for. Some flexibilityexists in choosing how to cover this re-mainder.

From table 31, it appears that theU.S.S.R. is building nuclear power stationsaccording to a regular pattern with eitherfour 1,000- or 1,500-MW units per station, ”each unit consisting of a reactor and ac-companying turbine-generator sets. Typi-cally, the Soviets construct stations in“phases” (ocheredi) of two power units each.Assuming that this pattern continues, it islogical to assume that planned stations forwhich total capacities have not been an-nounced will have at least four units and,therefore, four reactors of 1,000- to 1,500 -M W capacity each. ”

Table 31 shows seven prospective stationsfor which total capacities have not been an-nounced. However, the type of reactor to beinstalled at four of these stations is known;

‘-one exception to this pat tern is the Ro\rno station, whichis plan n[’d t o h a~re six units. [lowe~’cr, the first two are\’~’F; R-440 reac’tors, both of which originall~ were planned tocome onstrwm b~’ the end of 1980; onlJr one of them did. Thefour subsequent units are to he \’}’I+; R- 1000s, thus conform-ing to the genera] construct ion pat tern for th~ 1980’s.A not her c~x cep t ion ma~r he the nuclear heat and power stationnear Odessa, which apparent IJ’ will ha~’e two 1,000-11 W’ units.

““’I’his strate~~ was outlined at a conference held in hlay19/+0 at the site of the Zaporozhye plant. It was noted thatthe rated capacitJr of stations under construction in the next10 ~rears will he 4,000 to 6,000 Nl\$’, based on units with ca-pa~ities of 1,000” to 1,500 ll~$r. See “Conference on the Flow-I.ine Construction of N PS’S and the Curtailment of I,abor Ex-penditures and Durat ion of Construct ion, A tom IZU?IUCT1 ergi~’u. ~’ol. 49, No. 4, october 1980, pp. 264 and 265.

OTA has therefore assigned at least onereactor of the designated type to each sta-tion and included these reactors in thefigures given above for planned new capac-ity. Assuming that the four stations willhave at least three more reactors of the sametype when completed, the stations will ac-count for additional capacity totalling13,500 MW and consisting of nine VVER-1000 reactors at three of the stations andthree RBMK-1500s at one (Kostroma).

If the remaining three stations, which areto be heat and power plants, were to have atleast two VVER-1000 units each (by analogywith Odessa), all seven nuclear power sta-tions would provide a total of 19,500 MW ofnew capacity, or 5,220 MW less than the24,720 MW needed to attain the 1990 goal.One conceivable way of covering this dif-ference would be by building one moreochered of two 1,000 MW units at three ofthe stations. This would signify a departurefrom current practice. It is also possible thatplans for other sites have not yet come tolight. Neither of these possibilities alters thecrucial question: How many 440-, 1,000-, and1,500-MW units are needed to attain thedesired goal, and can the Soviets produceand bring them online?

In order to equip those stations for whichreactors types are given in table 31 (ex-cluding unit 6 at Rovno), the Soviet nuclearindustry must be supplied with three VVER-440 reactors and at least 24 VVER-1000s,nine RBMK-1000s, and five RBMK-1500s.In addition, based on the alternativesdiscussed for covering the remaining capaci-ty, as many as 21 more VVER-1000s, and atleast three more RBMK-1500s may be re-quired. In all, besides the 440-MW units, thiswould mean the production of some 45VVER-1000 reactors, 9 RBMK-1000S, and 8RBMK-1500s before 1990. One factor thatmay affect the choice of the reactor mix isthat the RBMK-1500 is as yet unproven inpractice; operating experience at the Ig-nalina station may determine its future.

In summary, the growth of the Sovietnuclear power industry in the next 10 years


will be based largely on 1,000-MW reactorsof the VVER and RBMK series and also onthe RBMK-1500, an upgraded version of the1,000.59 The 440-MW class of VVERS is ap-parently being phased out; additional unitsof this size are to be installed only at Kolaand Rovno. Although the U.S.S.R. seemscommitted to the larger classes of reactorsand has designed many of its new stationsaccordingly, there is some flexibility as towhich reactors to install. This flexibility ismainly in the choice between the RBMK-1000 and the RBMK-1500. If problems de-velop with the RBMK-1500, the Sovietscould in principle substitute the RBMK-1000. If continued indefinitely, however,such substitutions would result in a capacityshortfall that would have to be covered insome way, such as by the installation ofmore 1,000-MW units.

It must be noted that reactor substitutionis economic only between the 1,000- and1,500-MW RBMK units and not betweenthis reactor series and the VVER series.Unless a decision were made very early,substituting between the RBMK and VVERwould be difficult and costly. Therefore,if there were a production shortfall inVVER-1000 reactors, stations designed toreceive these could not employ the RBMK-1000 without a fundamental redesign. It ispossible of course that constructionschedules could be altered so that work onstations with RBMKs could move ahead andones needing VVERs delayed. This wouldmean that more of the RBMKs could be in-stalled than VVERs in order to keep up withcapacity growth plans and to allow the solu-tion of production problems. Eventually, inorder to fulfill nuclear capacity goals eitherSoviet nuclear manufacturers would have tosupply the needed reactors of both series, orsome other measure—such as the import of

59The 50-percent increase in capacity in the RBMK-1500 isachieved by increasing the amount of coolant circulatedthrough the core, thereby yielding more steam. For com-parative specifications on the two reactors, see T. Kh.Margulova, Atomnyye eiektricheshiye stantsii (Moscow: Izd.“Vysshaya shkola, ” 1978), p. 181; and Atomrmva nauka . . ,op. cit., p. 37.

reactor equipment—would have to beadopted.

Soviet hopes for domestic reactor produc-tion rest on Izhora and Atommash. OTA hasattempted to determine the demands thatmight be placed on these facilities during thenext 10 years. The results, broken down byfacility and year, are shown in table 32. Thistable is not a prediction for installed capac-ity or facility output over the next 10 years.Rather, it combines numerous statementsfrom the Soviet press and open literatureregarding the future of the nuclear industrywith OTA’s own understanding of that in-dustry’s development. It endeavors to showwhat the U.S.S.R. must accomplish if it is toachieve its goals. The most important of theassumptions that underlie table 32 are asfollows:

1) The table assumes the Soviet statedgoals of adding 24,000 to 25,000 MW of in-stalled capacity by 1985 and achieving80,000 MW by the end of 1990.

2) The table assumes that annual produc-tion of nuclear capacity at an individualfacility in any given year will equal or exceedproduction in the previous year.

3) The table assumes that Izhora now hasthe ability to produce annually reactors hav-ing a total capacity of about 5,000 MW. Thisassumption is based on three pieces of evi-dence. First, representatives of the U.S. Nu-clear Regulatory Commission were told dur-ing a visit to Izhora on February 10, 1978,that the plant had an annual capacity of5,000 MW or more.60 Second, a 1980 articlelists 1980 production obligations for theplant that total at least 5,320 MW (threeVVER-440s, two RBMK-1000s, and twoVVER- 1000s).61 Finally, the nuclear plansincorporated in the recently adoptedEleventh FYP would be absurd if Izhorawere not capable of producing about 5,000MW of capacity per year. OTA has postu-

60 Lafleur and Steno, op. cit.61V. V. Krotov, “The Contribution of the Power Machine

Builders to the Fuel-Energy Complex of the Country, ”Energomashinostroy eniye, No. 1, January 1980, pp. 2-5.


Table 32.—Projected Production of Nuclear Reactors and Export Potential( M W )

Production capacitv Domestic Available.Year Izhora Atom mash Total requirements for export

1981 .., . . . . . . . . . . . .

1982 . . . . . . . . . . . . . . .

1983 . . . . . . . . . . . . . . .

1984 . . . . . . . . . . . . . . .

1985, . . . . . . . . . . . . . .

1986 . . . . . . . . . . . . . . .

1987 . . . . . . . . . . . . . . .

1988 . . . . . . . . . . . . . . .

5,000

5,000

5,000

5,000

5,000

5,000

5,000

6,000

1,000

1000

2,000

2,000

3,000

4,000

5,000

5,000

6,000

6,000

7,000

7,000

8,000

9,000

10,000

11,000

5,000

6,000

7,000

7,000

8,000

8,000

9,000

10,000

1,000

0

0

0

0

1,000

1,000

1,000

SOURCE Office of Technology Assessment

lated that Izhora will continue to producereactors at a rate of 5,000 MW per year until1988, when a rise to 6,000 MW is assumed.This second assumption may well be too con-servative. It is possible that Izhora’s capaci-ty will expand more rapidly.

4) The table takes into account indicationsthat the Skoda Works will assume primaryresponsibility for providing VVER-440 reac-tors for Eastern Europe, but also assumesthat the U.S.S.R. will provide some VVER-1000 reactors for Eastern Europe during theTwelfth FYP (see below and ch. 9).

5) Finally, the table discounts Sovietstatements that seven VVER-1000 reactors,produced at Atommash, will be shipped by1985; and that Atommash will be fully opera-tional, producing 8,000 MW per year, by1990. 62 Assuming that 2 years must be al-lowed for the installation of a reactor, it isunlikely that Atommash can supply seven1,000-MW reactors for installation duringthe 1981-85 period. Four is a more probabletotal (i.e., annual production of 1,000, 1,000,and 2,000 MW in the years 1981, 1982, and1983).

Given these assumptions, table 32 demon-strates the rate at which both Izhora and

Atommash must produce reactors if nuclearcapacity—and therefore nuclear electricityproduction–goals are to be met. One vul-nerable point in these projections is Atom-mash, the successful and timely completionof which will dictate the success of theSoviet nuclear program and, to some extent,the program of the Council for MutualEconomic Assistance (CMEA) countries.Construction of Atommash, which is beingcarried out in stages, has been underwaysince 1976. Originally planned for startup in1977, the plant’s first stage, with a ratedoutput of 3,000 MW of nuclear capacity peryear, was not operating until the end of1978.63 This delay is indicative of progresswith the project as a whole. Since its incep-tion, it has been beset with both internal andexternal problems that are frequently pub-licized in Soviet newspapers and journals.These include excessive idle time and poororganization of workers at the constructionsite, as well as delays in the deliveries ofequipment and materials from external sup-pliers. The labor problem is complicated byshortages of workers in the plant and at theconstruction site. As a result, constructionof Atommash is estimated to be at least 2years behind schedule; although the first1,000-MW reactor vessel was completed in

62’’Five Year Plan Accelerates Nuclear Programmed,” Nu-clear Engineering International, January 1981, p. 4: V. Per-shin, “TO Eliminate Disproportions, ” Sotsialisticheshaya industriya Jan. 30, 1981, p. 2.

“’’Building the Atommash Plant, ” Culture and Life, No. 5,1976, p, 10; and “Chronicle of Events,’” Stroitelnaya gazeta,Dec. 12, 1980, p. 1.


February 1981, series production at theplant probably will not begin before 1983 or1984.64

Even after the plant is completed, thereare likely to be problems with acquiringskilled workers to operate its sophisticatedmachinery. As recently as 1979, efforts totrain such workers—for example, operatorsof automatic welding equipment—were saidto be highly inadequate to meet the needs ofSoviet industry as a whole, let alone those ofAtommash. 65 Fortunately it appears that thereconstructed Izhora plant will be able tocompensate for at least some of the dif-ficulties at Atommash.

The profile assumed here should permitthe Soviets to meet domestic requirementsfor reactors and to supply 1,000 MW for ex-port in the years 1981, 1986, 1987, and 1988.During the first of these years such exportswould take the form of VVER-440s (two),while in the later years exports would be inthe form of VVER-1000s. It must be noted,however, that it is not clear that these ex-ports will necessarily be sufficient to supportthe planned Soviet role in CMEA coopera-tive nuclear power development.

As chapter 9 notes, Eastern Europe plansto have installed nuclear capacity totalingsome 37,000 MW by 1990. Until 1985, nu-clear powerplants built in CMEA countrieswill be based on the VVER-440; in the period1986-90, the plan is to switch to the VVER-1000. The needed VVER-440s presumablywill be supplied mainly by Skoda, with one ortwo reactors possibly coming from Izhora.66

Since no plans have been announced for

“’’Obligated by the Initiative, ‘‘ Soltsiali.s ticheska.va indus -triya, Feb. 14, 1980, p. 2, in JPRS 75,741, May 2, 1980, pp. 1and 2; “Commentary by the Industrial Construction Depart-ment, StroitelnaLva gazeta, Dec. 12, 1980, p. 1; ‘‘Soviets Build-ing Nuclear Reactor Assembly Line, The Columbus Dis-patch , Oct. 13, 1980, p. A-8. According to a report inlzcestiva, Feb. 21, 1981, p. 3, Atommash completed its firstreactor as planned.

65V. Pershin, “Personnel for Atommash, ” Trud Feb. 9,1979, p. 2, in JPRS 73,015, Mar. 16, 1979, pp. 14-16.

“The VVER-440 may also be exported to non-CMEA na-tions. Two of these rectors are in operation at the LoviisaNPS in Finland, and at least one other country–Libya-haspurchased a Soviet power reactor. For more on the Libyandeal, see Gloria Duffy, op. cit., pp. 84-86.

building VVER-1000s outside the U. S. S. R.,the intent seems to be for these units to besupplied by the Soviet Union. Thus, someundetermined portion of that plant’s outputafter 1985 will be designated for export.Overall, according to the CMEA agreement,the Soviet Union is to supply about 50 per-cent of the basic equipment for nuclearplants in Eastern Europe, but the U.S.S.R.might well decide to allocate Atommash’searly units to Eastern Europe to offsetfuture hydrocarbon requirements there.67

This could strain Soviet manufacturing fa-cilities as they attempt to keep pace withlarge-scale nuclear growth both at home andabroad, particularly if Skoda is slow inbuilding to capacity. Moreover, the U.S.S.R.has in the past exported reactors outsideCMEA. Should it wish to continue these ex-ports, facilities would be taxed even further.

In sum, although Soviet plans for expan-sion of nuclear power are reasonable, theyundoubtedly pose a difficult task for plantsthat manufacture reactor equipment. In thepast, the capacity of Soviet industry to meetthe increasing needs for this equipment hasbeen inadequate. More recently, Atommashhas become operational, albeit with con-struction lagging behind schedule, andIzhora has been reconstructed and its capac-ity significantly upgraded. It is thereforepossible that the U.S.S.R. will be able to pro-duce reactors fast enough to meet domesticrequirements and to maintain some exports—two 400-MW units in 1981 and at least1,000 MW per year after 1985.

Steam Turbines.–The planned expansionof Soviet nuclear power will also necessitateincreased production of steam turbines. Inprinciple, the power generation equipmentused in nuclear power stations is essentiallythe same as that in nonnuclear thermalplants. This is particularly true of turbines,and Soviet designs of steam turbines fornuclear stations sometimes duplicate or in-corporate design features of those used infossil-fired stations. This means that Sovietmanufacturing plants have been able to ap-

67Zorichev and Fadeyev, op. cit., p. 53.


ply some of their experience in making tur-bines and generators for fossil-fuel powerstations to steam and electrical equipmentfor nuclear stations, and also that similarkinds of problems are likely to occur. By thesame token, the demands of the nuclearpower industry do place new requirementson these plants. Output of equipment mustbe increased to keep pace with nucleargrowth, and the equipment itself, especiallyturbines, must be compatible with reactorsystems.

Current Soviet practice is to install atleast two turbines with each reactor. TheVVER-440 reactor uses two 220-MW tur-bines, and the VVER-1000 and the RBMK-1000 units use two 500-MW turbines. Theaddition of the RBMK-1500, however, willrequire development of a 750-MW turbinefor use with saturated steam. In addition,work reportedly is under way to produce tur-bines with a rated capacity of 1,000 MW, inorder to couple the VVER-1000 and RBMK-1000 with a single turbine.68

These steam turbines can be either “low-speed” or “high-speed” units, operating at1,500 and 3,000 rpm respectively. In theUnited States, for large capacity turbines(500 MW or more) operating in saturatedsteam, the low-speed design is consideredmore suitable; large high-speed turbines op-erate better and last longer when run onsuperheated steam. This is because large,high-speed turbines used with steam at lowparameters require very long blades in thelow-pressure sections of the turbine, and thehigh velocities at the outer ends involve toomuch stress. Such difficulties would explainreported Soviet problems with the high-speed (3,000 rpm) 500-MW turbines usedwith the 1,000-MW reactors. Based on U.S.experience, it is reasonable to expect thatunless the Soviet nuclear industry switchesto low-speed (1,500-rpm) turbines, it willprobably encounter even greater problemswith the 750- and 1,000-MW turbines that itplans to use in the near future.

—-—

68 Margulova, op. cit., pp. 184,224.

It is interesting that Soviet experts seemto have weighed the costs and benefits andconcluded that high-speed turbines are morepromising, although considerable expend-itures have already been made on preparingdesigns for powerhouses using the low-speedvariety.

69 The only low-speed turbines knownto be in place to date are two 500-MW tur-bines manufactured for the VVER-1000reactor of unit 5 at Novovoronezhskiy. 70 Atthe same time, the U.S.S.R. is pursuing thedevelopment of high-speed turbines withcapacities of 750 and 1,000 MW. Fabricationof the latter has begun, although there is noevidence that a 750-MW high-speed turbineis actually yet in production.

In sum, with the possible exception of the750-MW size, the Soviet Union is producingturbines of both types and with the unitcapacities that it needs, including 1,000MW. However, only one size–500 MW–ac-tually is in use; the large turbines remain un-proven in practice. Whether problems will beencountered, particularly with the high-speed equipment, remains to be seen. Prefer-ence does seem to be for the high-speed type.More of these are in service, at stations withthe RBMK-1000. Part of the reason for thispreference may be that Soviet nuclear man-ufacturing facilities are not yet adequatelyequipped to produce high-capacity, low-speed turbines, which are bulkier and moremetal-intensive.

Major Soviet turbine and generator manu-facturers have been expanding and up-grading their facilities for purposes of turn-ing out more and better equipment. Onesuch plant—the Kharkov Turbine Plant Pro-duction Association–has been designatedthe chief enterprise for the development oflow-speed turbines. Another leading manu-

“B. M. Troyanovskiy, Turbines for A tomic Electn”c PouterStations, ( M o s c o w : Izd. “Energiya,” 1978); V. Krotov,“Power Machine Buildng and Scientific-Technical Progress, ”Planoloe khozyaystco, No. 5, 1981, p. 8.

‘“See table 28 and G. 1. Grigorash, “Turbogenerators of theKharkov Plant ‘Elektrotyazhmash’ for NPS’S, ” Elektrz”ch-eskiye stantsii, No. 8, August 1980, pp. 5-8. Grigorash notesthat the Kharkov Turbine Plant has been designated as thechief Soviet enterprise for designing low-speed turbines fornuclear stations.


facturer that has been undergoing expansionand remodeling is the Leningrad Metal PlantProduction Association.71 These two associa-tions appear to be the major suppliers of tur-bines for the nuclear industry.

Despite such efforts, an official of thepower machine building industry observedin 1979 that too little attention has beengiven to turbine construction, with theresult that that industry cannot provideproper nuclear equipment.” No evidence wasfound to suggest that this situation has im-proved. Too many problems with the high-speed turbines larger than 500 MW may in-hibit plans for the growth of the nuclear in-dustry. In the case of the 750-MW turbine,the option exists, if necessary, to fall back tothe 500-MW size, at least until any problemswith the former are resolved. The sameshould be true with 1,000-MW turbines.73 Atsome point, however, if the goals of its ex-pansion plans are to be met, the Sovietnuclear industry will have to be assured ofsupplies of the larger turbines.

Generators. —As with steam turbines, tur-bogenerators are essentially the same forboth fossil-fired and nuclear plants, andsome generators are able to operate in eithertype of station74 Development of larger andlarger turbines requires the creation ofgenerators to match. Turbines and gen-erators must be designed to produce alter-nating current power at the correct frequen-cy. High-speed generators are designed withtwo magnetic poles and low-speed with fourpoles. Turbines and generators are direct-coupled and installed in sets, so that agenerator will be required for each new tur-bine unit produced.

71G. A. Shishov, “The ‘Leningrad Metal Plant’ ProductionAssociation in the Tenth Five-Year Plan, ” Energomashino-stroyeniye, No. 9, September 1980, pp. 5-8.

72V. Krotov, “Prospects for Power Engineering Dictate, ”Sotszalisticheskaya indzMttiyG Feb. 3, 1979, p. 2, in JPS73,015, Mar. 16, 1979, pp. 8-11.

“It should be noted that constraints on the substitutabili-ty of turbines increase as the construction of a station pro-ceeds. The turbine size must be decided and the order for thisequipment placed prior to the start of construction of the sta-tions’s turbine hall.

74rigorash, op. cit.

As power stations are built with largerunit capacities, generators too must bedesigned with higher rated capacities–1,000MW and 2,000 MW in the case of thosedestined for nuclear plants. In the past,generator production has been a chronicsource of bottlenecks in nuclear construc-tion. Now responsibility for large generatorsis being given to plants like Elektrotyazh-mash in Kharkov and the Elektrosila Elec-trical Machine Building Production Associa-tion in Leningrad, facilities that have exten-sive experience in designing generators fornonnuclear stations.75 Elektrotyazhmashhas been expanded and charged with produc-ing four-pole generators with capacities of500 and 1,000 MW. The first two 500-MWgenerators of this type were manufacturedfor unit 5 at Novovoronezhskiy, but presentplans include 1,000-MW generators. Al-though no evidence was found regardinglarge capacity two-pole generators for high-speed turbines, expanded production fa-cilities at Elektrotyazhmash seem to be ade-quate to manufacture both two- and four-pole generators with capacities as large as2,000 MW.76

Summary. —If Soviet claims are accurate,the U.S.S.R. is fully technologically capableof developing the necessary equipment forits nuclear power industry, including reac-tors and compatible turbine-generator sets.While limited options exist for decidingwhich type of equipment to use, the burdenof supplying this equipment rests withmanufacturing plants. There is evidencethat such plants are already having diffi-culty meeting the demands being placed onthem by the nuclear program. OTA has notinvestigated the extent of Soviet investmentin manufacturing other nuclear plant equip-ment—valves, tubing, etc.—but all evidencesuggests that difficulties may be widespreadin the nuclear industry. This is not implausi-ble, given the problems faced by Soviet in-dustry as a whole in fulfilling output quotas.Moreover, these difficulties undoubtedly will

“’Ibid., p. 5.“’Ibid.


be aggravated by the increasing rate ofgrowth of nuclear power and the demandsfor supporting this growth.

The External Fuel Cycle

An important part of the infrastructurefor nuclear power generation is the externalfuel cycle–the supply of uranium and thesystem for disposal or reprocessing of spentfuel and wastes. Little information isavailable on the first part of the fuel cycle inthe Soviet nuclear industry. The size ofuranium supplies is an official State secretand there is virtually no unclassified in-formation regarding Soviet plants thatmanufacture the fuel elements themselves.77

Based on what is known about its con-sumption of uranium, the U.S.S.R. seems tobe accumulating a substantial stockpile.78

This may, in part, be a response to perceivedworldwide scarcity of this element. OTA isunable to judge whether stockpiling willprovide the U.S.S.R. with uranium adequateto support its nuclear program, but onthe evidence of its announced plans, theU.S.S.R. seems to be confident that it has orcan get the uranium it will need in the yearsahead. The emphasis on breeders presum-ably is at least partly based on ensuring ade-quate uranium supplies. ’g Moreover, it ap-parently has adequate enrichment capacityto convert the uranium to usable fuel for itsreactors. The demand for Soviet enrichedfuel will increase as more and more VVERreactors are installed in the U. S. S. R., inEastern Europe, and in Third World coun-tries. These reactors require more highlyenriched fuel than do the RBMK models.

“-Peter Feuz, “The Nuclear Push in the U.S.S.R. and East-ern F;urope, ” Pouer Engineen’ng, No. H, August 1978, pp. 100and 101. See also Dienes and Shabad, op. cit., for informationon the location of the uranium industry.

“r)uffYr, op. cit., p. 68.““Jean A . Brigg-s, “Soviet Nuclear Power: Tortoise and

Hare’?” fi’orhe.s, vol. 122, No. 9, oct. 30, 1978, pp. 123-126, re-ported t,hat the U.S.S.R. imports uranium from East Ger-many and Czechoslovakia. Regarding the need to seek out-side sources of uranium, Petrosyants, op. cit., p. 268, declaredthat the development of the nuclear industry and nuclearpower in the ‘‘socialist countries” (including the U.S.S.R.) “inno wav depends on supplies of uranium from the capitalistworld.”

The growing demand for this fuel may put astrain on the enrichment industry in theU. S. S. R., but it must be noted that this in-dustry already exports its services abroad,including to Western Europe and more re-cently to the United States.80

The other end of the external fuel cycle–disposal or reprocessing of spent fuel andother waste material—is discussed some-what more openly in the Soviet literature,although little quantitative information isavailable. Although Soviet experts recognizethe increasing importance of dealing withwastes from NPSs, current disposal meth-ods should be adequate for some years. De-spite its rapid growth, the total nuclear gen-erating capacity of the U.S.S.R. is still rel-atively small compared, for example, to thatof the United States. The amount of spentfuel produced is therefore correspondinglysmall.

Commercial reactors in the U. S. S. R., likethose in other countries, operate on a “once-through” fuel cycle. After the fuel has beenburned up in the reactor, it is discharged tointerim storage.81 At Soviet nuclear powerstations, the spent fuel elements are placedin water-filled storage basins that cool thefuel and allow it to decay over time.82 Even-tually, this spent fuel, its radioactivity sig-nificantly lessened during interim storage,will be transported to special plants forreprocessing in order to recover reusablefissile materials, particularly uranium andplutonium.

Technology for reprocessing spent fuelhas been available in the Soviet Union sinceabout 1950, 83 and there is reason to believethat reprocessing has also been in practical

“’fluffy, op. cit., p. v; Theodore Shabad, “Russian UraniumExported to the United States, ” in The New York Times,Aug. 17, 1981.

“For a discussion of nuclear fuel cycles in non-Communistcountries, see 1. Spiewak and J. N. Barkenbus, “Nuclear Pro-liferation and Nuclear Power: A Review of the NASAP andINF’CE Studies, ”Nuclear Safety, No. 6, November-December1980, pp. 691-702.

“Atomic Science ., op. cit., p. 154.‘ ] Ibid., p. 153. For a description of a process designed by

Soviet scientists for what they call “regeneration” (regenerat-siya) of spent fuel, see pp. 153-159 of this source.


use there for some time. Indeed, Americanscientists suspect that the U.S.S.R. was ex-tensively involved in chemical separation ofnuclear wastes as early as the mid-1950’s.84

If this is true, the Soviet Union may alreadyhave practical experience with the tech-nology it will need to eventually perform full-scale commercial reprocessing. It has beenestimated that full-scale reprocessing ofspent fuel will not be economical in theU.S.S.R. until Soviet nuclear stations areproducing 1,500 tons of spent fuel per year—about as much as the United States was pro-ducing from 60 reactors in 1978. At thattime, total U.S. nuclear capacity was some47,000 MW.85 Based on OTA’s projection infigure 9, the U.S.S.R. will not reach this leveluntil after 1985. This reasoning is supportedby a 1978 Soviet source that maintained thatwhile no reprocessing plant had yet beenbuilt in the U. S. S. R., that country wouldhave reprocessing in the 1980’s.86

Besides spent fuel, the operation of NPSsproduces other waste products, primarily liq-uid wastes, of high, medium, and low radio-activity. Highly radioactive liquid wasteresults mainly from reprocessing, and theSoviet nuclear industry, therefore, will pro-bably not have to handle large amounts ofthese products until after 1985. By andlarge, nuclear plants produce wastes ofmedium and low radioactivity .87

As a nuclear industry grows, so does theproblem of liquid-waste disposal. In re-sponse, Soviet scientists reportedly are de-veloping various permanent disposal meth-ods, from deep underground burial in naturalgeological formations to different ways ofconcentrating and solidifying waste material

84Duffy, op. cit., p. 64.“5Biggs, op. cit., pp. 126, 124.“John J . Fialka, “Soviets Think They’ve Solved Atom

Safety Problems, ” Washington Star, Oct. 1, 1978, pp. A-1and A-10.

‘7 Petrosyants, op. cit., p. 356, notes that relatively smallamounts of highly radioactive waste also are produced in theoperation of NPSS. At the same time, V. B. Dubrovskiy, etal., op. cit., p. 33, states that such waste products are notformed at NPSs, Small amounts of highly radioactive wasteundoubtedly are produced by industrial and researchreactors.

(depending on its level of radioactivity), andat least one Soviet source considers the prob-lem of deep burial of low- and medium-levelwaste to be solved.88 Concentrated low-levelwastes from research facilities are alreadybeing stored underground at Zagorsk, nearMoscow, and at Dimitrovgrad. In the future,high-level wastes are to be compacted,solidified, and encapsulated for storage inabandoned salt or coal mines .89

Computers

Computers have been used more inten-sively for process control applications innuclear facilities than elsewhere in the powergeneration industry, but the U.S.S.R. evi-dently recognizes a need for wider use of thistechnology.90 This need will grow as the num-ber of NPSs and the demands placed onthem increase.

The Soviet Union reportedly began de-veloping computerized control systems forfossil-fired power stations as early as 1961,and development of these systems fornuclear stations began in 1971.91 Never-theless, there is evidence that Soviet NPSslack components such as microprocessorsand other control equipment to support theirfunctions. For example, Western observershave noted that Soviet NPSs employ man-ually operated plumbing in reactor coolingsystems. The computer systems themselvesare said to be relatively primitive,92 and newsystems are introduced into plants slowly. Ifthe Soviets do not meet their goals for theconstruction of NPSs in the Eleventh andTwelfth FYPs, it will not be due primarily todeficiencies in computer control systems.

88Petrosyants, op. cit., pp. 356-366.89Briggs, op. cit., p. 126.‘Ye. P. Stefani and V. I. Gritskov, “The Status and Pros-

pects for the Development of Computerized TechnologicalProcess Control Systems for Power Units of Thermal andNuclear Power Stations, ” Tepfoenergetik% No. 7, July 1980,pp. 2-7.

‘l Ibid., pp. 2 and 3.‘2 Fialka, “Russia’s Nuclear Program . . .,” op. cit.


REQUIREMENTS FOR NEW EQUIPMENTAND TECHNOLOGY

NUCLEAR CAPACITY ANDPRODUCTION: LIKELY

ACHIEVEMENTS

Based on the foregoing analysis of theproblems facing the Soviet nuclear power in-dustry and its surrounding infrastructure,OTA has developed a set of projections forlikely levels of achievement of nuclearcapacity and electricity y production.

As noted above, the Soviet Union has seta goal of adding 24,000 to 25,000 MW ofnuclear capacity during the Eleventh FYPperiod. If this goal is achieved, total installednuclear capacity at the end of 1985 would beabout 38,000 MW. If the 1985 target isreached, or not seriously underfulfilled, thereis good reason to believe that the Sovietswould set a goal of 80,000 MW of installedcapacity by the end of 1990. Figure 9presented a time profile of capacity addi-tions that would permit the U.S.S.R. to meetthese goals. This profile hypothesized suc-cessive increments of 3,000, 4,000, 5,000,6,000, and 7,000 MW during the period1981-85, followed by additions of 7,000,8,000, 8,000, 9,000, and 10,000 MW duringthe Twelfth FYP.

The above discussion has indicated thatthe U.S.S.R. should be capable of producingreactors fast enough to meet domestic re-quirements, to export 1,000 MW in 1981,and at least 1,000 MW per year after 1985.Therefore, reactor production itself is not aparticularly weak link in the Soviet nuclearpower industry. The picture is less sanguinewith respect to other requirements formeeting the capacity targets assumed for1985 and 1990.

Bottlenecks will probably develop in con-struction and installation work. The con-templated rate of commissioning of nuclearcapacity implies a need to triple the size ofthe construction labor force. If the rate of ad-dition of generating capacity (of all forms)

were expected to moderate in the 1980’s, itmight be possible to meet this need for laborby drawing workers from nonnuclear powerprojects. But no such moderation is in pros-pect. Gross additions to generating capacity(all forms) are to rise from 52,000 MW in theTenth FYP to about 64,000 MW in the Elev-enth FYP, and about 85,000 MW in theTwelfth FYP (see ch. 5). Furthermore, sincethere appears to be no prospect that the ab-solute rate of construction of fossil-fired andhydroelectric powerplants will decrease dur-ing the coming two FYP periods, it may notbe possible for nuclear projects to draw anyworkers (on net) from these competing proj-ects unless there are substantial increases inthe productivity of construction labor.Power station construction overall probablywill require large numbers of additionalworkers, while NPS construction in par-ticular will require a great deal of additionalspecialized construction and installationlabor (e.g., workers to assemble and installreactors and associated equipment).

A second area in which bottlenecks maydevelop is the production of turbines andgenerators. The Soviets have not yetmastered the production of low-speed 500-MW turbines, high-speed 750-MW turbines,and high-speed 1,000-MW turbines. All ofthese will be needed in the present decade. Iftechnical problems arise, the Soviets may beforced to fall back on the more tested high-speed 500-MW turbine that has found wide-spread application in conjunction with theRBMK-1000. Generator problems may de-velop in the production of the four-pole 500-MW models needed to go with the new low-speed 500-MW turbines. A more seriousproblem may be a general shortage of capaci-ty to manufacture generators. As in the caseof labor, no help will come from a reducedburden of fossil-fired and hydroelectriccapacity additions. The U.S.S.R. could re-duce its exports of turbines and generators,but it is not clear that this action would in-


crease its ability to produce the types of tur-bines and generators needed for nuclearpower stations.

As a result of these factors–likely delaysin construction of NPSs and delays in in-stallation work at NPSs, plus shortfalls inthe production of turbines, generators, andother equipment required for NPSs—OTAexpects the Soviet nuclear program to fallbehind schedule. Although estimates of de-velopments 5 and 10 years into the futureare necessarily speculative, it seems reason-able to adopt as an optimistic or best-caseprojection the expection that the Soviets willhave installed 36,000 MW by the end of 1985

(v. 38,000 MW planned) and 75,000 MW bythe end of 1990 (v. 80,000 MW planned). Ifthe U.S.S.R. achieves 36,000 MW of capaci-ty by the end of 1985, its nuclear power sta-tions will generate about 190 billion to 210billion kWh of electricity during that year.93

Achievement of 75,000 MW by the end of1990 should lead to generation of 400 billionto 445 billion kWh in 1990.94

“Estimated by multiplying projected capacity for mid-1985 (33,800 MW) by operating rates of 5,663 to 6,259 hr/yr.The former rate is the estimated 1980 rate, while the latter isthe 1985 operating rate implied by targets announced for theEleventh FYP.

“Estimated capacity for mid-1990 (71,000 MW) operatedfor 5,663 to 6,259 hr/yr.

THE POTENTIAL ROLE OF WESTERN EQUIPMENTAND TECHNOLOGY

Despite the achievements justly claimedby the U.S.S.R. in developing and upgradingits nuclear technology and equipment, thereis room for new technology and equipmentavailable in the West. For example, whilesome spent fuel reprocessing apparently isbeing carried out, the U.S.S.R. has not yetbuilt a commercial-size plant for this pur-pose. Such a plant will require large-scaleproduction equipment that may still be lack-ing despite the long-standing availabilityand use of basic reprocessing technology. Inaddition, there may be alternative processesthat have not been developed or exploredthoroughly in the U. S. S. R..

Another area that probably could benefitfrom new technology and equipment is themanufacture of metal parts, such as turbinesand reactor tubing. Soviet metallurgicalprocesses and fabrication techniques forthese parts seem to be less advanced thansimilar processes and techniques used in theUnited States. A third area of technologicalneed is in control equipment, particularlymicroprocessors.

Soviet experts have themselves notedsome areas where new or improved equip-ment is needed. According to one article, the

horizontal drum-type steam separators cur-rently used with RBMK reactors should bereplaced with more efficient vertical sepa-rators, a process that requires more re-search.95 A new type of reactor vessel madeof prestressed steel-reinforced concrete is be-ing developed for a 500-MW reactor fornuclear heat and powerplants,96 and ac-cording to another source, work is beingdone and more is needed to find better ma-terials and designs for the motors of maincirculatory pumps of nuclear stations.97 Inthe area of steel pressure vessel fabrication,Soviet industry is said to lack progressiveforging technology for making reactor ves-sels. There are reports, however, that suchtechnology is being introduced at Atom-mash.98 Finally, it has been suggested thatone way to improve the American uranium

9G. V. Yermakov, “Scientific and Technical Tasks for theAdvancement of Atomic Power in the U.S.S.R.,” E1ektrich-eskiye stantsii, No. 7, July 1979, pp. 5-9.

9’ibid., p. 8.“O. L. Verber, et. al., “High-Power Asynchronous Electric

Motors for Main Circulatory Pumps of Nuclear Power Sta-tions, ” E/ektrichesAiye stantsii, No, 9, September 1980, pp.5-9.

“’Ye. N. Moshnin and S. A. Yeletskiy, “Directions of theAdvancement of Forging and Pressing Production Technol-ogy of Atomic Machine Building, Energoma.shinost roye-niye, No. 1, January 1980, pp. 36-38.


enrichment industry is through the use ofadvanced isotope separation processes suchas laser enrichment.99 Conceivably, suchprocesses could also be applied in theU.S.S.R.

While the acquisition of these technol-ogies would undoubtedly benefit the Sovietnuclear industry, it may be that more mun-dane needs in the area of construction equip-ment and manufacturing of parts for nuclearreactors, turbines, and generators would bemore critical for the fulfillment of 1985 and1990 plan targets. These needs includeheavy machinery for manufacturing plants;large capacity cranes for construction andinstallation work; small parts such as valvesand circulatory pump motors; and smallcomputer components and other electroniccontrol equipment.

One way for the U.S.S.R. to fill both kindsof needs is to purchase technology andequipment from the West. There are twopossible motives for making such purchases,depending on whether the need is technicalor economic. In the first instance, the SovietUnion is motivated to make foreign pur-chases because its own scientists and en-gineers have not yet developed or will not beable to develop the desired equipment ortechnology. OTA believes that this need isslight, if it exists at all, in the Soviet nuclearindustry. Soviet nuclear power R&D capa-bilities apparently have been and will con-tinue to be adequate to meet virtually all therequirements of the nuclear industry for newequipment and technology.

Economic motives are far more likely toanimate Soviet trade with the West in thisarea, largely because of the widespread sys-temic problems that have caused bottle-necks in the nuclear program as well as inother areas of the Soviet economy. As aresult of such problems, domestic equipmentand technology cannot be introduced ormanufactured fast enough to keep pace withplanned nuclear expansion. These delays haveapparently led the Soviets to seek outside

99Spiewak and Barkenbus, op. cit., p, 695.

sources for additional supplies of equipmentand technology to augment domesticsources, and there is no reason to believethat such purchases will not continue or in-deed increase–if development of these itemsin the U.S.S.R. remains costly in com-parison.

If the Soviets fail to meet their plantargets for installed nuclear capacity, theyshould have continued interest in acquiringequipment from the West. Under these cir-cumstances, the U.S.S.R. might well at-tempt to purchase an entire nuclear powerstation from the West on a turnkey basis.This option would be attractive from severalpoints of view. Purchase of one 4,000- to5,000-MW NPS would fill the gap betweenthe assumed target capacity for 1990 andOTA’s projected actual capacity. In addi-tion, although the Soviets have a highly de-veloped nuclear technology, purchase ofsuch a plant from an advanced Western na-tion probably would have substantial tech-nology transfer benefits. It might also bepossible to reduce the immediate financingand foreign exchange cost of the project bynegotiating a barter arrangement in whichthe Soviets would pay for the plant in partby supplying electricity to Western coun-tries (e.g., to West Germany).100

Alternatively, the U.S.S.R. might chooseto purchase selected components for nuclearpowerplants in order to compensate for par-ticular shortfalls in domestic equipment pro-duction. Since the Soviets seem likely tohave an adequate supply of reactors, theirpurchase seems unlikely unless the Sovietsforesee technology transfer benefits. How-ever, shortfalls in domestic production ofturbines, generators, and other componentscould occur and could lead to Soviet interestin Western imports.

Nuclear power is a high-priority sector inthe Soviet Union and probably has been able

100At least one such barter deal has already been suggestedby the Soviet Union. The deal, whereby West Germany wouldhave built a nuclear station in Kaliningrad in exchange forelectric power, fell through in 1976 for economic and politicalreasons.


to command foreign exchange to finance im-ports. It seems likely that the volume ofSoviet imports for this industry has beenconstrained by Western export restrictionsand by the adequacy of Soviet-made equip-ment, rather than by the availability offoreign exchange to this sector or theavailability of Western credits.

If trade restrictions are relaxed, Sovietpurchases of nuclear equipment are likely torise even if purchases must be made on acash basis. The availability of Westerncredit on liberal terms probably would leadto larger volumes of imports. A barter deal inwhich the Soviets acquired a turnkey NPSand paid for it over a number of years withexports of electricity would almost certainlybe the most attractive alternative from theSoviet perspective because the projectwould be self-amortizing.

In short, even though the Soviet Unionhas developed a substantial nuclear powersector relying largely on its own efforts, themajor surge planned for the 1980’s is likelyto encounter problems, and progress willprobably not be as fast as the Soviets hope.This gap between expectations and resultscould create interest in the possibility of im-porting Western nuclear components. IfWestern trade restrictions were relaxed,Soviet needs for equipment and traditionalSoviet interest in Western technology couldlead to substantial imports for this industry.Liberal credit terms are not essential to suchtrade, but might result in greater volumes.However, Soviet imports are likely to belimited to amounts needed to meet plan tar-gets for NPS capacities. The prospects of theUnited States in competing for shares in thishypothetical market are discussed in chapter6.


This chapter has described the recentgrowth of the Soviet nuclear industry, in-cluding officially announced plans for adding24,000 to 25,000 MW of nuclear generatingcapacity by 1985 and another 42,000 MW by1990. While these plans are feasible in termsof the number and capacity of planned powerstations and required levels of investment,OTA has identified a number of potentialproblems.

Many of these problems relate to the con-struction of NPSs. Past experience suggeststhat completion of facilities will lag behindplan targets. Although nuclear constructionneed not necessarily be hampered by insuffi-cient labor in general, highly skilled installa-tion workers may be in short supply. Short-ages of materials and equipment, poor or-ganization of available resources and equip-ment, and lack of experience in installing andbringing online the relatively untried VVER-1000 reactor may also contribute to delays.

Another potentially important source ofbottlenecks in the Soviet nuclear program is

inadequate capacity to manufacture tur-bines and generators. In addition, Soviet in-dustry seems to lack experience with, andperhaps manufacturing capacity for, produc-ing low-speed turbines, which the U.S.nuclear industry has found more suitablethan high-speed turbines for running on thelow-parameter steam generated by nuclearreactors. A similar situation may exist withrespect to four-pole generators used with theslower turbines. Evidence suggests that theU.S.S.R. intends to install low-speed tur-bines with VVER-1000 reactors, as is thecase with unit 5 at the NovovoronezhskiyNPS. If so, turbines and generators neededfor new NPSs with these reactors could be inshort supply if manufacturing plants areunable to turn out this equipment in suffi-cient quantities.

Thus, despite a record of self-sufficiencyin the nuclear industry, shortages of equip-ment and materials at home could force theU.S.S.R. to seek these products abroad. TheCMEA countries have adopted a long-range

plan for cooperative nuclear developmentthat will support the U.S.S.R. program byproviding additional sources of needed prod-ucts. In addition, the Soviet Union is knownto be engaged in trade with Western coun-tries for this purpose. Although such tradeso far has been modest and for the benefit ofSoviet plants manufacturing nuclear equip-ment, it is possible that the situation couldchange as the demands of the industry grow.(See ch. 12 for a discussion of potential dealsin Italy and West Germany. The role of theUnited States in this trade is discussed in ch.6.)

In summary, OTA believes that while an-nounced and estimated Soviet goals fornuclear growth to 1990 are attainable inprinciple, given the systemic problems thatcontinue to hamper Soviet economic growth


in general and that seem to be aggravated bythe qualitative and quantitative demands ofthe nuclear industry for materials, equip-ment, and labor, the U.S.S.R. will probablyfall at least 5,000 MW short of its targets.The demands of the nuclear industry willplace great strain on other already over-burdened areas of the Soviet economy, par-ticularly the construction industry and nu-clear manufacturing plants. To relieve someof this strain, the U.S.S.R. might wish torely on foreign trade, both with CMEA coun-tries and with the West, as it has done in thepast. If shortfalls in domestic production arecoupled with delays in or curtailment of sup-plies of needed equipment and technologyfrom the West, the U.S.S.R. planned rateof nuclear growth will probably slow.

CHAPTER 5

The Soviet ElectricPower Industry

— — — — — ——

CONTENTS

Page

THE FUTURE FOR ELECTRICITY GENERATION INTHE U.S.S.R. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

The Generation of Electricity in Mine-Mouth Power Complexes . . . . . . . . . 148

ELECTRIC TRANSMISSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

SYSTEM INTEGRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

Prospects for Coping With Demand Variations . . . . . . . . . . . . . . . . . . . . . . 152The Unified Power System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

WESTERN TECHNOLOGY AND THE SOVIET ELECTRICPOWER INDUSTRY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158

THE FUTURE OF THE SOVIET ELECTRIC POWER INDUSTRY . . . 160

Alternatives for Meeting Increased Electricity Demand . . . . . . . . . . . . . . . 160Prospects for Meeting Plan Targets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162

SUMMARY AND CONCLUSIONS .

LIST OF

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

TABLES

PageTable No.

33. Soviet Electricity Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14634.35.36,37.38.39. Estimated Soviet Electricity Production, l985 and 1990 . . . . . . . . . . . . 163

Installed Soviet Electrical Generating Capacity . . . . . . . . . . . . . . . . . . . 146Structure of Fuel Use in Fossil-Fired Electrical Power Generation . . . . 146Planned Expansion of Fossil-Fired Power Plant Capacity, 1981-85 . . . . 148Electricity Generation and Consumption in the U.S.S.R. . . . . . . . . . . . . 153Estimated Soviet Electrical Generating Capacity, 1985 and 1990 . . . . . 162

FIGURE

Figure No.

10. Major Sites for the Construction of NewAdditions to Installed Capacity, 1981-85

Page

Fossil-Fuel Burning Plants or. . . . . . . . . . . . . . . . . . . . . . . . . 147

CHAPTER 5

The Soviet Electric Power Industry

Ever since Lenin articulated the goal ofelectrification of the entire country, the elec-tric power industry has been considered fun-damental to the task of Soviet economicdevelopment. Although realization of thisgoal still belongs to the future, the use ofelectricity has been promoted throughoutthe Soviet economy, and the construction ofgenerating stations and an integrated powertransmission and distribution system havebeen given high priority in State plans. As aresult, electricity consumption in all sectorsof the Soviet economy has grown con-siderably.

Electric power is produced in the U.S.S.R.through the conversion of nuclear or hydro-power, or through burning fossil fuels—coaland liquid hydrocarbons. The status of andprospects for the Soviet nuclear industry aretreated separately in chapter 4; and OTA hasnot studied Soviet hydropower. This chap-ter, therefore, concentrates on the tech-nological and other problems facing theU.S.S.R. in the conversion of coal, oil, andgas to electricity. These problems fall intothree major categories: problems of electrici-ty generation, problems relating to the con-

struction of electricity transmission lines,and problems associated with the develop-ment of integrated electricity networks,

The chapter is concerned with the diffi-culties encountered in, and the prospects for,generation of electricity at powerplants firedby fossil fuels, with the ability of theU.S.S.R. to construct high voltage (HV)power transmission lines, and with the for-mations of power systems and the problemsassociated with managing these systems. Itanalyzes the present and prospective role ofelectric power in supplying energy to theSoviet economy, and the changes–in gen-erating capacity and output, in location ofgenerating stations, and in technology andequipment—which must take place for thisrole to expand. It goes on to describe presentactivities in, and plans for, electricity trans-mission lines and integrated networks, todiscuss the present and potential contri-butions of the West in each of these areas,and to evaluate Soviet prospects for meetinggrowing electricity demands and for fulfill-ing existing plans for the addition of in-stalled electricity capacity and growth inelectricity production.

THE FUTURE FOR ELECTRICITY GENERATIONIN THE U.S.S.R.

Table 33 shows that in 1980 the U.S.S.R.generated 1,295 billion kilowatt hours (kWh)of electricity, a 4.5 percent increase over1979. Approximately 80 percent of this elec-tricity came from fossil fuel or conventionalplants, and about 5.5 percent from nuclearpower. But the U.S.S.R, is planning a sharpshift from fossil-fired to nuclear and hydrogenerating capacity. In the next 5 years, thecontribution of the nuclear industry will tri-ple, while the amount of electricity provided

by fossil-fuel stations is expected to growonly 5 to 9 percent for the entire period. Thisshift is further demonstrated in table 34,which shows that while installed fossil-fuelgenerating capacity is expected to growabout 15 percent by 1985, nuclear capacity isslated to nearly triple and hydropower to risesome 23 percent. This planned relativegrowth in hydropower’s share of installedcapacity is much higher than in previousyears.

145


Table 33.—Soviet Electricity Production(billion kWh)

1975 1979 1982 1985(plan)

Total. . . . . . . . . . . . . 1 ,0391 1,2381 1,2951,550-1,600 5

Fossil-Fired . . . 8934 1,0114 1,0381,100-1, 1 356

Nuclear . . . . . . . . 20.27 54,8 3 73 220-225 5

Hydro a 126.01 172.01 184 230-235 5

aIncludes production at pumped-storage stations

SOURCES 1USSR Central Statistical Administration, Narodnoye khozyaystvoSSSR v 1979 g , (Moscow Izd “Statistika,” 1980), p 168

2.Ekorrorrr/ctreskaya gazefa, No 12 (1981), p 2IEkorrorrr/ctreskaya gazefa, No 7 (1980), p 1‘Residual3/zyest/ya (Dee 2, 1980), p 36FOSSII. FI red generat Ion to account for 71 percent of total genera-tion In 1985 IEkononr/clreskaya gazefa No 12, (1981), p 2]

7L Dlenes and T Shabad, The Sov/ef Energy Sysfem (Washington,D C V H Winston & Sons, 1979), p 153

Table 34.—installed Soviet ElectricalGenerating Capacity

(thousand MW end of year)

1975’ 0 1978’ 1979 1980 1985(plan)

Total . . . . . . . . . . . . . . 217 246 2552 2 6 75 3 3 26,8

Fossil-Fired a. . . . . 171 190 1944 2 0 14 2 3 06,8

Nuclear. . . . . . . . . . 4.7 8.4 11,43 1 3 , 46 3 89

Hydro b . . . . . . . . . . 41.5 47.5 50.02 5 2 . 37 6 45

aIncludes about 76000 MW at heat and power stations (TETs) in 1980s

bIncludes pumped-storage stations

SOURCES 1Elektricheskiye stantsii, No 8 (1979), p 62Narodnoye khozyaystvo, SSSR b 1979 g p 1683See ch. 44Residual5Ekonomicheskaya gazeta, No. 12 (1981), p 26 Teploenergetika, No 1 (1981), p. 2.7Elektricheskiye stantsii, No 1 (1981), p 38Planovoye khozyaystvo, No 1 (1981), p 7, reports a planned grossaddition of 71,000 MW between 1981 and 1985 OTA has subtracted6,000 MW to represent retirement of depreciated capacity inthe period

9Izvestiya (Dec. 2, 1980), p 3, reports 24,00025,000 MW of newcapacity to be added between 1981 and 1985

10ACES Bulletin, No 1 (spring 1978), p 41,

Despite this change in emphasis, however,fossil-fired plants still make up the bulk ofSoviet generating capacity and will accountfor 44 percent of the new capacity called forin 1985. This section describes the present

status of fossil-fired generating capacity, theways in which the U.S.S.R. expects thiscapacity to change, and the demands thatwill be placed on the electric power andrelated industries if these plans are to bemet.

One notable trend in fossil-fired electricpower generation has been the substantialreduction in the relative importance of coalin power station supply over the past 15years. Between 1960 and 1975, coal’s sharein the fuel structure of powerplants fell from70.9 to 41.3 percent (see table 35). Coal wasreplaced largely by liquid fuels, the use ofwhich has risen from 7.5 to 28.8 percent ofthe total; and by natural gas, which rosefrom 12.3 to 25.7 percent. The shift awayfrom coal was due largely to the relativelylow cost to the Soviets of petroleum in thisperiod.

Now there are important incentives to re-turn to coal for that increment to installedcapacity that is not to come from nuclear orhydropower stations. Figure 10 shows thelocation of major sites for the construction ofnew fossil-fuel generating plants and ofplants where plans exist to increase installedcapacity. Table 36 summarizes the knowncharacteristics of these new plants and addi-tions. It is obvious that the Soviets hopethat much of the increment in fossil-fired in-stalled capacity and electricity production inthe next Five Year Plan (FYP) period willcome from coal produced in remote regionsof the U.S.S.R. Seven of the nine new sta-tions shown in figure 10 will be built inKazakhstan, central and eastern Siberia, and

Table 35.—Structure of Fuel Use in Fossil-FiredElectrical Power Generation (percent)

G a sLiquld fuel. . . . . ..Coal. . . . . . Peat . . . . . . . . . . . . . Shale . . . . . . . .Other . . . . . . . . . . . . . .

Total . . . . . . . . . . . .

1960

12 .3%7.5

70.97.01.01.3

100 0%

1965

25 6%12.854.6

4.51.51.0

100.0%

1970

26.0%22.546.1

3.11.70.6

100.0%

1975

25.7°1028.841.3

2.01.70.5

100.0°0

1980a

25.1%2 8 .42.5

2.61.40.4

100.0 %aPlanned structure

SOURCE A M Nekrasov and M G Pervukhin (eds.), Energetika SSSR v1976-1980 godakh, (Moscow Izd. "Energiya,”’ 1977), p 151


Table 36.—Planned Expansion of Fossil-FiredPowerplant Capacity, 1981-85

Location Fuel Comments

N e w s t a t i o n s

UnknownLignite(Coal)(Coal)(Coal)

(Coal/gas)(Coal)Coal

Addi t ions to ex ls t ing sta t /ens

Boiler system notdeveloped

300 MW in 1981300 MW in 1981800 MW in 1981

2500 MW gener-ators installedas of 1980

NOTE ( ) indicates probable fuel

SOURCES Ekonomicheskaya gazeta, No 1 (January 1981 ) p 11 and Izvestiya(December 2, 1980), p 6

the Far East. The plants will all be coal fired,although one at Yakutsk may also burn nat-ural gas.

In fact, these plans not withstanding, itmay be natural gas—not coal—which showsthe most significant growth as a fuel forpower generation in the 1980’s. Recentlypublished Soviet figures show that theplanned structure of fuel use shown in table35 was not fulfilled.1 During the Tenth FYPthere was a further jump in the share as wellas the quantity of oil and gas used in powerstations. Given the problems facing theSoviet coal industry (see ch. 3) and the enor-mous planned increases in gas output, it isnot unreasonable to expect an appreciablesurge in the share of gas as a power stationfuel.

This outcome is made even more plausibleby the nature of Soviet plans to utilize coalin power generation. Nearly all the incre-ment in coal production will now comefrom Kazakhstan, Siberia, and the Far East.

1Elektricheskiye stantsii. No. 5, 1981.

Given the difficulties in coal transport, oneway of utilizing this coal is to use it togenerate electricity at the mine itself. Largeelectric power complexes intended to supplylocal and regional needs and fired by localcoal are already under construction in boththe Ekibastuz and Kansk-Achinsk basins.Indeed, one Soviet source claims that 77 per-cent of all the new fossil-fired capacity to beintroduced in the present FYP will be mine-side plants at Ekibastuz and Kansk-Achinsk. 2 Eventually long-distance powertransmission lines are expected to make thiselectricity available to the Urals and Euro-pean U.S.S.R. These complexes, therefore,are central to known existing plans for elec-tric power generation in the coming decade.The following sections describe the dif-ficulties that are most likely to inhibit theircompletion and consequent growth in coal-fired power generation.

THE GENERATION OFELECTRICITY IN MINE-MOUTH

P O W E R C O M P L E X E S

The first Ekibastuz State Regional PowerStation was to go online and construction ofa second to begin during the Tenth FYP(1976-80). Eventually, four of these stationsare to be built in the Ekibastuz region, eachequipped with eight 500-MW generatorblocks. Over 600 million rubles were to be in-vested in the Ekibastuz power and fuel com-plex between 1977 and 1980.3

Similarly, 8 to 10 power stations are to bebuilt as part of the Kansk-Achinsk Fuel andPower Complex, development of which wasformally called for in a 1979 decree.4 Powerstations erected near the eastern Kansk-

Ch. 5—The Soviet Electric Power Industry • 149

Achinsk deposits are intended for local andregional power generation only, while thosenear the Western deposits are to supplypower to the Urals and European U.S.S.R.Long-range plans envisage the investment of13 billion to 14 billion rubles on developmentof mining, power generation, and coal treat-ment facilities.5

There are four major problems confront-ing these complexes. The first two—con-struction and supply of power equipment—are common to all forms of powerplant con-struction. The third—the development ofboilers–relates to the intended use of low-grade coal from Siberia, especially Kansk-Achinsk lignites. The fourth factor is thedevelopment of appropriate electricity trans-mission technology and is discussed in asubsequent section of this chapter. Suchtechnology is critical to the ability of theEkibastuz and Kansk-Achinsk complexes tosupply electricity to the Western U.S.S.R.

Construction

A major obstacle to the introduction ofplanned electrical generating capacity is thelow quality of construction operations atmany plant sites. Problems here are similarto those found in other sectors of the con-struction industry. They include labor short-ages, supply problems, plant design errors,planning inefficiencies, and long construc-tion times.

Like many other Soviet industries, theelectrical powerplant construction industryfaces labor shortages, resulting in part froma high degree of usage of manual labor (40percent of the work in building power-plants).6 This is caused largely by the lowlevel of mechanization of auxiliary opera-tions and insufficient use of prefabricatedbuilding elements. The situation is aggra-vated by the frequent need to “disassemble”

5; s f\g[’\’(’\’, (’t al , “ }Iasic I )ir(’ct ions of 1“’ornlalion” of theKansk-Ac’hinsk F’u(~l a n d I’owt’r (’ompl(Ix, l’f’l)/fJ(t/fr<~{’ti), {~,

N() 4, April 19’74, pp. ~11 -~li,6 1 ’ . 1’ F’alal(’}’m , ‘‘ }]a\I[ 1 )Irt’c[ ions of 1 ncreasing th[’

f’: f f[’c.t ikt’nt’<+ of I)t)w (Jr E;n~in(JtJring (’onst ru~t ion,l;rt{’rg[,t/c//~ ~},{) )’(J \ frf~/ t[’1~ I r ,) ~(), 6, .J une 1979, pp. 2-6.

completed work because of errors in con-struction or changes in plans. Such dis-assembly is not highly mechanized. In addi-tion, labor shortages are exacerbated inEastern regions where poor living conditionspromote high labor turnover.

The Soviet press carries numerous articleson the problems of equipment and materialssupply to powerplant construction sites.Producers of boilers or turbines often shipequipment in installments at their own con-venience, and builders must store this ma-chinery awaiting other needed parts. Oftencomponents arrive in insufficient quantitiesor in unsuitable grades or types. The supplysystem itself seems to be straining to main-tain the flow of materials to a growingnumber of construction sites, It is increas-ingly common for materials to pile up at onesite, while another runs short.

A frequent complaint is that the blue-prints for powerplants contain errors, forwhich no one will take responsibility andwhich no one will correct. Often constructionis well underway when the errors are dis-covered and it becomes necessary to rebuildpart of the plant. Or, modifications areadded to the initial designs during construc-tion, and again, construction must be halted.Designers out of touch with constructionproblems may incorporate unobtainableparts or equipment in their designs. Prob-lems of this sort are endemic to the Sovietsystem and are caused largely by theabsence of a single point of responsibility forall phases of a project.

Attempts to fulfill construction plansoften result in surges in new capacity start-ups during the fourth quarter of the year.This leads to a practice called “storming” inwhich intense efforts are made to finish workin a short time and projects of lower priorityare abandoned in order to divert resources toothers. Resources are increasingly dispersedamong too many projects. This results insupply breakdowns, lower labor productivi-ty, and increasing volumes of unfinishedplant construction at the end of each year.Plant construction often consumes 1.5 to 2


times as long as called for in plan norms.7

The situation is aggravated by increasingdowntime of construction equipment, due inlarge part to the poor quality of maintenancework.

Supply and Quality of PowerMachinery

Important problems here are the apparentdifficulties of the power machine buildingand electrical equipment industries in meet-ing delivery schedules, and the unreliabilityof equipment. The power machine buildingindustry produces, among other things,boilers, turbines, and generators for hydro-electric, fossil-fired, and nuclear power-plants. The performance of this industrygenerally reflects the high priority accordedelectrification. Production of electricalequipment grew by over 21 percent between1975 and 1978, and industry labor pro-ductivity grew by over 14 percent. Its shareof products in the highest product qualitycategory nearly doubled between 1975 and1978, rising from 12 to 22 percent.8 TheSoviets claim that the latest products of thisindustry are on a par with the best Westernequipment. Indeed, Soviet hydroelectric tur-bines have found a market in the West wherefew other Soviet industrial products are com-petitive, and the efficiency of Soviet oil- andgas-fired boilers is said to be 0.5 to 1 percenthigher than that of foreign analogs.9

Yet the performance of the industry isuneven, and not all its power machinery is upto the technical level of the export-worthymodels. The industry as a whole seems not tohave an integrated plan for solution of itsquality problems and only faces those whichcan no longer be ignored.10 Low quality herecan be traced directly to the economic incen-tive system where, output being the prime

. . . —7I bid., p. 35.8Ekonomicheskaya gazeta No. 22, May 1979, pp. 1-2, in

JPRS 73,859, July 18, 1979, pp. 9, 11.9V. P. Goloviznin, “Soviet Power Machine Building-Base

of Development of Power of Engineering of the Country,”Energomash-inostroyeniye, No. 4, April 1980, p. 3.

10V. Krotov, “Complex Approach to Management, ” Trud,Mar. 15, 1979, p. 2, in JPRS 73,380, May 4, 1979, p. 62.

goal, much may be sacrificed to achieve it. Inthe power machinery industry, such sacri-fices can take the form of inadequate testingof new equipment before the start of serialproduction. In addition, finished equipmentis not “debugged” before delivery; rather itis left to the engineers of the powerplants tocorrect the defects. A turbogenerator des-tined for the Nazarovo regional power sta-tion, for example, was not tested beforedelivery. Vibration problems surfaced inoperation and over a 5-year period resultedin 62 shutdowns—equivalent to nearly 3years of idle time.11 Such problems will per-sist until the incentive system is reorientedtoward rewarding producers for productionof “quality equipment” instead of merely‘‘equipment.

Boiler Development

A major problem of coal-fired power sta-tions is declining coal quality. The SovietMinistry of the Coal Industry (Minugle-prom) is required to monitor coal quality andto deliver suitable supplies to power sta-tions. Minugleprom’s plan targets, however,are expressed in terms of the quantity,rather than the quality of the coal shipped.Indeed, it has been known to falsify recordsto hide the low quality of its coal.12 TheMinistry of Power and Electrification (Min-energo) frequently complains about the coalit receives, and promotes the idea of eithermoving quality control outside the coal in-dustry or of setting up an independent agen-cy to perform this function. Meanwhile, poorquality coal–particularly coal with high ashcontent—poses serious problems for elec-tricity generation.

Both Kansk-Achinsk and Ekibastuz coaltend to form sediment on the convective sur-faces of boilers. The Soviets have reportedlysucceeded in designing a boiler which suitsthe particular properties of coal fromEkibastuz, and this is now being burned at

11 Sidanov and A. Zarnadze, “h;ffecti~reness of I ntroduc-ing New ‘1’echnolog~’. ” L’opro.sj (IkonomiAi,” No. 2, F’el}ruar~’1980, p. 128.

‘W. I.e\’in, “Padding the I,oad, ” ,~c)tsiuli~tic} tt~.vhll>f[l irr-

(iustri}a. hla.v 11, 1980, p. 2.

Ch. 5—The Soviet Electric Power Industry . 151

15 thermal power stations. Kansk-Achinsk sufficiently studied to permit developmentcoal has proved less tractable. The Soviets of boilers which can be fired by it.13 Until thisclaim to have modified a large boiler system problem is solved, Kansk-Achinsk coal willso that it can burn some types of Kansk- be of limited utility in electricity generation.Achinsk coal; however, coal from at least one 13

"The Problem of the Combustion of Kansk-Alchinskof the basin’s large deposits has not yet been Coal," Teploenergetika. No. 7, .July 1975, p. 92.

ELECTRIC TRANSMISSION

A major purpose in creating the Kansk-Achinsk and Ekibastuz complexes is to pro-vide electricity to the Urals and the Euro-pean U.S.S.R. Development of appropriateultrahigh voltage (UHV) transmission tech-nology is necessary if this goal is to be real-ized. (Lines at voltages between 250 and1,000 kilovolt (kV) are considered extra-highvoltage (EHV) and voltages above this areUHV.) The Ekibastuz complex is to belinked to the Urals by an 1,150-kV alter-nating current (AC) line and to the centralregions by a ±750-kV direct current (DC)line. The Kansk-Achinsk complex is to belinked to the Urals or the central regions bya±1,100 to ±1,200-kV DC line. This sec-tion examines the current status of UHVtechnology and prospects for its develop-ment by 1990.

Transmission of large amounts of powerover very long distances is expensive. Theamount of power that an electrical transmis-sion line can carry increases as the square ofthe voltage, i.e., if the voltage of a line isdoubled, it carries four times the originalpower. Thus, HV transmission lines meanthat power can be more economically trans-mitted over longer distances than lowervoltage lines. But the task of bringing elec-tricity from the East to the European part ofthe country requires the construction andoperation of UHV lines at unprecedentedvoltages. In this respect, the U.S.S.R. will beentering relatively uncharted territory.

In the Soviet Union, as in the UnitedStates, AC is the most common method oftransmitting electric power, allowing highvoltages to be transmitted and then easilyreduced to lower voltages at the point of

utilization. On the other hand, HV DCtransmission requires less insulation, andwhen the same size cables and insulation areused, a DC circuit will carry considerablymore power than an AC circuit. In addition,because no alternating magnetic field existsinside the wires carrying DC, energy lossesand the problem of synchronizing systemsare reduced. But the cost of DC wires israised by the necessity of placing convertersat both ends of the line. For this reason, DCtransmission is not economical over shortdistances. The U.S.S.R. considers DC moreeconomic than AC for transmitting powerover distances in excess of 1,500 to 2,000km,14 and it is pioneering the use of directcurrent in UHV from power stations inKazakhstan and Siberia to the Europeanpart of the country.

The U.S.S.R. has thus far built only twoDC transmission lines. The newer and largerof these is a ±400-kV line between Volgo-grad and the Donets basin. Commissioned instages between 1962 and 1965, this line isscheduled to be overhauled within the next 5years in order to upgrade its equipment.15

Experience gained in the construction andoperation of the ±400-kV line is being usedto develop DC lines of higher voltages.

1 4Zhinlerin, op. ci t . , p, S2. I+’or more on AC ~, 1)(’ powertransmission, see Ronald Amann, ,Julian Cooper, and R. if’.I)a\ies (eds. 1, Th( Tc(il II ()/()gr’ro/ 1.(II (1 ()/’ ,S()( I(If ln(~({.s tr~’

( New I la~en and I.ondon: }ral~’ [Jni\’t~rsitj I)ress, 1977), pp.202-204 and 23,

15"On Reconstruction of the Volgograd-Donbass Direct-Current Power ‘1’rtinsmission 1 ,int’s, ” };n(’r<q(’ (/ L , N(), 1, ,Jan-uar}r 1981, p, :17. ‘1’h~’ f irst 1X’ 1 inc>, wit h a Iol t age of t 200”kV, runs from the Kashira Power Station to Moscow. See D.G . Zhimerin, Energetika nastovashche)e i buduschche.ve(Moscou: Izd. “Znani.ve, ‘“ 1978), p. 82.


Increasing line voltages has been a basictrend in the development of Soviet powerengineering. At present, the voltage inSoviet trunklines has reached 500-to 750-kVAC and ±400-kV DC, and there have beenplans for lines of 1,150-kV AC and ±750-kVand higher DC. The attainment of these volt-age levels is based on many years’ ex-perience with powerline development andconstruction, which in the past has earnedthe U.S.S.R. a leading position worldwide inhigh-voltage transmission.16

The construction of UHV powerlines of1,150-kV AC and ±750-kV DC signifies aqualitatively new level in Soviet powerengineering-a transition to what is stilllargely an experimental technology, both inSoviet and world practice. In the case of the±750-kV DC line, all equipment reportedlyhas been developed in the U.S.S.R. and will

“K. D. I.avrenenko, ‘‘.Soviet ~; lec tric Power in the Past 60Years, “ 77(>ploerz(~rg(jtik(/, No. 11, November 1977, pp. 2-8; P.S. Neporozhniy (cd.), [;lc~ktrifi”hclj,.vi>,u .Y.v.q}i (1.9(i7-1977 Kg, }

(hf OSCOW: Izd. ‘‘ ~~nergi~’a, 1977), pp. 260-26 1 ; A m a n n ,Cooper, and I)avies, op. c]t., pp. 222-224.

be produced at Soviet plants.17 Nevertheless,some technical problems apparently remain.For example, at least one Soviet expert seesthe need to hasten the development ofnew reactive-power compensation devices tomaintain voltage levels and reduce energylosses in AC lines of 1,150 kV (and also 750kV).18 In the development of UHV DC trans-mission, the major problems have centeredaround circuit breakers and, especially, con-verter equipment.19 While Soviet expertsseem to be confident that these problemshave been or will be solved,20 Western ex-perts are less certain.

“ill. Pchelin, “A River of Energy Wrill Start to Flow, ”.Vtroite[na>a guzctu, Jan. 23, 1980, p. 3.

‘H Pet,erson, op. cit., p. 66.‘qAmann, Cooper, and Da\ies (eds. ), op. cit., pp. 215-220.““A major reason for the planned overhaul of the f400-kV

Volgograd-Donets line is to replace less efficient mercury-arcconverter equipment with more advanced thyristor devices.See “On Reconstruction . , . ,” op. ci t . Similar devicesreportedly by have been developed in the U.S.S.R. for thet750-kV Ekibastuz-Tambov line. See V. P. Fotin, “Develop-ment of a Complex of Equipment for the 1,500-kV Ekibastuz-Center Direct-Current Power Transmission Line, ” Elektro-tekhnik~ No. 6, June 1978, pp. 1-6.

SYSTEM INTEGRATION

Soviet efforts to extend electricity supplyto all sectors of the economy have aggra-vated the problem of “maneuverability,” i.e.,meeting widely varying demands for elec-tricity, increasing the need for reservecapacity and maneuverable equipment atpower generating stations. This sectiondescribes the ways in which the Soviet loadpattern is changing, and Soviet problemsand plans for responding to these changes. Itdeals first with peaking problems–includingprograms for creating equipment for thispurpose and the difficulties associated withintroducing large amounts of baseload nu-clear capacity—and then with plans for in-tegrating the electricity system through anationwide power grid.

PROSPECTS FOR COPING WITHDEMAND VARIATIONS

Table 37 illustrates the growth in electrici-ty generation and consumption in theU.S.S.R. from 1960 to 1980. From this table,it can be calculated that total electricity con-sumption increased from 292 billion kWh in1960 to about 736 billion kWh in 1970 andabout 1,276 billion in 1980. (The differencebetween total production and total consump-tion in the latter 2 years is due to exportedelectricity. ) Electricity consumption is clear-ly growing rapidly and demand must be metby the construction of adequate amounts ofgenerating capacity. The table also showsdramatic changes in electricity consumption


Table 37.— Electricity Generation and Consumptionin the U.S.S.R.

(billion kWh)

1960 1970 1980a

Generation of electricity . . . . . . 292 740.9 1293

Consumption of electricityIndustry ... . . . . . . . . . . . . . . 188.7 438 696.2Construction . . . . . . . . . . . . . . . 89 15 23.3Transportation . . . . . . . . . . . . . 17.6 54.4 102.5Agriculture . . . . . . . . . . . . . . . . . 9.9 38.5 109Municipal services

and households . . . . . . . . . 30.5 81.1 155Electricity generation

and transport. . . . . . . . . . . . 36.4 108.7 189.7

a 1980 figures are preliminary

blncludes electricity consumed at power stations (approximately 6 percent of thetotal) and grid losses (between 85 and 9 percent of the total)

SOURCE Elekfricheskiye stantsii No 12 (December 1980) p 44 and NO 1(January 1981) p 2

by economic sector. The relative share ofconsumption by industry–the heaviestuser—has decreased, while shares of agri-culture and municipal services and house-holds have increased.

As demand has grown in the agricultural,urban services, and household sectors, thepower system has been confronted with in-creasingly irregular load curves, with morepronounced periods of moderate to highdemand–so-called semipeakloads and peak-loads—during certain hours of the day.These alternate with periods of sharplyreduced demand.21 (The maximum contin-uous demand throughout all periods is calledthe baseload).

The Soviet power industry continues tohave difficulty covering semipeak and peakloads, primarily because of a lack of gen-erating equipment designed for this purpose.Soviet convention distinguishes three typesof generating capacity: 1) baseload units,2) semibaseload (or semipeakload) units, and3) peakload units.22 The equipment stock

I,{M(Is alw) ~[]r~ on ot her haw+, including weekl}, month-l}r, anci st’:ison:iii}r; h{)w{’~[’r, t h[’ short [’r arrci morr f’requent{i ti i 1~’ J ZI r i:] L ion ~ w’f’ m [ () po<t” t h(~ ~rt’~i t [J+t (i if fic.uit it’s tot-pf)wt’r st:1 t ion~.

J- N, ( i u se~ a n(i \’. 1. f{ o~. (j~”a, “on t ht’ [’ossil)iiit~’ o f( )p[’r:it in~ N“ut.i(’:ir I)OW [’r St:it ions [Jncicr \’ari:il)i(~ I,o:i(i>, ”f;/f’/, tr~(~t{s)( ( }~) \ f[~rt ISII, N(). 9, S(ptt’n]l)t’r I 97’7, pp. !)- 11.

now consists mainly of the baseload type, inboth fossil-fired units and nuclear units.

The U.S.S.R. lacks adequate gas-turbinetechnology, pumped-storage facilities, andhydro units for handling sharp, short-timepeaks. Moreover, the problem of coping withsemipeak fluctuations is aggravated by theincreasing importance of large (300 MW ormore) generating units which are techno-logically unsuited for this purpose.23 Thepower machine building industry is aware ofthese deficiencies and is being called on tostep up the development and construction ofpeak and semipeak equipment, including150- to 200-MW gas-turbine units and hydro-turbines for pumped-storage plants.24

The Soviets have tended to build gen-erating stations and units with larger andlarger capacities in order to reap benefits ofeconomies of scale in power generation. Thishas created a problem, because the marketfor electricity from baseload capacity islimited. Even with the growing overall de-mand for electricity, particularly in theEuropean part of the country, there mayeven now be a surplus of available baseloadcapacity. The lack of highly maneuverableequipment has already forced power stationsto use ill-suited baseload equipment to coverpeak and semipeak periods.25

The installation of more baseload equip-ment will increasingly raise both technicaland economic problems. Both fossil-fuel andnuclear units are slow to start up and toreach rated capacity. They, therefore, cannotrespond to sudden sharp load fluctuations.Indeed, such fluctuations can even damagethe equipment.26 The equipment may beused to cover moderate load fluctuations,but this practice is economically inadvisable,especially in the case of nuclear units.—————

2 3 Les l i e D i e n e s an(i ‘1’heocforc Shaha(i, ‘/’}/{’ .$()[ 1~ ( }“,’f~[’r<~r}’

S), s torn (J1’ashington, 1).(’,: Jr. II. }1’ inston & Sons, 19’79], p,19 i

4( ;oiot’iznin, op. cit.: }’[~, l~oris{~~, ‘‘l I igh Tension.” .SfJt.</~//-ls / i[ ‘h {)s J: [1 II{J /71 (Iii \ / rr \4(J, [ ) (K. ~ I , 1 $)X(), p . ] : IIrl(i i“ ll(~i(i}r”(~,“ F’or th[~ !ie(’(i~ of l{tI:it Suppil , ” .so t <1(1 /1< tli’}1 ( \/, (J I<(J ;?)

[///.s tri}’a, ,Jan. ;10, 19R 1, p. 2,2 I)it’nes anci Sh:il)[i(i. op. (’it , pp. I /+9- 192.

‘ N ~~porolhn i}, [~p, (’it , p 215.


Besides being technically suited to baseloadoperation, nuclear stations must be operatedfor a large number of hours per year. This isbecause nuclear stations have low operatingcosts but high fixed costs (e.g., high con-struction costs per kW of capacity). Only byproducing large volumes of electricity peryear can the fixed cost per kW be broughtlow enough to make the average cost of nu-clear electricity competitive. Soviet plannersare well aware of the need to balance the ad-vantages of nuclear power stations (NPSs) inconserving fossil fuels against their high in-vestment costs.27

Soviet experts recognize the importanceof using nonnuclear capacity wherever possi-ble to compensate for load fluctuations. It isnow recommended that fuel-intensive fossil-fuel stations be unloaded before nuclearones.28 In such a case, nuclear capacity isused as a substitute for less economicalfossil-fuel capacity. As the proportion ofnuclear capacity increases, it will eventuallybecome necessary to operate both fossil-fueland nuclear units under variable loads.29

OTA’s information does not permit it todetermine the point at which this problemwill become acute in the U. S. S. R., but theevidence does allow some observations onthis subject.

Much has been written about the maneu-verability of nuclear generating units.30 Un-til recently, nuclear plants were designed tooperate only under baseloads. An all-unionconference was held in 1977 to discussresults of research on this problem, andtrials have been conducted to determine thefeasibility of running nuclear stations undervariable loads. In order for them to performwell under such conditions, several technicalproblems must be solved, including removal— — — —

27I. M. Volkenau and Ye. A. Volkova, “operating Condi-t ions of Nuclear Power Stat ions in Power Systems, ”Elektn”che.~kive stantsii, No. 3, March 1978, pp. 7-9.

28S. Ye. Shitsman, “The Effectiveness of N PS’S LJnder Dai-ly (Unloading, ” Elektriche.ski<ve .stunt.sii, No. 8, August 1980,p. 11.

29-’”1 bid.30“N. A. Dollezhal, “Nuclear Power and Scientific-Technical

Tasks of Its Advancement, ” A tomnava energi~)a, vol. 44, No.3, March 1978, pp. 203-212.

of limitations on the number of start-stopcycles for the equipment; choice of the bestfuel, fuel cladding, and designs of fuelelements; and optimization of reactor controland protection systems. Moreover, operat-ing conditions themselves will have to be im-proved. Stations presently operating undervariable loads are very inefficient.

According to one Soviet source, base-loading of nuclear capacity will be possibleas long as the following conditions pertain:1) NPSs account for no more than 22 to 24percent of total generating capacity; 2) othertypes of capacity are unloaded to the degreepossible, as needed, including completeweekly shutdowns of one or two units at re-gional fossil-fuel stations; and 3) maneu-verable equipment (hydraulic, pumped-stor-age, and gas-turbine units) accounts for atleast 18 to 19 percent of total capacity (in theEuropean part of the U.S.S.R.).31

OTA has estimated that Soviet NPSs willaccount for approximately 11 percent oftotal installed capacity by 1985, and for nomore than 18.5 percent by 1990 (see below).This suggests that baseloading of SovietNPSs should present no problems until after1990. However, if NPSs account for as muchas 18.5 percent of installed capacity nation-wide by 1990, their proportion could exceed24 percent in the European U.S.S.R. Thiswould force NPSs there to operate undervariable loads. In fact, the Soviet sourcecited above anticipates some unloading ofnuclear capacity, mainly on weekends, evenbefore the 24-percent level is exceeded.32 Thelikelihood that this will happen depends, inpart, on how successfully the U.S.S.R. exer-cises its options for coping with load fluctua-tions.

One such option is building new, flexibleheat and power (cogeneration) stations, de-signed to operate under either base or vary-ing loads. This would obviate the construc-

31Volkenau and Volkova, op. cit., pp. 8 and 9, According tothis source, in 1975 the share of maneuverable equipment inthe European part of the Unified Power System was approx-imately 22 percent, but this share is expected to decrease to18 to 19 percent in the future.

32I bid., p. 9.

Ch. 5—The Soviet Electric Power industry ● 155

tion of specialized semipeak condensing sta-tions, which would generate only electricityand consume fuel at a higher rate than wouldcogeneration stations operating under vari-able loads. Proponents of this option con-tend that the expansion of cogeneration ca-pacity in the European U.S.S.R. will be nec-essary despite the growth of nuclear ca-pacity in that region.33

This position is controversial, however. A1979 article by A. Troitskiy, Deputy Head ofthe Department of Power and Electrificationof Gosplan U.S.S.R., argues that construc-tion of cogeneration stations should be“drastically limited” so that these stationswill not displace generating capacity atN P SS .34 Troitskiy recommends: 1) the reten-tion of obsolete units which are not physical-ly worn out to serve as reserve capacity forshort-term peakloading, 2) the improvementof the load-following characteristics of largefossil-fuel units, and 3) the construction ofpumped-storage stations. Pumped-storagestations (PSSs) are a form of hydroelectriccapacity.

Hydropower is highly maneuverable. TheSoviet power industry is well aware of thisopt ion and i s s t r iv ing to maximize i t svalue. 35 Unfortunately, the availability ofhydraulic capacity is affected by water levelsin the r ivers and reservo i rs tha t f eedhydroelectric stations. In the European partof the U.S.S.R. , where the load-variationproblem is at its worst and where most NPSsare being built, suitable water resources aremuch more limited than in remote regionssuch as Siberia. 36 Since as much as 70 per-cent of the suitable hydraulic resources inthe European U.S.S.R. have already been de-— . . . —

33J’. P. K~rJ’tniko~, “[]~si~ ‘t’~sks for ~lci~h~enin~ the Ef-fecti~reness and Reliability of I Ieat Supply to the Country’sP;conorny,” l’f’plc){~rzc~r~f~tika, No. 8, August 1980, pp. 2-5.

3 4Troitskiy, op. cit., p. 22. Both ‘1’roitskiy’s and Koryt-nikov ar~ ments are aimed at lowering fuel costs and con-serving fossil fuel. To cover growing heat demand, whichwould ordinarily he met with cogeneration capacity, Troit -skiy calls for construction of large hoiler houses, presuma hlyin conjunction with conventional fossil-fired and nuclear elec-tric stations. Korytnikov, op. cit., p. 3, points out, however,that this arrangement would result in greater fuel expend-itures than those incurred at cogeneration stations.

35Dienes and Shabad, op. cit., pp. 13,3-136.“’[Peterson, op. cit., p. 65.

veloped,37 the construction of conventionalhydrostations alone will not satisfy thegrowing need for maneuverable capacity inareas where it is most needed. Therefore, theU.S.S.R. is turning more and more to theconstruction of PSSs for peakload cover-age.38 The specially designed reversiblehydraulic turbines of pumped-storage unitsserve a dual purpose: during offpeak hours,excess generating capacity from other unitsis used to run the turbines to pump water upinto a reservoir; in peak hours, this water isreleased to generate electricity by turningthe turbines in the opposite direction. Theuse of pumped-storage capacity, consequent-ly, can help to maintain baseload operationof nuclear or other stations by providingcoverage of peakloads and also additionalconsumption during offpeak hours. For thisreason, the construction of PSSs is con-sidered an inseparable part of Soviet plansfor growth in nuclear power production.39

Despite such plans and the expressedneed for pumped-storage capacity, progresswith the design and construction of PSSs inthe U.S.S.R. is said to be slow, mainlybecause Soviet designers have neglectedthese stations, which are expensive to build.Only one small PSS near Kiev is presently inoperation.

The first PSS to be built in conjunctionwith an NPS is, however, underway. This isthe Southern Ukrainian Power Complex,which includes the Southern Ukrainian NPS,the Tashlyk Hydroelectric Station, and theKonstantinovka Hydroelectric and Pumped-Storage Station. When completed, the com-plex will have a total capacity of more than6,000 MW, nearly two-thirds of which will benuclear.40 Another PSS has been under con-struction at Zagorsk, near Moscow, since1976, but its completion is apparently notyet in sight.41 The Kayshyadoris PSS in

‘“Ilienes and Shabad, op. cit., p. 133.‘hNeporozhniy, fi~[ck tn’fikat,si~a ., , op. cit., p. 216,“’I>et,erson, op. cit., p. 65.4“1’. S, Neporozhniy, “I,enin’s (joF:I,RO Plan 1s 60 Years

o l d , li’lck trich[~,ski?’e .stafl t.sii, No. 1 2 , I)ecemher 1980, p p .2-8, especially p. 6.

‘IV. Venniko~, ‘contemplat ing the Future, ” S’ot.siu/-i.s tirhe.~ka?$a in[fu. s trij’u, ,Jan. 30, 1981, p. 2.

156 “ Technology and Soviet Energy Availability

Lithuania is to be commissioned during theEleventh FYP, and plans have been draftedfor at least two other stations—theDnestrovsk and the Leningrad PSSS.42

But even the timely construction of PSSswill not completely solve the problem ofcovering sharp load fluctuations in the Euro-pean U.S.S.R. Pumped-storage capacitymust be augmented with other highlymaneuverable equipment, particularly gas-turbine units, which may be used alone or aspart of combined “steam-and-gas” units.43

The U.S.S.R. is reported to be working onthe practical use of gas-turbine units with acapacity of 100-MW and also of 250-MWsteam and gas units.44 However, there is noevidence that these units are being used ex-tensively in the Soviet power industry.45

A final option for coping with load fluctua-tion is capacity substitution through thecreation of large-scale, interconnected powersystems or grids. Such systems permit gen-erating capacities to be shared by shiftingtheir output from one grid to another. This isparticularly advantageous to the U.S.S.R.,with territory that spans 11 time zones.When a grid in one time zone is experiencingpeak demand for electricity, it can borrowpower from an interconnected grid inanother time zone. The supplier also benefitsby utilizing capacity that would otherwise beidle. Predictable load variations allow capaci-ty exchange schedules to be worked out inadvance, and this has reportedly been donefor Soviet power systems. On the otherhand, unplanned variations require more im-mediate response. This situation is said to becovered through the intervention of dis-.————

4ik’k[)jlc)rr)ics/1 +~.vktl>tcz g[IzcIta, 1981 :2, p , 2; Neporozhnil’,Elek trifi~utsijlu . . . o p . c i t . , p . 2 17; f)orisov, 4’ [+igh‘r~nsiont ” op, ~it.

‘ ‘Peterson, op. cit,, p. 65.‘4 Neporozhniy, “I, enin’s (;oh;I,f{() ., ,“’ op. cit., p. 8, uses

the passi~re form ().s I l~~i[ ‘~I,vu ts)’a, which literally means thatthe new t~’pes of equipment ‘‘are heing mastered.

‘‘W’orkers of the “ Kharkot’ Turhine Plant”’ ProductionAssociat ion reportedl~~ ha~re hegun work on adjusting andputtinx into operation a gas turhine designated the (;’1’-35.The turhine is part of the U.S.S.R. first steam-and-gas unit,the P(; U-250, which is installed at the hlolda~’ian ThermalPower Station, %w V. hl. Velichko, ‘“I’he I.ahor- Contributionof [)ower hla~’h ine Iluilciers, Ijr/f’r(g[jrr/f~ .s}/ir/(~,s tr(~)~[~rri]’f~, N’o,

1, .Januar~’ 1981, pp. 2-5.

patcher personnel and the operation of theautomatic frequency and power regulatingsystem.46 The effectiveness of response tounplanned loads by many power stationsprobably is reduced, however, by the short-age of maneuverable generating equipment.

In sum, if the U.S.S.R. carries out itsplans: 1) for building peakload capacity, in-cluding hydroelectric and pumped-storagestations as well as gas-turbine and steam-and-gas units, 2) for improving the ma-neuverability of fossil-fuel stations, and 3)for expanding its unified power grid tofacilitate capacity sharing and substitution,the baseloading of NPSs should be feasibleuntil 1990. Delays in these plans could forcesome unloading of nuclear capacity duringoffpeak hours. This situation could presenttechnical problems for the Soviet nuclear in-dustry; as recently as 1978, the ability ofconventional reactors to withstand repeatedload variations was still in question.47

THE UNIFIED POWER SYSTEM

The Soviet Union is attempting to takefull advantage of large-scale grids by the for-mation of a nationwide Unified Power Sys-tem (UPS). When complete, UPS will in-corporate 11 smaller joint power systemsranging across the entire U.S.S.R. In addi-tion, UPS will be tied into the unified systemof the East European countries.

The core of the unified system was formedin the 1950’s in the European U.S.S.R. The“European” UPS presently takes in eightjoint systems in the Northwest, the Center,the South, the Middle Volga region, theNorth Caucasus, Transcaucasus, the Urals,and North Kazakhstan. In 1978, a 500-kVline was strung linking the European UPSw i t h t h e J o i n t P o w e r S y s t e m ( J P S ) o fSiberia. Other joint systems are in CentralAsia and the Far East,48 and plans exist for

46L. G. it!arnikoyants, et. al., “1’he Det’elopment of I)owerF:ngineer-ing in the U.S.S.R. and the Control of F;lectricalI>ower (Generation and Distribution,” pr~s~ntt~~ at the con-trol Data Corp. Seminar on Power Industry I)etrelopment,Washington, 1).(’., Dec. 6 and 7, 1979.

+ Jrolkenau and Volkova, op. cit., p. 9.1H170tin, op. cit., pp. 1 /14 and 18,5.

Ch. 5—The Soviet Electrlc Power Industry • 157

these to be linked to the European UPS inthe 1980’s, thus completing the formation ofthe nationwide system. 49 The smallest unitsof the unified system are the so-calledRegional Power Systems, which can coverseveral administrative regions or oblasts. 50

To form the unified system, JPSs andregional systems are tied together with HVtransmission lines of 220- to 750-kV AC and±4000-kV DC. In the future, higher voltagesare to be used—1,150-kV AC and ±750- to±1,125-kV DC and above.51 The main ACvoltage level for system interties in the UPSis 500 kV. In the South and Northwest JPSs,330-kV interties have been used in the past,but a network of 750-kV lines is being de-veloped. At present, a 750-kV system inter-tie connects Leningrad and Moscow, and asecond line of this voltage runs from theDonets basin to the Western Ukrainian sub-station and on into Hungary. Plans also callfor the construction of a ring of 750-kV linesaround the Moscow region to transmit anddistribute power from nuclear stations, and1,150-kV l ines l inking Ekibastuz to theUrals. Construction of the first of the latterlines, which will be nearly 1,500-km long, re-portedly is already underway.52

The Soviet Union claims that the JPSspresently tied into the UPS encompass anarea of 10 million km2 with a population ofnearly 220 million people; that UPS unites88 of the 97 power systems in the U.S.S.R.;that only two JPSs and several power sys-tems ‘‘in remote regions’ remain isolatedfrom UPS; and that in 1979, power stationsof UPS accounted for 82 percent of the in-

1‘\lanlik{j~:int +, op. (’it“ if’. (;. /\llin~tJn, “11 igh J’{lltag(> }.; lec’t ric l’owt~r ‘l’riinsmis -

sion, c’ h. 5 in A ma n n, (’()()per, I)a\ies, op. cit., pp. 199-224.I t should lx’ noted that not all s~wtor~ of th(’ StJ~iet economy:i rt’ scrt.ed h? [ h~, [ J n ifi~d SJ’s tt’nl a n d j f) i n t s~’s t t’ms. [ T n t il re-[en t 1}’, agric’ultur[’ and ~’{’rt:i in other ‘sector+ were excluded,gitrin~ ri+e t () the sprt’ad of small, unconnected elc’ctric power~t a t io ns, ‘1’h is problem of a ‘‘d ua 1 twon om~” i n the elvc L r icp(~w[’r industr}r is discuswl b~r I)ienes a n d Shahad, op. ~)it.,pp. 185-1 H7.

‘ .4. I’it[’nko, “ I li~h-(’apacit~ ‘t’ransfornlrr~, ~:[~.~ ti]u,Jun(. 1, 1 :)H(), p, 1; and t’. (;anzha, (title u n k n o w n ] , .$’(j~-iiail \ (i(h{~ \L [1 }IU { H IIu \ /r-{ 1!u, .J u nt’ 14, 19X(), p. 2.

‘I,, 1,, 1)(’terson, ‘‘Th(’ I )e~t’lopment of I>ower S~’stems,},’1111: tric}l(s~i,vf \ (un tsll, N(). 12, I)ec’emlx’r 1 9X(). pp. 6:1-66.

stalled capacity and 88 percent of the elec-tricity generated in the U.S.S.R. 53

It is difficult to evaluate these claims,however. While the Soviet literature stressesthe achievements of UPS in providing con-nections between grids and tends to conveythe impression of a sophisticated system,Western e lec t r i ca l eng ineers who havevisited the U.S.S.R. report that these con-nections are tenuous and that the entire sys-tem is run from a single, underequipped dis-patching office in Moscow.54

The latter point is particularly important.The coordination and management of apower system covering a large territory re-quires a well-organized system of controlcenters and effective control equipment. Intheory, overall management of the SovietUPS is assigned to the system’s centraldispatching department (CDD), which over-sees the work of dispatching departments oft h e 1 1 j o i n t s y s t e m s . T h e l a t t e r d e -partments, in turn, supervise the work ofregional control centers and power sta-tions.55 The CDD’s primary responsibility isto ensure the stable, efficient operation ofUPS and its components and, thus, the de-livery of reliable, quality electric power toconsumers. In addition, the CDD takes partor assists in research, development, andplanning aimed at maintaining and improv-ing UPS.

To accomplish all of this would requireconstant upgrading of control facilities andequipment, including the introduction ofnew communication and data transmissiontechniques. The rap id t ransmiss ion andprocessing of information on all aspects ofgrid performance and operating conditionsare necessary to effect timely shifts of powerfrom one system to another. It is not clearthat the U.S.S.R. has as yet acquired thesecapabilities.

53 Ibid.54 Discussion with Val Lava and Frank Young, members of

the Joint American-Soviet Committee on Cooperation in theField of Energy.

55Mamikoyants, et al., op. cit.


Computer technology is also important toUPS management, and there is evidencethat the Soviet Union recognizes a need touse computers more extensively for this pur-pose.56 For example, the automatic monitor-ing of frequency (which is supposed to be thesame throughout UPS) and of active power,is reportedly done using minicomputers at

56 Ibid. See also the section below on Western Technologyin the Soviet Electric Power Industry.

all levels of control, from the CDD down tolocal power systems. Voltage levels in basicnetworks will also eventually be placedunder centralized automatic control, whichlikely will require the use of computers, butthis work is said to be only at the pre-liminary development stage. Such controlequipment is the basis for the formation of ahierarchical computerized system for man-aging UPS—a goal which is still to beachieved.

WESTERN TECHNOLOGY AND THE SOVIETELECTRIC POWER INDUSTRY

The Soviet Union has so far been success-ful in the development and implementationof HV (up to 750-kV AC and ± 400-kV DC)transmission, apparently with little or noassistance from the West.57 Moreover, atleast on the evidence of Soviet literature,there seems no reason to doubt theU.S.S.R.’s ability to continue to progressand to make the transition to UHV trans-mission. Certainly given the great distancesover which electric power is to be trans-ported in the U.S.S.R., it probably hasgreater economic motivation than any othercountry in the world to employ UHV.

But, from a technical standpoint, the factremains that UHV is still a relatively newand experimental technology. There is evi-dence that the U.S.S.R., which in the 1960’semerged as a world leader in HV powertransmission, has since lagged behind theWest in some aspects of UHV, particularlyin the development of thyristor convertersfor DC lines.58 These observations cast somedoubt on Soviet claims about UHV power-line construction and suggest that theSoviet program might benefit from foreignexperience and equipment.

OTA found no direct evidence that theU.S.S.R. is purchasing or intends to pur-chase UHV equipment and technology from

57 ”Amann, Cooper, and Davies, op. cit.‘)’’ Ibid., p. 220.

the West, yet the possibility of future pur-chases cannot be ruled out. In the caseof thyristor converters, for example, theU.S.S.R. has developed its own equipment.But this may be inferior to that availablefrom Western countries; Sweden has at leastone firm that is actively engaged in commer-cial applications of this technology.59 Whilethe U.S.S.R. can and does achieve the sameeffect as one foreign thryistor by usingseveral of its own, it is possible that a deci-sion could be made to purchase foreign mod-els if large numbers were required. Soviet in-dustry may also be unable to manufactureenough cable for power distribution. A 1976source reported that the U.S.S.R. had beenplacing large orders for cable for small (10-kV) powerlines with suppliers in West Ger-many and Finland, and that even largerorders could be expected in the future.60 Con-ceivably, the U.S.S.R. could also turn to theWest for assistance with the development orsupply of compensation devices for UHV AClines.

Finally, despite its gains in the automa-tion and computerization of UPS, the Sovi-ets have a long way to go before they canpossibly realize centralized control of thewhole system. A considerable amount ofcomputerization has been applied at the——

59 Ibid.60 "Power Lines, "Soviet Busine.s.s and Trade, No. 9, 1976,

pp. 5-6.

Ch. 5—The Soviet Electric Power Industry ● 159

regional and power-system levels for eco-nomic and grid management. But very littleclosed-loop control has been implementedand the software lags that of Westernsystems. Only limited computerization ex-ists at regional control points and power-plants. These functions tend to be limited toaccounting, monitoring, and short-termplanning. Some form of closed-loop control isnot planned until the early 1980’s, and theSoviet goal of automating the whole systemover the next 10 years does not seemrealistic,

The power industry has had access to andmade use of most of the major computersproduced in the U.S.S.R. over the last 15years. Conversely, it has not relied exten-sively on the West for computer equipmentalthough, as has generally been the case witheconomic management, the indirect influ-ence of U.S. computing has been great.

The addition of inflexible nuclear power-plants, the need for more power generatingcapacity, and more reliance on Siberianplants now make management tasks consid-erably more difficult, increasing the need formore sophisticated control of the wholepower system. The more the Soviets try totie the network together, the greater will betheir requirements for real-time control sys-tems which can model a wide variety of situ-ations and optimize operational economics.

In addition, very large computers mayallow the Soviets to do more extensive mod-eling, as opposed to field testing, of variousnetwork configurations. The U.S.S.R. hasspent millions of dollars on test generatorsand other testing equipment. In the UnitedStates, such testing is performed by simula-tions on computers. Soviet facilities for com-puter modeling are only now being created.As the grid becomes more complex, substan-tial savings could be realized here.

Building a multilevel hierarchical processcontrol system of the magnitude of UPSraises enormous software engineering prob-lems. The Soviets lack sophisticated soft-

ware design tools and experience. Theirusual practice is to farm out the develop-ment of separate pieces of large systems tovarious institutes. Without rigorous specifi-cations of interfaces and frequent communi-cations, the overall system is unlikely towork correctly. Consequently, the U.S.S.R.will probably have to settle for considerablyless during the eighties than UPS envisaged:greater manual intervention at each level,slower system response, greater cost, andless reliability.

The West could supply integrated soft-ware tools, data base management systems,and other software which would help theSoviet software industry and trickle down tothis application. Joint ventures, long-termcontacts, training, and other transfer mech-anisms would also help to build up overallsoftware engineering capabilities. It isunlikely that the Soviets would seek to pur-chase a large computer for modeling. Thenew large Soviet-made computers are suffi-cient for this purpose, provided they areavailable to the power industry over the nextfew years. This is another area in whichgeneral help in software would play the mostdecisive role. The same can be said for soft-ware for management of construction.

In sum, the Soviets have introduced alarge number of computers at various levelsof the electric power generation hierarchy.Most of these are concerned with economicmanagement tasks and the overall level ofclosed-loop control of the power grid is notgreat. As new atomic and peakload capaci-ties are added and more electricity is gen-erated in Siberia, the management problemswill become even more complex. Buildingthis system requires software abilities thatthe Soviets probably do not yet possess. TheU.S.S.R. may also encourage technologytransfer from the West in this area. Thiswould be a departure from past experience,for the electric power industry has notpreviously made extensive purchases ofhardware and software. Despite Sovietclaims about domestic developments inpower transmission technology, the


U.S.S.R.’S apparent loss of supremacy in puter equipment, software, and software en-this field in recent years suggests the poten- gineering tools and techniques for powertial for Western assistance, particularly in system management and control.the areas of UHV transmission and com-

THE FUTURE OF THE SOVIETELECTRIC POWER INDUSTRY

ALTERNATIVES FOR MEETINGINCREASED ELECTRICITY

DEMAND

This chapter has discussed two ways inwhich the U.S.S.R. can generate and trans-mit more electricity to meet a still growingdemand in the European part of the country.It can build power stations in the EuropeanU.S.S.R. itself, or it can transmit powerthere over long-distance lines which origi-nate at remote coal basins. Soviet plannersare pursuing both approaches, but it seemsthat some preference is being accorded thefirst, which is based mainly on the construc-tion of nuclear power stations and the cur-tailment of fossil-fuel generation in thisregion. The second approach involves theconstruction of UHV power transmissionlines from coal-fired stations in Kazakhstanand Siberia. As noted above, this project hasbegun, although the ultimate fate of the pro-gram may be delayed, pending the outcomeof the nuclear program.

Soviet preference for localized power gen-eration at NPSs can be understood by com-paring the costs of electricity supplied byeach approach. Troitskiy has compared thecosts of electricity y generated at a baseloadedNPS in the European U.S.S.R. and electrici-ty transmitted there over a 1,500-kV DC linefrom a coal-fired station in Ekibastuz inKazakhstan. 61 According to his figures, thetotal cost of 1 kWh of electricity, includingthe costs of extracting, producing, andtransporting fuel (coal or uranium) and elec-

61 A. Troitskiy, ‘‘Electric Power: Problems and Prespects,Planovoye khozyaystvo, No. 2, February 1979, pp. 18-25.OTA believes that Troitskiy’s figures for the center are in-dicative of the European U.S.S.R. as a whole.

tricity, is 6 percent higher at the point ofconsumption for electricity from an Ekibas-tuz power station than for electricity froma local NPS (1.22 kopecks/kWh v. 1.15kopecks/kWh, respectively).62 Given the pos-sibility of error in the calculations, actualcosts could be roughly the same, or nuclearelectricity could be even less expensive thanindicated. In either case, one may questionthe U.S.S.R.’S decision to build long-dis-tance transmission lines at all if nuclear elec-tricity costs about the same or is cheaper toproduce locally. Indeed, Troitskiy himselfargues that power transmission westwardfrom Ekibastuz and Kansk-Achinsk is ad-visable only if the demand for baseloadcapacity in the European U.S.S.R. cannot becovered with nuclear stations.63

One answer may be to substitute fossil-fired generation for nuclear, particularly ifnuclear growth falls short of planned tar-gets. In such a case, a shortfall in nucleargenerating capacity might be covered withcoal-fired capacity in Ekibastuz. Troitskiyalso gives figures for capital investmentcosts per kilowatt of capacity required todeliver electricity to the European U.S.S.R.(including transmission lines) via either

62 Ibid., p. 20. Troitskiy also considers the option ofbuilding gas-fired condenser stations in the Center and sup-plying them with natural gas from the Tyumen region.Although this option is cheaper (1.08 kopecks/kWh) than theother two options described, Troitskiy points out that gas-fired stations “cannot be recommended” for the Center fortwo reasons: 1) possibilities for long-distance transport ofnatural gas in the future are still limited, and 2) additionalgas resources are necessary, first of all, in order to replaceresidual fuel oil (mazut) as a fuel at power stations.

63 Ibid., p. 21. Troitskiy’s estimate of the cost of elec’tricit?’from Kansk-Ac. hinsk is has(~d t~n transmission ()~~~r a 2,2ho-k~’ DC lint’, B e c a u s e t h i s iroltage It’trcl is not Iikclj to h er(~ached before 1990, if at till, the h: k il)a stuz-(’ent tlr option is(Tons id w-cd i n the present d i ww +s ion.

Ch. 5—The Soviet Electric Power Industry ● 161

nuclear capacity there or coal-fired capacityin Ekibastuz.64 To cover a shortfall in nuclearcapacity of, for example, 5,000 MW with anequiva lent amount o f coa l capac i ty inEkibastuz would require only about 25 mil-lion rubles of capital investment less thanthe investment in the equivalent nuclearcapacity, a difference of about 1 percent.65

Again, given the likely margin for error inTroitskiy’s estimates and the magnitude ofthe investment costs (billions of rubles), thisdifference is insignificant.

In terms of capital investment, then,using low-grade Ekibastuz coal to generateelectricity for the European U.S.S.R. ap-pears to be at least as good as, and maybeslightly better than, building nuclear sta-tions near consumers. Nevertheless, the factremains that the estimated total cost perkilowatt-hour of electricity (as opposed tocapacity) is lower for the nuclear than for theEkibastuz coal option.

Furthermore, from a technical standpoint,there are at least two major risks associatedwith coal-generated electric power fromKazakhstan or Siberia. First, Soviet equip-ment for burning low-grade coal at powerstations, particularly boilers for burningKansk-Achinsk coal , remains to be per-fected. Second, as noted above, technologyfor transmitting coal-generated electricity,especially UHV DC technology, is unprovenin practice. Although the first ±750-kV DCline from Ekibastuz apparently is under con-s t ruc t ion , the U.S .S .R . has not demon-strated practical mastery of this voltagelevel. Even more uncertain is the possibilityof practical application of ±1,125-kV DC,which is the minimum voltage planned foruse in UHV lines from Kansk-Achinsk.

Nor are the economics of using AC linesentirely clear. Troitskiy views 1,150-kV AClines as an effective means of supplyingpower to the Urals from Ekibastuz, but hedoes not mention the possibility of furtherextending such lines.66 Conceivably, an-nounced plans to do this could be ques-tioned, since UHV AC lines from Ekibastuzto the area around Moscow presumablywould create problems similar to those dis-cussed above in connection with UHV DCtransmission v. nuclear power generation. Inany case, as with UHV DC, Soviet successwith UHV AC will depend on the solution towhatever technical problems exist. Here,again, Soviet plans reflect a confidence thatsuch problems have been or can be solved.

Nuclear technology, on the other hand, isproven. NPSs have been operating success-fully in the European U.S.S.R. for years, andthe voltage level for transmission lines fromthese stations–750-kV AC–apparently hasbeen mastered. Moreover, the cost of build-ing these lines is lower than that for UHVlines. If Troitskiy’s estimates of capital in-vestment costs are accurate, the share ofpowerlines in total investment costs isgreater for coal-fired stations in Ekibastuzthan for NPSs around Moscow.67

In sum, while the option of supplying elec-tricity by building NPSs in the western partof the country requires slightly higher cap-ital investment than building coal-fired sta-tions in Ekibastuz for the same purpose, thedelivered cost of electricity from NPSs isslightly lower than for coal-generated elec-tricity from Ekibastuz. Moreover, a largeportion of the investment costs for the coal-fired stations, and the higher cost of Eki-bastuz electricity, can be attributed to the


cost of UHV DC transmission lines-tech-nology which is unproven in practice. Thesefactors, plus unsolved problems of burninglow-grade coal at power stations and suc-cessful experience with nuclear power, makethe nuclear option seem more desirable thanthe coal option. Technological advancementsin UHV and coal power generation, togetherwith practical experience, may make coal usemore viable in the future. At least for thepresent, however, OTA believes that Sovietplanners will downplay coal, particularlyplans to use Kansk-Achinsk coal to generateelectricity, and place more emphasis onnuclear power.68

PROSPECTS FOR MEETINGPLAN TARGETS

1981-85Tables 33 and 34 above showed Soviet

plans for commissioning of new generatingcapacity and for electricity production be-tween 1981 and 1985. Achievement of thisprogram could be jeopardized in at least twoimportant ways. First, Soviet plans call forthe commissioning of only 10,000 MW ofnew capacity in 1981,69 leaving over 15,200MW to be added each year from 1982through 1985. In the past, introductions ofnew capacity have averaged about 10,000MW per year (in 1980, however, the incre-ment was some 13,000 MW), although pro-duction of turbines and generators has beenrunning at 18,000 to 20,000 MW per year.70

Construction must be expanded in the last 4years of the FYP if the goal of installing

68 Besides greater technical risks, the option of usingSiberian coal to supply electric power to the EuropeanU.S.S.R. involves higher costs than the Ekibastuz option. Ac-cording to Troitskiy (Ibid.), supply of the Center fromgenerating capacity in Kansk-Achinsk would cost nearly 390rubles/kW, presumably because of the greater distance fromthe European U.S.S.R. and the use of higher voltage (2,250-kV DC v. 1,500-kV DC) in transmission lines. Overall, elec-tricity from Kansk-Achinsk would cost an estimated 1.28kopecks/kWh.

69 Result.s of Development of Elctric Power Engineeringin 1980 and Tasks for 1981, Elektricheskiye .stantsii, No. 1,,January 1981, p. 181.

70 U.S.S.R. Central Statistical Administration, Narodnoyekhf)z},{lv.$tltt) SS,SK 1, 1979g, ( MO S C O W: 1 xd. “Statistika,”’1980), p. 181.

71,000 MW of new capacity is to be met. Sec-ond a substantial share of this new capacityis to be built at Kansk-Achinsk (the Berezov-skoye No. 1 Plant) (see table 35), but there isno evidence that a suitable boiler has yetbeen developed. It is known that trials usinga 2,650 tons of steam/hour boiler have failedto solve the problems.

Taking these factors into account, OTAestimates that lags in construction at fossil-fired plants make it likely that the projectedgrowth of 29,000 MW will not be attainedand that net growth might more probably bearound only 24,000 MW. If the estimated“best-case” shortfalls projected in chapter 4(2,000 MW) and the plan targets for hydro-power are factored in, the result is theachievement of 325,000 MW by 1985, 7,000MW short of the plan. These projections aresummarized in table 38.

The Eleventh FYP calls for the generationof 1,550 billion to 1,600 billion kWh of elec-tricity by 1985.71 As table 39 demonstrates,OTA estimates that actual generation will be

71 Draft of the hlain t)ire(tions of t’jconomic” and Social I)tJ-~elopmen t of the ( 1..S..S. R. ff~r 19/41 -1985 and for the f’er-iod t o1 9:)(), “ /J/,~,s(/ )(I, I )W. 2, 1980, p. ~.

Table 38.— Estimated Soviet Electrical GeneratingCapacity, 1985 and 1990

(thousand MW)

1985

Planned Projected 1990(from table 34)

Total . . . . . . . . . 332 325a 405a

Fossil-Fired 230 255b 255e

Nuclear . . . . 38 3 6c 7 5c

Hydro , . . . . . 64 64 7 5d

aSum of fossil - fired, nuclear, and hydro capacitiesbEstimated Of 71,000 MW to be added in the period, 35,000 MW are assumed to

be fossil.fired This figure has been adjusted downward by 11,000 MW to ac.count for retirements and underfulfillment of plan targets

c Estimatedd Extrapolated trend. V S. Serkov (ed), Ekspluatatsiya gidroelektrostantsiy,

(Moscow Izd. “Energiya,” 1977), p 18, indicates that hydroelectric capacity in1990 IS to be 82,000 MW. This appears ambitious, but indicates that sites fornew capacity are not exhausted

e Represents a net addition of 30,000 MW (A gross increase of 35,000 MW, less5,000 MW of retirements )

SOURCE Off Ice of Technology Assessment

Ch. 5—The Soviet Electrlc Power Industry ● 163

Table 39.— Estimated Soviet Electricity Production,1985 and 1990

(billion kWh)

1985

Planned Projected 1990(from table 33)

Total . . . . . . . . . 1,550-1,600 1 ,515-1 ,625a 1,900-2,040 a

Fossil-Fired 1,100-1,135 1,095-1,180 b 1,235-1,330 d

Nuclear . . . . 220-225 190-210 c 400-445Hydro . . . . . . 230-235 230-235 265e

aSum of fess I I fired nuclear and hydro capacitiesbMid 1985 capacity of 223,000 MW times operating rate range of 4,900 to 5,291

hr/yr The latter IS the 1980 ratec EstimateddMid 1990 capacity of 252,000 MW times operating rate range of 4,900-5,291

hr/yr The latter IS the 1980 ratee Estimated mid-1990 capacity of 73,900 MW used at a rate of 3600 hr/yr, that is

at roughIy the 1979 rate of utilization. See Narodnoye khozyaystvo op. cit.(1980) p 169

SOURCE: Office of Technology Assessment

1,515 billion to 1,625 billion kWh in 1985,well within the scope of the plan. This esti-mate too uses the optimistic nuclear projec-tions in chapter 4 and adopts the goal set forhydroelectric generation; OTA estimatesthat fossil-fired electricity generation willreach 1,095 billion to 1,180 billion kWh in1985. Combining these three componentsyields a result that should equal the plantarget even if capacity introductions fallshort of the goal. This outcome depends onthe assumed rate of utilization of installedcapacity. I f the 1980 rate is maintained,fossil-f ired generation could reach 1,180billion kWh, but if rates continue to de-cline—say to 4,900 hr/yr—then generationwill reach only 1,095 billion kWh, still withinthe plan target range.

It must be noted that opportunities to in-crease the amount of electricity producedfrom coal may be limited by the availabilityof coal. Although planned coal growth iscommensurate with planned growth in fossil-fired electricity generation over the FYP (8to 12 percent v. 5 to 9 percent, respectively),chapter 3 estimates that at most coal outputwill actually increase by only 7 percent, andeven this is a highly optimistic projection.Given probable growth of demand for coal inother industrial sectors, notably in ferrousmetallurgy, even a 7-percent growth in coal

production is insufficient to achieve the up-per end of the range for electricity growth.In addition, if growth in Kansk-Achinsk out-put is excluded owing to boiler problems,growth in coal production to 1985 falls to 5to 6 percent, When likely declines in theaverage calorific value of other coals aretaken into account, there is a possibility thatcoal production on a Btu-basis will fall fromthe 1980 level. There is, then, a substantialprobability that coal’s contribution to totalfuel consumption in electrical power genera-tion will decline. As a consequence, someplans for adding new coal-burning capacitymay have to be scrapped or at least post-poned until after 1985.

In sum, present rates of power machineryproduction suggest that the Soviets are ca-pable of producing the 35,000 MW of powergenerating equipment needed to achieve theplanned gross addition of fossil-fired capaci-ty by 1985. But unless greater resources areallocated to construction of powerplants,there will be insufficient finished plant tohouse much of this equipment at the end of1985. In addition, it is possible that growthin coal production will not be sufficient tosupport a 5- to 9-percent growth of fossil-fired electricity production. As a conse-quence, it is difficult to see how coal’s shareof the fuel balance in electricity generationcan be expanded between 1981 and 1985.

1986-90Estimates for Soviet electricity gener-

ating capacity in the Twelfth FYP are highlyspeculative. The figures shown in table 38 in-dicated that this capacity could exceed400,000 MW by 1990, possibly amounting to405,000 to 415,000 MW. Fossil-fired capaci-ty will grow between 1986 and 1990, al-though the extent of the growth is hard tojudge. During this period, additional plantswill be built at the Ekibastuz and Kansk-Achinsk basins and probably at the SouthYakutian basin. Other plants may be built inthe Far East and in the Urals, In all, OTAhas assumed a net addition of 30,000 MW ofcapacity between 1986 and 1990. If so, fossil-


fired capacity in 1990 could reach 255,000 kWh by 1990, with 1,235 billion to 1,330MW (see table 38). Total electricity produc- billion kWh being generated by fossil-firedtion could reach 1,900 billion to 2,040 billion stations (see table 39).


The U.S.S.R. has amassed great experi-ence in power transmission, including long-distance HV transmission. This experiencehas proved valuable in and has been en-hanced by the formation of the nationwideUnified Power System. At the same time,Soviet power engineering is moving into aqualitatively new field—UHV transmission.The move to UHV, at least initially, will in-volve substantially higher investment andoperating costs; but the Soviets are confi-dent that these costs will be offset by thegreat savings to be gained from long-distance UHV transmission. The success ofthis move may determine the outcome ofSoviet plans to complete the UPS. Thechances for success will depend, in largepart, on the applicability to UHV of pastSoviet experience in power transmissionand, perhaps, the availability of assistancefrom the West.

Plans for UHV DC transmission of coal-generated electricity to the center of theEuropean U.S.S.R. from Kazakhstan andWest Siberia seem to be viewed as a way tosupplement nuclear power, particularly inthe event of a shortfall in planned nuclearcapacity. However, the technical risks in-volved in UHV transmission and power gen-eration using low-grade coal support the con-clusion that Soviet planners may be down-playing coal in favor of nuclear power, atleast for the present. This may mean thatconstruction of UHV DC lines other than the±750-kV line now being built will be de-layed, pending success of the nuclear pro-gram and the solution of technical problemsconnected with developing a boiler to burnKansk-Achinsk coal and technology for DCtransmission at voltages of ±1,125-kV and

more. Gas may also come to play a more im-portant role in power generation.

There are no economic constraints tobuilding the planned 1,150-kV AC lines tosupply power to the Urals, assuming thattechnical problems are or can be solved.Presumably, however, plans to extend theselines to the Western U.S.S.R. would raiseeconomic questions similar to those entailedin proposed UHV DC transmission vis a visnuclear power.

To some extent, the generation of electrici-ty by fossil-fired plants in the 1980’s will betied to the fate of the nuclear electrificationprogram. But if nuclear power falls behindschedule, fossil-fired equipment will be calledon to cover the shortfall.

On the face of it, there would appear to bea substantial amount of flexibility in the sys-tem, at least in handling the baseload.Fossil-fired capacity at the end of 1980(201,000 M W) would satisfy and even exceedthe 1985 generation targets of 1,100 billionto 1,135 billion kWh if utilization rates of5,475 to 5,650 hr/yr could be achieved. If the1985 goal for fossil-fired capacity (230,000MW) were met, operation of this capacity atthe 1979 utilization rate (5,651 hr/yr) wouldpermit the generation of 1,300 billion kWh in1985–almost enough to cover the 1985 tar-gets for both fossil-fired and nuclear plants.

There is sufficient evidence to suggestthat the U.S.S.R. will have substantialreserve capacity in its power generationsystem in the 1980’s and will be able to com-pensate to some degree for shortfalls in thenuclear program by increasing the rate ofutilization of fossil-fired capacity, providedthat the needed fossil fuel supplies are


available. Nor does the availability of gen-erating equipment appear to be a problem.Present annual production of turbines andgenerators seems more than sufficient tosupport a gross addition of 65,000 MW offossil-fired capacity by 1990 (54,000 MWnet).

Examination of the available literature,both Soviet and Western, revealed virtuallyno imports of Western technology and equip-ment in nonnuclear power generation. Infact, the Soviets have opted for domesticdevelopment of this industry and have large-ly succeeded in achieving a high techno-logical level in their equipment, comparablein some cases with the best available in theWest.

One equipment problem–the develop-ment of large boilers for Kansk-Achinskcoal—probably must be solved domestically.Boilers are custom designed for specifictypes of coal and suitable boilers would notbe available from the West. The Soviets havebeen working on the development of suchboilers for years, but to date appear to havehad little success. This is not unusual,however. Boiler development can take dec-ades, and there is no assurance that an effi-cient boiler can be developed for a given typeof coal. In any event, Soviet capabilities inboiler design are comparable with Western

capabilities. In short, Soviet reliance ondomestically produced power generatingequipment will probably continue into theforeseeable future and the availability ofWestern technology and credits should be ofsmall concern in this area.

Similarly, the U.S.S.R. appears to belargely self-reliant in the construction ofpower transmission lines. This self-reliancemay be reduced if Soviet plans for UHVtransmission are carried out; the U.S.S.R.may be forced to turn to the West to help itsupply the large body of technology andequipment which would be required. At thesame time, the need for the U.S.S.R, to moveahead at full speed with plans for UHV de-velopment, particularly UHV DC, is ques-tionable, given past success with and futureplans for nuclear power. Postponement orabandonment of Soviet UHV plans wouldlimit the potential impact of Western tech-nology in this field.

Although reliance on the West for com-puter technology for UPS has been verylimited, the U.S.S.R. could profit substan-tially from using U.S. software engineeringtechniques to build the network’s computercontrol system. Continued indirect acquisi-tion of these techniques is at least as likely,however, as direct acquisition.

CHAPTER 6

Western Energy Equipmentand Technology Trade With

the U.S.S.R.

CONTENTS

Page

EAST-WEST TRADE IN ENERGYTECHNOLOGY ANDEQUIPMENT . . . . . . . . . . . . . . . . . . . . 171

NUCLEAR . . . . . . . . . . . . . . . . . . . . .. ..174Western Exports. . .................174Foreign Availability of Nuclear

Equipment and Technology. . .......176Summary and Conclusions. . ..........177

COAL . . . . . . . . . . . . . . . . . . . . . .......177

PageForeign Availability of Coal

Technology and Equipment. . . . . . . . .180Summary and Conclusions. . . . . . . . . . . .180

ELECTRIC POWER, . . . . . . . . . . . . . . .181Western Exports. . .................181Foreign Availability of Electric Power

Equipment and Technology. . .......183Summary and Conclusions. . ..........183

OIL AND GAS. . . . . . . . . . . . . . . . . . . . . 184Western Exports. . .................177 Western Exports. . .................184

.

Page

Foreign Availability of Oil and GasIndustry Equipment andTechnology . . . . . . . . . . . . . . . . . . . . . . 191

Technology Transfer and “ForeignAvailability” . . . . . . . . .............200

Summary and Conclusions. . ..........204

APPENDIX A. Energy CorporationAffiliations. . . . . . . . . . . . . . . . . . . . . ..205

APPENDIX B. Trade by Company. .. .209

APPENDIX C. Suppliers of EssentialEquipment. . . . . . . . . . . . . . . . . . . . . ..219

LIST OF TABLES

Table No. Page

40.

41.

42.

43.

44.

45.

46.

47.

48.

UN SITC Energy-RelatedEquipment Codes. . ..............170Industrial West Exports to theU. S. S. R., Selected Countries. .. ....172Soviet Energy-Related ImportsFrom Selected Western Countries. .. 172Energy-Related Exports to theU.S.S.R. by Selected Countries. .. ..174Soviet Imports From SelectedWestern Nations. ... , . ...........179U.S. Oil and Gas Equipment TradeWith U.S.S.R. Relative Percentageof Each Technology Area. . . . . . . . . .186Comparison of U.S. and FrenchSeismic Equipment. . . . . . . . .......192Manufacture of Siesmic Equipmentby Country. . . . . . . . . . . . . . . . . . . . . 193Non-U.S. Offshore EngineeringFirms , . . . . . . . . . . . . . . . . . . . . ., .. .199

B-1. Trade by Company–Oiland Gas. . . . . . . . . . . . . . . . . . . . . . .209

B-2. Trade by Company–Coal. . .......217C-1. Suppliers of Nuclear Grade

c-2

c-3

Pip& and Tubes Outsidethe United States. . .............219Suppliers of Welding EquipmentOutside the United States. . ......219Suppliers of Steam GeneratorsOutside the United States. . ......220

c-4.

c-5.

C-6.

c-7.

C-8.

c-9.

Page

Suppliers of Pumps Outside theUnited States. . ................220Suppliers of Valves Outside theUnited States. . ................220Suppliers of ContainmentStructures Outside theUnited States. . ................221Suppliers of Control SystemsOutside the United States. . ......221Essential Equipment for CoalMining . . . . . . . . . . . . . . . . . . . . .. ..221West European and JapaneseSuppliers of Essential CoalMining Equipment. . ............222

C-10. West European and JapaneseProducers of ElectricTransmission Equipment. . ......225

LIST OF FIGURES

Figure No. Page

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

Soviet Imports of Western Energy “Equipment and Technology, by -

Industry . . . . . . . . . . . . . . . . . . . . . . . 173U.S. Energy-Related Exports tothe U. S. S. R., by Industry. ... , .. ...174Western Energy Trade WithU.S.S.R.–Welding Equipment. .. ..175Coal-Related Equipment Exportsto the U. S: S. R.. . ................178Electric Power Equipment Exportsto the U. S. S. R.. . . . . . . . . . . . . . .. ..182U.S.S.R. Imports of Oil and GasEquipment ., . . . . . . . . . . . . . . . . . . . 185U.S. Oil and Gas Equipment TradeWith U.S.S.R. by TechnologyArea. . . . . . . . . . . . . . . . . . . . . . . . . . .187Western Energy Trade WithU.S.S.R. Automated DataProcessing Equipment. . ..........188Western Energy Trade WithU.S.S.R. Pumps for Liquids. . ......189Relative Importance to SovietEnergy Industries of Computer-Related Technologies in Which theU.S.S.R. Lags the United States. .. .203

.

CHAPTER 6

Western Energy Equipment andTechnology Trade With the U.S.S.R.

—.—-

The previous four chapters have discussedthe impact of Western energy technologyand equipment on Soviet energy productionin qualitative terms. This chapter examinesthe nature and extent of Soviet energy-related purchases from the West. Usingavailable trade data, it seeks t. ascertain the

magnitude and sources of this trade, toanalyze identifiable patterns and trends, andto illuminate the role of the United States inproviding material assistance to Sovietenergy industries. In the latter context, thechapter addresses the issue of “foreign avail-ability," i.e., the extent to which the UnitedStates is the sole or preferred supplier ofenergy equipment and technologies that theSoviet Union has purchased in the last 5years or is likely to seek during the presentdecade.

The methodology employed in this chap-ter is as follows: OTA used the surveys ofthe Soviet oil, gas, coal, nuclear, and elec-tricity transmission industries which appearin chapters 2 through 5, together with in-formation on common Western practice, tocompile a broad list of important energytechnologies, items of equipment, and serv-ices.1 This list was refined by using tradestatistics to identify those areas in which theU.S.S.R. has made purchases from the Westin the past 5 years. Major items were thensubjected to a foreign availability analysis inwhich OTA attempted to ascertain whichWest European and Japanese firms manu-facture similar equipment or possess exper-tise comparable to those companies that ac-tually supplied the U.S.S.R.—

1No attempt has been made here to distinguish between“technology” and “products” or “equipment”. For a discus-sion of this subject, see OTA, Technology and East-WestTrade (Washington, D. C.: U.S. Government Printing Office,1979), ch. VI.

Foreign availability is a highly subjectiveconcept. As chapter 13 discusses in detail,there is no universal agreement on theparameters that define the degree of equiva-lency necessary to constitute foreign avail-ability, on how the parameters should beweighted, or indeed on how equivalencyitself can and should be measured. Given thelimitations of this study, no attempt wasmade to conduct an exhaustive worldwidesearch for all alternative sources for eachitem; in most cases identification of two orthree suppliers was deemed sufficient.

Nor did OTA construct a rigorous frame-work for defining and measuring foreignavailability. Information on energy tech-nologies and equipment was collected fromindustry sources in a number of countriesand evaluated by independent technicians.These evaluations were supplemented by in-terviews with representatives from energy-related companies in the United States andwith members of the intelligence commu-nity. The criteria of comparability werequality, price, and technical capabilities (i.e.,speed, capacity, precision). OTA did not in-vestigate the potential manufacturing ca-pacity of alternative suppliers or evaluatethe willingness of firms to sell to theU.S.S.R. The latter are both issues thatwould have to be taken into account in an ex-haustive foreign availability analysis.

Although the results of the analysis car-ried out here are limited, they can be used toindicate those areas in which the UnitedStates enjoys a significant technologicaledge over other Western nations in an ener-gy-related process, system, or piece of equip-ment important to the oil, gas, coal, nuclear,or electric power industries of the U.S.S.R.

169


A variety of statistical systems were ex-amined in the course of this study, no one ofwhich provided an ideal data base. OTA hasdealt elsewhere with the problems associatedwith measuring and reporting trade,2 but abrief review of the data sources employedhere can provide a sense of the limitations ofthe analysis that follows and of the strengthof the generalizations that may legitimatelybe drawn from it.

This chapter relies most heavily on theUnited Nations’ Standard InternationalTrade Classification (SITC). This schemesummarizes trade information for thousandsof different items by organizing them intocommodity groupings of up to seven digits,The SITC system is the only readily avail-able statistical source that reports data forall of the Western countries examined duringthe course of this assessment. The disadvan-tage of SITC lies in the fact that it is highlyaggregative, i.e., its codes encompass itemsthat are not specifically energy related. Con-sequently, many of the values shown are in-flated, and should be understood to repre-sent relative orders of magnitude ratherthan precise amounts of energy-related ex-ports. OTA has collected data for thoseSITC codes believed to consist largely, albeitnot exclusively, of energy-related items.These codes are shown in table 40. The dataare best used for comparative purposes—toidentify the relative importance of suppliersof particular items to the U. S. S. R., forexample.

In some cases a more discrete analysisthan that possible from SITC data seemedwarranted. Here three other data bases wereemployed: Schedules B and E from the U.S.Department of Commerce,3 and the Euro-pean Economic Community (EEC)’s No-menclature of Goods for the External TradeStatistics of the Community and Statis-tics of Trade Between Member States

Table 40.—UN SITC Energy-RelatedEquipment Codes

SITC code

571 1

571.2, 571.2

6294

642.93655.92

678, 672.9695.24

711.1

711.2

711.7714.3

714.92

718.42

718.51

719.21719.22

719.23, 712.31

719.31

722.1

722.2

723.1

723.21729.52

729.92

732.4

735.92

735.93861.81, 729.51

861.91

86199

Description

Propellent powders and other preparedexplosivesSafety and detonating fuses, percussionand detonating caps, igniters, etc.Transmission, conveyor or elevator belts ofvulcanized rubberGummed or adhesive paper in strips or rollsTransmission, conveyor or elevator belts oftextiled materialTubes, pipes and fittings of iron and steelRock drilling bits; tools and bits forassorted hand toolsSteam and other vapor generating boilersand parts, n.e.s.Auxiliary plant for use with steam and othervapor generating boilersNuclear reactors and parts thereof n.e.s.Automatic data processing machines andunits thereof; magnetic and opticalreaders and machines for processingdataParts, n es. of and accessories for ADPand other calculating machinesSelf-propelled shovels and excavators,self and nonself propelled Ievelling,tamping, boring, etc., machinery andparts thereofMachinery for sorting, screening,separating, washing, crushing, etc.,for earth, stone, ores and other mineralsPumps for Iiquids and parts thereofAir and vacuum pumps and air or gascompressors and parts thereofFiltering and purifying machinery andapparatus for liquids and gasesOther Iifting, handling, Ioading andunloading machinery, n.e.s.Rotating electric plant and parts thereof;transformers, converters, rectifiers,Inductors and parts.Electrical apparatus for making or breakingelectrical circuitsInsulated electric wire, cable, bars, stripand the IikeElectrical Insulators of other materialsElectrical measuring, checking, analysingor controlling Instruments, n.e.s.Electric welding, brazing, soldering andcutting machines and apparatus andparts thereof, n e s.Special purpose motor Iorries, vans,crane Iorries, etc.Light vessels, floating cranes and otherspecial purpose vessels, floating docksFloating structures other than vesselsGas, Iiquid, and electricity supply orproduction meters.Surveying, hydrographic, etc., andgeophysical Instruments (nonelectrical)Parts, n.e.s., of meters and counters;nonelectrical and electrical measuring,checking, etc., instruments of SITC729.52, 861.8 and 861 97


Ch. 6— Western Energy Equipment and Technology Trade With the U.S.S.R. ● 171

(NIMEXE). The former were useful in pro-viding a clearer sense of the role of energy-related items in U.S. exports; the latter ful-filled the same role for West European coun-tries. Cross-checking Western export withSoviet import data proved impossible. Thisphenomenon is not unique to the energy sec-tor; it reflects different classification sys-tems and data reporting criteria.

It must be noted that U.S. export statis-tics do not include the value of Western tech-nology and equipment sales that originatefrom U.S. subsidiaries or licensees abroad;nor will the category of U.S. exports to theU.S.S.R. include items that are first destinedfor third countries. Corporations that exportenergy technology and equipment are oftenmultinationals or at least have internationalcorporate affiliations in other countries.Some sense of the international nature ofthis industry can be gleaned from appendixA, which shows a partial list of energy cor-

poration affiliations worldwide. The com-plexity of these relationships makes it ex-tremely difficult, if not impossible, to alwaysattribute technology sales to the true coun-try of origin. The data collected here, there-fore, very likely understate the contributionof American technology to the U.S.S.R.

Finally, export statistics are ill-suited toidentifying such technology transfers as thesale of licenses or turnkey plants. For thisreason, OTA supplemented its statisticaldata bases with a comprehensive search ofSoviet Business and Trade, a biweeklypublication that reports major trade dealsbetween the U.S.S.R. and the West.4 TablesB-1 and B-2 in appendix B summarize ener-gy-related transactions reported in this pub-lication between 1975 and 1980.

EAST-WEST TRADE IN ENERGY TECHNOLOGYAND EQUIPMENT

Although Soviet trade with the West hasgrown markedly in the past decade, it has re-mained a relatively small part of world tradeas a whole. Except for sales of agriculturalcommodities (i.e., grain), the United Stateshas captured relatively small market sharesof this trade compared to other nations inthe Industrial West (IW, defined here asCanada, France, Italy, Japan, Netherlands,Norway, Sweden, Switzerland, the UnitedKingdom, the United States, and West Ger-many). 5 Table 41, which shows total Sovietimports from the IW, demonstrates thatwhen agricultural commodities are excluded,in 1979 the United States lagged behindWest Germany, Japan, and France in in-dustrial exports to the U.S.S.R.

Table 42 shows the value of Soviet im-ports of items in the energy-related SITCcodes listed in table 40. From these data,

5 See OTA, op cit., ch. 111.

OTA estimates that energy-related itemsconstituted about 25 percent of total Sovietimports from the IW in 1975, and about 22percent in 1979. When total imports are ad-justed to omit agricultural commodities, therelative importance of energy-related tradeincreases slightly. In 1979, about 28 percentof Soviet nonagricultural imports from theWest consisted of energy equipment andtechnology.

It is clear from table 42 that the vastpreponderance of the U.S.S.R.’s energy-related imports are destined for its oil andgas industries, a fact that is demonstratedgraphically in figure 11. The oil and gas sec-tor in 1979 took up 77 percent of such im-ports. Assuming that a similar proportion ofmultiarea items—i.e., those that could beemployed in more than one energy in-dustry—were destined for the oil and gas in-dustries, approximately 81 percent of allSoviet purchases of energy equipment and


Table 41 .—industrial West Exports to the U. S. S. R., Selected Countriesa 1975-1979 (million U.S. dollars)

Total Industrial United West UnitedYear West a States Japan France Germany Italy Kingdom Other— . —

1979 . . . . . . . . . . . . . . . . $15,255 $3,604 $2,461.0 $2,007 $3,619 $1,220 $694 $1650.4Industrial. . . . . . . . . 12,151 1,319 2,461 1,791 3551 1,191 655 1,183,1Agricultural . . . . . . 3,104 2,285 0.2 216 68 29 39 467,3

1978 . . . . . . . . . . . . . . . . 12,419 2,249 2,502 1,455 3,141 1,133 665 1,274Industrial. . . . . . . . . 10,485 804 2,501 1,408 3,128 1,084 615 945Agricultural . . . . . . 1,934 1,445 1 47 13 49 50 329

1977 . . . . . . . . . . . . . . . . 10,788 1,624 1,934 1,496 2,789 1,228 607 1,110,1Industrial. . . . . . . . . 9,411 747 1,934 1,369 2,765 1,218 602 776Agricultural . . . . . . 1,377 877 0 127 24 10 5 334

1976 . . . . . . . . . . . . . . . . 11,051 2,306 2,252 1,118 2,685 981 432 1,277Industrial, . . . . . . . . 9,005 946 2,252 977 2,659 974 427 770Agricultural . . . . . . 2,047 1,360 0 141 26 8 5 507

1975 . . . . . . . . . . . . . . . . 10,092 1,834 1,625 1,147 2,824 1,020 464 1,178Industrial. . . . . . . . . 8,469 720 1,625 1,059 2,816 996 459 794Agricultural . . . . . . $1,623 $1,114 $ 0 $ 88 $ 8 $ 24 $ 5 $384

a l ndus t r ia l i zed W e s t e r n n a t i o n s In c l u d e C a n a d a F r a n c e I t a l y J a p a n t h e N e t h e r l a n d s N o r w a y S w e d e n S w i t z e r l a n d t h e U n i t e d K i n g d o m t h e U n i t e d S t a l e s a n d W e s t

Germany

SOURCE: OECD, Stastitics of Foreign Trade Series B Paris (Annual).

Table 42.—Soviet Energy-Related Imports From Selected Western Countriesa

(million U.S. dollars)

Electric MultiareaYear Oil/qas Coal Nuclear power commodities Total

1979 . . . . . . . . . . . . . . . . . . . . $2,652.5 $255.9 $84.1 $279,3 $155.1 $3,427

1978 ..., . . . . . . . . . . . . . . . . 2,321,0 237.0 70.4 3319 134.8 3,095

1977 . . . . . . . . . . . . . . . . . . . . 1,991.7 174.4 98.8 252.6 103.4 2,621

1976 ......, . . . . . . . . . . . . . 2,250,0 202.8 70.2 157.0 86,5 2,767

1975 ......, . . . . . . . . . . . . . $1,989.5 $212.5 $90.5 $117,6 $90.3 $2,500

a l nc ludes Canada France I ta ly Japan, the Netherlands Norway Sweden, Switzer land the United Kingdom the United States and West Germany

NOTE Data here IS for the SITC codes Iisted in table 40

SOURCE Un i t ed Na t i ons S ITC da ta

technology were used to find, produce, anddeliver oil and gas. The share of the nuclearpower sector was less than 3 percent; that ofcoal 7 percent; electric power, 8 percent; andother multiarea items, 1 percent.

The role of the United States in thisenergy-related trade has been small, both interms of its share in U.S.-Soviet trade as awhole, and in comparison to the relative

shares of energy-related equipment and tech-nology in the Soviet trade of America’sallies. As table 43 displays, the value of U.S.exports to the U.S.S.R. in energy-relatedSITC codes for 1979 was $237.6 million. Thisconstituted some 6.6 percent of America’stotal and about 18 percent of its industrialexports to the Soviet Union in that year.Table 43 also shows that in 1979, the valueof U.S. energy-related exports to the

Ch. 6— Western Energy Equipment and Technology Trade With the US.S.R. ● 173

Figure 11 .—SovietEquipment and

Imports of Western EnergyTechnology, by Industry

U.S.S.R. was lower than those of Japan,West Germany, France, and Italy. Japanwas by far the largest energy equipment sup-plier to the U. S. S. R., its exports totallingabout one-third of all Soviet purchases inthis area. West Germany was a close second.France and Italy both recorded exportsabout double those of the United States. In1979, the United States accounted for under7 percent of energy-related exports to theU.S.S.R. of the Western countries examined.

on which this analysis is based seriously in-flates the export figures by including itemsnot destined for the Soviet energy sector,this percentage may actually be evensmaller. U.S. trade statistics as of this writ-ing are available only through October 1980,but these suggest that U.S. energy-relatedexports plummeted in 1980, the result of thepost-Afghanistan technology embargo.

The composition of the Soviet Union’spurchases from the United States reflectsthe same pattern as its energy-related im-ports from the West as a whole, i.e., they arelargely composed of items destined for theoil and gas industries. This pattern is shownin figure 12. But although U.S. sales havenot been high in dollar amounts, or particu-larly impressive as a percentage of totalSoviet energy-related imports, it has beencontended that their importance to theU.S.S.R. is greatly magnified by the factthat they have been composed of criticalitems, some of which are unavailable else-where in the world. The remainder of thischapter will investigate this assertion, exam-ining sector by sector the composition and

n

1975 1976 1977 1978 1979

Year

SOURCE Table 42

magnitude of Soviet imports in each of thefive energy industries under consideration,and identifying the sources of these imports.Where U.S. firms have been active traders,an attempt has been made to ascertainwhether or not comparable items areavailable elsewhere in the West.


Table 43.—Energy-Related Exports to the U.S.S.R. by Selected Countriesa (million U.S. dollars)——— .

United West United Total energyYear States Japan France Germany Italy Kingdom Other exports— — —

1979 . . . . . . . $2376 $1,0971 $474.4 $906.1 $408,2 $90.5 $213.1 $3,4271978 . . . . . . . 1598 1,0675 391.4 8393 390.6 113.8 133.0 3,0951977 . . . . . . 211.7 5999 418.6 7454 447,5 49,7 148.2 2,6211976 . . . . . . . 2847 9044 3083 627.8 4384 46.3 156.7 2,7001975 . . . . . . $2183 $4795 $3344 $854.8 $4338 $38.4 $140,3 $2,500

— —a i nc ludes Canada, F rance, I ta ly , Japan, Nether lands , N o r w a y , S w e d e n , S w i t z e r l a n d , U n i t e d K i n g d o m , U n i t e d S t a t e s , a n d W e s t G e r m a n y

SOURCE: United Nations SITC Data

Figure 12.—U.S. Energy Related Exports to theU. S. S. R., by Industry

140

130

120

110

10090

8070

60

50

40

30

20

10

5

A

SOURCE U S Department of Commerce

NUCLEAR

WESTERN EXPORTS The latter code clearly incorporates a broad

Two SITC codes relate particularly to therange of equipment that can also be utilizedby other industries.

nuclear industrv:.Little Soviet trade in nuclear reactors

711.7

729.92

Nuclear reactors and parts thereof. and parts has been recorded—exports of$448,700 from the United States in 1978 and

Electric welding, brazing soldering$329,000 from West Germany in 1976. OTAhas been unable to find any unclassified ac-

and cutting machines and appara-tus and parts thereof.

counts that provide further information oneither of these figures. There have been


report that the U.S.S.R. may be consideringthe purchase of reactors from Italy, but asyet no such deal has been completed. (Itmust be noted that the U.S.S.R. has also ex-ported nuclear reactors to the West.) How-ever, the limitations of using and difficultiesin interpreting trade statistics may be il-lustrated by the fact that a $47 million con-tract purportedly signed with the Italianfirm Breda Termomeccanica in 1976 for thedesign and building of reactor manufactur-ing facilities at Atommash and Izhora does

Figure 13.— Western Energy Trade With

not appear in this SITC code.6 It is possiblethat this deal was not consummated or thatit is reflected elsewhere in the trade data,

SITC code 729.92 covers electric welding,brazing, soldering, and cutting machines andapparatus and parts. IW trade in this areaamounted to over $90 million in 1975 andover $84 million in 1979, but as figure 13 in-dicates, U.S. shares have been falling since

6 Soviet Business and Trade,

U.S.S.R.—Welding Equipment

I United Kingdom

l \ \ \

Nov. 24, 1976, p. 4.

(SITC 729.92)

\

West Germany

1975 1976 1977 1978 1979

Year

SOURCE United Nations SITC Data


1975. In 1979, less than 10 percent of thewelding equipment supplied to the U.S.S.R.by the IW came from the United States,while West Germany and Italy together sup-plied nearly half.

In addition to the items contained in thesetwo codes, several purchases that may havebeen destined for the nuclear industry havebeen noted in Soviet Business and Trade.These include a hydraulic press purchasedfrom Japan;7 pumps from a United Kingdomfirm, 8 and various valves, shutters, andplugs from West Germany and Canada.9

Velan Engineering Co. of Canada is a majorsupplier of valves for the Soviet oil, gas,chemical, and nuclear industries.

F O R E I G N A V A I L A B I L I T Y O FN U C L E A R E Q U I P M E N T A N D

T E C H N O L O G Y

Aside from complete reactors, chapter 4has identified some areas in which, shouldthey decide to step up their nuclear-relatedpurchases, the Soviets might usefully turnto the West to supplement their own manu-facturing capabilities. These areas includenuclear grade tubing and pipes, welding andbrazing equipment, steam generators,pumps and casings (to circulate coolantthrough the reactor), nuclear valves, andcomputers, software, and automatic control.It must be stressed that at present theU.S.S.R. imports very little, if any, suchequipment. Indeed, analysis of the tradedata has confirmed chapter 4’s generaliza-tion that the Soviet nuclear power industryhas been virtually self-sufficient. Assumingfor purposes of argument that the U.S.S.R.might reverse its policy, OTA sought todetermine in which, if any, of these areas the

————— ——“i${)/itJt Bu,sinc,s,s art[i Tru~ie, No\T. 24, 1976. T h i s , t o g e t h e r

with Italian large boring and milling machines, Germanmachine tools, and U.S. welding and X-ray equipment, wasdestined for Atommash. See also Nucleonics Week, Nov. 8,1979, p. 12.

‘1 la~’w.ard ‘1’a?rlor & (’o., 1,td. .Sf)[ ‘ict };u.sin~).s.s IIn(i ‘/’ra(ie,

1+’et). 17, 1975.“.%)fict l~u.iillf~s,s IIHfi ‘1’r[~tlf, P’eh. 1 l’, 1 975; Apr . 2H, 1975:

and I)ec. 6, 1978.

United States might be considered a sole orpreferred supplier to the U.S.S.R.

OTA’s “foreign availability analysis” forthe nuclear industry was based on informa-tion from industrial trade journals and inter-views with representatives of U.S. firms(Westinghouse, Rollmet, Ransome), OakRidge National Laboratories, the NuclearRegulatory Commission, and the U.S. De-partment of Energy. The results of thisanalysis are reported in tables C-1 throughC-7 of appendix C. It can be seen from thesetables that firms in a variety of countriescould potentially supply the U.S.S.R. withthe kind of nuclear equipment and tech-nology it is most likely to seek.

There is one area in which the UnitedStates could be a strongly preferred sup-plier. The United States is the acknowledgedworld leader in many areas of computer tech-nology. Computers are normally used at nu-clear power stations for rather mundanetasks—data acquisition and simple processcontrol—and the U.S.S.R. presently reliesheavily on domestically produced computersat its nuclear stations. If greater power sta-tion automation is planned, however, moresophisticated systems might be necessary.

The United States is also a world leader indeveloping and mass-producing exotic, high-strength materials (zircalloy, and high nickelcontent stainless steel). These are useful inthe nuclear industry, particularly for ad-vanced breeder reactors. Such technologyhas been fairly widely diffused. Indeed, themeans by which nuclear technology is spreadthroughout the world may be illustrated byseveral examples: The U.S.-based Westing-house Electric Co. exports nuclear grade tub-ing to Mitsubishi in Japan, Framatone inFrance, and ENSA in Spain, and each ofthese companies constructs nuclear reactorsunder a Westinghouse license. Toshiba andHitachi of Japan are General Electric licens-ees.10 The reactor in the state-owned plant at

10 Mans Lonnroth and William Walker, T’he Viahilit J’ oft h e (’ivil N u c l e a r IndustrJr, ” Internat ional Consultati~e(;roup on Nuclear Flnergy (The Rockefeller l’oundation,1979),

Ch. 6— Western Energy Equipment and Technology Trade With the U.S.S.R • 177

Krsko, Yugoslavia, was purchased from nuclear plants. Should it reverse its policyWestinghouse. and begin seeking Western imports in this

area, it would find numerous potential sup-S U M M A R Y A N D C O N C L U S I O N S pliers in several nations.

The U.S.S.R. is presently self-sufficient inthe design, manufacture, and operation of its

COAL

WESTERN EXPORTS

The U.N. SITC codes that contain equip-ment applicable to coal mining are asfollows: ‘ ‘

571.1

571.2

629.4

655.92

695.24

718.42

718.51

Figure

Propellent powers and other pre-pared explosives.

Safety and detonating fuses, per-cussion, and detonating caps,igniters, etc.

Transmission, conveyor and ele-vator belts of vulcanized rub-ber.

Transmission, conveyor and ele-vator belts of textile materials.

Rock drilling bits: tools and bitsfor assorted hand tools.

Self-propelled shovels and exca-vators, self and non-self-pro-pelled leveling, tamping, bor-ing, etc., machinery and partsthereof.

Machinery for sorting, screen-ing, separating, washing, crush-ing, etc., for earth, stone, ores,and other minerals.

14 summarizes trade in each ofthese categories for the period 1975-79. Itshows that the U.S.S.R. has purchased nofuses or explosives from any IW nation(SITC 571.1 and 571.2) since 1977. During1975 and 1976, U.S. exports in these cate-gories were very small ($5,000 to $28,000).Japan and West Germany led the sale of

transmission, conveyor, and elevator belts ofvulcanized rubber (SITC 629.4) to theU.S.S.R. in 1975-79; Soviet purchases fromthe United States were a weak third orfourth (behind Italy). These sales totaledabout $48.7 million for all countries duringthe entire period. Sales in the category655.92 were negligible.

In sales of rock drilling bits and tools, andbits for assorted hand tools (SITC 695.24) tothe U. S. S. R., the United States lagged WestGermany, Japan, France, Italy, and theUnited Kingdom. Indeed, the U.S. marketshare here has fallen precipitously since 1975when sales of $1.3 million were recorded—in1979 only $13,000 of such goods were pur-chased from the United States. Because thisequipment might equally well be destined forthe oil and gas sector, it is discussed in moredetail below.

The Soviet Union buys considerableamounts of self-propelled shovels and ex-cavators, leveling, tamping, and boring ma-chinery (SITC 718.42). However, the finerbreakdowns available from U.S. Scheduled Band E and NIMEXE data reveal that mostof the purchases here are for items probablydestined for the oil and gas industries. Coal-relevant subcategories from Schedule B andSchedule E include draglines, dragline buck-ets, coal cutting machines, continuous min-ing machines, longwall mining machines,and excavating machines (including attach-ments). No exports from the United Statesto the U.S.S.R. whatsoever have been re-ported in any of these subcategories.

In 1979, the U.S.S.R. bought $81.8 millionworth of machinery for sorting, screening,


Figure 14.—Coal-Related Equipment Exports to U.S.S.R. (million U.S. dollars)

130-

1 2 5 -

1 2 0 -

1 1 5 -

1 1 0 -

1 0 5 -

1 0 0 -

9 5 -

8 0 -

6 5 -

8 0 -

7 5 -

7 0 -

6 5 -

6 0 -

5 5 -

5 0 -

4 5 -

4 0 -

3 5 -

3 0 -

2 5 -

2 0 -

1 5 -

l o -

5 -

0 -

126.0—

Othel119.6—Otho—

UK—

Italy

—

v Oe

—

Japaf

—

ram

—

us

—

Othe! N Ge—

UK 110.7

106.4

99.7

—N GGI

Oth#

7s—

Ma!)—UK

—Fran<—

Jbpa

—

v Ge

—

—

‘m-m Otue—

UK

T&—us

Franc4

w 501

Italy

82.4

UK—

w G@

France

usus

—

64.963.5

Othe,

—%anc{—Italy

—

N GOI

—

us

OttwrItalyT

France

Swttz

W Ger

us

51.0

Otilel—

JaPM

us

w GIN

1976

N Ger

aaan

21.4

& ,8.IOther

w Ger

‘$-

Othel

JapanOlhef France

France ~apa,,

w tam

us

12.4Japan

France

— —19?7 1 9 7 8 19781975 1976 1977 19?8 1079 1975 1976 1977 1978 1979

SITC 695.24

1977 1976 19791975 1975

SITC 571.1, 571.2628.4, 655,92

SITC 718.42 SITC 718.42

SOURCE United N a t i o n s , S I T C d a t a

Ch. 6—Western Energy Equipment and Technology Trade With the U.S.S.R. ● 179

separating, washing, and crushing (SITC718.51) from West Germany. Imports fromthe United States in the same category cameto less than $2.4 million, mostly for crush-ing, pulverizing, and grinding machines andparts. West Germany has carried most ofthis market since 1976.

In sum, it would appear that Soviet pur-chases from the West for its coal industryhave been relatively modest and that be-tween 1975 and 1979 little of these camefrom American firms. Soviet import statis-tics corroborate this broad conclusion. Al-though the Soviet method of reporting com-modity trade differs from that employed inthe West—in commodity groupings, valu-ation, coverage, and the method used foridentifying trade partners—data from theU.S.S.R. reflect the same patterns as West-ern export statistics.

Table 44 shows official Soviet import dataon items that may have an impact on coal-related activities, These data indicate that inrecent years, Soviet purchases from WestGermany and Japan have been much largerthan those from the United States. For ex-ample, in 1978, the figures show imports of$115.4 million of sorting machinery fromWest Germany, but only $6 million from theUnited States. West Germany ($30.4 million)also led the United States ($4.2 million) in ex-ports of mechanical shovels and excavators.Although the only Soviet imports of ships,derricks, and cranes reported in 1977 and1978 come from the United States, the dollaramounts ($891 ,000 and $5.7 million) arerelatively small. The U.S.S.R. purchased$58.6 million and $92.4 million worth ofthese goods from Japan in 1976 and 1975,respectively.

A search of Soviet Business and Trade fortransactions that might not have appearedin the SITC codes indicates that the mostimportant category of U.S. exports likelydestined for the Soviet coal industry wastransportation. Approximately 100 trucks(ranging in size from 100 to 200 tons) pur-chased from the Unit Rig & Equipment Co.of Tulsa, Okla., for about $70 million were

Table 44.—Soviet Imports From SelectedWestern Nationsa

-——.1978 1977 1976 1975 —

U.S.S.R. imports of machinery for sorting

United States . . 6 ,096 26 ,287 32 ,900 24 ,110

West Germany 115,423 30,780 7,573 4,555

1978 1977 1976 1975

U.S.S.R. Imports of mechancial shovels and excavators

United States . . 4,169 9 1 7 9 , 6 9 2 1 0 , 9 2 3

West Germany . 30 ,444 11 ,799 9 ,262 28 ,516

France . . . . . . . . 2,790 1,157 13,299 5,522

1978 1977 1976 1975

U.S.S.R. imports of ships, derricks and cranes

United States . . 5,677 891 266 10 ,424

Italy . . . . . . . . . . . — — 3,693 16,068

United Kingdom 110 037 2,758 3,700

Japan . . . . . . . . . — — 58 ,646 92 ,403

aOTA collected Soviet data for France, Italy, Japan, the United K Ingdom, Uni tedStates West Germany and West Berlin. Only those areas that showed trade in a

given category are presented here

SOURCE CIA based on Soviet trade data

for use in coal-related activit ies.12 O t h e rAmerican deals have included $14 millionworth of slurry pumps from Ingersoll-Randb e t w e e n 1 9 7 4 a n d 1 9 7 6 ;13 a n d f r o n t - e n dloaders contracted for $1 million from theClark Equipment Co. in 1978, and for $2.9million from Dart Division of Paccar, inc. in1979. 14

Between 1974 and 1980 Japanese firms in-volved in the South Yakutian DevelopmentCorp. were responsible for sales totaling ap-proximately $450 mil l ion,15 most of whichconsisted of shovels and other surface min-ing equipment. In addit ion, in 1976 and1975, respectively, the U.S.S.R. reportedlycontracted for $500,000 worth of equipmentfor excavation in underground mines from


the United Kingdom, and a similar amountin front tunneling machines and loaders fromWest Germany.16

F O R E I G N A V A I L A B I L I T Y O FC O A L T E C H N O L O G Y A N D

E Q U I P M E N T

As chapter 3 has indicated, the U.S.S.R.is well able to design, test, and manufactureits own coal mining equipment. Soviet equip-ment is heavier and somewhat less sophisti-cated than U.S. equipment, but it is ade-quate. A common Soviet practice has been tobuy items applicable to a specific phase ofcoal mining and reproduce them. Soviet-made continuous miners, for example, arecopies of West German, English, and Frenchmodels. Drill bits that were formerly pur-chased from Western Europe are now do-mestically produced. Equipment for Siberiansurface mining was originally purchasedfrom Marion in Japan.

In short, like the nuclear industry, theSoviet coal mining industry has been essen-tially self-sufficient. In an attempt to ascer-tain whether a reversal of past Soviet prac-tice with respect to coal-industry equipmentimports would focus on items in which theUnited States is a sole or preferred supplier,OTA assembled a list of essential equipmentfor coal mining operations, and attempted tolocate suppliers of this equipment in West-ern Europe and Japan. The results may befound in tables C-8 and C-9 of appendix C.Outside of the few deals discussed above,there is no evidence that any of the com-panies listed here have actually supplied orintend to supply equipment to the U.S.S.R.Nevertheless, it is clear from table C-9 thatthere exist many European and Japanesesuppliers of coal mining equipment.

Comparison of the items available fromthese companies and those produced in theUnited States reveals substantial differ-ences between underground and surface min-ing capabilities. The majority of Soviet un-——

16 Soviet Business and Trade, Nov., 22, 1978; June 6, 1979.

derground mining utilizes longwall tech-niques not widely employed in the UnitedStates. Longwall mining was invented in the1950’s in West Germany; in fact, the UnitedStates is heavily dependent on Britain andWest Germany for longwall research and de-velopment, and it also imports substantialamounts of European longwall equipment.(The U.S.S.R. has attempted to export itsown longwall systems to the United States.)Much of the underground coal mining equip-ment manufactured in large quantities in theUnited States is therefore of little or no useto the U.S.S.R. Undercutter are availableonly from the United States, but these arenot necessary for longwall mining opera-tions. There are also differences in geologicformations that render much U.S. equip-ment inapplicable in the U.S.S.R.; e.g., thenarrow seams in many Soviet mines do noteasily lend themselves to mechanization.

A different situation pertains with respectto surface mining, which, as chapter 3 haspointed out, will become increasingly crucialto Soviet coal production as the decade pro-gresses. The United States is a world leaderin surface mining equipment and technol-ogy, and produces items that could be ofgreat use to the U.S.S.R. One example is thedragline. This is the only piece of surfacemining equipment in continuous operation,and coal output is heavily affected by itsspeed in removing overburden. U.S. drag-lines and excavators have the largest capac-ities currently available. Increased excava-tion capacity would allow Soviet surfacemining to become more productive, and big-ger draglines would facilitate deeper surfacemining. U.S. firms also produce trucks,power shovels, and excavators with capac-ities much larger than any available fromWestern Europe or Japan. These items,though not vital to the ability to mine coal,could help to increase output.

S U M M A R Y A N D C O N C L U S I O N S

Both Soviet and Western trade data showthat the U.S.S.R. has purchased relativelylittle coal mining equipment and technology

Ch. 6— Western Energy Equipment and Technology Trade With the U.S.S.R • 181

from the West, perhaps less than 10 percentof its total equipment needs. With the possi-ble exception of transport vehicles, Amer-ican market shares in this trade are smallerthan those of other Western countries, espe-cially West Germany and Japan. The onlycoal mining technology that OTA could es-tablish as unique to the United States isundercutter, but these are not used inthe U.S.S.R. American underground miningtechnology is unlikely to be particularly at-tractive to the Soviet Union.

ELECTRIC

WESTERN EXPORTSFigure 15 shows export statistics for the

following SITC codes containing equipmentused for the generation and transmission ofelectric power:

711.1 Steam generating boilers.711.2 Auxiliary plant for use with steam

and other vapor generatingboilers.

722.1 Rotating electric plant and partsthereof; transformers, conver-ters, rectifiers, inductors andparts.

722.2 Electrical apparatus for makingor breaking electric circuits.

723.1 Insulated electric wire, cable,bars, strip and the like.

723.21 Electrical insulators and othermaterials.

1979 statistics for SITC 722.1 indicatethat Japanese, French, and West Germanfirms supplied the U.S.S.R. with $15.2 mil-lion, $11.9 million, and $11.1 million worth oftransformers, converters, rectifiers, induc-tors, and parts thereof, respectively. Pur-chases from the United States in this cate-gory amounted to only $1.35 million. Muchthe same situation has prevailed since 1977.Similar patterns hold for electrical appara-tus used in making or breaking electrical cir-cuits (SITC 722.2). From 1975 to 1979,Soviet imports from the United States ($3

While no surface mining technologiesseem to be unique to the United States, U.S.firms do produce the largest capacity trucks,draglines, and excavators in the world.Chapter 3 has maintained that the future ofSoviet coal production rests on expandingits surface mining operations. Should theU.S.S.R. depart from past practice and beginto import large quantities of Western sur-face mining equipment, the United Stateswould—all other things being equal—be thepreferred supplier.

POWER

million) have been dwarfed by imports fromFrance ($59.2 million), Japan ($51.7 million),West German ($11.3 million), and Italy($13.6 million). The Soviet Union does notpurchase many electrical insulators (SITC723.21). Most of its 1979 purchases camefrom the United States, but these amountedto only $666,000. Even this was an anomaly.Between 1975 and 1979, no Soviet purchasesfrom any country exceeded $48,000.

A similar aberration can be seen in thedata for SITC 711.1, steam generatingboilers. The $19 million recorded in thiscategory for U.S. exports in 1979, althoughnot a large amount in absolute terms, repre-sented a departure from Soviet practice overthe past 5 years in two ways. The UnitedSta tes had not be fore been the l a rges tWestern supplier of this equipment, and theamount was significantly greater than anyrecorded previously for a single country in asingle year. OTA has been unable to discoverany details of the transaction or transactionsthat accounted for these expor ts . S ITC711 .2 conta ins aux i l i a ry p lant for suchboilers. Except for large U.S. sales in 1976and 1977 ($9.4 and $22.7 million), for whichOTA has been unable to obtain more infor-mation, Soviet purchases in this categoryhave come almost exclusively from France inamounts ranging between about $.2 and $5million per year.


Figure 15.—Electric Power Equipment Exports to the U.S.S.R. (million U.S. dollars)

180 -

175-

170-

165-

mo-

155-

150-

145-

140 “

135-

130-

125-

120 -

115-

110-

105-

100-

9 5 -

90“

85-

so-

75-

70 -

65”

6 o -

5 5 -

5 0 -

45-

40-

35-

3 0 -

25-

20-

M

t o - -

5 -

0 -1975 1976 1977 1978 1979 1975 1976 1977 1978 1979

SITC 711.1 SITC 711.2 SITC 722.1

SOURCE United Nat Ions, SITC data

am

—Ux

—

Japan

W. Ger.

4 1 &

1975

106.9—Other

U.K.—U.S.

—

Japan

—

Italy

—

33.7

Other W. Ger.

U.K.U.S.

Italy

W. Ger

France

France

—

Japan

1976 1977

SITC 722.2

72.’—

Other

U.S.

U.K.—

Italy

.

W. Ger.

.

France

Japan

1978

148.6

Other—

U.S.—

U.K.

—

W. Ger,

.

Italy,

—

Japan

France

1979

59.4

48.2

other

W. Ger.

Italy

France

Japan

—1975 1976 1977 1978 1979

SITC 723.1,723.21

Ch. 6—Western Energy Equipment and Technology Trade With the U.S.S.R. * 183

It was not possible to determine the pro-portion of the equipment in these codes thatwas actually destined for the Soviet electricpower industry. Soviet Business and Tradenoted only one relevant deal over the past 5years, a Soviet purchase of cable for theSiberian power grid from Siemans AG ofIndia and West Germany. 1 7

F O R E I G N A V A I L A B I L I T Y O FE L E C T R I C P O W E R E Q U I P M E N T

A N D T E C H N O L O G Y

The U.S.S.R. does not purchase very largeamounts of electric generation or transmis-sion equipment from the West. As in the coaland nuclear sectors, however, Soviet policycould change. OTA, therefore, attempted todetermine whether competing firms inEurope and Japan could supply the U.S.S.R.with electrical transmission technology.

American industry representatives havemaintained that technology for the produc-tion of most of the necessary equipment forelectricity generation and transmission iswidespread and available in the open liter-ature. Interviews with General Electric(GE), Westinghouse, the Electric Power Re-search Institute (EPRI), and the BonnevillePower Administration produced a consensusview that European-produced equipmenttypically costs less than American equip-ment, and that the quality and capacity ofthe equipment produced by West Europeanand Japanese companies compare favorablywith U.S. items. A representative from GEclaimed that the West Europeans were at———.—

‘‘L5’{)({Pt B(t.sttte.vs an(i 7’ra(le, Sept. 29, 1976.

least on par with, and possibly ahead of, theUnited States in high voltage transmission,and a representative from the BonnevillePower Administration told OTA that WestGermany, Sweden, and Japan equal theUnited States in producing high capacityunderground cable technology and equip-ment,

West European and Japanese firms thatproduce electric generation and transmissionequipment are listed in tables C-3 and C-10of appendix C. Licensing agreements be-tween Mitsubishi and Siemens exist formany of the items used in transmission,Moreover, the U.S.S.R. itself produces sometransmission components for export. TheSoviet trading organization, Energomash,has sales agents in Australia, Austria, Ar-gentina, Belgium, Brazil, Canada, West Ger-many, and the United States. Among theproducts it markets are coupling capacitorsfor high voltage transmission lines, three-phase power transformers, and circuitbreakers for use in substations.


While the Soviets buy some electricalequipment from the West, these purchasesare relatively modest and no corroboratingevidence is available to link them to electrictransmission. The sole exception is pur-chases of cable (from Siemens of West Ger-many). International sales representativesfor General Electric and Westinghouse, andelectric transmission experts who havevisited the U.S.S.R. agree that the Sovietsdesign and produce virtually all their owntransmission equipment.


OIL AND GAS

WESTERN EXPORTS

Figure 16 shows United Nations data forthe most important oil and gas related SITCcodes:

Exploration714.3

714.92

861.91

861.99

Drilling695.24

732.4

Automatic data processing(ADP) machines and unitsthereof; magnetic and opticalreaders and machines for proc-essing data.

Parts and accessories for ADPand other calculating ma-chines.

Surveying, hydrographic, etc.,and geophysical instruments(nonelectric).

Parts of meters and counters;nonelectric and electricalmeasuring, checking, etc., in-struments.

Rock drilling bits; tools andbits for assorted hand tools.

Special purpose motor lorries,vans, crane lorries, etc. (in-cludes rigs).

~>roductionlcom ple tiOn/t7-anSpOrta tion

678,679.2

642.93

719.21

719.22

719.23,712.31

719.31

Tube-s, pipes, and-fittings ofiron and steel.

Gummed or adhesive paper instrips or rolls (for pipe insula-tion).

Pumps for liquids and partsthereof.

Air and vacuum pumps and airor gas compressors and partsthereof.

Filtering and purifyingmachinery and apparatus forliquids and gases.

Ships, derricks, cranes andmobile lifting cranes andparts; other lifting, handling,and loading and unloadingmachinery.

Offshore735.92 Light vessels, floating cranes

and other special purposevessels, floating docks.

735.93 Floating structures other thanvessels.

Multiarea729.52 Electrical measuring, checking,

analyzing, or controlling in-struments.

861.81, Gas, liquid, and electricity729.51 supply or production meters.

The codes presented here are clearly un-suitable for any precise analysis of Soviet oiland gas industry imports. They includemany items that may have been destined forother energy sectors or for another part ofthe Soviet economy altogether, and they failto reflect known important transactions—the U.S. sale by Dresser Industries of a drillbit plant, for instance. For this reason, OTAhas supplemented the SITC data with De-partment of Commerce Schedules B and Estatistics—which provide detailed informa-tion about U.S. exports–the EEC NIMEXEsystem, and information about specifictransactions gleaned from Soviet Businessand Trade. These sources have allowed arather more detailed, albeit sometimes quali-tative, discussion of the nature, extent, andsource of Western exports in the Soviet oiland gas industry.

The Department of Commerce data shownin table 45 indicate that U.S. oil and gasequipment trade with the U.S.S.R. nearlytripled between 1975 and 1979, from about$31 million to about $90 million. This growthhas been largely due to increases in the valueof computers and parts, drill rigs and parts,and pumps. The data also show that whilethe share of Soviet purchases of explorationequipment has declined slightly, that of drill-ing-related equipment has grown enormous-ly, largely at the expense of well completionand production items. This may partly re-flect a shift in Soviet emphasis away from


Figure 16.— U.S.S.R. Imports of Oil and Gas Equipment (million U.S. dollars)

1900-

1850-

1600-

1750-

1700-

1650-

1600-

1550.

1500-

1450-

1400-

1350-

1300-

1250-

12043-

1150-

1100-

1050-

1000-

950-

9oo -

850-

8oo-

750-

700-

650-

600-

550-

500-

450-

4oo-

350-

3oo -

Offshore!.’,6

,IWl%

197519761977 19781979 1975 19761977 1978 1979

SITC 735.92, 735.93 SITC 729.52,661.81/728.51

Oil and gas completion

250

200I

150i

Exploration Drilling

011 and gas pipelines

“u;

production‘(excluding pipe)

0250

F1Otttn

Lm

“

u

?80R-

%

,“.

Italy

—

Japan,

W . G e r .

—

,4:(

~—

Q

,*”.

—

w,

—

W. Ger.

—

—

*),..

=II.—

,,,,,

—

,,*,

—

! 0“

.,..

.

1975 1976 1977 19781979 1975 1976197719761979 1975 1976197719781979 1975197619771978 1979

SITC 714.3, 714.92. SITC 732.4 SITC 64293, 71921, 71922, SITC 678/6729861.91. 861.99 71923171237, 719.31

SOURCE United Nations SITC data


Table 45.—U.S. Oil and Gas Equipment Trade With U.S.S.R. Relative Percentage ofEach Technology Area (thousand U.S. dollars)

1975 1976 1977 1978 1979

Total 30,818.0 68,418.8 33,882.8 59,652.7 89,741.0

ExplorationGeophysical . . . . . . . . . . . . . . . . . . . . . . . . 2,282.0

Computers & pts . . . . . . . . . . . . . . . . . . . 8,282.0

Total exploration . . . . . . . . . . . + . . . . . . . . . . 10,569.8

Percent of total . . . . . . . . . . . . . . . . . . . . . . . 3 4 %

Pipe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

Bits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219,9

Rigs and pts . . . . . . . . . . . . . . . . . . . . . . . 1,477.0

Total drilling . . . . . . . . . . . . . . . . . . . . . . . . . 1,696.9

Percent of total . . . . . . . . . . . . . . . . . . . . . . 5%

Well completion/production . . . . . . . . . . . . . . . . . . . . . . . . .

Pumps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,657.4

Pump parts . . . . . . . . . . . . . . . . . . . . . . . . . 5,928.8

Gas compressors . . . . . . . . . . . . . . . . . . . 765.3

Oil and gas sep. . . . . . . . . . . . . . . . . . . . . . 199.8

Total comp/prod . . . . . . . . . . . . . . . . . . . . . . 18,551.3

Percent of total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60%

983.1

16,215.0

17,198.1

25%

2,821.0

—

6,513.0

9,334.0

13.6%

22,220.1

8,235.6

10,445.6

685.4

41,886.7

61%

480.7

3,643.4

4,124.1

12.2%

1.9

147.2

8,272.0

8,421.1

24.8%

3,674.3

11,743,9

5,432.3

487.1

21,337.6

63%

862.5

17,578.3

18,440.8

31%

404.7

—

33,247.9

33,652.6

56.4%

1,241.9

242.9

5,937.8

136.7

7,559.3

12.7%

SOURCE Department of Commerce

the use of U.S. electric submersible pumps infavor of gaslift techniques that are availablefrom non-U.S. sources (see below).

According to these data, the UnitedStates captured only 3.3 percent of the 1979estimated Western sales in the oil and gassector reported in table 42 above. It must benoted, however, that the Department ofCommerce statistics underrepresent the fullvalue of the U.S. equipment and technologypurchased by the U.S.S.R. For instance,neither SITC nor DOC trade statistics showany U.S. contributions in the area of offshoreequipment. Yet, a recent survey of Sovietoffshore rigs revealed drilling equipment of

2,022,6

22,311.0

24,333.6

27%

579.2

—

37,235.3

37,814.5

42%

9,979.7

17,613.2

—

—

27,592,9

30,7%

U.S. origin.” This apparent contradictionmay be attributed to the fact that althoughthe U.S.S.R. has purchased its rigs fromother nations, these suppliers themselveshave imported U.S. drilling equipment for in-stallation on the rigs. The U.S. sale will ap-pear as an export to the third country.19

Similarly, although U.S. statistics show nosales in the area of refining, U.S. firms areknown to have supplied engineering andtechnical services to West European andJapanese companies engaged in the con-——

18 1980-81 Directory of Marine Drilling Rigs, pp. 19-172.“American technology reexported from third countries is

still subject to U.S. export control laws.

Ch. 6— Western Energy Equipment and Technology Trade With the U.S.S.R. • 187

struction of petroleum refineries in theU . S . S . R . 20 These t rans fers o f know-how–like the sale of the Dresser drill bit plant–are not recorded in Schedule B/E data andare thus not reflected in table 45 or figure 17.

These data problems limit the precision ofany conclusions that can be drawn fromWestern export statistics. Nonetheless,some generalizations about Western exportsto the U.S.S.R. in a number of oil and gas in-dustry sectors are possible.

ExplorationMost of the exploration equipment ex-

ported to the U.S.S.R. has consisted of com-puters and geophysical equipment. Figure18, for instance, illustrates Soviet purchasesof automated data processing equipmentfrom selected Western countries. This figureshows that the primary exporters of this ex-ploration-related computer equipment werethe United States, France, and West Ger-many. Through 1978, the United Statestended to supply the majority of the hard--—

20 Soviet Business and Trade, Jan. 1, 1979

Figure 17.— U.S. Oil and Gas Equipment Trade WithU.S.S.R. by Technology Area

100r

1 1 1 I I I1975 1976 1977 1978 1979 1980

ware and the French to specialize in soft-ware.21 The post-1978 decline in such exportsmay be due to tighter multilateral exportcontrols on computers, or to improvementsin the Soviet hardware base.

The Control Data Corp. (CDC) has been byfar the leading exporter of American com-puters capable of processing the large quan-tities of data associated with seismic survey-ing. In recent years, CDC has sold threeCyber 172s and a Cyber 73 to various Sovietministries engaged in seismic exploration.IBM has also sold two S/370-148 computersfor geophysical applications. AnotherAmerican firm, Geosource, Inc. of Houston,had by 1979 sold 13 Command II field proc-essing systems that are used to preprocessseismic data in the field.22 This sale alone,valued at $6 million, accounted for nearly 30percent of total U.S. sales of computers andcomputer parts in 1979. The French firmsFerney-Voltaire and CIE Generale Geo-physique (CGG) have provided the majorityof the specialized software used with theCDC computers. 23

The United States and France are also theU.S.S.R.’s leading Western suppliers ofgeophysical equipment. NIMEXE and DOCd a t a s h o w t h a t b e t w e e n 1 9 7 5 a n d 1 9 7 9French sales in this area have increased,while those from the United States havebeen erratic, ranging from as high as $2.2million to as low as $480,000. CGG was amajor supplier of geophysical equipment, in1976 alone selling to the U.S.S.R. $14 millionworth of digital seismographic recorders,magnetometers, gravity meters, and hydro-phones. The equipment was used to equiptwo geophysical ships that were built for theSoviet Union by Mitsubishi of Japan.24

Geosource is the largest American sup-plier of geophysical equipment, and it soldapproximately $30 million worth of equip-ment to the U .S .S .R . be tween 1975 and

SOURCE Table 45

2 1Soviet Business andi Trade, Apr. 11, 1979.22 Ibid,23 Ibid., and Mar. 18, 1979.24 Soviet Business and Trade, Sept. 29, 1976.


70

60

50

40

30

20

10

0

Figure 18.— Western Energy Trade With U.S.S.R. Automated Data Processing Equipment

;

Switzerland ,

I l l

Sweden ~ .

The Nethariands

Canada

I

L

1975 1976

SOURCE United Nations SITC Data

1979.25 Geosource has supplied the U.S.S.R.with a wide array of geophysical prospectingequipment, including 13 photodot auto-mated digital display systems that are usedin conjunction with the Command I I system.

DrillingThe major Soviet imports in this area have

been drill pipe and casing. Soviet imports ofdrill pipe and casing have come predom-inantly from Japan, West Germany, France,and Italy. Within these countries, importantsuppliers have been Mannesmann (WestGermany); Vallourec (France); and Finsider(Italy). The U.S.S.R. has also sporadicallypurchased packers, mud additives, power

1977 1978 1979

Year

tongs, and heavy drilling equipment fromthe West. The Soviets have purchased anumber of packers from both Technip inF r a n c e a n d L y n e s International in theUnited States. 26

U.S. exports of drill pipe and casing to theU.S.S.R. totaled less than $1 million over thelast 3 years. These relatively low levels are atleast partially due to a rapid increase in U.S.drilling activity, which caused U.S. demandfor drill pipe and casing to exceed domesticsupply. The American shortfall has largelybeen made up with pipe and casing importedfrom Japan. The majority of U.S. drilling-related exports to the U.S.S.R. are drillingrigs and parts for drilling rigs. While the

25 Soviet Business and Trade, Feb. 14, 1979.

Ch.. 6— Western Energy Equipment and Technology Trade With the U.S.S.R. ● 189

United States has not been a major supplierof complete rigs–-approximately 12 U.S. rigshave been sold to the Soviet Union over thelast 10 years–the Soviets are purchasingU.S. drilling rig parts in significant dollarvalues.

U.S. firms account for most of the non-Communist world’s production of drill bits,and U.S. bits are of significantly higherquality than Soviet counterparts. The So-viets, however, have purchased fewer than100 U.S. drill bits over the last 5 years. In-stead they have opted to purchase the de-sign and equipment for a drill bit plant fromDresser Industries. Nor have drill bit im-ports from Western Europe been large. TheNIMEXE system classifies drill bits intoboth bits made of base metal and metal car-bide. EEC exports of both types have beeninconsequential.

Well Completion/ProductionFigure 19 shows a steady growth in Soviet

imports of pumps for liquids. The leading ex-porters of these items have been France,West Germany, and the United States.While it is not clear that West German andFrench pumps are used in the production ofoil and gas, Schedule B/E data show thatalmost all of the U.S. trade is in oil well andoilfield pumps. This is confirmed by articlesin Soviet Business and Trade that indicatethat U.S. companies such as TRW-Reda,Centrilift, and Oil Dynamics have been ma-jor exporters of electric submersible pumpsfor Soviet oilfields.

Finally, Western trade activity in pipehandlers and gas lift equipment was not as-certainable from the trade data due to prob-lems of aggregation. It was apparent from

Figure 19.— Western Energy Trade With U.S.S.R. Pumps for Liquids

140

120

100

80

60

40

20

0

.

. United States

.

France

}-

West Germany

1975 1976 1977 1978 1979

Year

SOURCE United Nat Ions SITC D a t a


articles in Soviet Business and Trade,however, that these items have been ex-ported to the Soviets by the United States,Japan, and France: gas lift equipment pre-dominantly by the French, and pipelayersprimarily by the United States and Japan.Technip of France has sold gas lift equip-ment for over 2,000 wells. Pipelayers havebeen sold to the U.S.S.R. by Caterpillar andInternational Harvester in the United Statesand Komatsu in Japan.

The Soviet Union has made sporadic pur-chases of enhanced recovery equipment andtechnology. Among the transactions thathave appeared in Soviet Business and Tradehave been the sale of two carbon dioxide(co 2) plants by Borsig of West Germany,two surfactant plants by Pressindustria ofItaly, a surfactant plant as well as chemicalsfrom Sanyo Chemical Industries of Japan,and an alpha-olefin plant from Davy Inter-national in Great Britain.27

Transportation

The most important commodities in thissector have been large diameter pipe and gaspipeline compressor stations. SITC codes678 and 672.9 contain a number of subcate-gories and cover a wide variety of tubes andpipes. Figure 16 shows that in each category,Japan, West Germany, and France are themajor Soviet suppliers, and the UnitedStates is by far the smallest. In the categoryof tubes, pipes, and fittings of iron and steel,for instance, 1979 Japanese exports wereworth approximately $0.75 billion and WestGermany’s over $0.5 billion, while U.S. salesamounted to a little over $1 million. Some ofthis pipe may have been used in the nuclearindustry, but it is probably safe to assumethat a large portion of it went to the oil andgas sector. The principal companies supply-ing the pipe are Sumitomo (Japan), Mannes-mann (West Germany), Vallourec (France),and Finsider (Italy). The United States does

“Soviet Business and Trade, Aug. 15, 1979.

not produce the 56-inch diameter pipe thatthe Soviets use to construct gas pipelines.28

Compressor stations for gas pipelines areanother active commodity. The largest ex-porters of compressor stations to theU.S.S.R. have been Italy, West Germany,and the United States, with Nuovo Pignoneof Italy and GE of the United States themajor suppliers.29

Refining

The U.S.S.R. has purchased refineries andrefinery equipment from Japan, Italy, andFrance, the tendency being to import entirerefineries rather than component parts. Theprimary contribution of the United States inthis area has been through Fluor Corp.,which provided design and engineering serv-ices to Italian and Japanese constructionfirms. 30

Offshore

Trade in this area has consisted primarilyof sales of offshore drilling rigs and auxiliaryvessels and equipment, and the principalsuppliers have been Japan and the Nether-lands. 31 Rauma-Repola Oy of Finland wasrecently granted a contract to build threedynamically positioned drill ships for theSoviet Union, to be delivered in 1981 and1982. The United States has supplied aux-iliary equipment for rigs sold to the Soviets,but Soviet purchases in this area have beenboth moderate and sporadic.32

Conclusions

Examination of trade data reveals thatthe U.S.S.R. has been very selective in thekinds of Western equipment and technologyit has purchased to supplement its domestic

28 Interview with J. 13rougher, Bureau of East-W’est Af-fairs, Department of Commerce.

“’.SO[ !iet Business and Trade, Nov. 10, 1976.‘(’Sot’iet Business and Trade, Jan. 31, 1979.“So[’iet Z?usines.s and Trade, July 15, 1980; May 21, 1980.“1980-81 Directory of Marine Drilling Rigs, pp. 19-172.

Ch. 6— Western Energy Equipment and Technology Trade With the U.S.S.R, . 191

oil and gas equipment. Indeed, the relativelymodest imports of may items lead one tosuspect that the U.S.S.R. has been sup-plementing domestic equipment stocks attimes of peak demand and/or purchasing thebest available product for particularly dif-ficult application. It is equally probable thatsome items have been procured for labor-atory examination and duplication, or toserve as guides to correct specific prob-lems. 33 The most prominent exception hereis Soviet imports of Japanese and WestEuropean large diameter pipe, which havebeen consistently large and which seem to berequired because of insufficient domesticproduction capacity.

Interestingly, the U.S.S.R. has not pur-chased many items basic to the petroleum in-dustry. These include magnetometers, gravi-meters, mud-pumps, drilling mud, casingcement, engines, pipe insulation, separationequipment, and offshore floating productionplatforms. These omissions or gaps in tradewith Western countries can be interpreted ina number of ways: that the U.S.S.R. and itsCMEA partners have an adequate industrialbase to supply their needs, even if the resultis inefficient by Western standards; that in-sufficient hard currency has forced priority-setting among Western imports; or that theU.S.S.R. has made a policy decision to be asindependent as possible of supplies from theWestern countries in certain critical seg-ments of the oil and gas industries. It ismost likely that a combination of such fac-tors is at work.

Be that as it may, the following gener-alizations seem warranted by the data:

• In value terms, by far the largest Sovietpurchases from the West have been inthe area of iron or steel seamless pipesand tubes (including the large diameterpipe used in Soviet oil and gas lines).Purchases in this area from the United

33 There is substantial evidence of duplication. 1 n an inter-

view with OTA, a Vice President of TRW-Reda Pump, Inc.,asserted that when one of his technicians toured a Sovietpump plant in 1979, he saw 20-year-old Reda models beingproduced.

States have been negligible. By far thelargest suppliers have been Japan andWest Germany.The U.S.S.R. has also purchased sub-stantial amounts of various pumps andgas compression equipment. Here, theUnited States has had larger marketshares. The U.S.S.R. has made only afew large purchases in the area of lightvessels, floating docks, etc., which in-cludes offshore drilling rigs. None of thevessels themselves have come from theUnited States. In 1979, Japan andSweden were the only large exporters inthis category.The U.S.S.R. has purchased very fewdrill bits from the West, apparently pre-ferring to acquire its own additionalmanufacturing capacity in the form ofan entire plant.

FOREIGN AVAILABILITY OF OILAND GAS INDUSTRY EQUIPMENT

AND TECHNOLOGY34

Much oil and gas technology originated inthe United States, but that technology haslost its American identity over the yearsthrough licensed production, wholly ownedsubsidiaries overseas, and employment ofU.S. commodities and expertise worldwide.Other sophisticated technology was devel-oped elsewhere. For example, Schlumbergerof France first developed electric well log-

34 This section is based on trade journals, industry cata-logues. Sov ie t Bus iness and Trade, T h e C o m p o s i t e C a t a l o g u e

of Oil Field Equipmcnt and Services (Houston, Tex.: GulfPublishing Co., 1980), and inter~.iews with representati~res ofthe following firms: Gulf Oil Exploration & Production CO.,(ieosource, Inc. , Dresser Industr ies , BW”T M’orld T r a d e ,Cameron Iron Works, Inc., Hughes Tool Co., TRW-Redapump, Inc., Brown & Root, Inc., and Williams Bros. Engi-neering Co. Representatives of these firms provided candid,forthright observations of their past deal ings with theU. S. S. R., insight gained during country visits and an ap-praisal of their foreign competitors. These visits, coupledwith the other reported U.S.S.R./Western trade deals, pro-vided a basis on which to judge the availability of Western oiland gas technology. While these sources could not providecomplete identification of all possible suppliers, OTA believesthat it was acquainted with the most significant suppliersand the strongest competitors to U.S. firms.


ging equipment that is recognized today asthe world’s standard. Likewise, the steel in-dustries in Western Europe and Japan gen-erally produce products that are as good as,if not better than, those available from theUnited States–and at lower prices. Tech-nological leads are perishable with time.Licensed manufacturers frequently improveupon designs or manufacturing processesbased on local conditions and equipment.Wherever the original development workand design may have been done, ideas soonbecome general knowledge. The followingsections discuss the foreign availability ofenergy technology that would be useful tothe U.S.S.R. in the various phases of oil andgas production and delivery.

Exploration

As noted above, the American firm Geo-source has been very active in Soviet trade.Sercel of France has been a strong com-

petitor to Geosource for sales of field datacollection and preprocessing centers. Table46 compares basic parameters of Geosource,Texas Instruments (another U.S. firm), andSercel products used in seismic work. Thetable shows that the equipment, althoughnot identical, is similar.

Table 47 identifies the major items ofseismic surveying equipment and suppliersaround the world. Most items are producedby firms in Western Europe and Japan, andmany are available in the Eastern Bloc,although the quality of the latter is ques-tionable and Western equipment tends to bemore advanced. The United States may leadtechnically in one or two items, but thegeneral consensus is that products fromSercel, for example, are capable of perform-ing similar functions. On the other hand,only the United States is able to supply thefull range of equipment.

Table 46.—Comparison of U.S. and French Seismic Equipment

Geosource MDS-10 Texas Instruments DFSV Sercel 338 B

Data Sample Packing Data Auxiliary Samplechannels Interval (MS) density channels channels rates

24 ½ 1,600 SEG-B 24 Channels @ 1, 2, 4 msData 24 1 800 or 1,600a To 24 4 1, 2 or 4 ms

24 2 800 or 1,600a 28 2 1, 2 or 4 ms24 4 800

Channels 48 1 1,600 48 4 1b, 2 or 4 ms 48 Channels @ 2, 4 ms48 2 800 or 1,600a 60 2 2 or 4 ms48 4 800 or 1,600a 96 4 2 or 4 ms96 2 1,600 120 4 2 or 4 ms96 4 800 or 1,600a 240 4 4 ms

Solid state stacking available at Packing density 800 or 1,600 bpiall sample rates except (1) 1,600 bpi only.

Packing density 1,600 1,600maximumBPI

Number of bits 14 bits plus sign bit 14 bits plus sign bit4 bit gain word 3 bit gain word

Frequency 2 to 1,000 Hz 3 to 256 Hzresponse

Distortion 0.1 0/0 maximum @ 0.050/00.53V RMS input

Tape speed Unknown 10 to 120 ipsrange

—

96 Channels @ 4 ms

1,6006,250 for 338lR(IBM recorder)

14 bits plus sign bit

Unknown

Less than 0.1 0/0 @.05V input

20 to 92 ips

a800 BPI NRZI optionalb 1 ms at extra cost to 56 channels


Ch. 6— Western Energy Equipment and Technology Trade With the U.S.S.R, ● 193

Table 47.—Manufacture of Seismic Equipment by Country

Vibrator

Vibrator control

Shooter explosive

Recorder field

Tape transport

Camera CRT

Cables

Connector

Geophone

Airgun (marine)

Marine streamer

Marine positioning

Seismic computer

Array transformprocessor

Plotter

,

xxx

x

xxxxxxxx

x

xx

NOTE No Inferences as to quality or comparability can be made from


Seismic survey data must ultimately beprocessed by large mainframe, third genera-tion computers with floating point and arrayprocessors. The United States has approvedthe sale of six large computers, with some-what restricted array processors, for use inthe major hydrocarbon producing regions inthe U.S.S.R. Two French firms, Ferney -Voltaire and CGG, are known to have sup-plied sophisticated geophysical software( c o m p u t e r p r o g r a m s ) used on the U .S .machines to analyze seismic survey results.An IBM sale included American software.

In sum, the equipment to perform seismicsurveys and record seismic data are gener-ally available worldwide. U.S. firms areunique, however, in being able to providesystems displaying the full range of equip-ment and know-how. U.S. firms also lead inthe accuracy of some equipment; and theUnited States has a substantial lead in com-puters that process the seismic data. Soviet

this table which merely shows the existence of commercial manufacturers

capabilities in this area are generally 5 to 15years behind the West and purchases of suchequipment would certainly enhance theU.S.S.R.’s seismic work. The degree towhich this would necessarily lead to increas-ed oil production in the present decade isunclear, however.

Drilling

The U.S.S.R. has purchased 15 portabledrilling rigs from Tamrock Oy of Finland.Canadian sales of $12 million to $32 millioneach year between 1975 and 1979 were prob-ably also portable rigs, which are known tobe produced by the Canadian firm Foremost.Mobile equipment capable of drilling to20,000 ft is also available from Romania,although it may not perform to advertisedspecifications.

The U.S.S.R. has imported drill pipe al-most entirely from firms in Western Europe


and Japan. Prominent suppliers have beenVallourec and Creusôt-Loire of France; Man-nesmann of West Germany; Italsider andEFIM of Italy; and Mitsubishi, Mitsui,Sumitomo, Japan Steel Works, and NipponKokan of Japan. Japanese pipe is generallyconsidered to be equal to, if not better than,U.S. pipe and is available at a significantlylower price. It is manufactured by the latestmethods including inertial welding of thetool joints on the ends of the pipe, and U.S.drillers are buying Japanese pipe to supple-ment U.S. production capacity.

The United States is the predominant pro-ducer of drill bits in the West, with theAmerican firms Hughes, Dresser, Smith,and Reed supplying the vast majority of bitsused outside the Communist world. Thesefirms produce the greatest diversity of high-quality bit types for varying undergroundrock strata. A few diamond bits and core bitsare produced by Diament-Boart of Belgiumand Tsukimoto Seiki in France, but thesecannot substitute directly for rock drill bits.While Tsukimoto produces both diamondand metal bits, its total annual production isvery small, approximately 5,000 bits. Euro-pean bits have a more limited operatingcapability than their U.S. counterparts andtheir quality does not match U.S. standards.Creusôt-Loire, SMF Division of France, hasrecently been purchased by Hughes Tool Co.and the drill bit plant is being modernized toU.S. standards.

The Soviet Union is itself a prodigous pro-ducer of drill bits, and it has not purchasedWestern bits in large quantities. A greatdeal of publicity has accompanied the sale byDresser Industries of a tungsen carbide jour-nal bearing drill bit plant to the U. S. S. R., thecapabilities of which are discussed in chapter2. The export license for this plant wasrecently revoked, but all the technologyrelating to production machinery, manufac-turing processes and metallurgical specifica-tions has already been transferred. Therevocation mainly prohibits Dresser fromproviding onsite training of Soviet tech-nicians once the manufacturing plant is com-

pleted. The U.S.S.R. will therefore be forcedto resort to trial and error to duplicateDresser-achieved quality. In sum, theUnited States enjoys a significant lead inboth quality and quantity of rock drill bits.But the U.S.S.R. does not purchase signifi-cant quantities of such bits and the sale ofthe American advantage—if the plantachieves its rated capacity of high-qualitybits.

Most of the well-logging equipment cur-rently employed in the U.S.S.R. is copiedfrom U.S. Halliburton “Jeep” single con-ductor logging tools acquired as part of lend-lease equipment after World War II. Thecurrent technology in the West employsmultiple conductors (up to seven) to obtainall the desired information on a single pass inthe borehole. These multiple conductors sig-nificantly expedite complete logging opera-tions. The Soviets have purchased well-log-ging tools from several U.S. firms (Halli-burton, Dresser, Gearhart-Owens) but havenot allowed experienced Western firms toenter the U.S.S.R. to provide logging serv-ice. The world’s leading logging firm,Schlumberger, has a policy of selling onlyservices, not equipment, and it performs 80percent of the logging services outside theCommunist world. Other logging servicesexist in France, United Kingdom, and WestGermany. These firms are generally small,however, without Schlumberger’s reputationfor quality of service. In sum, the U.S.S.R.substantially lags in logging equipment, butthe technology is available outside theUnited States.

Well Completion/Production

The process of completing a well entailsthe installation of equipment necessary toisolate the producing zones in the well, ex-tract, and contain the crude oil or gas–wellhead assemblies (christmas trees, chokes,valves), downhole packers (for both singleand multiple zone completion in a singlewell), and artificial lift equipment (sucker rodpumps, electrical submersible pumps, andgas lift equipment).

Ch. 6—Western Energy Equipment and Technology Trade With the U.S.S.R, ● 195

The literature reveals few exports of wellcompletion equipment to the U.S.S.R. Salesof well head assemblies have been made byHübner-Vamag AG in Austria; FMC Europe(Luceat), Cameron de France and Creusôt-Loire of France; EFIM of Italy; producers inRomania; and BWT World Trade, CAMCO,Otis Engineering, Cameron Iron Works,FMC Petroleum Equipment Co., and BakerOil Tools, Inc. of the United States. U.S. in-dustrial representatives generally agree thatequipment available overseas provides satis-factory service except under severe condi-tions, i.e., high pressure and corrosive at-mospheres. These problems are usually bestserved by U.S.-supplied equipment. Butsuch conditions are found infrequently in themajor Soviet oil and gas producing regions—less than 5 percent of the time and then prin-cipally only in the North Caucasus, the Cas-pian, and Sakhalin.

Artificial lift equipment is less generallyavailable outside the United States thanwellhead equipment. The Soviets are knownto produce their own sucker rod pumps andelectric submersible pumps. U.S. technicianswho have seen Soviet submersible pumpsreport that they appear to be exact copies ofpumps produced by Reda in the UnitedStates shortly after World War II. None ofthe pumps observed were estimated atgreater than 200 horsepower (hp). This maybe compared to the up to 1,000 hp pumpsavailable in the United States. Soviet pumpsalso have a considerably shorter life in thewell than their U.S. counterparts. Within theU. S. S. R., Soviet pumps reportedly operate30 to 90 days in the hole while pumps im-ported from the United States last 120 to360 days. (American pumps routinely oper-ate in excess of 1 year in U.S. wells beforethey require service. ) U.S. pumps that fail inthe U.S.S.R. are often not returned to serv-ice. The Soviet Union has consistency re-fused to allow American service techniciansinto the field, and the Soviets themselveshave insufficient trained personnel and sup-plies of replacement parts. In the West, aspecific pump is “fine tuned” by the manu-

facturer at the site to optimize usage. Sincethis has been made impossible in theU. S. S. R., the pumps probably operate ineffi-ciently.

Excluding the U. S. S. R., the world supplyof submersible pumps is provided by fourU.S. firms. They are TRW-Reda, Hughes-Centrilift (formerly Borg-Warner/Byron-Jackson), Baker-Kobe (formerly FMC), andOil Dynamics, Inc. Prices of U.S. pumpsrange from approximately $10,000 for thosewith small diameters and low power, to$200,000 for the largest and most powerful.Soviet purchases have averaged approxi-mately $100,000 per unit, suggesting thatthey are supplementing their own produc-tion with the larger units available only inthe United States. The U.S.S.R. purchasedabout 1,500 pumps from the United Statesbetween 1974 and 1978, but none have beenimported since. This suggests that theSoviets are now supplying their own needsor using other techniques to remove fluidfrom wells.

One such technique is gas lift, which theU.S.S.R. has in fact used to augment its sub-mersible pumps. The Soviets made a majorpurchase of gas lift equipment–enough toequip almost 2,400 wells—in 1978 fromTechnip of France. They have also pur-chased gas compressors from Dresser In-dustries and gas lift equipment fromCAMCO in the United States. Gas lift ismore expensive than pumps per unit volumeof oil produced because it requires com-plicated compression equipment to handlethe large volumes of gas it employs. The gasdistribution valves and their proper sequenc-ing are the most critical technology requiredin this technique. These are generallyavailable outside the United States.

Sucker rod pumps, such as those seen dot-ting the Midwestern and Western UnitedStates, are also used to lift oil. Until about 15years ago, Soviet-made models were com-monly beset with bearing failures and crack-ing of the rods. Through improved metal-lurgy, the U.S.S.R. seems to have solved


these problems and it does not import in thisarea.

Transportation

The expansion of Soviet pipelines for bothoil and gas has benefitted extensively fromimports from the West. The Soviets havepurchased a seamless pipe manufacturingplant with a capacity of 170,000 metric tonsper year from Creusót-Loire in France and aWest German group composed of Mannes-mann-Demag-Meev. The plant uses theFrench Vallourec process. The U.S.S.R. hasalso purchased extensive quantities offinished pipe from Mannesmann and Kloeck-ner of West Germany; Cie de St. Gobain-Point-a-Mousson in France; Finsider inItaly; and Mitsui, Sumitomo, Nippon, Seiko,Nippon Kokan, Kawasaki, and Itoh ofJapan. Japanese steel plate is also used forrolling into pipe in the U.S.S.R. The SovietUnion has purchased pipeline valves fromHubner-Vamag in Austria; HoneywellGmbh, Borsig Gmbh, and Klaus Union inWest Germany; Petrovalves, WAGI SpA,and Grove Italia in Italy; and Kobe Steel andJapan Steel Works in Japan. Clearly thistechnology is available worldwide.

Pipeline booster pumping stations for oiland gas compressor stations and their

related components have been supplied tothe U.S.S.R. by Honeywell-Austria Gmbh inAustria; AEG-Kanis Turbinenfabrik, KlausUnion, Cooper Vulkan Compressor Gmbh inWest Germany; Kongsberg Turbinfabrik inNorway; Nuovo Pignone and WorthingtonSpA of Italy; Sumitomo and Hitachi ofJapan; Thomassen of the Netherlands; andJohn Brown Engineering of Scotland. Sev-eral U.S. firms, including Ingersoll-Rand,Dresser, GE, Cooper Industries, and Inter-national Harvester, have also exported com-pression and pumping equipment. GE wasselected as a major supplier of compressionequipment for the Orenberg gas pipeline, but75 percent of GE Orenberg order was filledby firms outside the United States undersubcontract to GE. Compression equipmentis manufactured worldwide. Some of themore modern designs are derivatives of jetaircraft engines, but the technology is notadvanced and is available in Western Europeand Japan.

The U.S.S.R. has also purchased pipelinelaying equipment from the West. This usu-ally consists of a crawler tractor with side-mounted support to lower the pipe into aprepared trench. Fiat-Allis ConstructionMachinery, Inc., of Finland has suppliedspare parts for both bulldozers and pipe-


Equipment for work on large diameter pipelines


layers, Caterpillar-Mitsubishi and Komatsuof Japan have also exported pipelayers, ashas Bunsar in Poland (an International Har-vester licensee). International Harvester andCaterpillar have been the major U.S. sup-pliers of similar equipment. Foremost ofCanada has also supplied heavy pipe carry-ing vehicles. The technology requirementsfor these vehicles are not advanced and aregenerally available outside the UnitedStates. Although American firms may pro-duce the largest machines and Americanmodels may be better suited to work in coldclimates, alternative models, especially fromJapan, could fulfill Soviet requirements. Noinformation was collected on productioncapacities in any country. The Soviets seemto be buying these commodities due to short-falls in their own production.

U.S. firms, namely CRC International andPerry Equipment Corp., have won contractsto supply the U.S.S.R. with pipeline inspec-tion robots, or “pigs,” but competitive bid-ding to supply this type equipment for theOrenberg gas pipeline included Mannes-mann and Prenatechnik of West Germany;Primaberg and OeMV of Austria; GeneralDescaling of the United Kingdom; NipponKokan of Japan; and Aveary Lawrence ofSingapore. Both Prenatechnik and GeneralDescaling have previously sold pipeline in-spection pigs to the U.S.S.R. OTA’s assess-ment of the general capabilities of these pigsindicated that foreign equipment is compar-able to U.S. models.

In sum, well completion/production equip-ment, blowout preventers and wellhead as-semblies (Christmas trees) designed for veryhigh pressure and/or highly corrosive condi-tions are available only from U.S. firms. Butthese types of equipment would be requiredfor only a small percentage of the wellsdrilled in the U.S.S.R. The United Statesdoes maintain a monopoly on quality electricsubmersible pumps, but the U.S.S.R. hasnot purchased these for the past 2 years. Itis purchasing large quanities of pipe andpipeline equipment–which are available inWestern Europe and Japan.

Secondary/Tertiary Recovery

The Soviets have been experimenting withseveral enhanced recovery techniques. Asnoted above, the U.S.S.R. has purchased twoCO2 recuperation/liquefaction plants with acombined capacity of 400,000 tons/year fromBorsig Gmbh, a subsidiary of Deutsche Bab-cock AG, and a chemical surfactant plant(alkyl phenol) with a 100,000-ton/yr capacityfrom Fried Uhde Gmbh, both of West Ger-many. A plant capable of producing 250,000tons of surfactant per year was obtainedfrom Pressindustria in Italy, and other dealshave been broached with firms in Japan andEngland. It is not clear when these facilitieswill be brought online. In any event, the con-tribution to overall production will benegligible. The benefits of tertiary recoverytechniques are still being explored throughtesting and experimentation in the West aswell as in the U.S.S.R.

More enhanced recovery experience re-sides in the major oil and service companiesoperating in the United States than any-where else in the world. U.S. firms couldprobably aid the U. S. S. R., if it would allowforeigners to provide technical services.There has as yet been no sign of Soviet in-terest in such services.

Offshore

After the initiation of the Soviet-Japanesecooperative project on Sakhalin Island (seech. 11), the U.S.S.R. approached the GulfCorp. regarding the use of its highly so-phisticated survey ship, the Hollis Hedberg.The Soviet Union, however, prohibited theuse of an American crew in Soviet waters,and Gulf declined to participate. Instead, theU.S.S.R. leased a French survey ship withcrew from CGG for 6 months during thesummer of 1976. The Soviets also procuredfrom CGG sufficient geophysical equipmentto completely outfit two geophysical ships.In the same year, they purchased two shipsfrom Mitsubishi of Japan, and another com-pletely equipped geophysical survey shiphas reportedly been bought from Serete En-gineering of France. GECO of Norway was


hired in 1978 to conduct an offshore surveyusing 48-channel equipment in the Baltic Seaoff the East German-Polish coast. A similarship, ordered from GECO in 1977, performedsurveys during the summer of 1978 in theBarents Sea. These transactions suggestthat the U.S.S.R. has been able to acquiresubstantial Western expertise to develop itsoffshore fields, with little to no direct par-ticipation from the United States.

The United States has, however, provideda third-generation main frame computer, aCDC-Cyber 172, suitable for seismic anal-ysis. This is installed in a computer center onSakhalin Island. The software for the CDCcomputer, and for another installed else-where in the U. S. S. R., was purchased fromthe French firms CGG and Ferney-Voltaire.The Sakhalin Island computer facility isused to analyze the marine seismic data ac-quired by at least two of the Soviet geo-physical ships equipped with CGG instru-mentation and equipment.

Offshore exploratory drilling in the Sakha-lin region was initially performed in 1977with a semisubmersible rig leased from aNorwegian firm, Fred Olsen & Co. This wassubsequently replaced by a Mitsubishi-builtsemi, the Hakuryu II. Additionally, theJapanese consortium has provided severaljackup rigs for exploratory drilling offSakhalin. The drilling rigs are operated byJapanese-trained Soviets, and a Japanesedrilling supervisor remains with each rig.

The U.S.S.R. obtained its first mobile off-shore rig in 1966 from IHC in the Nether-lands. This rig, which was for use in the Cas-pian Sea, has become the prototype forSoviet domestically produced rigs. Equip-ment used on Soviet domestically producedoffshore rigs is also reported to be of Sovietorigin.

In 1976, Armco Steel (U. S.) was grantedan export license to provide Rauma-RepolaOy of Finland the necessary technical datato produce three semisubmersible drillingrigs that were to be sold to the U.S.S.R. andassembled at the Astrakhan shipyards on

the Caspian Sea. The first semi, the Kasp-morneft, was completed for sea trials inAugust 1979, but is not yet operational. Thesecond, the Shelf-1, was ready for sea trialsin 1980. The third semi is being modified atthe yard based on experience with Kasp-morneft. The Soviets have now ordered threedynamically positioned drill ships, also fromRauma-Repola Oy, for exploratory drilling inthe Barents and Kara Seas. The dynamicpositioning systems are being providedby Kongsberg Vaapenfabriken of Norway.Other competitors included Simrad A/S ofNorway and Honeywell of the United States.

The drill ships, as well as many of theother assembled offshore rigs supplied to theU. S. S. R., are largely outfitted with draw-works, prime power, rotary tables, subseablowout preventors, mud pumps, and cranesmade by U.S. firms and their overseas sub-sidiaries and licensees. Dominant U.S. sup-pliers are National Supply, Ideco, Continen-tal Emsco, Oilwell, and Gardner-Denver. Themain structural platforms for these rigs aremade in many shipyards around the world,but U.S. firms produce the majority of themobile offshore designs. Major U.S. firmshere are Bethlehem Steel, Marathon LaTour-neau, Livingston, Avondale, Todd, McDer-mott, and Ingalls. Significant quantities ofrigs are also produced in the Netherlands byVerolme, IHC, Rhine-Schelde-Veroime; inCanada by Davie, Halifax and Scott-Lith-gow; in Finland by Rauma-Repola Oy; inJapan by Mitsubishi, Mitsui, Hitachi,Sumitomo, IHI, and Nippon Kokan; in Nor-way by Aker, Nylands, Trosvik and Nor-marig; and in France by CFEM. Lesser sup-pliers may be found in Taiwan, Italy, UnitedKingdom, West Germany, Venezuela, Scot-land, Hong Kong, Singapore, Australia,Sweden, Korea, and Spain. In the Com-munist world, rigs have been constructed bythe People’s Republic of China, Romania,and the U.S.S.R. These are usually copies ofWestern rigs.

The prime power used on the rigs is usu-ally diesel-electric, and the suppliers includeall the world’s major diesel manufacturers:


General Electric/EMD, Caterpillar, Fair-banks-Morse, Detroit Diesel Allison, SACMand Alsthom-Atlantique/SEMT Pielstick(France), and Paxman and MTU (West Ger-many). Dynamic positioning control systemshave been supplied to the U.S.S.R. byHoneywell and Delco in the United States,Simrad A/S and Kongsberg Vaapenfabrikenin Norway and CIT Alcatel in France. Me-chanical anchoring systems and cranes havebeen provided by U. S., Japanese, West Ger-man, Norwegian, and French firms. Divingequipment on the rigs has been most fre-quently provided by COMEX in France, butOcean Systems (U. S.) has also exported inthis area. Subsea blowout preventers appearto be available only from U.S. suppliers, in-cluding Cameron Iron Works, Hydril, andNL Industries. These firms are also the solesuppliers of subsea well completion stacks.A leading U.S. supplier indicated that hisfirm had provided subsea blowout preven-tors for all Soviet offshore rigs and ships.

The offshore oil and gas industry is aclassic example of the worldwide nature ofthis technology. While the earliest offshoreactivities were concentrated off the Gulf andCalifornia coasts of the United States, the in-dustry is now active in other parts of theCaribbean, off Brazil, West Africa, theNorth Sea, Asia, and the North Slope ofAlaska and Canada, The most stringent re-quirements for offshore technology are rep-resented by North Sea and North Slope ac-tivities, and both U.S. and European firmsare benefiting from this experience. In sum,while the U.S.S.R. sorely needs offshoreequipment, with the exception of draw-works, rotary tables, mud pumps, subseablowout preventers, and well completionstacks—the narrow range of items in whichthe United States still maintains a monopolyor lead—it can acquire quality items inWestern Europe and Japan.

Engineering firms are perhaps the mostcritical element in successful offshore opera-tions. U.S. firms clearly have the greatestbreadth of experience in this area, but nu-merous foreign companies can supply most

individual aspects of the know-how. Table 48lists major foreign offshore engineeringfirms that are able to perform all or part ofthe engineering design required in definingand establishing a new offshore producingfield and providing associated equipment.

Teamed together, the firms listed in table48 could provide the same capability that isresident in U.S. firms like Brown & Root,Inc., and J. Ray McDermott. In fact, therehas been substantial teaming for the NorthSea and the Beau fort Sea.

Refining

Although current capacity seems to sup-ply current needs, improved refining tech-nology and equipment may well be requiredin the U.S.S.R. during this decade. Increasednatural gas production will require process-ing of vast amounts of natural gas. Gas proc-essing complexes have been sold to theU.S.S.R. by Technip and ConstructionMetalliques de Provence in France and theJapan Steel Works, Nichiman Jitsugyo &Co., Ltd., and Mitsubishi in Japan. TheFluor Corp. of the United States has pro-

Table 48.—Non-U.S. Offshore Engineering Firms

Norway:Aker, Kvaener

Netherlands:Herrema

United KingdomWorleyAdkinsHalgrove-EubankMatthew-HallDavey PowergasWilleyLawrence & Allison

France:E.T.P.M.U.I. E.Serete

Italy:TechnomareSaipemSnamergetti

Mexico:Protectors

Spain:— I n i t e l .

SOURCE Brown and Root, Inc.—.


vialed engineering services and technicalassistance on at least two Japanese sales.

Mitsubishi has sold an oil refinery to theU.S.S.R. Competitors for that sale were re-ported to be Linde AG in West Germany andC-E Lummus in the United States. OtherSoviet imports of oil refining equipment dur-ing the period 1975-78 have included dealsworth over 190 million rubles from Japan,165 million rubles from East Germany, 76million rubles from France, 43 million rublesfrom Czechoslovakia, 1.5 million rubles fromItaly, and 1 million rubles from the UnitedKingdom. The U.S.S.R. will probably con-tinue to seek assistance in this area, but thetechnology to produce and operate an ade-quate refinery is not advanced and is avail-able on a worldwide basis. (This includes theuse of hydro and catalytic cracking to break

up the heavy hydrocarbon molecules to formthe lighter molecules in motor fuels and avia-tion gasoline. ) Modern U.S. and WesternEuropean refineries now have sophisticatedcomputer controls, which the Soviets lack.These controls improve efficiency but arenot generally integral to the basic tech-nology. In short, the technology required forrefining crude oil is available in severalWestern countries, and the U.S.S.R. is cer-tainly not dependent on the United Statesfor refining technology to meet its near-termneeds.

TECHNOLOGY TRANSFER AND“FOREIGN AVAILABILITY”

Until recently, the United States had beenthe sole source of “state-of-the-art” tech-nology in virtually all technological areas.


Separation installations at a West Siberian gas compression station


America’s technological lead was largely at-tributable to two factors: it outspent mostother countries in research and developmentand the wealth of technological “know-how;”and equipment produced by U.S. R&D hadremained resident in U.S. corporations. Therise of the multinational corporations duringthe 1960’s altered this state of affairs.

In their quest for expanded markets andhigher profit margins, the multinationalshave transferred significant quantities of ad-vanced technological know-how and equip-ment. This process is nowhere more evidentthan in the oil industry, where the first truemultinationals emerged. The internationalnature of oil and gas exploration and produc-tion provided a natural incentive for oil in-dustries to adopt a global approach to thedispersion of know-how and equipment. Asfar back as the 1940’s, oil companies per-ceived a need for local sources of equipmentand technology. Transfers of technology be-tween U.S. firms and other Western con-cerns have taken place in nearly all of thekey technological areas of the oil and gas in-dustry. The data also show several transfersof American technological know-how direct-ly to the Soviets; i.e., the Dresser drill bitplant and the Armco licensing of offshorerigs. The result of these transfers has been tosignificantly reduce the number of areas inwhich the United States is a sole source ofsupply.

The three principal vehicles for transfer oftechnology are wholly owned subsidiaries,affiliates, and licensing of production proc-esses and know-how. Parent corporationshave availed themselves of all threemethods. Each provides varying levels oftechnology transfer, and differing amountsof control which the parent organization re-tains over the end use of technology.

Transfers of technology have affected theposition of the United States as sole sourcein two ways. An initial technology transferspreads U.S. know-how throughout theworld. Once a foreign concern acquires atechnological base, it can expand upon this

base and develop similar product lines on itsown. One example of this process in the caseof GE licensing of compressor technologyto Nuovo Pignone of Italy. Shortly after ac-quiring the technology, Nuovo Pignone wasproducing its own gas pipeline compressorstations in competition with GE line. In1976 Nuovo Pignone won a large Soviet con-tract for pipeline compressors over a com-peting bid from GE. Nuovo Pignone is nowan important supplier of this type ofequipment.

The United States still leads in some areas,however. These are discussed in the follow-ing sections.

Exploration

In exploration, the United States holds aunique position in that it is able to providethe complete set of equipment, computers,and software needed to model subsurfacestructures and locate oil and gas. The lead ofAmerican firms in this area may be attrib-uted to the fact that their international sub-sidiaries, affiliates, and licensees do the vastmajority of exploration in the West. Many ofthe components of these systems areavailable elsewhere, especially from theJapanese, but the most advanced expertiseresides in the United States. The UnitedStates also has a slight edge in hydrophoreand geophone accuracy.

Although other sources exist for the latesttechnology in integrated circuits, the UnitedStates currently is the only source of mini-computers used to rapidly process and ini-tially analyze seismic data in the field. Thiscapability allows up to 24-hour turnaroundfor initial seismic results (v. a more normal90-day turnaround of complete results froma central data processing center) to alert thefield crew to particularly promising locationsor to inadequate data that should be re-peated. This is “state-of-the-art” technol-ogy, however, and is still used by only asmall number of firms, even in the UnitedStates.

Several U.S. firms manufacture advancedgeophones and hydrophores that exhibit


small, incremental advances over itemsavailable in the United Kingdom, France, orGermany. The foreign models, however, cancertainly perform the necessary tasks.

Computers

In the United States, computers havebecome an integral part of the business offinding, extracting, processing, and deliver-ing energy. Computers do not play as per-vasive a role in the U.S.S.R. both becausetheir value was recognized later and becauseof systemic problems in organizing andrealizing the production of hardware andsoftware. Soviet energy industries haverelied extensively on indirect transfers,although a number of direct transfers haveplayed an appreciable role in selected areas,most notably in geophysical processing.

OTA has isolated a number of key areaswhere the Soviets lag behind the UnitedStates in computing. These are summarizedin figure 20. The first is hardware. Althoughother Western nations, notably Japan, cansupply equivalents, the United States stillleads in supplying integrated systems forthese applications. The United States alsoholds a commanding lead in software andsoftware development techniques, althoughthe French have supplied the U.S.S.R. withsome geophysical software. It is in thedevelopment of integrated systems and soft-ware that Soviet systemic problems havehad the greatest impact.35 Because of the im-proving Soviet hardware base, there will beless overt pressure to buy from the West,but indirect Soviet reliance on Western, andin particular, American developments willvery likely continue.

Other Oil and Gas Equipment

U.S. drill bit manufacturers have the mostextensive variety of bits in the world and anear monopoly on bit sales outside the Com-munist countries. Only a few small bit sup-pliers exist outside the United States, Most

35 S. E. Goodman, "Soviet Software: Progress and Prob-1ems" Advances inComputers, vol. 18, 1979,

of these specialize in diamond-coated bitsthat have a relatively narrow range of appli-cation. In any case, the experience base ofU.S. firms and the proven quality and dura-bility of their products clearly establishthem as world leaders. Even with the sale ofa U.S. bit manufacturing plant to theU. S. S. R., it is doubtful that the Soviets canproduce comparable quality bits without ex-tensive one-on-one training by U.S. techni-cians in the manufacturing steps and qualityassurance provisions. Sustaining high-qual-ity metallurgical raw materials will also benecessary to achieve a capability equal tothat of the United States. The requiredknowledge and experience can be gainedthrough trial and error, but several yearsmay be required to achieve the capabilitythat a few months of onsite training mightprovide.

The world’s major purveyor of well log-ging services is Schlumberger, a Frenchfirm, and logging equipment was first devel-oped in France. Nevertheless, U.S. firms doexcel in the electronic technology and inter-pretation experience necessary to obtainhigh-quality well-logging survey results, andimprovements made in the United States,with U.S. technology and based on the ex-tensive U.S. drilling and logging experience,have been important.

In well completion and production, severalitems appear to be unique to the UnitedStates: blowout preventers and wellheadassemblies designed for either very high--pressure service (above 10,000 psi) or for usein highly corrosive hydrogen sulfide en-vironments, and electric submersible pumps.Although firms outside the United Statescan provide less capable units, oil fieldspecialists everywhere recognize U.S.blowout preventors and Christmas trees asthe ultimate in quality. The electric submer-sible pumps needed to produce high volumewells are exclusively available in the UnitedStates. U.S. pumps have proven down-holelongevity when properly tailored to the welland served with reliable power. The sizerange of 25 to 1,000 horsepower exceeds by a

——

Ch. 6— Western Energy Equipment and Technology Trade With the U.S.S.R, ● 203

Figure 20.— Relative Importance to Soviet Energy Industries of Computer-Related Technologiesin Which the U.S.S.R. Lags the United States

I II Ill IV v VI VlII Vlll lX

Very large computers

Array processors

Microprocessor production

High density storage

Multi-level process control

Micro/Mini-computer systems softwareI

I

Software engineering

I. Software tools I l l1 I I I

Legend I GeophysicaI Precessing V Economic ManagementI I Oil and Gas Production (Oil and Gas )I I I Refining and PetrochemicalsI v Pipelines

wide margin the range of pumps produced inthe U.S.S.R.

The area of enhanced recovery equipmentand know-how is difficult to evaluate. TheSoviet Union has purchased entire plants toproduce chemical surfactants and CO, to aidin the extraction of heavy oil or oil tightlybound in rock. Soviet literature has alsoreported experimentation with hot waterand steam injection, fire flooding, and evenunder-ground nuclear explosions to achieveimproved recovery of oil from a reservoir.These techniques are still not in widespreadcommercial use even in the United States.Nevertheless, the United States has hadmore experience with technical approachesto achieve improved recovery of crude oilthan any other nation. I t is reasonable toconclude, therefore, that the United States isthe sole source of substantial experience intertiary recovery methods-if the U.S.S.R.

VI Coal MiningVII Economic Management (Coal)VIII Electric Power Process ControlIX Electric Power and Grid Management

were to seek that type of service. Thus far, ithas not.

The final area where the United States is asole source supplier is in subsea blowoutpreventers, marine draw-works, mud pumps,rotary tables, and wellhead completion as-semblies used in offshore operations. Anysuch items with significant capacity ratingsare available only from U.S. manufacturers.But the current proliferation of licensees forthe manufacture of platform drilling equip-ment; i.e., draw-works, mud pumps, rotarytables, etc., may soon effectively removethose items from the sole source list.

In sum, of the thousands of pieces ofequipment used to find, extract, and produceoil and gas, only a handful are unique to theUnited States. This finding reflects the dis-persal of technology that occurs with multi-national companies and the worldwide na-ture of the petroleum business.

204 “ Technology and Soviet Energy Availability

SUMMARY AND CONCLUSIONSIn 1979, the Soviet Union devoted some

$3.4 billion, approximately 22 percent of itstrade with its major Western trading part-ners, to energy-related technology andequipment. The vast majority of its pur-chases—worth about $2.7 billion—was des-tined for the Soviet oil and gas industries.These imports clearly have played importantroles in compensating for production short-falls and poor quality of Soviet domesticallyproduced equipment. With the exceptions ofsophisticated computers and software, andsome aspects of offshore development, how-ever, there is little reason to believe that theU.S.S.R. uses these imports to acquire tech-nologies hitherto beyond its own capabil-ities.

The Soviet coal, nuclear, and electric pow-er sectors have been largely self-sufficient. Itis the oil and gas industries that have beenmost characterized over the years by the in-volvement of the West, and there is no doubtthat the industry would benefit substan-tially from Western imports on a massivescale. Whether from lack of hard currency, adeliberate policy of self-reliance, the reluc-tance or inability of Western firms to sell, orall three, Soviet purchases have generally re-mained relatively modest and strategicallytargeted. An important exception is largediameter pipe, an item that will be crucial toenergy development in the present decade.Here, the U.S.S.R. is quite dependent onfirms in Japan and West Germany. TheUnited States does not produce pipe in thediameter required by the U.S.S.R.

Indeed, the United States is not thepredominant supplier of most energy-relateditems recently imported by the SovietUnion. The foreign availability sections ofthis chapter have identified numerous for-eign firms supplying oil and gas equipmentto the U. S. S. R., reinforcing the theme of theinternational nature of the major oil and gascompanies. Newly developed technology hasgenerally been diffused throughout theworld through an extensive network of sub-sidiaries, affiliates, and licensees.

There are a few items of oil and gas equip-ment which are either solely available fromthe United States or for which the UnitedStates is generally considered a preferredsupplier: integrated computer systems andsoftware; rock drill bits; electric well loggingequipment; blowout preventers; and well-head completion assemblies for high pres-sure, corrosive or subsea applications; ma-rine draw-works; mud pumps; rotary tables;electric submersible pumps; and a substan-tial experience base in tertiary recoverytechniques. With the exception of com-puters, however, the U.S.S.R. is either notpurchasing these items, is on its way to ac-quiring the capacity to produce them domes-tically, or has demonstrated that they arenot essential to oil and gas production.

This study reinforces the international ex-tent of the oil and gas industry. The spreadof technology that was originally developedin the United States has been enhancedthrough the growth of multinational com-panies that supply equipment to all users.This results in relatively few items thatremain exclusively available from U.S.sources. The United States continues torepresent the ultimate in quality or capabil-ity in some equipment, but the extent of thatlead is diminishing. The United States stillleads in exploration, drilling, offshore, wellcompletion, enhanced recovery, and opera-tions in extreme geologic conditions. But theitem most badly needed by the U.S.S.R.—large diameter pipe–is available fromJapan, West Germany, France, and Italy.The United States retains the best reputa-tion as the supplier of pipeline pumping andcompressor stations, and, in particular, forthe turbine drive units that power them. Butthe Soviet Union can and does obtain mostof what it needs for continued developmentof its oil and gas resources from sources out-side the United States. In short, U.S. in-dustry could assist the U. S. S. R., but to makea significant impact the assistance wouldhave to be massive—and unprecedented.

Appendix A. – Energy Corporation Affiliations7

Parent company Country Products Divisions Subsidiaries Licenses

ITT

Texas International

Marion Power Shovel Co

Deutsche Babcock & WIICOX

Studebaker-Worthington, Inc

Int’1 Systems & ControlsCorp.

George Kent Group

Harnischfeger

Bucyrus-Erie

Baker Trading Corp.

TRW

Creusôt-Loire S.A.

Joy Manufacturing Co.

ASEA

United Oil seal equipment Gallino (Italy)States

United Oil seal equipment, Rockwell MachineStates High speed presses Tool Ltd. (Britain)

Matrix EngineeringLtd. (Scotland)

United Crawler cranes, pile drivers, Sumitomo (Japan)States Mining shovels, large

diameter pipes, steel piping,compressor equipment

West Ball valves for pipelines Borsig GmbHGermany

United Booster pumps, concrete Worthington SpAStates pumps, high pressure (Italy) Division of

pumps Worthington PumpInc. (U. S.)

United Natural gas filtration Black, SyvalloStates equipment and Bryson

United Turbine meters, readout Kent France S.A.Kingdom instruments

United Crawler cranes, pile drivers Kobe Steel (Japan)

States Crawler cranes, pile drivers Komatsu (Japan)

United Wellhead equipment, Baker Division Lynes Inc.States testing equipment for

wildcat well heads,workover rigs, drillingtest equipment

United Submersible pumping TRW-Reda PumpStates units, pumps, cable Inc.

TRW CrescentWire andCable Division

France Seamless pipe plant

United PowertongsStates

Sweden Welding line (automatic)

Creusôt-LoireEnterprises(Licensee ofSMF Interna-tional Member)

Hillman-Kelly

ESAB

205



J. Ray McDermott & Co. United Propane coolers, pipeline Hudson ProductsStates coolers Corp. Licensee

of Creusôt-Loire(France), HudsonItaliana SpA(Italy)

Cooper-Besemer Co.

Finmeccanica SpA

Borg-Warner Corp.

W-K-M Valve Group

Dresser Industries

Grove Valve & Regulator Co

Armco Steel

U.S. Steel

International Harvester Co.

VOP Inc.

Perry Equipment Co.

Rockwell International

Westinghouse Elec. Co.

Big Three Industriesof Houston

Stewart & Stevenson

Cameron Iron Works

FMC Corp.

Schenck GmbH

McNally-PittsburghManuf. Corp.

UnitedStates

Italy

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

West

Valves

Submersible pumps

Gate valves, wellheads

Mining shovels and blasthole drills; compressorsfor pipe line

Gate and ball valves

Machine for semisubmer-sible offshore drilling rigs,semisubmersible rigs

Oilwell cementing

Standby power generatingequipment turbines

Large dry gas scrubbers

Pig launching/receivingstation

Pipeline metering stations

Compressor stations

Welding positioners

Blow-out preventioncontrols

Christmas trees, stainlesssteel wellhead equipment

Christmas trees, stainlesssteel wellhead equipment

Screens for coal washingGermany plant

United Flo-driersStates

Marion PowerShovel, ClarkDivision

Chiyoda Co. Ltd.(Japan)

WAG I InternationalSpA (Italy)

Centrilift Inc.

Hubner-Vamag AG& Co. (Austria)

National Supply

Western Rock Bitand Oilwell Supply

Solar

VOP Ltd., U.K.

Robsa (Neth.)

Sumitomo HeavyIndustries

Japan Steel Works

U.S.S.R. Ministryof Shipbuilding

Sirtech (Italy)

Mitsubishi

Ransome Co.

Koomey Division

Cameron DeFrance

FMC Europe(Luceat)

Japan KurimotoIron Works Co.

Sumitomo HeavyIndustry

Ch. 6— Western Energy Equipment and Technology Trade With the U.S.S.R. • 207


General Electric United Compressors, gas General Electric Nuovo PignoneStates pipeline, turbines, of Britain (Italy)

automation equipment, Mitsubishi Heavycompressor stations Ind.

AEG-Kanis (FRG)John BrownEngineering Ltd.(Scotland)

Thomassen Holland(Neth.)

AEG-Telefunken(FRG)

Mannesmann (FRG)Hitachi (Japan)

All these associ-ates have workedwith G.E. on gasturbines. Underthe agreement,G.E. supplied rotat-ing parts and theassociates suppliedstationary partsand compressorto G.E. specs.

Mannesmann sup-plied engineeringand design, pro-curement,Installation andtraining services

Smith Int'l Inc.

Kendavis IndustriesInt’l, Inc.

Cooper Industries Inc.

UnitedStates

UnitedStates

UnitedStates

Crutcher Resources Corp. UnitedStates

Honeywell-Bull, Inc.

Fiat Group

Geosource Inc.

UnitedStates

Italy

UnitedStates

Vertical drill

Triple-joining plants forwide-diameter pipemining dump trucksM-200s

Centrifugal compressors

Spare parts - largediameter pipeline andwelding equipmentleases weldingsystems

Control and measuringdevices

Caldwell Division

Mid-ContinentalEquipment Co.Unit Rig andEquipment Co.

Cooper Energy Cooper-Vulkan Creus8t-LoireServices Compressor (France)

GmbH Kawasaki Heavy(W. Germany Industries, Ltd.Joint Venture) (Japan)

CRC CroseCRC AutomaticWeldingCRC Int’l

Honeywell AustriaGmbH (Austria)

Flexible hose, flexible hoseexpansion joints

Digital display system ET L/Mandrel Iseismic field recorder Products Divisionphoto dot digital Petty Rayplotting system Geophysical

Gilardini SpA(Member)



Grove Valve & Regulator United Flex-flo valves Italian Affiliateco. States

Caterpillar Tractor Co. United Spare parts - bulldozers Fiat-AllisStates and pipelayers Construct ion

Machinery, Inc,(Witractor)(Finland)

Appendix B. – Trade by Company

The following table presents a sampling of thedealings of various Western companies involvedin the export of energy-related equipment to theU.S.S.R. The data was obtained from a search ofthe bimonthly publication Soviet Business andTrade (SB&T) for the period 1975-80.

SB&T draws on a variety of sources, includingthe Soviet News Agency TASS, to gather in-formation on Soviet trade. The staff ensures theaccuracy of the reported deals through a systemof cross-checking sources and phone verificationwith U.S. companies.

According to its publisher, fully one-half of thesubscribers of SB&T are found in countries out-side the United States, especially WesternEurope and the Soviet Union. The subscribersprovide feedback as to the accuracy of the report-ing. A concerted effort is made by the editorialstaff to provide a representative sample of Sovietpurchases across the spectrum of both techno-logical areas and supplying countries.

U.S. Government agencies, such as the Depart-ment of Commerce, the Central IntelligenceAgency, and the Department of Energy, also sub-scribe to SB&T. U.S. industry representativeshave indicated that information about theirfirms’ activities is generally accurate, and theyare usually contacted in advance of publicationregarding the accuracy of a reported item.

No attempt has been made to validate totalauthenticity or completeness of the trade datacontained in SB&T. OTA is confident that themajor trade deals from SB&T referred to in thecourse of this study are factual and accuratelyrepresent the availability of energy technologyand commodities from sources outside the UnitedStates. It is possible, however, that transactionsrecorded here may not have been consummated,or that their terms may have changed.

Table B-1 .—Trade by Company—Oil and Gas

Equipment area Exploration

Suppliers Country Product

Foremost Industries

Potter Test

Serete Engineering

Ferneg - Voltaire

CIE GeneraleGeophysique

ClE GeneraleGeophysique

CIE GeneraleGeophysique

Stere

Comex

Mitsubishi Corp.

Geosource Inc.

Control Data Corp.

Control Data Corp.

Canada

Canada

France

France

France

France

France

France

France

Japan

UnitedStates

UnitedStates

UnitedStates

73 tracked geophysical survey vehicles [undersubcontract to Geosource (U.S.)]

Portable production testing equipment

1 geological survey ship

Geophysical software to be used on CDCs Cyber 172s

Special geophysical software used on the CDCCyber 172s

6 month lease of a complete geophysical ship and crew

Digital seismographic recorders, magnetometers,gravity meters, cables and hydrophores for 2geophysical ships

Underwater prospecting equipment

Deep sea diving equipment

2 geophysical ships (using the geophysicalequipment bought from CIE above)

Command II field processing systems

2 Cyber 172-4 computers

1 Cyber 73; 1 Cyber 172 computer

Year Value

1979

1980 $113 million

1979

1979

1976

1976 $14 million

1975

1976 $2.5 million

1979 $6 million

1979 $12.1 million

209


Table B-1 .–Trade by Company–Oil and Gas (Continued)

Equipment area Exploration

Suppliers Country Product Year Value

Geosource Inc.

Gearhart-Owen, Inc.

Magnavox Labs

Geosource Inc.

Petty Ray GeophysicalDivision of Geosource

Geospace Corp.

Lynes Inc.

Mertz Inc.

IBM Trade DevelopmentS.A. with WesternGeophysical

Schlumberger S.A.Halliburton Services Inc.Dresser Industries

Maschinenfabrik

Tamrock Oy

Airan

Drilling

Heid

SMF International

Vallourec Export

Wotan Werke

Japanese Consortium

Sodeco

Baker Trading Co,

Farr International

Halliburton Services

Joy Manufacturing

Ekel Manufacturing Co.

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStatesFrance

FranceUnitedStates

Austria

Finland

Finland

France

France

WestGermany

Japan

Japan

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

13 photodot automated digital display 1979

Cooperative agreement on the production of direct 1978digital well logging equipment

5 navigation systems for satellite pinpointing of 1975geological teams

Seismic field recorder (manufactured by Geosource, 1975Inc., ETL/Mandrell Products Division)

Photodot digital plotting system 1975

Seismic plotting system with geophones 1975

Testing equipment for wildcat wellheads 1975

24 servo-hydraulic vibrator systems

IBM 370-148 and an array processor

Help locate hydrocarbon reserves

Machine tools for making couplings and adaptersfor oilwell casing and drill pipe

15 crawler mounted drilling rigs

Drilling equipment

400 kellies

Well head casing

Heavy drilling equipment

200,000 tons of seamless pipe for oil wells; to bedelivered between October 1980 and March 1981

Casing, drill pipe, bits and clay

Drilling test equipment

10 power tongs and a diesel/hydraulic powersystem for each

Cementing systems

Power tongs

20 power tongscompetitors: Farr International (U. S.)Joy Manufacturing Co. (U. S.)

1979

1978

$7 million

$370,000

$300,000

$250,000

$2.5 million

$6 million

1979 Sch 150 million

1978

1975 $100,00019781975

1980 R4 million

1980

1976 $2 million

1979 $1.6 million

1979 $1 million

1978 $3 million

1978

1978

Ch. 6—Western Energy Equipment and Technology Trade With the U.S.S.R, ● 211

Table B-1 –Trade by Company—Oil and Gas (Continued)

Equipment area Drilling


Dresser Industries Inc.

Hercules Inc.

Stewart & Stevenson’sKoomey Division

Drilco

Well

Hübner-Vamag AG

Hübner-Vamag AG

Hübner-Vamag AG

Hübner-Vamag AG

Hübner-Vamag AG

Hübner-Vamag

Honeywell AustriaGmbH

Dresser Industries Ltd.

United Equip a new addition to an existing rockStates drill bit plant

United Mud additivesStates

United 6 blow-out prevention controlsStates

United Degasser and pipe inspectorStates

Com~ietion/Production

Austria

Austria

Austria

Austria

Austria

Austria

Austria

Canada

Foremost Industrles Ltd. Canada

Flat-AlIis Construction FinlandMachinery, Inc. (Witractor)

Vallourec France

Entrepose S.A. France

CIE Francaise d’Etudes Francede Constructions (Technip)

Cie de St. Gobain-Point-a- FranceMousson & Vallourec

Export S.A.

FMC Europe (Luceat) and FranceCameron de France

Honeywell GmbH WestGermany

Borsig GmbH WestGermany

Klaus Union WestGermany

AEG-Kanis Turbinenfabrik WestGermany

130 complete oil well head assemblies

155 natural gas drill hole plugs and production vanes

1,000 single slab gate valves for pipelines andwell heads

80 well heads

702.5 meter diameter ball valves for dutydown to -55° C

Ball cock and tilt check valves for gas pipelines

129 units of control and measuring devices forOrenberg line equipment built by British Sereck

Controls Ltd.; UK)

42 compressor units21 - used for gas lift21 - used in fire flooding

30 metric ton payload husky 8 vehicles (pipe carriers)

Spare parts for bulldozers and pipelayers

152,000 tons of large diameter pipe in 1980

Line pipe (actually supplied by Vallourec Export S. A.)

Gas lift equipment for 2,371 wells

Steel line pipe

Christmas trees and stainless steel wellheadequipment

Large diameter pipeline valves

Large diameter pipeline valves

Pipeline fittings and ball valves

17 gas compressor stations

1978

1978

1975

1975

1979

1979

1978

1978

1976

1976

1976

1978

1976

1978

1980

1978

1978

1977

1975

1980

1980

1979

1978

$147 million

$14.5 million

$11.5 million

Sch 100 million

$5.2 million

$9 million

$30 million

$4 million

R241,000

Fr 835 million

$70 million

$6 million

DM 1.3 million


Table 6-1 —Trade by Company –Oil and Gas (Continued)

Equipment area Well Completion/Production

Suppiers Country Product Year Value

Klaus Union

Borsig GmbH

Mannesmann RohrwerkeAG

Cooper-VulkanCompressor GmbH

Gebr Windhosst

Kloeckner

Hudson Italiana SpA

Nuovo Pignone

Petrovalves SpA

WAGI SpA

Worthington SpA

Nuovo Pignone

Finsider

Finsider

Grove Italia

Mitsui & Co,

Kobe Steel, Ltd.

Sumitomo Corp.

WestGermany

WestGermany

WestGermany

WestGermany

WestGermany

WestGermany

Italy

Italy

Italy

Italy

Italy

Italy

Italy

Italy

Italy

Japan

Japan

Japan

Sumitomo Metal IndustriesNippon Seiko JapanNippon KokornKawasaki Steel

C. Itoh & Co., Ltd. Japan

Yamamoto Suiatsu JapanKogyosho, Ltd.

Hitachi Ltd. Japan

Japan Steel Works Japan

Caterpillar-Mitsubishi Japan

Sumitomo Corp. Japan

20 multipurpose pumps

200 ball valves for pipelines

3.5 million tons of wide diameter steel pipe

15, RF2BB-30 centrifugal compressors (a jointventure with Bremer Vulkan Schiffbau undMaschinenfabrik)

Fire prevention gear for Orenberg line 123 units

32,000 tons of large diameter pipe

32 propane coolers for severe climatic conditions

1. Automation equipment; gas compression plant2. Remote control equipment for gas gathering and

transmission system3. 5 compressor stations

400 check valves for oil and gas pipelines, withdiameters from 1,000 to 700 MM

Pipeline valves

20 booster pumps for pipeline

35 compressors for Orenberg line

2,5 million tons of large diameter pipe

Large diameter pipe

Ball valves for oil and gas pipelines

200,000 tons of 70 kg/mm2 grade steel plates forproduction of wide diameter pipe

230 large diameter ball valves for gas pipelines

Steel piping, pumping and compressor equipment,large diameter pipe

500,000 tons 1,400 mm steel pipe for pipelines

Wide diameter steel pipe

Pipe binding equipment

Five 10,000 kW gas turbine compressor units

56” valves for Orenberg line (subcontract to Perry)

193 D-6 bulldozers/pipelayers

400,000 metric tons of pipes, both largediameter and seamless

1977

1976

1976

1976

1976

n.a.

1978

19781978

1978

1978

1978

1976

1976

1975

1974

1979

1979

1979

1978

1976

1976

1976

1976

1976

1975

1980

$200,000

$8.8 million

$3.2 million

$1.5 million

$150 million

$6 million

$1.5 billion

Y20 billion

$6.8 million

$130 million

$4.3 million

$9 million

$16 million


Table B-1 —Trade by Company —Oil and Gas (Continued)



Robsa

Thomassen

Kongsberg Turbinfabrik

Bunsar

John Brown Engineering

TRW-Reda Pump, Inc.

Ingersoll-Rand Co.

Baker World Trade

Cameo

Otis Engineering

ODI Inc.

TRW-Reda Pump, Inc.and Borg Warner

011 Dynamics

TRW-Reda Pump, Inc.

Centrilift Inc.

Occidental Int’l Eng. Co.

CRC International

Otis Engineering

Cameron Iron Works

Netherlands Pipeline metering stations, using Perry (U. S.)flow measuring equipment (Robsa is a subsidiary ofRockwell International; U. S.)

Netherlands 10 turbines for Orenberg (under subcontract to GE.)

Norway

Poland

Scotland

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

Standby turbine generators for Orenberg line(a subcontract for Nuovo Pignone - Italy)

34 pipe layers (International Harvester Co. supplieddimensions, metallurgical specs, tooling andmachinery techniques, quality control andassembly methods. International Harvester receivesa royalty on each vehicle sold to a third party )

33 gas turbine compressor units for Orenberg line(J.B.E. as a manufacturing associate of G.E.)

90 submersible pumps

Gas pipeline compressors

Down-hole completion equipment, including wire-Iine, packers, safety valves and primary cementingequipment for 31 gas wells. About half are designed forextreme cold weather operations (-65°) for largediameter, large volume production.

2,216 gas lift and completion units and 80 wire line units

Down-hole completion and wire line equipmentfor 101 gas wells

Submersible oil pumps

Submersible oil pumps



188 submersible pumps (built in the firm’s Torontoplant). Note: This sale brought total number ofcentrilift pumps in the U.S. S, R. to 600

Design and construction of a pipeline

internal line-up clamps, clean and wrap machines,pipe benders; pigs

Completion equipment

40 well heads

1976

1975

1976

1976

$5 million

$10 million

1976 $47 million

1979 $10.5 million

1979

1979 $2,5 million

1979

1979

1978

1978

1978

1978

1978

1978

1978

1978

1978

$36.1 million

$7 million

$2 million

$33.5 million

$2 million

$10.5 million

$23 million

$300 million

$3 million


Table B-1 .—Trade by Company—Oil and Gas (Continued)

Equipment area Well Completion/Product/in


FMC PetroleumEquipment Division &Cameron Iron Works

TRW-Reda Pump, Inc.

International Harvester

General Electric

Crutcher Resources Corp.

Roscoe Brown SalesCo. Inc.

Cooper Industries


Grove Valve &Regulator Co.

F. H Maloney Co,

Health Consultants Inc.

E. H Wachs Co.

Perry Equipment Corp.

Baker Oil Tools Inc.

Mertick Engineering

CRC Automatic Welding

Mid-Continent PipelineEquipment Co,

Ransome Co.

Deuma

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

Christmas trees

350 pumps

500 TD-25C bulldozers and pipelayers

Hot gas rotating components of the compressorsfor the Orenberg line

Spare parts for large diameter pipeline weldingequipment

Pipeline augers

73 RF2BB-30 centrifugal compressors

Standby turbine generators for Orenberg line

The smaller valves for Orenberg line (asubcontractor for Perry)

Pig signalers (subcontract to Perry)

Pig locaters (subcontract to Perry)

Pipe cutters

Entire complement of pig launching/receivingstations for Orenberg pipeline

Competitors: Mannesmann - FRGPrenatechnik - FRG*Primaberg - AustriaOeMV - AustriaGeneral Descaling - U.K. ●

N,K,K. - JapanAvery Lawrence - Singapore● Have sold pigs to U.S.S.R. before.

20 sets of gas well completion equipment,2 wire line units, and inflatable packers

Equipment for welding 12 to 25mm diameter pipe

Lease of its proprietary automatic welding systemto Hungary and Poland for Orenberg line

2 triple jointing plants for 42, 48, and 56 inch pipe;mandrills, clamps, cleaning, lining and coatingequipment

9 welding positioners

4 welding positioners

1978

1976

1976

1976

1976

1976

1976

1976

1976

1976

1976

1976

1976

1976

1975

1975

1975

1975

1975

$64 million

$200,000

$250,000

$250,000

$250,000

$300,000

$27,650,000$9 millionfrom Perry

$700,000

$5 million

$200,000

—


Table B-1 .—Trade by Company –Oil and Gas (Continued)




General Electric Co.

TRW-Reda Pump, Inc.

TRW-Reda Pump, Inc.

Borg-Warner

Mission Manufacturing

General Electric

C-E Lummus & Co.

FMC Petroleum

Creusôt-LoireEnterprises with

Mannesmann-Demag-Meev Group

Creusôt-LoireHudson Italiana SpA

Caterpillar Tractor Co.

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

UnitedStates

France

WestGermany

FranceItaly

Unitedand Caterpillar-Mitsubishi States

Japan

Bulldozers and pipe layers

Gas turbines for pipelines

137 electrodynamics submersible pumping units

Submersible pumps


Submersible pumps

65 MS3002, two-shaft turbines rated at 14,500 hp(all are being built under GE license in 6different countries)

Pipeline coolers

Stainless steel wellhead equipment

A seamless pipe plant using the Vallourec processwith a capability of 170,000 metric tons per annum

Pipeline coolersPipeline coolers

50 Caterpillar pipelayers and 2 years ofspare parts

Secondary/Tertiary Recovery

Fried Uhde GmbH West 100,000 ton per year alkyl phenol plantGermany (used as a surfactant)

Borslg GmbH West C 02 recuperation plantGermany

Offshore

Rauma-Repola Oy Finland Build the hull for the semi below

UIE & ETPM France An offshore oil platform fabrication yard at Baku

Serete France Floating drilling platforms

Blohm & Voss West Self-propelled crane to position offshore rigsGermany

Blohm & Voss AG West Rebuild a shipyard at Astrakhan for assemblingGermany jackups and semi-submersible rigs

Modec Japan Class III 3-legged jackup rig; design by LevlngstonShipbuilding (U.S.); drilling equipment by NationalSupply (U.S.); blowout preventor stacks and controlsfrom N.L. Petroleum (U.S.)

1975

1975

1975

1975

1975

1975

1974

1978

1978

1979

1978

1976

1978

1979

1976

1980

1975

1976

1979

1979

$17 million

$20 million

$250 million

$1 million

$230 million

DM 50 million

$15 million

$40 million

$35 million


Table B-l —Trade by Company —Oil and Gas (Continued)

Equipment area Offshore

Product Year ValueSuppliers Country

Sanwa Kizai Co. Ltd. Japan

IHC Netherlands

IHC Netherlands

Ulstein Hatlo A/S Norway

14 augers used for pile driving 1976

Seagoing pipe layer 1971

Jackup rig 1967

3 ships to tow exploration and production 1976drilling platforms

Kongsberg Vaapen NorwayFabrikk A/S

3 dynamic positioning systems for the 3-drill ships 1979built by Rauma-Repola Oy

Competitors:Simrad A/S (Norway)Honeywell (U. S.)

Simrad A/S Norway 1979

1978

1979 $3.8 million

1978

1976 $25 million

Dynamic positioning system for the Armco semibuilt for U.S.S.R.

Armco, Inc. UnitedStates

Equipment for a jackup being built by Mitsui OceanDevelopment & Engineering Co. Ltd.

Lynes International Inc. UnitedStates

11 strings of drill stem testing equipment foroffshore facilities


License for semisubmersible rigs built by Rauma-Repola Oy for Soviets

National Supply UnitedStates

Provide most of the machinery for asemisubmerisble rig being builtby Rauma-Repola Oy


License for production of semi’s in U.S.S.R. 1976

Refining

Tech nip France

France

15,000 cubic meter per annum natural gas

28 natural gas purification stations

1975 $230 million

1975

1975

1979

1976 $250 million

1978

ConstructionsMetalliques de Provence

Walworth AloycoGrove International

Italy 1,580 ball valves for oil refineries

Japan Steel Works Japan

Japan

Japan

Manufacturing for the above plant

Nichimen Jitsugyo 3 plant gas processing complex

Mitsubishi Corp. Primary oil refining equipmentCompetitors: Linde AG - FRG

C-E Lummus - U.S.

Fluor Corp. UnitedStates

Designs, engineering, procurement, and fieldtechnical advisory services for plants to convertnatural gas into ethane, methane, pentane, liquidpropane, gasoline and other products

1979

Fluor Corp. UnitedStates

Provide engineering and technology assistancefor the three plants above

1976

1978Mitsubishi Heavy JapanIndustries United

States

Gas processing complex

Japan Steel Works Japan& Fluor Corp. United

States

Gas processing complex 1978 $250 million

—-


Table B-2.—Trade by Company—Coal

Equipment

Suppliers

area Exploration

Country Product Year Value

Plategods Co Norway

Preparation

South Yakutian Coal JapanDevelopment Corp.

Marubeni Corp. Japan

Sumitomo Heavy JapanIndustr les

Transportation from

Komatsu Ltd. Japan

Unit Rig & Equipment Co UnitedStates

Unit Rig & Equipment Co. UnitedStates

Ingersoll-Rand UnitedStates

Ingersoll-Rand UnitedStates

Unit Rig & Equipment Co. UnitedStates

Surface Mining Excavation



Rock drilling equipment

Coal preparation equipment

33 large screens for coal washing plantNote built by Kurimoto Iron Works Co under aIicense from Schenck GmbH (FRG)

Four 600 ton/hour flo-driers (under license from McNallyPittsburgh Manufacturing Corp. (United States)

Mine

30 120 ton capacity heavy mining trucks

30 M-200 vehicles for use in coal fields

Heavy duty dump trucks

Slurry pumps powered by a 3,000 HP engine

Slurry pumps

54 M-200s Note To be built by the Canadian

Kent France S A

Orensteim und Koppel

Sumitomo HeavyIndustr ies

Sumitomo Corp.

South Yakutian CoalDevelopment Corp.


Paccar Inc.

France

WestGermany

Japan

Japan

Japan

Japan

Japan

Japan

UnitedStates

Clark Equipment Co UnitedStates

10 electric mining shovels

3 large and 1 small excavator for open castIignite mines

Division

20 cubic meter bucket, hydraulic mining dhovels

10 self-propelled 20 cubic meter bucket, miningShovels

10 “Super Front” mining shovels used in strip mining

Coal development equipment

10 crawler-mounted blast hole drillsNote Built under a Marion Power Shovel Iicense

5 “Super Front” mining shovelsNote Built under Iicense from Marion Power Shovel,Division of Dresser Industries

7 Dart D-600 15 cubic yard front-end loaders

3 Model 475 B front-end loaders

1975

1978

1978

1978

1979

1976

1975

1975

1974

1979

1975

1980

1978

1976

1975

1974

$25 mil l ion

Y1.2 billion

$30 million

$40 million

$13 million

$14 million

DM 220 million

$450 million

1979 $286 mil l ion

1978 $1 million


Table B-2.–Trade by Company—Coal (Continued)

Equipment area Transportation at Underground Mine Site

Suppliers Country Product Year Value— .

Ohlemann GmbH West 36 underground mining vehicles 1979Germany

Komatsu Ltd. Japan 30 120-ton capacity heavy mining trucks 1979 $30 million

Linden Alimak Sweden Mine shaft hoists 1979 SKr 5 million

Appendix C. – Suppliers of Essential Equipment———— —

Table C-1 .—Suppliers of Nuclear Grade Pipes and Tubes Outside the United States

Austria Austr iatomVereinigte Edelstahlwerke Voest-Alpine

Canada Chase NuclearDominion Bridge CoFinnan Engineered ProductsNoranda Metal IndustriesR IO Algorn (Atlas Alloys DI V. )

France

Great Britain

Creusôt-LoireDelattre-LevivierMetaux Inoxydables OuvresVallourec

Cabot Alloys EuropeCameron Iron WorksFine TUbesPipework EngineeringRGB PipelinesTioga Pipe Supply International

Developments

Netherlands

Japan IHIJapan Steel WorksKawasaki Steel Corp.Kobe SteelKubota

Ameron BVKawecki-Billiton MetaalindustrieTrent TubeVan MulIekomVan Wijk & Boerma

Sweden Avesta JernverksNyby UddeholmSandvik

Switzerland Zschokke Wartmann AG

West Germany Klockner-WerkeMannesmannroehren-Werke AGSchmoele, R.&G. Metallwere GmbH

Table C-2.—Suppliers of Welding Equipment Outside the United States

Canada

France

Great Britain

Bata Engineerlng

P o l y s o u d e

Sciaky S. A.

Cunnington & CooperNEl Clarke Chapman Power

EngineeringSciaky Electric Welding Machines

Italy

Japan

Tioga Pipe Supply InternationalVickers ShipbuiIding Group

Breda TermomeccaniaCorradi, Franco

IHIKawasaki Heavy industriesKobe Steel

219


Table C-3.—Suppliers of Steam Generators Outside the United States

Austria Austr iatomSimmering-Graz- PaakerVoest-Alpine

Canada Babcock & W IICOX CanadaDavie ShipbuildingNoranda Metal Industries

France Creusôt-LoireFramatomeStein IndustrieSulzer

Great Britain Babcock PowerNEI Clark Chapman Power

EngineeringNEI International CombustionRNC Nuclear

Italy Breda TermomeccanicaConstruzioni MeccanicheFranco TO SiNIRA

—SOURCE NEI International Buyers GuiIde, 1980

Table C-4.—SuppIiers of Pumps

Austria

Canada

France

Great Britain

Italy

Japan

Netherlands

Sweden

Switzerland

Outside the United States

West Germany

SOURCE NEI International Buyers

AndritzAustr iatom

Finnan Engineered ProductsHayward Gordon

Creusôt-LotreDresser EuropeFramatomePompes Guinard

GEC Reactor EquipmentHaskelHayward Tyler & CoHolden & BrookeWeir Pumps

Fiat TTGFranco TO Si

IHIKawasaki Heavy IndustriesTorishima Pump Manufacturing CoToshiba

Borg-Warner Corp.Delaval-Stork

Karlstads Mekaniska Werkstad

Eschler UraniaK. Rutschi, Ltd.Sulzer Brothers

InteratomKlein, SchanzlinOrlita

G u i l d e , 1 9 8 0

& Becker

Japan IHIKawasaki Heavy IndustriesKobe SteelMitsubishi Heavy IndustriesToshiba

Netherlands NeratoomRoyal ScheideRSV-A

Spain Babcock & W IICOX EspanolaEquipos Nucleares

Sweden Uddcomb Sweden

Switzerland Sulzer Brothers

West Germany Babcock-Brown Boveri ReaktorDeutsche BabcockGHH SterkadeKlockner-Werke

Table C-5.—Suppliers of Valves

Canada

France

Great Britain

Italy

Japan

Netherlands

Sweden

Switzerland

West Germany

Outside the “United States

Canadian Worcester ControlsCurran Valve SupplyEPG Energy Products GroupFisher Controls Co of CanadaVelan Engineering

Alsthom-Atlant iqueNeyrpic Pont-a-MoussonTrouvay & Cauvin

Adams, GebruderGEC-Elliott Control ValvesHattersley HeatonHindle ValvesHopkinsons

Fiat TTG

Japan Steel WorksOkano Valve Mfg. Co.Utsie Valve Co.

Borg-WarnerG. Dikkers & Co,

Karlstads Mekaniska Werkstad

Alfred Batt igSulzer Brothers

Gebruder AdamsARF Armaturen-VetriebDeutsche BabcockStahl-Armaturen Persta

SOURCE: NEI International Buyers Guide, 1980


Austria

Canada

France

Great Britain

Italy

Japan

Switzerland

Table C-6.—Suppliers of Containment StructuresOutside the United States

RFBVeost-Alpine

Can atomDavie Shipbuilding

Bignier Schmid-LaurentCreusôt-LoireNeypicSpie-Batignolles S.A.

Babcock PowerFairey EngineeringGEC Reactor EquipmentSir Robert McAlpine & Sons, Ltd.

Bosco Industrie Mecca nicheFochi

I HIKawasaki Heavy lndustr ies

Kobe SteelShimizu Construct Ion Co

Bureau BBRBussSulzer BrothersWoolleyZschokke Wartmann

West Germany Krupp FriedMaschinenfabr ik Augsburg-NurnbergL. & C. Steinmuller

SOURCE: NEI International Buyers Guide, 1980

Table C-8. —Essential

Preparation123456789

10

Agitators, Conditioners, MixersCrushers

Table C-7.—Suppliers of Control SystemsOutside the United States

Canada

France

Great Britain

Italy

Japan

Sweden

Switzerland

AG

West Germany

SOUR CE NEI International

AutomatecCanadian General ElectricEnercorp InstrumentsFischer & PorterThermo Electric

CGEE AlsthomFichet-BaucheLeanordSODETEGSpie Batignolles

Ferranti Computer SystemsFoxboro-Yoxal lHoneywellKent Process ControlR.P. Automation

ELSAGMarelli, Ercole & Co.Montedel

F UJI Electric CoKawasaki Steel Corp.Sukegawa Electric Co.Toshiba

A SEATekniska Rontgencentralen

Bachofen

Equipment for Coal Mining

Brown Boveri & CieHigh Energy & Nuclear EquiprnentSulzer Borthers

Brown Boveri & CieKarftwerk UnionNuclear DataSiemens —Buyers Guide, 1980

14 Bulldozers15 Front-end Loaders16 Scrapers

Flotation Machines and ReagentsGrinders Transportation at Surface Mine Site

Pulverizers 17. Coal Haulers (100 ton)

Separators Underground Mine ExcavationWashers 18 Continuous MinersCleaning Breakers 19 Loading MachinesBlending Machines 20 Longwall EquipmentElectrostatic Precipitators 21 Bul ldozers

Surface Mining Excavation11 Draglines12 Drills

22 Coal Cutters23 Heading Machines24 Undercu t te r

13 Power Shovels

SOURCE C. Simeons, Coal Its Role in Tomorrow's Technology (New York Pergamon Press 1978I


1.

2.

3.

Table C-9.—West European and Japanese Suppliers of Essential Coal Mining Equipment

Agitators, Conditioner and Mixers

FranceFives-Call Babcock

EnglandAPV-Mitchell (Dryers), Ltd.GEC Mechanical Handling, Ltd.Johnson-Progress, Ltd.Joy Manufacturing Co.

JapanKawasaki Heavy Industries, Ltd.

Crushers

EnglandAveling-Beuford, Ltd.British Jeffrey DiamondMagco, Ltd.Newell Dunford Eng., Ltd.Pegson, Ltd.Underground Mining Machinery, Ltd.

West GermanyBuckan-Wolf Maschinenfabrik AGBuhler-MiagEsch-Werke AGHazemag GmbH & CoIBAG International Baumaschinenfabrik AGKrupp GmbH

FranceAlsthom Atlant iqueDragon SA AppareilsFives-Call BabcockJoy SAStephanoise de Constr

Japanlshikawajima-Harima Heavy IndustriesKawasaki Heavy Industries, Ltd.Kurimoto Iron Works, Ltd.

Flotation Machines and Reagents

EnglandMachines

Joy Manufacturing CoReagents

Century OiIs, Ltd.

West GermanyMachines

KHD Industrianlagen AGKrupp GmbH, Fried, Krupp IndustrielLurgi Gesel lschaften

JapanMachines

Kawasaki Heavy Industries, Ltd.Reagents

Sanyo Chemical Industries, Ltd.

4.

5.

6.

Grinders

EnglandBeryllium Smelting Co, Ltd.Chapman, Ltd.GEC Mechanical Handling, Ltd.Head Wrightson & Co, Ltd.Helipeds, Ltd.Joy Manufacturing CoNewell Dunford Eng., Ltd.Pegson, Ltd.Simon-WarmanWilkinson Process Linatex Rubber Co, Ltd.

FranceAlsthom Atlant iqueDragon SA AppareilsFives-Call BabcockStein Industrie

West GermanyBuhler-MiagEsch-Werke AGIBAG International Baumaschinenfabrik AGKHD Industrianlagen AGKrupp GmbH, Fried, Krupp IndustrieKulenkampff GebruderO&K Orenstein & Koppel AGPolysius Werke

Japanlshikawajima-Harima Heavy IndustriesKawasaki Heavy Industries, Ltd.Kabe Steel, Ltd.Kurimoto Iron Works, Ltd.Mitsubishi Steel Mfg. Co. Ltd.

Pulverizers

EnglandBritish Jeffrey Diamond

West GermanyKHD Industrianlagen AGKrupp GmbH, Fried, Krupp Industrie

Japanlshikawajima-Harima Heavy Industries

Separators

EnglandBoxmag-Rapid, Ltd.GEC Mechanical Handling, Ltd.

FranceFives-Cail BabcockSaulas & CiIStein Industrie

West GermanyBavaria Maschinenfabrik GmbH & CoKHD Industrianlagen AGKrupp GmbH, Fried, Krupp IndustriePolysius Werke

Ch. 6— Western Energy— —

7.

8.

9.

Equipment and Technology Trade With the U S S R . 223

Table C-9.–West European and Japanese Suppliers of Essential Coal Mining Equipment (Continued)

Japanlshikawajima-Harima Heavy IndustriesKawasaki Heavy Industries. Ltd.Kobe Steel Ltd.Kurimoto Iron Works Ltd.

Washers

EnglandAveling Barford Ltd.

GEC Mechanical Handling, Ltd.

FranceAlsthom Atlant iqueDragon SA Appareils

West GermanyBavaria Maschinenfabrik GmbH & CoEsch-Werke AGIRAQ International Baumascninenfabrik AGKHD Industrianlagen AG

JapanKurirnoto Iron Works Ltd.

Cleaning Breakers

EnglandBritish Jeffrey DiamondCompair Construction & Mining Ltd.GEC Mechanical Handling, Ltd.Gullick Dobson, Ltd.Mining Supplies, Ltd.Padley & VenablesUnderground Mining Machinery, Ltd.

FranceFives-Ca[l BabcockStephanoise de Constr. Mecaniques. S o c .

West GermanyDeutsche Montabert GmbHKHD Industrianlagen AGOrenstein & Koppel AGWestfalia Lunen

JapanFurukawa Rock Drill Sales Co Ltd.lshikawajima-Harima Heavy Industries

Blending Machines

EnglandBabcock-Moxey. Ltd.Babcock & WIICOX , Ltd.

FranceFives-Call BabcockRealization Equipments Industriels

West GermanyBuckau-Wolf Maschinenfabrik AGDemag Lauchammer Masch

Japanlshikawajima-Harima Heavy

10. Electrostatic Precipitators

EnglandHead Wrightson & Co Ltd.

& Stahlbau GmbH

Industries

West GermanyKHD Industrianlagen AGLurgi Gesellschaften

Japanlshikawajima-Harlam Heavy industriesKawasaki Heavy lndustries Ltd.

11. Draglines

EnglandRansomes & Rapier Ltd.Ruston-Bucyrus Ltd.

FrancePoclainRealization Equiprnents Industriels

West GermanyAumund-Forderbau GmbHDemag AG. ABT BergwerksmachinenDemag Lauchhammer Masch & Stahlbau GmbHDemag Verdichtertechnik GmbHKrupp GmbH, Fried, Drupp lndustril Una StahlbauLiebherr Hydraulikbagger GmbHMaschinenfabr ik Augsburg-Nurnberg AGOrenstein & Koppel AG

JapanHitachi Construction Machine Co. Ltd.lshikawajima-Harima Heavy IndustriesKawasaki Heavy IndustriesKobe Steel Ltd.

12. Drills

EnglandBoart, Ltd.Compair Construction & Mining. Ltd.Eimco, Ltd.English Drilling Equipment Co., Ltd.Euro-Drill Equipment, Ltd.Hydraulic Drilling Equipment. Ltd.Mining Dev., Ltd.Underground Mining Machinery, Ltd.

13. Power ShovelsSee DragIines

14. BulldozersSee Draglines

FranceMaco-Meudon

West GermanyDemag AG, ABT BergwerksmachinenDemag Drucklufttechnik GmbHDemag Verdichtertechnik GmbHDeutsche Montabert GmbHFlottman-Werke GmbHWerth & Co

JapanFurukawa Rock Drill Sales CoKoken Boring Machine CompanyMitsubishi Steel Mfg. Co Ltd.Mitsui Shipbuilding & Eng. Co, Ltd.


Table C-9.—West European and Japanese Suppliers of Essential Coal Mining Equipment (Continued)

15.

16.

17.

18.

19.

Front-end Loaders

EnglandAveling-Barford,Eimco, Ltd.Matbro, Ltd.Mining Dev., Ltd.

FranceFrance Loader

20.

Ltd.

Realization Equipment Industriels

West GermanyAumund-Fordererbau GmbH

21.

Deilmann-Hanill GmbHEickhoff Maschinf bk-U Eisengiesserei Mb 22.Gutehoffnungshuttl Sterkrade AGOrenstein & Koppel AGSalzgitter Maschinen AGWestfalia Lunen

JapanFurukawa Rock Drill Sales CoHiltachi Construction Machine Co., Ltd.Kawasaki Heavy Industries, Ltd.Kobe Steel, Ltd.Komatsu, Ltd.Mitsuboshi Belting, Ltd.Shinko Electric Co, Ltd.

ScrapersSee Draglines

Coal HaulerSee Draglines 23.

Continuous Miner

EnglandBabcock & WIICOX , Ltd.Dasco Overseas Eng., Ltd.

West GermanyDemag AG, ABT BergwerksmachinenDemag Verdichtertechnik GmbH

Loading Machine 24.See Front-end Loaders

Longwall Equipment

EnglandBritish Jeffrey DiamondUnderground Mining Machinery, Ltd.

FranceMinex Mine-Expert

West GermanyEilckhoff Maschinf bk-U Eisengiesserei MbWestfalia Lunen

BulldozerSee Draglines

Coal Cutters

EnglandBabcock & Wilcox, Ltd.Bntish Jeffrey DiamondDosco Overseas Eng., Ltd.Mining Supplies, Ltd.Underground Mining Machinery, Ltd.

FranceMinex Mine-ExpertStephanoise de Constr. Mecaniques

West GermanyEickhoff Maschinf bk-U Eisengiesserei MbThyssen Industrie AG

Titanit Bergbau TechnikWestfalia Lunen

Heading Machines

EnglandEimco, Ltd.Gullick Dobson, Ltd.Mining Dev., Ltd.Thymark Thyssen Group

West GermanyBecorit Grubenausbau GmbHSalzgitter Maschinen AGWestfalia Lunen

UndercutterSee Draglines

—SOURCE C Simeons Coal Its Role In Tomorrow s Technology (New York Pergamon Press, 1978)

Table C-10.—West European and Japanese Producers of Electric Transmission Equipment—

Country Company Country Company -

— —

West Germany Siemens Sweden ASEA (High Voltage TransformersAEG and DC Equipment)

England English Electric Switzerland Brown- BoveriGEC

Japan MitsubishiFrance Thomson-Brandt

Alstom-Atlantique Netherlands Philips

DEL (High Voltage Circuit Breakers)


CHAPTER 7

The Prospects for EnergyConservation in the U.S.S.R.

—

CONTENTS

Page

STRUCTURE AND TRENDS IN SOVIET ENERGY CONSUMPTION. ..228

ENERGY CONSUMPTION AND ECONOMIC GROWTH . .............229

Evolution of Soviet Conservation Policy. . . . . . . . . . . . . . . . . . . . . . .......,230The High-Investment Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ...231The Low-Investment Strategy . . . . . . . . . . ............................234Other Conservation Strategies, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..239

OFFICIAL SOVIET CONSERVATION TARGETS. . .................240

PROSPECTS FOR CONSERVATION . . . . . . . . . . . . . . . . . . . . . ..........241

THE POTENTIAL ROLE OF THE WEST INSOVIET ENERGY CONSERVATION. . . . . . . . . . . . . . . . . . . . . .. ....244

SUMMARY AND CONCLUSIONS. . . . . . . . . . . . . . . . . . . . . . ...........245

LIST OF TABLES

Table No. Page

49. Soviet Energy Consumption. . . . . . . . . . . . . . . . . . . ..................22850. Relationship of Economic Growth to Energy Use, 1961-78............23051. Relationship of Economic Growth to Energy Use, 1960-80............23052. Tenth FYP Planned Energy Savings. . . . . . . . . . . . . . . . . . . . . . ........240

FIGURE

Figure No. Page

21. Where Energy Savings Come From. . . . . . . . . . . . . . .................242

CHAPTER 7

The Prospects for EnergyConservation in the U.S.S.R.

Most of the attention devoted to Sovietenergy in Western literature of the lastseveral years has focused on production,especially the prospects for Soviet oil andgas and the potential role of Western tech-nology in petroleum output. Production,however, is only half of the energy picture:the prospects for Soviet energy consumptionare equally important. If the U.S.S.R. couldslow its rate of growth of energy demand,the consequences of any decline in produc-tion would be correspondingly less critical.Moreover, Soviet plans to substitute amongdifferent sources of energy supply (moreabundant for scarcer, nearer for farther,more efficient for less) will involve corre-sponding shifts in the structure of consump-tion. Measures aimed at controlling or modi-fying consumption, therefore, are not simplyalternatives or complements to a “supply--side’ energy strategy; the two are insep-arably dependent on one another.

This chapter briefly examines the currentstructure of Soviet energy consumption andrecent trends in Soviet energy use; describesthe evolution of Soviet official policy onenergy conservation and the major conserva-tion options available to Soviet planners;reviews recent performance in achieving en-ergy savings; and discusses the implicationsfor Western policy of Soviet conservationstrategies.

Energy conservation is not a new issue forSoviet policy makers, but an aspect of a gen-eral concern with the availability and use ofall raw materials. The increasing scarcity ofattractively located and high-yield naturalresources is a constraint on Soviet prospectsfor economic growth. Nevertheless, Sovietexperience in conservation has been mixed.For all the official exhortation over theyears, there are only a few cases in which

more than token gains have been recorded.This is not for want of opportunities. In1975, the Soviet Union used nearly as muchenergy as the United States in industry, butSoviet industrial output was only three-fourths that of the United States. Similarly,in the agricultural sector in the same year,the U.S.S.R. used appreciably more energyto achieve 80 to 85 percent of America’s out-put. ‘

Impressive Soviet conservation effortshave taken place in the energy field itself,particularly through steady improvement inthe efficiency of electrical power generationand the use of cogeneration for centralizedurban heat supply.2 Unfortunately, now thatthese gains have been realized, further prog-ress may be slow. The reasons, as this chap-ter demonstrates, stem from basic featuresof the Soviet command economy: the systemof prices and incentives, the mechanisms forinvestment and technological innovation,and the distribution of power. In addition,Soviet decisionmakers are disposed to thinkof output performance before efficiency.This makes individual enterprises disin-clined to support actions that mightthreaten the former in support of the latter,and planners reluctant to stake the successof their energy policy on conservation meas-ures that they may know from previous ex-perience are unlikely to work. In short, thefuture of Soviet efforts to conserve energycan be regarded as one part of a larger prob-lem–the struggle of the Soviet system toovercome the inherited habits of Stalinist-style industrialization.

227


STRUCTURE AND TRENDS INSOVIET ENERGY CONSUMPTION

The most striking feature of Soviet energyconsumption compared to that of any majorWestern industrialized country is the domi-nance of the industrial and the compara-tively small shares of the transportation andresidential sectors in energy use. Table 49shows how Soviet primary energy supply isallocated among various uses—includingown use and losses in the energy industries,nonfuel uses, and various sectors of theeconomy—both with electric power stationsshown as consumers and with consumptionshown by final user (i.e., after consumptionin power stations has been reallocated

3 For a review of recent data on this subject, see LeslieDienes and Nikos F;conornou, “Chl F;A Energ?r Ikmand in the1980 ‘s: A Sector-al Anal~’sis, paper presented at the 1981(’olh)qu ium of t hc N A’I’() I’:conomics I )irect(n-ate, Brussels,/\pril 19H 1.

Table 49.—Soviet Energy Consumption(million tons of oil equivalent)

1960 1965 1970 1975 1980—

Total primaryenergy supply(corrected forforeign trade) . . . 438 .9 579 .5 737 .4 922 .0 1 ,086 .2

Consumed in:Own needs and

losses. . . . . . . . . . 56.4 67.8Industry. . . . . . . . . 132 .0 169 .9Electric powerstations . . . . . . . . 1 1 1 9 1 6 4 . 0

Household andmunicipal . . . . . . 4 6 3 65.3

Agriculture . . . . . . 21.3 29.3Transportation . . 5 1 7 57.1Construction . . . . 73 82Nonfuel . . . . . . . . . 12.0 17.9

79.82 0 9 9

2253

79.542,657.014,229.1

115 .7 119 .2253 .4 306 .4

3 0 2 8 3 6 7 . 4

98.0 80.543.4 5 4 35 2 9 85.916.0 27.039.8 45.5

After reallocation of electric powerand cogenerated heat:Own needs and

losses. . . . 1 2 3 . 4 1 5 7 5 1 9 5 7 2 7 1 . 8 3 0 4 . 6Industry . . . . . . . . . 1 6 5 . 8 2 2 7 5 2 9 2 . 9 3 6 0 . 0 4 3 8 . 9Household and

municipal . . . . . . 54.7 7 7 3 9 8 . 7 1 2 6 7 1 1 4 , 4Agriculture . . . . . . 21,8 3 0 2 44.5 47.5 60.2Transportation . . 53.1 5 9 9 6 1 2 58.6 93.5Construction . . . . 8.0 91 15,3 17,6 29.1Nonfuel . . . . . . . . 12.0 1 7 9 29,1 39.8 45.5

SOURCE Robert W Campbell

among the sectors that use their output). In-dustry has consistently accounted for by farthe largest share of Soviet domestic energyconsumption over the past 20 years. This islargely due to the small stock of privateautomobiles and the low share of trucks inthe overall transport mix, and the fact that alarge proportion of Soviet buildings areheated through centralized systems usingthe heat cogenerated during the productionof electrical power.

Another striking characteristic of Sovietenergy consumption is the large share usedby the energy-producing sector itself. Own-use by the gas industry, for example, isabout 10 percent of total output, mostly topower pipeline compressors.4 Much of theenergy consumed by the energy industries issimply due to the circumstances underwhich they must operate: long transit dis-tances to points of consumption (40 percentof all Soviet rail traffic is devoted to ship-ment of fuels), inhospitable environments inthe producing regions, the need to work withlow-grade fuels, and some energy-intensiveextractive methods. For example, water-flooding has turned the Ministry of the OilIndustry into a major consumer of elec-tricity. The industry consumed 48 billionkilowatt-hours (kWh) in 1979, and the rate isrising by 11 to 13 percent a year.5 These fac-tors are becoming even more important overtime, as transportation distances increaseand the accessibility of fuel declines. In fact,

————4 A. A.Makarov and L. A. Melentev, ‘‘ I)rohlems and I)irec-

tions of I“:nergy I)e\elopment in the U. S. S.R., ” Il)iot/()/)/iA(/ i( ~r~ru H i:(~ t,si )IU prom )! ,s h lcrt t~ og(J /) roi: I ()(1,~ t 110 (L’}i ()}, N (), ;),1981, p. 28.

5 V. D. Kudinov, ‘‘Rational [Utilization of F’uel and I’owerResources in the oil I ndustrj., ” A’(’ftJ’(Inf)\’(’ Ii)loz }’(1 )1.$tf ‘(),No, 9, 1980, pp. 6-9. According to Kudino\’, the rninistr?’ alsoconsumed 9.:] mtoe in liquici fuels and gas in 1979, one-quarter of which was used for gas-lift operations. Total mvn-use h.v the hl inist r-y of the Pet mleum 1 ndust ry in 1979, ac-cording to another source, was 14.7 mtoe. See I. Grekhov, etal,, “(ls[~ F’u(JI and l+: nerg~ Resources p~cononlicall} ancf F: ffi-cient ly, ,?’cftj’anik, No, 1 (), 19H(), p. 12, in .J 1)l{S N(). 77154,Jan. 12, 1 W 1, p. 8.

Ch. 7—The Prospects for Energy Conservation In the U.S.S.R. • 229

there is overall an upward trend in own-useby the energy sector.6

Prospects for Soviet energy conservationand substitution, therefore, turn heavily ondevelopments in industry, and especially inthe energy industries. This is in contrast toconservation prospects in the West, wheremajor savings have recently been realized inresidential and transportation uses. Ana-lysts in both the U.S.S.R. and the West haveargued that Soviet industrial consumptiontends to be less flexible than that of othersectors, and potential energy savings willconsequently be harder and slower to realizethan were gains in the past. ’ This is not tosay, however, that opportunities for mostsuch savings have been exhausted. In anycase, the shares of residential and municipalconsumption, relative to industrial, are un-likely to alter much without a sharp shift inthe political priorities of the Soviet leader-ship. There is no evidence that such a changeis imminent.

The inevitable rise in the energy sector’sconsumption may alter the regional distribu-tion of demand, yet the traditional concen-tration of demand in the European part of

the U.S.S.R. is reinforced by the tendency ofindustrial ministries to locate where in-frastructure and labor are readily available.Further, as table 49 demonstrates, a largeshare of Soviet energy is consumed in theform of electricity. This is due to the natureof the technological processes employed inindustry. (The transportation and residentialsectors directly consume greater proportionsof liquid, solid, or gaseous fuel. ) Gradualtechnological modernization of Soviet indus-try and the rise of sophisticated manufactur-ing specialities should lead to a continuationof this trend.

But the balance among Soviet energysources must change. Soviet planners haveunderstood for some time that the share ofoil must be cut and other fuels substituted.At the center of their effort has been a policyof investing in nuclear and hydropower forelectricity generation, and of mobilizing theabundant resources of lignite and subbitumi-nous coal from Siberia and Kazakhstan.Now, a growing emphasis on gas hasemerged. Much of what is presently used asfuel oil will be converted to lighter fractions,requiring a major expansion of refinery ca-pacity in the next decade. There have beenrecurring differences of opinion amongSoviet leaders and planners, however, overthe relative priority to accord these plans(see below and ch. 8).

ENERGY CONSUMPTION AND ECONOMIC GROWTHThe key point at issue is whether the

Soviet Union can ‘‘decouple” increases inenergy consumption from overall economicgrowth by the end of the century. There areimportant areas in the Soviet economywhere certain energy intensities have fall-en—largely accomplished through substitut-ing gas and oil for less efficient coal; electri-fying key sectors of the economy, includinghalf of all railroad haulage; and controllingconversion losses through improvements inthe heat rate and extensive use of cogenera-tion. But in general, once the Soviet indexfor gross national product (GNP) growth is

corrected (downward) to make it conformmore closely to Western definitions, it is ap-parent that Soviet energy use is growingfaster than Soviet GNP.

Analysis of Soviet energy/GNP elas-ticities shows a progressive deteriorationsince the early 1970’s. Soviet economistscontinue to claim an elasticity of less than 1,perhaps because they use an exaggeratedmeasure for growth rate of aggregate out-put, but the Soviet data in table 50 nonethe-less reflect the recent rise in GNP elasticityof energy use. It must be noted, however,


Table 50.—Relationship of Economic Growth toEnergy Use, 1961-78

(increments expressed in average annual percentages)

Gross energy National Coefficientconsumption Income of elasticity

1 9 6 1 - 6 5 , 6.6 6.5 1.021 9 6 6 - 7 0 , 4.8 7.8 0,621 9 7 1 - 7 5 . . . , 5.1 5.7 0.891976 -78 . . . . , 4,8 5.1 0.94

SOURCE- S N Yatrov Fuel-Energy Complexes Ekonomieheskaya gazeta,No. 10, March 1980, P 10

that this trend appears to rest more on a de-cline in GNP than on growth in gross energyconsumption.

The most authoritative Western esti-mates of energy/GNP coefficients are givenin table 51. These are based on different datathan the Soviet estimates, and consequentlyshow significantly higher coefficients. Nev-ertheless, they reflect the same trend. BothSoviet and Western calculations, therefore,carry the same long-term implications. If oneassumes an average annual Soviet growthrate of 2.5 percent and an energy/GNP elas-ticity of 1.0, gross energy consumptionwould rise from under 1,556 million tons ofoil equivalent (mtoe) in 1980 to 1,615 mtoe ayear by the year 2000.8 Some forecasts fortotal Soviet primary energy production inthat year come to very little more, leavingnothing for energy exports. This is a crudecalculation, but it serves to highlight theimportance of conservation in the Sovieteconomy.

The aggregate energy intensity of theSoviet economy can decline only if energy ef-

Table 51 .—Relationship of Economic Growth toEnergy Use, 1960-80

(increments expressed in average annual percentages)

Gross energy Coefficientconsumption GNP of elasticity

1965-60, ... ., 5.9 4.9 1.201970-65 ., ., 4.9 5.3 0.921 9 7 5 - 7 0 , . , 4.0 4.1 0,971980-75, 4.0 3.0 1.33SOURCE Robert W Campbell Energy in the U S S R to the Year 2000 un-

published paper prepared for the Conference on the Soviet EconomyOct 23-25 1980 AIrIie l-louse, Va

ficiency continues to improve as it did before1970; or if the overall structure of the Sovieteconomy evolves in the direction of sectorsthat are less energy- and material-intensive.The degree to which either of these condi-tions can be met is, at best, debatable. Sever-al factors work against the prospect ofdeclining energy intensity.

First, opportunities that made it possiblefor Soviet managers to reduce the energy in-put per unit of output in many processes inthe 1950’s and 1960’s—shifts to cheaperfuel, rapid improvements in the heat rate ofpowerplants, etc.–dwindled in the 1970’sand are vanishing in the 1980’s. Extractionand transportation costs for all energysources are climbing; the quality of coal andoil is deteriorating; and progress in loweringthe heat rate in the best powerplants hasnearly reached its limits. Furthermore, anystructural shifts in the Soviet economytoward reemphasis of energy- and material-intensive sectors may be offset by equallystrong trends in the opposite direction, i.e.,toward sectors like agriculture that arehighly energy-intensive. In addition, theenergy-producing sector itself is growingrapidly in importance.

The prospects for improvement in eitherthe net energy intensity or the efficiency ofmajor conversion processes are, in short,uncertain. If present trends continue, a de-terioration in the aggregate energy intensityof the Soviet economy over the next twodecades is possible. It is in this context thatSoviet energy conservation policy must beevaluated.

EVOLUTION OF SOVIETCONSERVATION POLICY

High-level interest in energy conservationhas been evident in the U.S.S.R. since theearly 1970’s. Such concern is probably lessattributable to specific anxiety about futureSoviet oil production (Siberian supergiantswere still being discovered until 1973) thanto a general deterioration in the economics ofenergy supply caused by the rapidly growingextraction and transmission costs connected

Ch. 7— The Prospects for Energy Conservation in the U.S.S.R. ● 231

with the decline of European energy depositsand the development of Siberian resources.In 1973, the Central Committee of the Com-munist Party and the U.S.S.R, Council ofMinisters issued a joint decree on energyconservation, “On Steps to Improve Effi-ciency in Using Fuel-Energy Resources inthe National Economy.” This decree, fre-quently cited as the starting point of thepresent conservation policy,’ was primarilyconcerned with recovery of “secondary ener-gy resources," mainly high-temperatureprocess heat that could be profitably reusedbefore being released and lost.

By now a number of official decrees haveappeared on the subject of energy conserva-tion, gradually broadening the scope of thepolicy. This policy now encompasses a widerange of investment and housekeeping meas-ures, aimed not merely at capturing second-ary heat resources but at monitoring energyuse, establishing criteria of efficiency formajor industries and processes, improvinginsulation, etc. The decrees have also createdan administrative apparatus for the im-plementation of the conservation effort, andhave attempted to increase the involvementof the party in conservation. As a result, con-servation is now a prominent part of officialenergy policy.

Soviet decrees evince a tension betweentwo broad conservation strategies. The first,a “high-investment strategy,” is aimed atimproving the efficiency of Soviet energyuse through technological innovation andreplacement of obsolete plant. The second,a “low-investment”’ or “housekeeping” ap-proach to conservation, is aimed at savingenergy through better monitoring and betterproduction practices, but largely within theconfines of existing technology and plant.For example, in the case of automotivetransportation, the first strategy might aimat developing more efficient engines, per-haps through widespread adoption ofdiesels; the second approach would call for

better maintenance of the existing stock andfor measures to curtail the thriving blackmarket in oil and gasoline.

In principle, the investment and house-keeping strategies are complementary, Theformer seeks to substitute capital for energy,the latter labor for energy, including labor inthe form of innovation and more stringentmanagement. In a market economy, theirprecise mix is determined in principle by therelative marginal return from each, and theconservation strategy employed at any timewill be a combination of investment andhousekeeping, with no clear disjunction be-tween them. In the Soviet Union, in con-trast, there is a clear difference between theinvestment and housekeeping strategies.The first is handled through the central plan-ning system. The second is regarded as anenforcement and monitoring problem, and ishandled through so-called “public organiza-tions," largely at the local or enterprise level.Coordination of these two strategies is a dif-ficult process in a command economy.

THE HIGH-INVESTMENTSTRATEGY

Restructuring Demand

The most urgent task of Soviet plannersin the next decade is to lessen the share of oilin the overall energy balance. This involvesboth producing fuel substitutes and adjust-ing the capital stock on the demand side toaccommodate them. Problems exist on bothcounts. Nuclear power development and elec-trical power construction have fallen behindschedule; and coal output has seriouslylagged plan targets. The combination ofthese problems has caused a virtual eclipseof the ambitious program adopted at the25th Party Congress in 1976, which reliedheavily on conversion to coal-fired power-plants. Although ambitious gas targets havebeen adopted, it is still possible that diver-sification of supply will not proceed fastenough to avoid domestic oil shortages inthe mid to late 1980’s. These might neces-sitate fuel rationing or mandatory cutbacks(see below).


Altering the structure of energy demandin the Soviet Union raises some of the sameproblems as in any other industrialized coun-try. Consumption patterns are the outcomeof many past policies. Changing these pat-terns requires making adjustments to thecountry’s basic infrastructure, a slow and ex-pensive process, despite the fact that agingcapital stock must eventually be replaced. Inthe Soviet Union such replacement hastaken place much more slowly than in theWest, and there is a large stock of inefficientand obsolete equipment. Given the presentshortage of capital, alleviation of this prob-lem in the near term is unlikely.

The existing capital stock strongly in-hibits Soviet ability to shift the energy con-sumption mix. For example, there are about250,000 small boiler plants in the U. S. S. R.,the majority of which operate on coal. Halfof the Soviets’ larger nonnuclear power-plants use gas and fuel oil. Sound policy, ac-cording to Soviet fuel experts, would be toconvert the small boilers to gas and thelarger ones to coal.”) But such a conversionwould require a massive expansion of localgas lines and of gas storage facilities, a proj-ect that seems out of the question for a gasministry that will be totally absorbed in thenext few years in expanding gas productionand bulk carriage.11

Coal presents other obstacles. It is unat-tractive to users, and its quality is rapidlydeclining. Enrichment facilities, treatmentto remove moisture and ash, and the utiliza-tion of new boiler types that can deal withpoorer grades of coal have all been slow toachieve widespread application. Coal’s de-clining heat content also makes larger ship-ments necessary. The Moscow power sys-tem, for example, requires 20,000 more coalcars than formerly just to offset the poorerquality. The presence of impurities adds todowntime and maintenance costs, and short-

11 S N. }’at ro~. ‘‘ f’;n(~r~} Resources: W’ajs to f+; conomize,.S(J( \i(//i.s(i(//sA(A)()(/ i)~(l((.striju, Nla} 19, 19/+(), in ,J 1’1{S No.76261, Aug. 20, 1980, p. 9.

‘‘S N, }’ati-o~ :ind /1. 1)~’atkin, “I+;ift’~’ti\~’ness of (Jtiliza-t ion ot” I“uel and I)ow[jr fi~~sourct~s, ~ /)/(1,, ()( ,()\l(l /<}102],(1 )’~tl ’09N(). 2, 19’79, p. I 2,

ens the lifetime of boilers.12 Moreover, con-version of large powerplants to coal is expen-sive and time-consuming, taking power-plants out of operation for long periods. Thelatter is a particularly serious considerationin view of existing concern over power sup-plies to the European U. S. S. R., where gener-ating capacities are strained by demandingoutput targets.

The result of these problems has been atendency to convert oil-fired powerplants togas, but even that process has been lag-ging. 13 In short, there is reason to believethat Soviet planners will find it difficult torestructure demand. Success will depend toa great extent on replacing an older, ineffi-cient plant, and on planning an energy-saving investment.

Replacing Inefficient Plant

Modernizing or replacing existing stockwith more energy-efficient equipment re-quires both capital and the active commit-ment of industrial planners and designers. Inthe U.S.S.R., technological innovation anddiffusion have traditionally been hamperedby a dysfunctional incentive system andproblems of coordination across adminis-trative boundaries.14 The country has beenslow in modernizing its inefficient plant, andthis situation is unlikely to readily change.

An illustration of Soviet problems in thisarea may be found in the electrical-powersector. The Ministry of Power and Electri-fication is assigned an annual plan for thereplacement of obsolete boiler equipment,particularly equipment operating at pres-sures of less than 90 atmospheres. ThePower Ministry’s planners nevertheless con-tinue to include the less efficient equipmentin their own specifications, because theyknow it has a better chance of being pro-

12N. Kovalev, N. Tikhodeyev, and I. Y. Ershov, “HOW TO

Draw Reserves, ” Praudq Nov. 20, 1980.‘‘kl. A. St~rikoIich, “rl’h(~ N]ain I,ink, ‘‘ ]:r(,,$ti),(l, ,June ] ,

1980.‘ ‘See I)aul hl. (’ocks, (‘Science l’olic~ in the So\it’t LJnion,

in [National Science Foundation, Science Polic), UsmU. S. S. R., vol. 2 (Washington, D. C.: U.S. Government Print-ing Office, 19801.

—

Ch. 7—The Prospects for Energy Conservation in the U.S.S.R. • 233

duced in sufficient quantities to meet plantargets. No incentive exists for the enter-prises that manufacture boilers to undertakedifficult and time-consuming change-overoperations that would inevitably affectplanned output fulfillment for some time.The Ministry of Power Machine Building,which builds boilers for the Ministry ofPower, claims to be indignant about the lackof progress and has raised the issue beforeplanning authorities. Yet large numbers ofsmall and energy-inefficient boilers continueto be produced.15

Because Soviet industry has problemswith technological innovation in general, itof course does not necessarily follow that im-proved energy efficiency in particular is im-possible. Energy efficiency in the Soviet ironand steel industry, for example, has longbeen increasing. These improvements in fer-rous metallurgy can be seen in dramaticdeclines in the average fuel rate in Sovietopen hearth furnaces over the past 40 years,declines that are likely to continue in thepresent decade. 16 Similar improvementshave occurred in thermal power generational’and a number of other energy-intensiveindustrial sectors—construction materialsand chemicals for example—might well cuttheir energy use sharply with the introduc-tion of modern equipment.

The potential for significant energy sav-ings through the high-investment strategyshould, therefore, not be lightly written off.The key to the rate and degree of success inthis area lies in the Soviet economic systemitself. One major inhibitor of innovation inthe U.S.S.R. is the fact that ready measuresof “good’ innovation are lacking—a seller’smarket prevails in the producer-goods sec-tor, and users must accept what they get,

regardless of whether changes actually con-stitute improvements. Energy efficiency isan exception. It can be based on a criterionthat is readily measurable, both by users andby outside monitors. With such a criterion,Soviet industry has in the past been able toproduce useful change, once it was given theincentive to do so. Restructuring incentivesmay, therefore, be the key in determining theresponse of Soviet industry to a high-invest-ment conservation strategy.

Planning Mechanisms

Energy conservation cannot be built intonew industrial technology simply by decreefrom above; it must originate within the in-dustrial ministries themselves and be builtinto basic technologies and designs. Con-sequently, a high-investment approach toenergy conservation requires more than justthe cooperation of industrial ministries andresearch and design institutes. Enterprisesmust also be given the appropriate instruc-tions and incentives to incorporate energy-saving schemes into proposals for new plantand machinery. In the absence of such coop-eration and incentives, official exhortationwill have little practical effect.

There is little evidence of the necessarymechanisms for progress in this area. In1979, a deputy chief of Gosplan’s energydivision criticized the industrial ministriesfor failing to incorporate energy conserva-tion into their planning systems. In the mostimportant areas of fuel substitution—nucle-ar power, hydropower, and waste heat recov-ery—the necessary procedures had been“partially” implemented. But the article wasespecially critical of the failure to plan forgreater efficiency in low-parameter use ofheat resources.18 Similarly, a high-levelsurvey done in the same year revealed thatonly 2 of 67 enterprises of the Ministry of theAutomobile Industry had adopted 5-yearenergy conservation plans, and that matterswere no better in other industries.19

‘\. ‘1’r(~it +ki}, })l~~t~t)r (~1( A }~~)~)~1 IS (I {). N(). 2, 1 !179, p 21.‘ ‘s. t’(Jw~lo\ , “ Riil ional I“; xpt>nditurt> (){ f’u(~l IIn(i l’~)wt~r I{LJ-

~ourL’(’\,“‘ /’/(///()/ () )’(’ }, //():\’(11 f// (), N (). 2, 1979, p. :1!1.

, .— .- . - 3: - “t


Such results are hardly surprising giventhe past cheapness and abundance of energyresources and the relative novelty of Sovietrecognition of “energy problems. ” No evi-dence has yet appeared in the West of anyadaptation of industrial ministries’ policy-making systems to these emerging prob-lems. Perhaps the relative lack of official at-tention to this issue reflects a shift of focusaway from a centralized-investment ap-proach to energy conservation, since duringthe same period there has been no lack ofcoverage of the ministries’ mechanisms foroversight and enforcement. It would appearthat for now this aspect of conservation pol-icy is still fluid.

Planning Prices20

Another factor inhibiting the high-invest-ment strategy relates to the price systememployed by planners in making major in-vestment decisions. Soviet “planningprices’” are intended to convey the nationaleconomic cost of various fuels in the majoreconomic regions. Planning prices are cal-culated through a complex system whichtakes account of aggregate demand for boil-er and furnace fuel in each region; capacitylevels for these fuels and for certain trans-port links; the capital and operating costs ofproducing the fuels; and the capital andoperating costs of transporting them.

These planning prices, however, tend tounderstate the real costs of producing anddelivering the energy, which rose steeply inthe 1970’s as the centers of oil, gas, and coalproduction moved eastward. In addition,planning price calculations take only domes-tic demand into account. World marketprices for energy have been rising rapidly,however, and the real opportunity cost of,for example, Soviet oil is the world marketprice. This is substantially higher than itsplanning price. The absence of a systemwhich takes account of the true opportunitycosts of exportable oil and gas makes it dif-ficult to construct optimum production——

““1’h)s st~c’ti{)n is hased on (’anlphell. “14;nerglr f’ric(>s ..”{lp, (’it.

mixes and to decide on rational fuel substitu-tion policies. The high-investment conserva-tion strategy is, therefore, seriously ham-pered because the prices used as a basis forinvestment decisions do not sufficiently en-courage the substitution of capital for ener-gy or of one energy source for another.

THE LOW-INVESTMENTSTRATEGY

Transaction Prices

Prices play a second role in Soviet energyconservation. Beside the planning price usedto make investment decisions is a separatesystem of transaction prices. These are theprices at which energy is actually boughtand sold. Because they directly affect theconsumer, transaction prices figure promi-nently in the low-investment or housekeep-ing strategy, and here too prices have provedan obstacle to energy conservation.

Soviet energy transaction prices for bothindustrial and residential consumers are farbelow actual energy costs. The fuel bills ofeven large enterprises can be too low even tobe recorded. At the large Gorky AutomobileFactory, for instance, natural gas consti-tutes less than 2 or 3 percent of total produc-tion costs.21 One plan to control industrialover-consumption of gas during periods ofintense cold by charging punitive rates (asmuch as five times above normal) for con-sumption above established limits had to beabandoned when planners concluded thatgas prices were so low that such surchargeswould have no effect if charged to an enter-prise’s direct production costs.22 It is hard toimagine how a surcharge system could be ap-plied to residential customers. Most homesare charged only a flat subscription fee forgas.23

Underpricing of energy was part of earlierpolicies designed to encourage consumption.In 1968, prices for centrally supplied heatand electricity were set low to encourage

~‘ t’ara~ka, op lit., p. 16,‘N. Fedorov, “Economic Flame, ” f+acda, Feb. 2, 1981.‘‘\’aratk:i, op. (it,

Ch. 7—The Prospects for Energy Conservation in the U S S R ● 235

users to switch to the central sources. Therates have not changed since. As a result,most power systems lose money-70 millionrubles a year at the Moscow system alone.Demand for electrical power has recentlybeen growing faster than capacity, but au-thorities have added to this demand by es-tablishing a new system of preferential ratesto agricultural users.24

Soviet planners are well aware that energyprices are too low. On January 1, 1982, trans-action prices of coal, petroleum, natural gas,fuel oil, electric power, and thermal energywill be increased. According to the StateCommittee on Prices, the new prices will pro-vide a better stimulus to conservation be-cause they will make the more remote con-sumer and the consumer of higher qualityfuels pay more. Early indications are thatthis price rise will be on the order of a 2.3-fold increase. If this is indeed the case, itshould help to alleviate the problem-assuming that all other prices are not in-creased in tandem. But although a majorcriterion for this reform appears to havebeen the increasing cost of energy extrac-tion, Western experts believe that it is stillunlikely that the 1982 prices will reflect thereal opportunity costs of energy.25

Nor is there necessarily a strong correla-tion between higher prices and lower energyconsumption. There is some evidence thatthe 1967 price reform—which greatly in-creased the prices of oil products, naturalgas, and coal–resulted in substantial energysavings. 26 However, the mechanisms whichbrought about that result are not well-under-stood and may not still be operative. Be-

— . ..——‘ K()\ :il[. \ , (It ;i ] ( tp (,1(},’/L (jrl{~~?tfll {} T/{1/”/ ]~l~j~~ ~ I)ri)t)) I ih/f’rlr7 I (~ \ I }, .\u~u st I 9X(),

p 2, ( ‘;i r]]l)t)t,ll, ‘ ‘ 1 ; t](’r~t l’rl((’~ ( Ip (It , p p . : ) ( ) . { :

\l illl:in~ J Kt’lli, “1; f ttt[ L- 01 t ho Sf)I 111[ I’rl[( 1{[’tt)rn) {It1 !)fi7 {Ill 1“: !l(’l”~\ ( ‘on~u nlp( 1{}11,‘‘ S(JI 1( f .s’fl(fll(’~. \ (J1 .x.x x !No. 3, tJuly 19’78, pp. 394-402: Alhert 1,, [)anielson and(’har]es D. Ik’1.orme, tJr., “An }!lternat i~e Anal}sis of the P; f-fects of k;nerg~ Prices on h;nergv (’consumption in the So~ietIJnion, ” .Solr’et ,$tlidie~, YO1, XX-X 1, No, 4, octoher 1979. pp.581-,584. I)an ielson and I)(’ 1,orrne emplo~’ed different e~sont).met ric specifications, hut ron firmed KellJ thesis that ener-g~ prices and energ~ consu mpt ion in the So~i[lt c(’r~nom~. arein~’er~[’1~ related,

cause of numerous institutional barriers inthe Soviet economy, higher prices do notguarantee significantly lowered consump-tion.

In sum, it is far from axiomatic that high-er prices will lead to large energy savings.The Soviet system is one in which the role ofmarkets is deliberate} restricted and the im-pact of prices therefore limited. Within theexisting incentive system, factory directorswho cut their energy bills are likely to berewarded with a cut in future energy alloca-tions. Moreover, some energy-related com-modities have “no value’ because no mar-kets exist for them. Designers of petrochem-ical plants typically fail to provide uses forbyproducts, which can amount to two-thirdsof the original feedstock. The usual practiceis simply to burn them-using fuel oil.27

Finally, the numerous administrative bar-riers that separate producers from usersmay make decisionmakers remote from thecosts they impose.

Measurement of Energy Consumption

The difficulties of employing a pricemechanism are compounded by problems inmeasuring the amount of energy actuallyconsumed. The Soviet press frequentlyalludes to the widespread lack of apparatusto measure all energy sources, at every stagefrom extraction to final use. From the oil-fields of Tyumen to the gas heaters inMoscow homes, energy is produced and de-livered “na glazok,” as the Russians say,“by eye alone.’’” The situation is apparentlyless serious for electricity than for gas,29 andless serious in the cities than in the country-side, 30 but the problem remains pervasive.— — . ..———

‘1’. 1’ I;(’(iorin, ‘ ‘ In I mpor[a n[ Sourt[” of S:Il inxs {)! 1’(](’1a mi l’ow(’r,” 1,’lt orIorn~c/rfJ\A” (I lcI q[I:( t,J, \ {) ,5, ,};t nutirj 1 !)<% 1,p. 10, ‘‘ I t 1 )w+ K ot \pp[~:ir in t ht’ I )(’+ IK13+. 1’1-[/ t (lfl, \l :Ir ,-~,1 :)X(), in ,J 1’ t{ S N (). 75W7 , hla\’ 1 :1, 1 !)so, ~)[) 1,)-1 f;

‘F’f)r {.f~mmt,nt ~)n ‘1’j un](Itl, +(t) J’ 1’ l{()~liiik{~I . “ l{(~(ri (’~( )f t h[’ f’;ct)n( ) m } of l’: n f~rg} [{ ~~ <~)u r(( ~~ 1 ]1 \l [ > ~ t ( ~r II .S I [ J(, r 1:1 n I r]-

(Iu \t ri[~s, ‘ ~ , /f/ \l \ ,)() \, ), /,1 ,J- ](/ \ \ / 11/ ), y f) :), ] !]~(), p. I (), ‘)])

houv’hold ” U+(’ ~(’(’ \“:ira\ k;], {Ip {’1[

‘( )ru(i/,hc~ , op (it‘” “1’11[ t)rl(( of ii tiii{~~f ;it [ -ilour. I’1711 (1(~, ?l;~r. 7, I 9% I

l.: 1(’([ ri(lt } (’harg(~ I rl rl)( ) + t { ( ) I 1( ,(” t i \ (’ ,1 rl( i ~ t ii ( (’ Iii r-m ~ ii 1“[’(’\ t [i 1) i i + h( i <I ((’( )r(i I rl~’ t ( 1 t 11(’ r; I t t K i ~1[ )W t’r ( )f t h t J (’1(1(’I r i(’:~ 1I ,(1 u I p r])( in t 1 ( K: I 1 f I( i ( ) n t II( I,1 t- r]), r{ ,g:i r( i I( I C-s ( I f [I( t II ii I I( I t‘1 ( ) i


Lack of measurement apparatus causes bothshort- and long-term problems. In periods ofintense cold, for instance, there is no way tocontrol or even evaluate surges in demandfor gas.31 Serious long-term consequences arethe impossibility of setting and enforcing ra-tional consumption standards, and the diffi-culty of setting meaningful energy prices,particularly for individual or small con-sumers.

Minpribor, the ministry in charge of in-struments, automation, and control sys-tems, is often blamed for the lack of metersand other energy-measuring devices. Gasand electricity meters are low-cost items,and therefore unprofitable for Minpribor tomanufacture. (Ironically, Minpribor was oneof the first ministries to undergo “economicreform” putting it on a profit-oriented, cost-accounting basis. Its failure exemplifies thedifficulties of economic reform in a commandsystem.) But the blame does not lie withMinpribor alone. Soviet energy has beenliterally “too cheap to meter, and it isdoubtful that the forthcoming price reformsare radical enough to change this situation.

Consumption Norms

In the absence of a realistic price systemor market mechanism, Soviet planners pro-vide industries and enterprises with energy-consumption norms or indices to set opti-mum levels for energy use. These are de-tailed specifications for the amount ofenergy that may be employed in any process.Consumption indices are rigid and oftenarbitrary, and there is ample evidence thatnorm-setting is a process fraught withbargaining and controversy.

Because energy consumption varies wide-ly with the age of the plant and type oftechnology, each industry exhibits a con-siderable range between the consumption of

Continued from p. 235.

use, This fact, combined with preferential rates for electricalpower (part of a massive program of rural electrification thatreceived high priority during the 1970’s), means that thereare no disincentives attached to overconsumption.

‘1 F’edoroi, op. cit.

the leading enterprises and the industryaverage. In 1976, for example, the leadingenterprise in the production of forgings andstampings in machine-building consumed288 kg of standard fuel for every ton of metalit used. The industry average was 342kg/ton. Similarly, the leading iron castingenterprise consumed nearly 100 kg/ton lessof standard fuel than the industry average.32

An optimum system would not only re-quire separate indices for every enterprise,but for every major process within eachenterprise. Even then, the system would beflawed because energy inputs are usuallymeasured only for the enterprise as a whole,not for individual processes. In practice, lit-tle information is available to advise on theeffectiveness of indices.33

Therefore, the most common system ofnorm-setting is simply to set a consumptionceiling for an enterprise as a whole. Thispractice entails a large measure of guess-work, and encourages bargaining by inter-ested ministries or local regions. Ministriescan assign their enterprises inflated con-sumption norms that allow output targets tobe met without energy constraints. If anenterprise exceeds its norm, the ministry canraise it after the fact. The enterprise canthen claim paper energy savings which arecredited to its conservation performance.34

In principle, the main consumption normsare steadily lowered each year according toan official plan specifying the amount of thedecline. But ministries do not always abideby these plans. One recent article chargedthat the Ministry of Power failed to carryout its 1979 plan for lowering the heat-ratenorm in thermal powerplants, and was there-by responsible for wasting over 0.622 mtoe.35

Moreover, some norms are exempt from the

‘J}ru. Sihikin, “rl’he Plfficiency of’ Utilization of P’uel-p; nerg}Resources in hlachine Building, ‘ ‘ f~~(lflo( ,()], (> h /102 )(1 )’.s tl ‘().

No. 12, 1979, p. 49.‘ ‘\’. A. ~hmurko, “F;conon~ics of F;lectric I+lnergy’-/4 (’om-

mon Concern, ” fi’koflof?zi(}l( ~sA’(l\’(/” ,Aru:(tu, No. 4, 1981, p. 9.““Fuel and I+:nerg~– Stric.t ~lccountahilit~’” pr(Ir(i(J

1‘Aruin,v. I)ec. 7, 1979; S. IIogatko, “rl’he ~!’orking Kilowatt, ”/’r(J[’(i(J, ,Jan. 8, 1980: sec also Zhmurko, op. cit.

‘ l)ol~iktl, “’I’() 1 ncreasc th(~ 1,(I\I(~l ..., op. cit., p. 2;~.

Ch. 7—The Prospects for Energy Conservation In the U.S.S.R. ● 237

annual change. The Ministry of Power hasbeen blamed for failing to insulate power sta-tions and streamlines. As a result, 24 milliongigacalories of thermal energy are pur-portedly lost each year. But the norms gov-erning insulation have not changed since1959.36

The combination of a consumption systemwith no meters, prices too low to encouragestrenuous conservation efforts, and mean-ingless norms produces a vicious circle whichhas been very difficult to break. The deficien-cies of the price system make the normsnecessary, but the lack of measurement ap-paratus makes them easy to virtually ignore.So long as this situation persists, there is lit-tle incentive to obtain meters or to pressureMinpribor, which at present cannot be in-duced to produce them. The root of the prob-lem is the fact that energy has in the pastbeen so cheap in the true economic sensethat careful monitoring was unnecessary.Now that this is no longer the case, the taskof the Soviet system will be to adjust to thenew circumstances. It may be expected,however, that the rigidities and dysfunc-tional side-effects of the command economywill make change slow, especially if thepolitical leadership is less than fully com-mitted to conservation.

Monitoring and Enforcementof Conservation

The Soviet leadership’s commitment tohousekeeping strategies might be measuredby the effort put into creating effectivemachinery for monitoring and enforcement.In the last year, enforcement offices withmodest functions have been upgraded andgiven greater powers; the scale of monitor-ing activity and enforcement has increased;and the official publicity given to the efforthas grown. Officials of the monitoring agen-cies themselves, however, are among themost outspoken in charging that their ef-forts have been almost totally ineffective.

“ 1 )011 I 1A’( J 1(’<lt [It’ 1,{)+[ , \]() /, ‘!7(/ //1( ) II /, // //1( /)( ./ ( ) ) i\)/ (/ /):)/( ~ // / \ ( \ ( ) ( ) I !17 ! ) , p!) t 2- 1 \ , I!) ,1 I )1{ s \ ( ) 7,-)7 !-l.\. \ 1:1}~~ , 1 S)%( ), [)1) 1 () I !)

The two most visible enforcement offices,the State Power Inspectorate of the Minis-try of Power and Electrification and theState Gas Inspectorate of the Ministry ofthe Gas Industry, are well-establishedbodies. Originally charged with oversight ofthe supply of gas and electricity in theirrespective ministries, their jurisdiction hasbeen expanded to include a wide range ofother industrial ministries. In theory, theState Gas Inspectorate can recommend ad-ministrative fines of up to 100 rubles, and ithas the power to cut off an offender’s gassupply. In practice, however, such powersare weak. The likelihood of a cutoff is verysmall, and even the imposition of a fine mustbe assessed by the apparatus of the localSoviets. The “recommendations” of the in-spectorates have been widely ignored byenterprises.

The energy inspectorates are useful,however, in conducting investigations whichhave publicized the extent of inefficientenergy use throughout Soviet industry.Such publicity in itself will do little ifanything to influence the incentive structurewhich regulates the behavior of Soviet enter-prise officials, but it may be a first step topotentially more drastic actions.

Another way of publicizing official Sovietpolicy is through public mobilization cam-paigns. Common devices in the conservationcampaign include ‘‘commissions and‘‘staffs" located in factories to performpublic inspections; “raids and contests forenergy conservation; ‘‘socialist pledges” and“personal creative plans” to save energy.

These groups lack power and are usuallyregarded as a symptom of low priority andinaction. This appears to be true of the con-servation campaign; in fact, many enter-prises are not even going through the mo-tions. In 1978, the State Power Inspectoratefound that 21 of 48 enterprises surveyed inthe Ministry of Ferrous Metallurgy hadmade no move to apply a recent statute es-tablishing bonuses for workers and engi-neers for saving energy, and about a third ofthe enterprises had adopted no energy-


Now no one will reproach us that we are devoting Iittle attention to saving electrlc power

A Soviet cartoon that appeared in Pravda in March 1978

saving program at all.37 According to one ac-count, the much-vaunted public groups are“activated only when the correspondingdirectives come down from above andgradually dwindle down to nothing as soonas the campaign is over. "38

The result is widespread cheating. Ac-cording to critics in the energy inspec-torates, industrial enterprises have becomeadept at saving awe-inspiring amounts ofenergy—on paper. For example, in 1978 theUzbek Ministry of Municipal Servicesclaimed to have saved 410 tons of gasoline, 2percent of its annual consumption. An of-ficial inspection discovered that the min-istry’s drivers did not log gas consumptionin their trip reports, routinely exaggeratedthe length of their trips, and sold quantitiesof gasoline on the black market.39 Such ac-counts have lately become common in theSoviet press.

The enforcement system is now being ex-panded. A recent official decree on energyconservation instructs all ministries, stateagencies, and republic-level Councils of

‘ \’[Js[JlfJ\, {Jp tit., p :)4.‘h I u, Kop}’[o\’, ‘‘W’hat 1 )otIs ( I](I .lnal}’sls Say”?” .Sot sia/-

isticiresiza}~a industri.va, ,July 5, 1979; see also Ilinskiy, op.(it

‘(’1 linski~, op. tit.

Ministers to develop conservation offices. ’()In 1980, a decree of the U.S.S.R. Council ofMinisters upgraded the official rank andpowers of the conservation inspectorates ofthe Ministries of Gas and Power.41 T h eresponsibilities of the Gas Inspectorate nowinclude gas consumption throughout theeconomy—a change which has increased itsjurisdiction from 22,000 enterprises to150,000. 4’ In addition, the Gas Inspectorateis now responsible for forwarding recommen-dations to the State planning apparatus onwhether natural gas should be used in pro-posed new enterprises; passing on all pro-posals to install new gas-using equipment;demanding the removal from service of oldand inefficient gas-burning devices; and

—“““I’() 1 nlpro~[l tht~ l;[t)non]i(s of ~’ut~]s, op. t!it.4“1’ht’ official t(>xt appears in ,$’c)ljrurlijc’ pcj.~ IUIIC)I 1(’rlii

pr(l I I t[’/.st I I(I .$’,S.$//, !io. 14, 1 9X(), pp. ;l~l!)-fl-1~. A ~tatt~nlent t)~’TASS appeared in Sotsiafisticheskaya industriya on June22, 19M). Sc’t> also “’1’11[’ Kilowatt hlust 11(’ f’ut to \lrork, ”})ra~ I(i[I, I )[x’. 1 ~}. 19H(); and ,!. S. i’()~t(lnk(), ‘ ‘To 1 nlpr(jk[~ t ht~(’ont rot of ( ;as [ I( ilizat ion in t ho N:it ional l;(’ononlJ, (;{~~f)-(‘o I’(] I) rf)m tI vh ion HC J,W t, N(). 8, 19X(), pp. 20-22. ‘1’ht~ ~hange ispart IJ ~1 nla~t[’r 01 nomcnclat ure: t h{’ Sta [e ( ;as I nspw’t oratehas lxwn upgr-adwt trom t ho rank of” {~/~ro r /~ni}’t {adnlin-is t ra 1 ion I t ~) ~rlfl I I r) f ) }1~~ (Il)r(l I ~ i~II) I )I(J (chief administration),w hil~’ t h[~ .st att> [}ower I nspect oratt’ has he[’n promoted fromt ht~ ( )ff i(t) of l)owr[~r Supp]} an(i ()1 (Jrsight of ( lse to St atfll’ow[~r 1 nsptw(orat~~ a n d Sal[I~ ( )f f i[tl t ht~ LLhangc of or(j[~rpr[~sunlat)l} refl~lt’t ing a ~ha n~[~ in (lnlpha~is in the agt~n~~rf )t ficia 1 d u t it~s.

‘‘1’()~rtcrlko, op. [’it.

Ch. 7—The Prospects for Energy Conservation In the U.S.S.R. • 239

screening recommendations for mass manu-facture of new devices. Inspectorate repre-sentatives have also been made officialmembers of so-called ‘‘acceptance commis-sions,” the bodies charged with commission-ing new completed buildings and plantswhich are about to be transferred to the user.Membership on these commissions gives theState Gas Inspectorate the power to veto thecommissioning of new plants with gas-consumption systems not up to officialregulations.

It will be some time before the impact ofthe Gas Inspectorate’s new powers can bemeasured. On paper they resemble thosetechnically available to similar enforcementoffices, notably water-quality inspectorates,whose actual influence is known to bemodest. 43 But analogous groups have madeimpressive claims. In 1980, the Power In-spectorate reportedly made over 60,000plant inspections, imposed over 100 millionrubles in fines, and saved 1.5 billion kWh ofelectricity. It is difficult to evaluate the ac-curacy and practical effect of these asser-tions, but an important inference can bedrawn from the evolution of their tone overtime. Power Inspectorate officials who nowboast of housekeeping savings were recentlywriting derisively of the local energy-savingefforts, stressing instead the importance ofcentral investment measures as the only wayto meaningfully conserve energy.44

This change in attitude, together with thegeneral evolution of official policy, suggeststhat emphasis in the conservation campaignas a whole has shifted from high- to low-investment. The stress of such a strategy

would be on the small innovations that enter-prises can implement without central invest-ment—substituting stamping for cutting inthe manufacture of small metal parts, for ex-ample. If a locally oriented conservationstrategy has in fact been accorded priority,

and if Soviet leaders are serious aboutenergy conservation, there should now beevidence of more prominent participation inthese campaigns by the apparatus of theCommunist Party. References to such in-volvement by the Party have hitherto beenrare.45

OTHER CONSERVATIONSTRATEGIES

The preceding discussion has suggestedthat the U.S.S.R. lacks the capital to imple-ment a major high-investment conservationstrategy and will encounter difficulties inmonitoring and enforcing low-investmentmeasures. These do not exhaust the leader-ship alternatives. It can also imposecalculated fuel and power cutoffs. Such tac-tics would obviously be reserved for emer-gencies, but they would not necessarily im-pose unprecedented hardships on industrialor residential consumers-or seriously in-crease threats to economic growth. TheEuropean portion of the Soviet Union hashistorically experienced chronic shortages ofpower and fuel. Difficulties during the1980’s might, therefore, be viewed as areturn to a traditional state of affairs thatwas interrupted by a brief period of energyabundance in the 1960’s and 1970’s.

One would expect Soviet authorities to beexperienced in allocating shortages and cut-offs so as to preserve economic growth, andto be prepared to force unable or unwillingSoviet industry to conserve energy. There isno sign of coordinated implementation ofsuch measures, however. The allocation ofelectrical power, for example, resembles atug-of-war in which Gosplan and the indus-trial ministries are pitted against the Min-istry of Power. The quotas assigned by theMinistry of Power to its regional power au-thorities are smaller than the quotas as-


signed by State planners to each of the con-suming industries (based on the industries’own statements of their power needs). Theresult is power cutoffs. Those who are unableto pad their requirements so as to ensure ahealthy margin of safety are those who suf-fer.46

Moreover, chronic problems in fuel supplyto powerplants frequently cause the unifiedpower grid that serves the European part ofthe country, the Urals, and the Transcau-casus to operate at reduced power, Short-ages are not apportioned according to asystem of political or economic priorities,but are spread equally among all unified gridcustomers in “universal brown-outs. ” Thoseusers whose production depends on smallelectric motors, which slow or stop alto-

“},l. h’edosluk, “ I’r(Jtt’~.t l<; nrrg~, ” I)rw{ 1(111, I)ec. 7’, 1980.

gether when the power drops, are most seri-ously affected. Similarly, lack of sufficientcapacity to cover daily peak demand forcesnetwork operators to resort to load-shed-ding, sometimes blacking-out entire areas.There is no sign of priority setting to deter-mine who shall bear the costs, and indeed,there is evidence that these costs have neverbeen systematically studied. As a result,undersupply of kilowatt-hours that cost 2 or3 kopecks to generate cause losses of produc-tion on the order of 1 or 2 rubles.” These ex-amples support the generalization that ra-tioning and cutbacks, although increasinglyfrequent, are not well planned. Nor are theya particularly promising route for enforcedenergy savings in the economy.

$ St~riko\ri~’h, op. cit,

OFFICIAL SOVIET CONSERVATION TARGETSThe preceding sections have described

Soviet conservation strategies and the op-portunities and constraints appropriate tothem. The true test of any set of conserva-tion measures is the extent of energy sav-ings. These are particularly difficult to iden-tify in the U. S. S. R., both because consump-tion data are scarce and difficult to interpret,and because of the manner in which energysavings are counted.

Energy savings in the U.S.S.R. are com-puted on the basis of the last year of the FiveYear Plan (FYP) to which they apply. Inother words, if a “savings rate” of 100 mtoeis claimed, this means that by the last yearof the plan actual energy consumption waslower by 100 mtoe than it would have been atthe input norms experienced at the begin-ning of the plan period. The results are non-cumulative, and the reduced consumptionrates achieved by the end of one plan becomethe norm for the following one.

The U.S.S.R. claims that in the NinthFYP rates were reduced enough to save 81mtoe and in the Tenth, 62 to 78 mtoe, The

latter was considerably below the plantarget which called for savings of 100 mtoe.48

The savings target for 1985 is 100 to 106mtoe, roughly 10 percent of 1980 domesticenergy consumption.49 Table 52 shows theway in which the savings target for 1980 wasbroken down in the original plan. It demon-strates how conservation is defined in the

Table 52.–Tenth FYP (1976-80)Planned Energy Savings

27 mtoe . . . . Decl ine-- in consumption of fuelper unit of output.

24 mtoe ... . . Increase in output of electricityfrom nuclear power and hydropower.

22 mtoe . . Decline in consumption of electricityand heat per unit of output.

12 mtoe ... . . Better use of secondary heatresources.

9 mtoe . . . . Efficiency gains in consumption oflight fractions.

4 mtoe . . . . . Cuts in losses from storage andtransportat ion.

SOURCE Eko, September 1980 p 124

— .— .—

Ch. 7—The Prospects for Energy Conservation in the U.S.S.R. ● 241

U. S. S. R., and the areas in which majorenergy savings are anticipated. Thesefigures include net additions to nuclear andhydropower capacity, items which would notbe considered “savings” in the West.

The most noteworthy feature of thetargets for both the Tenth and EleventhFYPs is their modesty, particularly if theyrepresent the outer bounds of official op-timism. The original 1980 goal of saving 100mtoe amounted to conserving about 10 per-cent of the total primary energy planned fordistribution in that year. If the figures areadjusted to subtract net additions of nuclearand hydropower capacity, actual plannedsavings were about 7.5 percent of totalprimary energy. The 1985 goal is even lessambitious. Although the total primary en-ergy available for distribution is projected togrow by over 20 percent, the total amount tobe saved remains unchanged from the pre-vious plan.

Based on past performance, however, theprospects for achieving even this are uncer-tain. Although Soviet energy consumptionnearly doubled between 1965 and 1980, the‘‘annual savings rate” declined from 16.1 to

5.6 percent over the same period.50 A carefulexamination of Soviet predictions for theperiod beyond 1985 shows that experts ex-pect this downward trend to continue, albeitat a more moderate rate, to the end of thecentury. One prediction is for a savings ofonly 49.8 mtoe by 2000,51 a forecast pred-icated on the assumption that major techno-logical advances will be achieved, i.e., thathigh-investment conservation strategy willbe successfully implemented. Although theelectric power and ferrous metallurgy sec-tors have continued to improve their energyefficiency, Soviet difficulties with assimi-lating technological innovation, and the ex-treme shortage of capital for investment,make the prospects for wholesale achieve-ments across a number of industrial sectorsunlikely. Without evidence of fundamentalchanges in investment and conservationstrategies, and without basic reforms of in-centive, price, and monitoring systems,there is little reason to expect more thanmodest energy savings in the Soviet Unionover the next 10 years.

PROSPECTS FOR CONSERVATION

The picture that emerges is of a level oftechnology and a structure of energy con-sumption that provide ample opportunitiesfor energy conservation, and an economicsystem which impedes the implementationof promising conservation measures. Someidea of the potential for and difficulties to beencountered in conservation in the U.S.S.R.can be gleaned from an examination ofseveral areas in which energy savings mightbe most easily achievable.

Perhaps the most promising target forSoviet energy savings is in boiler uses, i.e.,the use of fuel for the production of electrici-ty, steam, and hot water. Energy consump-tion in boiler uses is increasing rapidly. In1970, they accounted for 54 percent of the

total primary consumption; by 1980 theshare had risen to 59 percent.52 This trend isexpected to continue. One Soviet source es-timates that by 2000 half of all Soviet energyconsumed will be in the form of electricity.53

Boiler uses are potentially the most flexiblemeans of energy consumption, and they givethe U.S.S.R. a measure of flexibility in its ef-forts to substitute coal and gas for fuel oil.

Efficiency gains in the production of elec-tricity and heat have been the chief source ofenergy savings in the past two decades, butan upper limit has nearly been reached. Eventhe most optimistic Soviet forecasts see sav-


ing no more than about 16 mtoe in this areaby 1990,54 a small fraction of the roughly 249mtoe in conversion losses the Soviet econ-omy will be experiencing by that time.Figure 21 shows the striking pattern ofdecline in efficiency gains over the lastdecade. The trend suggests the possibilitythat by 2000, efficiency in electricity andheat generation may actually be declining.Nevertheless, replacement of small furnacesand the displacement of the direct use of fuelin them should lead to continued, if small,overall gains in energy efficiency .55 Soviet

“’1’roi(ski}’, op. cit., p. 25.‘)’> Tht’re are o\’er 2H(),()()() small furnaces and boilers scat-

tercxi throughout the country’. These produce 1.5 hil]ion of anii ( i(~na 1 tot a 1 (}f ;]. 2 ~igaca lorit’s f) f hc>a t a n n u al l.v. Their t’f’fi-L. it>m..v is low: t hey require an a~vra~v of 200 t () 220 kg ofstandard fuel t o produce I gigaca Iorie of heat, w hwxws thelargt~r l)oil(~rs requirt’ onl~ 1‘7;] [() 175 k~, S~JtI l,ala~ants, op.cit., p. 40.

Figure 21 .—Where Energy Savings Come From(1961-85)

Legend:A. More efficient use of heat and electricityB. Recovery of secondary heat resourcesC. Efficiency gains in use of boiler and furnace

fuel

planners are aware that future progress willdepend more on efficiency gains in the use ofelectricity and heat, rather than in their pro-duction.

Further insight into energy conservationprospects may be gained from analysis of in-dividual consumption sectors. Agriculture,whose share of total energy use has grownsubstantially in the last two decades, is par-ticularly interesting. A large part of the con-siderable agricultural investment under thepresent Soviet leadership has consisted ofmechanization of farm and off-farm opera-tions and food processing. Table 49 recordedthe result. The amount of energy used by theagricultural sector doubled between 1965and 1980, from 30.2 to 60.5 mtoe. The horse-power available per worker in Soviet agricul-ture increased from 7.7 in 1965 to 22.9 in1979, and continues to rise rapidly .5’

This growth in energy consumption haslargely consisted of electricity, a reflection ofan active rural electrification policy. Totalagriculture-related use of electricity roseabout fivefold between 1965 and 1979, from21 billion to 102.3 billion kWh.57 In 1965most of the fuel consumed in the agriculturalsector was diesel fuel and gasoline, but by1979 electricity accounted for more than 10percent of total agricultural energy con-sumption. This proportion is growing.58

Agriculture is an important sector foroverall energy conservation policy because itmay be one of the few sectors of the economyin which more or less arbitrary cuts could bemade in case of emergency. Agriculture’sshare of total energy—just as its share ofcapital investment—depends on whether itcontinues to enjoy the high priority accordedit under the present leadership. There is atpresent no evidence that Soviet leaders areconsidering any major curtailments. PrimeMinister Tikhonov's report to the 26th Par-ty Congress called for a 50-percent increasein the horsepower available per agricultural

1961-65 1966-70 1971-75 1976-80 1981-85(7th FYP) (8th FYP) (9th FYP) (plan) (forecast)

(lOth FYP) (llth FYP)

SOURCE Vestnik rnashinostroyeniya No 3 1980 p 5

‘ $’(/) ()(///()},(, /, /?,)z)(J),,\fro, 1979, p. 1 ’20.‘ I hid., p, I 25.‘(’an lpht>]l, op. cit.

Ch. 7—The Prospects for Energy Conservation In the U S S R ● 243

worker during the Eleventh FYP.59 Still,eventual successors to Premier Brezhnevmay cut back the massive flow of inputs tothe countryside, and it is possible thatagriculture could be held considerably shortof the roughly 156 to 187 mtoe it might haveexpected to receive by the end of the cen-tury.

Such a change in priorities would allow theSoviet economy to save some of the light-fraction petroleum products which make upa substantial portion of agricultural con-sumption. To the extent that agriculturalenergy consumption continues to shifttoward electricity, the demand for light-fractions is lightened further. On the otherhand, increasing electricity consumptioncompounds Soviet problems in shifting awayfrom fuel-oil in electricity generation. Op-portunities to ration agricultural electricitysupply, therefore, will presumably bewelcome.

Another promising candidate for conser-vation efforts is the energy producing sectoritself. The importance of conservation here ismagnified by the fact that own-use by ener-gy producers is bound to increase. The refin-ing and petrochemicals industry, for exam-ple, in 1979 consumed 7 percent of the coun-try’s total output of refined oil. As theSoviet Union increases the volume anddepth of refining, this share will grow, evenif efficiency is improved.60

Important savings could be gleaned hereby reducing losses, which are currentlyestimated at 3 mtoe/yr in the gas industry

‘1’r(/ ( (/(/, I“(’t) 2h, 1 !)% I‘(;, \l }’(’rrI)f)l(l\ , ‘(‘t )t)i(’r~ tIt II in t lt I’u(’] :In(i f;ntrg~ 1{(,-

+( )U r{.t,+ I 11 ( ht, ( ) I I t{ (, t I n i n ~r ,1 n [i I ‘(,( r( I(. 1) t, nl i( :i 1 1 1) f! (1 ~ t r~, ”/i}/ ~n~l \ (l { 1~}1 h)~( ~lf )qi I(I 1{ jI~// I { nl~j s(I, \ { I 1 I. 1 !)+(~, t)[) I :1-1 (~, ] n J 1’1{ S N () J. !) 1X2, J;] II 12, 1 !)~ 1, p 17

alone. In the coal industry 6.2 to 9.3 mtoe arelost annually through faulty transportationand storage. In the oil industry in 1980, 13.5out of a total of 47 billion cubic meters ofassociated gas were lost in 1979.61 News-paper accounts claim that 30 million tons ofcrude oil (i. e., 5 percent of total Soviet out-put) are lost annually by producing organiza-tions, i.e., before the crude oil is shipped.62

Further sizable losses occur in transporta-tion, because of the poor state of repair oftank cars and wasteful methods of transfer-ring oil and oil products from one vessel toanother in transit.63 Finally, losses of elec-tricity in transmission networks are sub-stantial. In 1978, these amounted to morethan 9 percent of the total generated (95 bil-lion kWh), and the share will increase astransmission distances rise.64


THE POTENTIAL ROLE OF THE WESTIN SOVIET ENERGY CONSERVATION

Western energy technology might play arole in either a high- or low-investment con-servation strategy. If Soviet planners imple-ment centralized, high-investment methods,logic would dictate that it consist primarilyof new plant and processes in the mostenergy- and capital-intensive industries—metallurgy, oil refining and petrochemicals,chemistry—and that investment be aimed atreducing own-use within the energy-produc-ing sector itself. Promising areas for in-dustrial conservation include the following:65

●

●

●

●

Chemicals: improvements in the energy-efficiency of production of yellow phos-phorus, chlorine, caustic soda, ethylene,acids of phosphorus and nitrogen,divinyl monomers. Investment in theseprocesses could produce reductions of 5to 25 percent in energy use below cur-rent levels. One example frequentlymentioned in Soviet sources is processchanges in the production of ammonia,which could considerably cut unit elec-tricity consumption.Computers: institution of microproc-essor and minicomputer-based processcontrol systems in such energy-inten-sive processes as oil refining.Metallurgy: improvements in alumi-num-refining, continuous steel-casting,combined-blast systems for blast fur-naces, autogenic processes in nonfer-rous metallurgy.Materials: production of cement by thedry method, which consumes half asmuch energy as the wet method.

With the exception of computer processcontrol, none of these require particularly ad-vanced technologies, and if Soviet policy-

“ ‘These examples are drawn from a series of ar(icles putJ-lishcd in }Jlar/<J/(J)I, k}/((J~a\.st{ (~, No. 2, 1979, Similar “shop-ping llsts’ of opport u n I t it’s for- ener-gjr sa I’ i ngs through ct’n-t r}ilizt~d in ~’est men t art’ {>ornrnon in the So\riet literature, Seeti]~() I u. .Sihikin, “Tht’ f;tfi~’it’n(.~’ of [It ilizat ion of Fuel-FJnerg~Resour(.t’s in hl a(.hinti l~ui]ding, ‘ fl/~lrl~)/ (j\(, /: /10.?Jf(l)’.YI1‘(),N(). ] 2, ] 979, pp. $!+~i.

makers decided to import the requiredcapacity, they would likely find manu-facturers throughout the West who couldmeet their needs. In fact, implementation ofa high-investment conservation strategy istantamount to industrial modernization.There is no reason to believe that the sameconstraints that have inhibited wholesalepurchase and implementation of Western in-dustrial technology in general–includingshortages of hard currency and difficulty inabsorbing and diffusing imported technol-ogy-will not continue to operate.

A serious, high-priority, low-technologyapproach to conservation might lead to con-siderable demand for Western equipment tobolster the inadequate output of Soviet in-dustry in insulating materials, meteringequipment, small boilers and furnaces, jetsand burners, static condensor batteries, etc.In the past, however, Soviet ministries andforeign-trade organizations have been un-willing to expend scarce hard currency onsmall items of this type, partly because theyare less attractive than high technologyitems and partly because the need for themis scattered across many separate organiza-tions.

An important complement to conserva-tion is the restructuring of energy consump-tion to allow substitution among primaryenergy sources. Here major investment isneeded soon in expansion of gas pipelinecapacity, particularly expansion of localfeeder networks; improvement of capacityfor cleaning and enriching coal; peak-cover-age technology to make up for the rigiditiesof nuclear power in the European zone of thecountry; acceleration of nuclear powerplantconstruction and transmission lines; anddevelopment of refinery capacity. Thesetasks should not be postponed, yet theevidence from Soviet literature is that plan-ners are experiencing severe delays in all ofthem.

Ch. 7—The Prospects for Energy Conservation In the U.S.S.R. ● 245

Soviet decisionmakers might resort toWestern technology to eliminate the mostcrucial of these bottlenecks. If they do so in amanner consistent with behavior of the pasttwo decades, Western technology will besought to gain a degree of flexibility thatcompensates for the sluggishness of domes-tic industry. The list of sectors in which theSoviets have made the greatest use of im-ported technology reveals an interesting pat-tern. In the chemical and agrochemical in-dustries, in the automotive and trucking in-dustries, and in machine tools, much of theSoviet import activity has been clearlyaimed at accelerating new policy initiatives.Restructuring Soviet energy demand toallow an indispensable substitution amongprimary sources of supply might fall into thesame urgent category.

Perhaps the most important connectionbetween conservation and technology trans-fer, however, lies in possible displacement ef-fects. To the extent that conservation is tan-tamount to modernization, a vigorous andsuccessful conservation program couldresult either in an overall reduction of theneed for Western technology or in a displace-ment of imports toward smaller, lowertechnology equipment. But, since the mainthrust of Soviet energy policy appears to bedirected toward energy production ratherthan conservation, it is possible that Sovietneed for large, high-technology Westernitems will be correspondingly greater.Production-related imports are more likelyto be concentrated in a few industries andfirms than are imports targeted at energyconsumption.

SUMMARY AND CONCLUSIONSThe structure of Soviet energy consump-

tion, particularly the high percentage ofenergy consumed by industry, presentsmany opportunities for conservation. Thiscould well be accomplished both through acentralized, high-investment strategy and alocal, low-investment strategy, the latteraimed at improving the efficiency of opera-tion of equipment already in place. Conserva-tion should be an extremely promising policyfor the U.S.S.R. Effort invested in savingenergy could yield a greater payoff at themargin than investment in new production,and the difference would grow as in time pro-duction costs rise.

The emphasis of the Soviet energy policyhas hitherto been on production rather thanconservation. As in the West, the perceptionof a pressing need to conserve expensiveenergy resources is relatively recent andserious conservation campaigns are relative-ly new. Stress has lately been on a local, low-investment rather than a centralized high-

investment approach. Significant savingscould be achieved through a low-investmentstrategy, but it is unlikely to produce majorresults very quickly because of weaknessesin the price structure and the prevailing in-centives, the enforcement mechanism, thesystem of norms, and monitoring of meas-urement.

There is little reason to expect that West-ern nations will have significant impact onSoviet energy conservation. Short of con-tributing to a long-term program of exten-sive industrial modernization, the most thatthe West could provide is a variety of “low-technology” conservation equipment, onwhich the U.S.S.R. is unlikely to expendprecious hard currency. In sum, while majoropportunities for energy savings exist andindeed have brought results, rigidities in thepolitical and economic structure could stillprevent Soviet policymakers from taking fulladvantage of them.

CHAPTER 8

Energy andthe Soviet Economy

CONTENTS

Page

SOVIET ECONOMIC PERFORMANCE . . . . . . . . . . . . . . . . . . . . . .......249

Economic Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......249Prospects for Economic Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....251

ENERGY IN THE SOVIET ECONOMY. . . . . . . . . . . . . . . . . . . . . . .......252

Energy and Economic Performance to 1980.. . ........................252The Formulation of Energy Policy . . . . . . . . . . . ........................255Energy and Future Economic Performance. . . . . .......................261

ENERGY AND THE SOVIET ECONOMY: BEST AND WORSTCASE SCENARIOS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..265

Alternative Soviet Economic Growth and Hard CurrencyTrade Scenarios, 1981-85. . . . . . . . . . . . . . . . . . . . . . . . . . . . ...........266

ALTERNATIVE SOVIET HARD CURRENCY TRADE SCENARIOS,1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .........................273

SUMMARY AND CONCLUSIONS. . . . . . . . . . . . . . . . . . . . . . ...........275

APPENDIX A. – Export and Domestic Output Performance forSelected Nonenergy Products . . . . . . . . . ..........................278

LIST OF TABLES

Table No. Page

53. Average Annual Rates of Growth for Soviet GNP, Factor Inputs,Factor Productivity, and Consumption Per Capita. . . . . . . ............250

54. Distribution of Soviet Gross Fixed Investment by Sector unselectedYears, and of Increments to Fixed Investment for 1970-77. . . . . .......253

55. Estimated Soviet Energy Production and Foreign Trade, 1980.........25456. The Importance of Soviet Energy Exports and Imports, 1972-79.......25457. Major Assumptions Underlying 1980-85 Scenarios . . . . . . . ...........26858. Fuel Balances by Category, 1985 Scenarios and 1980 Base Year. .......26959. Alternative Scenarios for 1980-85. . . . . . . ........................27160. Major Assumptions Underlying 1990 Scenarios. . . ..................27461. Alternative Scenarios for 1990. . . . . . . . . ..........................274

LIST OF FIGURES

Figure No. Page

22. Energy Decisionmaking in the Soviet Union. . ......................25723. The Soviet Economy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........262

CHAPTER 8

Energy and the Soviet Economy

The energy sector importantly influencesand is influenced by the nature and health ofthe Soviet economy as a whole. Those whoformulate energy policy do so in a contextwhich is affected by the structures and per-formance of the national economy. Theirdecisions, in turn, help to set the parametersfor economic performance. This chapter ex-plores the role of energy in the Sovieteconomy. It seeks to highlight the economicimpacts of alternative plausible levels ofSoviet energy availability, and to point outmajor consequences of various economiceventualities for energy production.

The chapter begins with an overview ofthe Soviet economy, highlighting recent

growth trends. This provides a basis for ex-amining the role of the energy sector in thateconomy, for identifying some of the factorsthat influence Soviet energy policies, and fordescribing the recent direction of these pol-icies. The chapter then presents a simplifieddescription of the Soviet economy that canbe used to better understand prospects forenergy and economic growth in the presentdecade. It culminates in the development of“best” and “worst” case scenarios for Sovieteconomic growth and energy trade in 1985and 1990.

SOVIET ECONOMIC PERFORMANCE

ECONOMIC GROWTH

The rate of Soviet economic growth overthe past quarter century has generallydeclined. This slowdown is reflected in grossnational product (GNP), investment, andconsumption spending growth rates. Ac-cording to Western estimates, Soviet GNPgrew at close to 6 percent annually in the1950’s, but growth slowed to 5.0 to 5.5 per-cent in the 1960’s, to 3.8 percent in 1971-75,and to 2.8 percent during the Tenth FiveYear Plan (FYP), (1976-80)1 (see table 53). In-vestment has traditionally grown fasterthan consumption in the Soviet economy. Inthe 1950’s, new fixed investment grew at anaverage annual rate of 10 to 12 percent, con-trasted with 5 to 6 percent annual growth for

consumption. Since then, the absolute andrelative gap in growth rates has alternatelynarrowed and widened. In the period1976-79, annual growth was roughly 4 per-cent for investment v. 3.2 percent for con-gumption.2 The average annual growth rateof per capita consumption, a major con-tributor to maintaining political stability forthe Soviet regime, fell from 4.6 percent perannum in the 1950’s, to 3.6 percent in the1960’s, and 2.5 percent for the period1971 -79.3

Soviet defense spending is commonlybelieved to have grown roughly in line withGNP for most of the postwar period. In thepast several years, however, estimateddefense spending has grown at a more rapidrate than GNP. According to the Central In-

‘( ;r(w)nsladt), op. c it ; and (’ rnt ra I 1 n tt’lligt’ ncc Age ncf,.$/ l)t /[ /(/ ti(lrr,. ()/ .so/ /(’t (;ro/( (h ()/) tiot~ ~ (() Iwl’t’i. F: R ’79- 1()1:11(M’ashin~ton, 1), (’,: (’ 1,1, Nlarch 19’79).

‘S(~tI ( ~ t~rt rud[’ S(hr(xder-(; revnslacie, “(’consumption and1 nconle I)istrit)ut ion, ” pap(~r pr(’sented at the A irlie }IOLIS(I(’onfcrencr, ( )ct. 2;1-25, 1 W)

249


Table 53.—Average Annual Rates of Growth forSoviet GNP, Factor Inputs, Factor Productivity,

and Consumption Per Capita(percent)

1951 1956 1961 1966 1971 1976-55 -60 -65 -70 -75 -80

GNP . . . . . . . . . . . . . . . . 6.00/0 5.80/o 5.00/0 5.50/0 3.80/o 2.80/o

Labor a . . . . . . . . . . . . . . 1.9 0.6 1.6 2.0 1.7 1.2

Capital ... , . . . . . . . . . . 9.0 9.8 8,7 7.5 7.9 6.8

Land . . . . . . . . . . . . . . . . 4.0 1.3 0 6 - 0 . 3 0.8 –c

Combined factorproductivity . . . . . . . 1.4 1.8 0.9 1.5 -0,4 -0,7

Per capitaconsumption b . . . . . 5.3% 4.2% 2.5% 4.7% 3.2% 1.6%c

a Marl-hoursb Total consumptioncRefers only to 1976-79

SOURCES Rows 1-5 (1951.70). Rush V Greenslade, “The Real Gross NationalProduct of the US S R , 1950.1975, ” In Joint Economic Committee,U S Congress, Sov/ef Ecorrorrry in a New Perspective (VVash!ngton,D C U S Government Prlntlng Off Ice, 1976), Rows 1.5 (1971.79)Central Intelligence Agency, The Sovfet .Ecorrorny Irr 1978.79 andProspecfs for 1980, ER.80.10328 (Washington, D C June 1980),Row 6 (1 951 .70), Gertrude E Schroeder and Barbara S SeverIn, “SO.vlet Consumption and Income Poltcies In Perspective, ” In JointEconomic Committee, op cit pp 620-660, Row 6 (1971 .79) Gertrude Schroeder. Green slade, “Consumption and Income Dlstrlbu-tlon, ” paper presented at the Alrlle House Conference, Oct 23.25,1980, and Central Intelligence Agency S/rnu/at/errs of Sov/etGrowfh OptIorrs (O 1985, ER 79.10131 (Washington, D C March1979) Prellmtnary 1980 est!mates suppl{ed by the Central In.telllgence Agency

telligence Agency (CIA), the defense sharerose to a level of 12 to 14 percent of SovietGNP at the end of the Tenth FYP period,after having stabilized at roughly 11 to 13percent of GNP between 1965 and 1978.4

Although there is debate in the Westregarding the relative weight of different fac-tors in explaining the Soviet economicslowdown, identification of the basic factorsis not in dispute. A country’s aggregate out-put typically depends on the size of its laborforce, its accumulated capital stock, and thecombined productivity of capital and labors(Land is a third factor of production whenagricultural output is included in the sum-mary output measure. ) The more rapid the

—4 Greenslade, op. cit.; CIA, Simulations , op. cit.: and

CIA, Tfie Soc’ict Econom?’ ..., op. cit.‘There is now, moreover, a growing 3-factor production

function literature based on capital, labor, and energy.

growth of capital and labor and of their com-bined productivity, the greater the rate ofgrowth of output. Soviet growth rates for in-dividual 5-year periods for each of these fac-tors are shown in table 53,

Labor6

Growth in the Soviet labor force has fluc-tuated as a result of underlying demographicfactors and changes in the labor force par-ticipation rate, i.e., the labor force as apercentage of the population of able-bodiedages. The dramatic slowdown in labor forcegrowth in the late 1950’s was caused pri-marily by the fall in the birthrate duringWorld War II. The jump in the growth ratein the 1960’s is attributable both to underly-ing demographic factors and to an increasein the labor force participation rate from 83to 88 percent, reflecting in large part asignificant increase in the number of womenworkers. The 1970’s were characterized by agradual decline in the labor force growthrate.

Capital

Although the overall rate of capital ac-cumulation has slowed since the 1950’s,Table 53 shows that it continues to be quitehigh, particularly in relation to GNP growth.Throughout this period, the capital stockhas grown much faster than the labor force.This has resulted in a remarkably rapid risein the Soviet capital-labor ratio. In industry,for example, the labor force increased about140 percent between 1958 and 1978 (from 15million to 36 million), while the industrialcapital stock grew by 14.5 times over thesame period. 7 This has led some observers toattribute part of the decline in Soviet growth

6 All data cm So\iet labor are from ~lurray Feshbach andStephen Rapawy, “Soviet Population and hlanpower Trendsand Policies, ” in Joint Economic Committee, U.S. Congress,S0( ‘ic t Econorn II in a A’P 1(’ Per.~pec ti 1 ‘e, op. cit. , pp. 1 13-1 54;and Nlurray Feshbach, “Population and I.abor Force, ” paperpresented at the Airlie House Conference, Oct. 23-25, 1980.

‘hlartin L. W’eitzman, “Soviet Industrial Production, ”paper presented at the Airlie House Conference, (kt. ‘23-25,1980.

Ch. 8—Energy and The Soviet Economy ● 251

rates to strong diminishing returns tocapital in industry.8

Slowing growth of inputs has been rein-forced by falling productivity. Increasedproductivity of the factor inputs, madepossible by the introduction of new technol-ogy, and perhaps in some cases by improve-ments in the planning and management sys-tems, accounted on average for 1 to 2 per-centage points of the annual GNP growthrate in the 1950’s and 1960’s, but in the1970’s turned negative.

PROSPECTS FOR ECONOMICGROWTH

In 1979 Soviet GNP rose only 0.7 percent,and economic growth in 1980 has beenestimated by the CIA at 1.5 percent. For theperiod 1978-80, GNP increased by an annualaverage of 1.9 percent, the lowest for any 3-year period since World War 11.9 It thereforeappears that the U.S.S.R. has entered aperiod of more fundamental constraints oneconomic growth. As analysts in both Eastand West have long anticipated, the Sovietshave exhausted the potential for rapidgrowth based on an extensive strategy, i.e.,the rapid accumulation of factor inputs withrelatively little emphasis placed on theirquality or their efficient use.

Barring a significant change in the laborforce participation rate and the death rate inthe 1980’s, the increase in the Soviet laborforce over the next decade is preordained,i.e., all its potential members have alreadybeen born. Western experts have estimatedthat this rate of growth will be only 0.4 to 0,5percent annually over the next decade, aboutone-fourth the rate of the 1970’s. Thisdramatic projected slowdown in the annualgrowth of the population of able-bodied agesis due to a number of demographic factors,including progressive aging of the popula-——— .—

8 This interpretation was first de\’eloped in \l artin 1,,}freitzman, ‘‘So\iet I’ostwar (;rowth and Capital-I.abor Suh-st it ut ion, A m(’rican F.’(onomic ” }if( iei(. IO]. 60, h’o, 4, %p-temher 19’70, pp. 676-692

“~’ IA, ~’h~) .~(~rt~f]t ~;con(Jm \ IH I,97N-W , op. cit.

tion, a fall in the birth rate since the 1950’s,and a recent increase in mortality rates notentirely explained by the age structure of thepopulation.

The slow growth of the labor force is ex-pected to continue to the end of the century.While the labor force participation rate maybe influenced through economic policy, it isunlikely that it can be raised much more inthe absence of coercion. At 88 percent (v. 65percent for the United States), the rate isalready the highest in the industrializedworld. These aggregate labor force trendswill be aggravated by the shift in the popula-tion structure towards non-Russians in Cen-tral Asia. Unless there is considerable migra-tion of Central Asians to labor-deficit areasof the U. S. S. R., Soviet industry could facelabor constraints even greater than thosesuggested by the aggregate labor force pro-jections.

Capital accumulation cannot continue togrow at the high rates of the past without se-verely curtailing the share of output going toconsumption. In any event, the productivityof such additions to the capital stock is ques-tionable.

To counter these declines in the growth ofinputs, Soviet leaders are hoping for large in-creases in productivity. The Eleventh FYPcalls for an increase in the productivity of“socialist labor” of between 17 and 20 per-cent over 5 years. 10 The growth of produc-tivity is partly determined by economicpolicy but, perhaps more fundamentally, it isalso conditioned by the economic system. Inparticular, the capability of the economy togenerate ever larger output levels from given‘‘inputs’ of labor and capital—in otherwords, to shift from extensive to intensivegrowth-is critically dependent on thenature of the prevailing decisionmaking, in-formation, and incentive systems. Theseelements of the economic system will have afundamental impact on the efficiency withwhich existing resources are used, and on the

“’~;kononli(’}1(’.sk(l)(l” gazfjta, No. 49, December 1980.


extent to which technological progress andindustrial innovation are stimulated. Asignificant improvement in productivity per-formance, therefore, would seem to presup-pose important changes in the way in whichthe economy operates.

Soviet leaders have understandablyresisted the idea that the economic systemrequires fundamental change, but they haveaccepted modifications classified as “im-provements in the economic ‘mechanism.'"In contrast to the limited decentralizationthat has occurred in other socialist countriessuch as Hungary, Soviet “reform” effortssince the 1950’s have largely been devoted toattempting to perfect the system of centralplanning and to modifying organizationalstructures and incentive systems so as to in-crease the likelihood that lower managementlevels will operate in accordance with plandirectives.

The latest of these reforms, announced ina party-government decree in July, 1979,concerning the “improvement of planningand the strengthening of the influence of theeconomic mechanism in the promotion ofproduction efficiency and the quality ofwork,” called for several changes in the plan-ning and management systems. These in-cluded emphasizing interenterprise contrac-tual obligations, strengthening the bonus

11 See tJoseph S, Berliner, “~~]anning and hlanagement, ”presented at the Airlie Iiouse Conference, oct, 23-25, 1980.

system, and adopting new major success in-dicators for industrial management.12 In ad-dition, there is to be a basic reform in thewholesale price structure at the beginning of1982. The implications of price reform forenergy are discussed in chapter 7.

U.S. experts on the Soviet economy havebeen virtually unanimous in concluding thatthese changes in the “mechanism” are notfundamental, and are therefore unlikely tosignificantly forestall a continued slowing inSoviet economic growth.13 Indeed, the 1979decree has been characterized as one of aseries of fairly minor reforms which began in1965. The reform process has been likened to“being on a treadmill, for most of themamounted to reforming previous reformsthat failed to work.” 14 It is difficult toevaluate these predictions, however, becauseit is almost impossible to empiricallymeasure the impact of changes in economicsystem on aggregate economic performance.

.—‘ hlkc)rl<~nlichc~,vkcl>u guzetu. No. 32, August 19’79. See also

Berliner; op. cit., and Hans-} iermann IIohmann and GertraudSeidenstecher, ‘‘Anderungen irn Sowjetischen Planungssys-tem: Rezept gegen Wrachstrumsruckschlag?” 11, Bericht Nr.33 ( Koln: Bundesinstitut fur ostwissenschaftliche und lnter-nationale Studien, 1979).

‘ ‘See, for example, Gertrude F;, Schroeder, “The So\’ietI+~conomy on a Treadmill of I Reforms, ” ‘ “ in Joint P:conomicConlmittee, U.S. Congress, .Yo(ict Fjcononzj” irl u T i m e o f(’har~gvi ~rol. 1 (Washington, D. C.: U.S. Go\’ernment Printingoffice, 1979), pp. 3 12-340: IIohmann and Seidenstecher, op.cit.: and C IA, The .S() [ ict Ecc)rlc)nl>’ in 1,978-79 , op. cit.

1‘Schroeder, op. cit,

ENERGY IN THE SOVIET ECONOMYENERGY AND ECONOMICPERFORMANCE TO 1980

Economic Growth

Easily accessible energy played an impor-tant role in generating past high Sovietgrowth rates. Soviet “gross energy con-sumption” has increased roughly in line withSoviet GNP over the past 30 years. How-

ever, energy consumption grew more rapidlythan GNP between 1950 and 1965, less rap-idly in the 1965-75 period, and then againmore rapidly over the past 5 years. Indeed,the elasticity of energy use with respect toGNP (the growth rate of the former dividedby the growth rate of the latter) was higherbetween 1975 and 1980 than in any of theearlier subperiods, precisely at a time “whenthe government has pursued a vigorous cam-

Ch. 8—Energy and the Soviet Economy ● 253

paign to encourage energy saving and reducewaste .15

Table 54 shows how the investment re-quirements of the energy sector competewith other sectors of the economy. The in-vestment share of agriculture, construction,and transport-communications increasedfrom 25 percent in 1960 to over 35 percentby the late 1970’s. Most of this increasecame at the expense of investment in hous-ing and to a lesser extent, consumer goods,trade, and services.

The investment share of the nonconsumer-goods industrial branches (mainly ma-chinery, industrial raw materials, and in-termediate products) and the energy sector

Table 54.—Distribution of Soviet Gross FixedInvestment by Sector in Selected Years, and of

Increments to Fixed Investment for 1970-77(percent)

Fuels andpower. . . . . . . .

Agriculture . . . .

Construct ion

Housing

Trade andservices . . . . . .

Transport andcommunl -catlons. . . . . .

Consumergoods . . . . . . . . .

OtherIndustry a . . . . .

1960 1965 1970 1975 1978 1970-77(increment)

10.4% 11.6% 10.0% 9.7% 10.3% 9.1 %

13.2 16.9 17.7 20.6 19.9 24.6

2.8 2.6 3.6 3.8 3.7 5.2

22.8 17.1 16.6 14.4 13.5 8.5

16.1 16.9 17.1 15.1 14.9 11.1

9.3 9.6 9.4 10.8 12.5 14.6

4.8 4.3 4.3 4.0 3.3 3.6

20.8 20.9 212 21.6 21.8 233Total b. . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

alncludes machinery and Industrial raw materials and Intermediate productsb Columns may not exactIy add to 100 percent due to rounding

SOURCES Calculations based on Cl A Simulations..., op cit and CIA. TheSoviet Economy..., op. cit.

have remained quite stable. The energy sec-tor’s share was about 10 percent throughoutthis period. Between 1970 and 1977 energy’sshare of increments to annual total fixed in-vestment in the Soviet economy was only 9percent. In December 1977, however, theenergy sector was declared a “leading link”in the economy. Since then it has apparentlyenjoyed priority status. In 1978, almost 50percent of the increase in fixed investment inindustry was allocated to energy. In 1979,roughly one-half of the increment in totalfixed investment was accounted for by in-creased investment in energy.

Energy Trade

The U.S.S.R. is a leading energy exporterand the revenues generated by its energysales have been critical to its economy.Tables 55 and 56 highlight the importantrole of energy exports both in relation to out-put and as a source of export revenues. Asshown in table 55, roughly one-fourth ofSoviet production of petroleum and petro-leum products is exported, with about 40percent of these exports (in terms of quan-tities) going to non-Communist countries.The U.S.S.R. also imports petroleum, prin-cipally from Iraq and Libya, but it is com-monly believed that a large portion of thisimported oil is reexported. In any case, theseimports have not amounted to much morethan 5 percent of its total petroleum exports.

About 13 percent of Soviet natural gasoutput was exported in 1980, and this per-centage has been growing rapidly in the lastfew years. A little under half of Sovietnatural gas exports now go to the West.Soviet imports of natural gas, principallyfrom Iran and Afghanistan, were also signifi-cant in the late 1970’s, but the 1evel of im-ports has fallen and their relative im-portance continues to fall. By 1980, when de-liveries of gas from Iran had ceased, theseimports were less than 5 percent of exports.

Less than 5 percent of Soviet coal outputis exported. Over one-third of these exports


Table 55.—Estimated Soviet Energy Production and Foreign Trade, 1980a

Exports Percent of I reportsProduct Soviet Soviet as percent of exports Soviet as percent ofgroup production exports production to Westb Imports exports

Petroleum andpetroleum products. 603 mmt 150 mmt 25% 39% 7 mmt 5%

Natural gas. . . . . . . . . . 435 bcm 56 bcm 13% 4 1 % 2 bcm 4%

Coal . . . . . . . . . . . . . . . . 716 mmt 27 mmt 4% 39% 9 mmt 33%

a All of the foreign trade figures are estimates, Since 1976, the U.S.S.R. has not published such data for energy commodities in natural units The estimates for coal trade, in

particular are subject to considerable margin of errorb The West here corresponds to non-CMEA countriesSOURCES SSRT /ffdx v 7980 g { fVf OSCOW 1981 ) C 1A lr)ferndf{or]al Energy S(affsf/cal l?evlew Mar 31 1981 Wharton Economet r[c F orecasfl ng Servtce Centrally Planned

E conorv les P rolect and OTA estimates

Table 56.—The Importance of Soviet Energy Exports and Imports, 1972-79

1972 1973 1974 1975 1976 1977 1978 1979

Share of energy exports as percent ofruble value of Sovietexports to:Socialist Countries . . . . . . . . . . . . . . . 16.6’YO 17,60/o 18,50/o 26.00/o 27.30/o 29 80/0 31 ,80/0 36.00/o

All other countries , . . . . . . . . . . . . . . . 19.8 21.4 33.3 39.7 44.2 42.2 41,3 50.0

Share of all energy exports toSocialist Countries . . . . . . . . . . . . . . . 65.1 57.7 53.5 60.7 58.7 57.4 60.0 55,7

All other countries . . . . . . . . . . . . . . . . 34.9 42.3 46.5 39.3 41.3 42,6 40,0 44,3

1 00.0% 1 00.0% 1 00.0% 100.0% 1 00,00/0 1 00.00/0 1 00.00/0 1 00.0%

Share of Energy Imports as percent ofruble value of all Sovietimports from:Socialist Countries . . . . . . . . . . . . . . . 2.4% 2.3% 1 .9% 3.0% 2.7% 2.4% 2.2% 2.4%

All other countries . . . . . . . . . . . . . . . . 4.1 5.0 5.4 4.9 4.6 5 2 5.6 5.9

Share of all energy imports from:Socialist Countries . . . . . . . . . . . . . . . 64.0 59.3 54.7 52.4 52.6 57,1 60.0 56.6

All other countries. . . . . . . . . . . . 36.0 40.7 45,3 47.6 47.4 42,9 40,0 43,4

100.0% 1 00.0% 1 00.0% 1 00.0% 1 00.0% 1 00.0% 1 00.0% 1 00.0%

SOURCE Derived from Vneshnyaya torgovlya, various years

are directed to Western markets (see table55). Imports of coal, largely from Poland,may have amounted to over one-third of thevolume of Soviet coal exports in the late1970’s.

The growing importance of energy exportsin total Soviet trade during the course of the1970’s is illustrated in table 56. In 1972, fueland electric power exports accounted for

16.6 percent of the ruble value of Soviet ex-ports to all “socialist” countries, and 19.8percent of the value of exports to the “capi-talist” world (the industrialized West andnon-Communist developing countries). By1979, the share of these energy exports hadrisen to 36.0 percent for exports to thesocialist countries and 50.0 percent for ex-ports to the capitalist world. Similarly, thequantities of oil and oil products exported

Ch. 8—Energy and the Soviet Economy . 255


First Soviet-made supertanker

grew by more than 50 percent and the quan-tity of natural gas exported more than sex-tupled (from a very low base) between 1972and 1979.

The relative importance of energy as asource of export revenue has been furtherenhanced by the enormous increases inworld energy prices. Indeed, it has beenestimated that for the period 1970-77 alone,improvements in Soviet hard currency termsof trade permitted the U.S.S.R. to purchase$14.2 billion more in hard currency importsthan otherwise would have been possiblewithout resorting to some combination of ex-panded real exports, increased gold sales, oradditional hard currency debt. This windfallgain amounted to 21 percent of the cumula-tive value of Soviet hard currency merchan-dise exports from 1971 through 1977.17

THE FORMULATION OFENERGY POLICY

It is clear that the time of easy energysupplies is over for the U. S. S. R., and theeasy answers to energy policy followed in thepast two decades are unlikely to be fruitful inthe future. A new strategy has become nec-essary, but its formulation is, and will con-tinue to be, a complex process. There isevidence that debates have arisen over therelative priority to be accorded different

17 F;dward A. Hewett, ‘4rI’he Foreign Sector in the So\’ietEconomy: Developments Since 1960, and Possibilities to2000, ” paper presented at the Airlie Ilouse Conference, Oct.23-25, 1 9/+().

energy industries and over the best way toimprove the efficiency and productivity ofenergy production. While decisions naturallyreflect the choices of the Communist Partyand its Executive Committee (Politburo) anda number of state planning and admin-istrative organizations, Soviet leaders are in-fluenced by a variety of ministerial, regional,and scientific connections. These groups,which compete for resources and influence,play an identifiable role in the formation ofeconomic policy and are critical to the out-come of policy once formulated. Thus,energy decisionmaking in the Soviet Uniontakes place in a political context. A briefdescription of the process by which energypolicy is set, including identification of theactors involved, is helpful in understandingthe apparent outcome and consequences ofthese debates.

Decisionmakers

There are two important steps in energy,as in all, decisionmaking in the U.S.S.R.18

The first is the continuous determination ofbasic policy directions by the Politburo,which then directs the Council of Ministersand other state agencies to work out thedetails. The second is the formal elaborationof energy policy plans by Gosplan, the State—.

‘HFor further information on the structure of the Soviet(;overnrnent and econom~’ and on the economic planning sys-tem. see Office of Technology Assessment, Technologjl andEast- 11’e.st Tradr (Washington, D. C.: U.S. Government Print-ing office, 19791, ch. X: and ,J oseph S. Berliner, The in no ( ‘a -

tion Z)eci.sion in So[ict Indu str~ (Cambridge, Mass.: MITPress, 1976).


Planning Agency, in cooperation withgovernment ministries and planning andresearch institutes. Ministries involved inproducing and supplying energy, togetherwith those involved in supporting functionssuch as the construction of necessary in-frastructure, assist in the formulation ofplans for the branches of the industries forwhich they are responsible. The ministriesalso have a major role in implementing theplans.

Within the general guidelines set by thePolitburo, Central Committee, and the Coun-cil of Ministers, Gosplan exerts a con-siderable degree of influence over the alloca-tion of priorities between the energy sectorand other sectors of the economy, and overthe setting of priorities among the variousenergy industries. Various departments ofGosplan are responsible for general planning(which must take energy supply and demandinto account), for working out the balancesof inputs into the energy-producing in-dustries and balances of supply and demandfor various types of energy, and for energyproduction. Gosplan also makes decisionsregarding energy-related imports and ex-ports, although such decisions require theparticipation of a number of other ministriesand government agencies.

Despite the comparative centralization ofthe Soviet system, there is a good deal of dif-fusion of responsibility among a number ofenergy ministries. Figure 22 demonstratesthe plethora of organizations involved in thediscovery, production, and delivery of Sovietenergy resources. There are over 60 minis-tries in the Soviet Government. Of these, 11have direct responsibility for energy produc-tion and energy resource management, andanother 6 provide support (e.g., construc-tion, transportation, infrastructure).

The involvement of some 17 ministries re-sults in considerable overlap in jurisdictionand intense competition for resources. De-ciding what Western energy technologyshould be imported and what energy shouldbe exported, and implementing these deci-

sions, are processes that involve complexinteractions among a variety of individualsand organizations. A ministry may beresponsible for producing commodities forexport (such as oil) and various institutionscan request Western imports (such as turn-key plants, large diameter pipe, or miningequipment), but it is Gosplan that makes thecritical choices, the monetary aspects ofwhich must be approved and executed byGosbank, the State Bank. The Ministry ofForeign Trade carries out approved exportand import plans through its various tradeassociations. In addition, the State Commit-tee for Science and Technology (SCST) coor-dinates policy on technology imports. Thedecisions and actions of all of these partiesare subject to approval by high Party andgovernment organs such as the Politburoand the Council of Ministers.

Energy Policy Debates

Problems in measuring the performance ofSoviet energy industries and in appropriate-ly allocating resources recur in a fairlyroutine manner, as a part of energy planningand policy implementation. But at a higherlevel, Soviet planners have been engaged indebates over the general direction of energypolicy. Disagreements over policy are sel-dom pursued openly, but a careful reading ofthe Soviet press and scientific journals re-veals a variety of opinions on energy prior-ities among key leaders. A fundamentalquestion here concerns which energy sectorshould be awarded priority in capital in-vestments.

Energy industries usually require large-scale investments with long-term payoffperiods. This makes decisions about energy-related investments particularly difficult, asincreasing allocations to one sector maynecessitate reductions in growth of in-vestments in other sectors. Soviet policy-makers have been faced with settingpriorities among the following: investmentsfor expanded oil and gas production inSiberia; investments designed to increase

Figure 22.—Energy Decisionmaking

Politburoof the CPSU 7

I

in the Soviet Union

I JI

Energy-Related Mlnlstrles

I I I I I I I I I I I.Chemical and Construct Ion of Electrical Gas Geology

PetroleumPetroleum Medium Machine Petroleum Power and Power

Petroleum and Equipment Industry Industry Bulldlng Reflnlng and Elect rlflcatlon MachineMach Ine Gas Industry IndustryBulldlng

PetrochemicalEnterprises

Buildlng


coal production, particularly through the de-velopment of surface mining in Siberia; in-vestments in nuclear power stations; andcommitments of resources for energy conser-vation, especially on a regional basis. Amongthe key policy debates of recent years hasbeen controversy over the question ofwhether primary emphasis should be placedon the development of petroleum, i.e., oil andgas, or coal, particularly lignite.19 This issuehas been an important one in the Politburoduring the last decade.

Those who have publicly emphasized theimportance of oil and gas development inWestern Siberia include Party President andGeneral Secretary Brezhnev; representa-tives from Moscow, Western Siberia, UpperVolga, and Azerbaijan; the Chairman ofGosplan; and spokesmen from oil- and gas-related ministries and ministries concernedwith automobiles, agriculture, aviation, anddefense. Those who have gone on record sup-porting increased coal production includethe late Premier Kosygin, the President ofthe Soviet Academy of Sciences, and otherswho perceive a limited future for hydro-carbon development. While Soviet con-troversies over energy planning are complex,normally carried out in secret, and not easilycapsulized in simple dichotomies, publicstatements of key leaders about these issueshave received widespread attention in theSoviet press.

Controversies over whether coal or oil andgas should be made the centerpiece of Sovietenergy policy now appear to be resolved. Inthe current FYP, investment in the gas in-dustry, mostly in West Siberia, will double,and it would seem that increased gas produc-tion is now considered the answer to meetingboth growing domestic needs and exportcommitments. 20 But the debate itself meritsexamination to the extent that it illustratesthe institutional conflicts which tend to arise

in Soviet energy planning. These debatescan be analyzed in terms of individuals—their background, preferences, and per-sonalities, as well as the regional or institu-tional interests which they legitimatelyrepresent. For example, the preference of onePolitburo member, V. V. Grishin, for gas andoil might be explained in part by the factthat, as the First Secretary of the Com-munist Party in Moscow, he has a vested in-terest in assuring large and reliable suppliesof motor fuel as well as heat, power, and gasfor its residents. Experience with shipmentsof poor quality coal which caused frequentshutdowns of power-generating units in thearea evidently convinced Grishin that theconversion of coal-burning plants to naturalgas is necessary.21

It is not surprising that individuals ex-hibit preferences for energy policy optionswhich promote their own regional or organi-zational interests. More important for long-term policy trends, however, are recurringconflicts among institutions. At the 25thParty Congress in March 1976, then PremierKosygin championed a program for large in-creases in coal production. According to thisproposal, during the Tenth FYP the impor-tance of coal would increase in the totalenergy balance. This was to be achievedthrough the expansion of surface mining oflignite in the remote Kansk-Achinsk,Ekibastuz and Kuznetsk regions, and theconstruction of lignite-fired power stationsnear the mines. Extra-high-voltage power-lines would carry electricity from these sta-tions to the European U. S. S. R., more than2,500 km away (see ch. 5).

Both the coal advocates and the petro-leum advocates had persuasive argumentsto support their positions. Kosygin em-phasized the fact that development of coalcould facilitate savings in natural gas andoil, fuels that could be used most efficiently

1(’ I.eslie Ilienes and Theodore Shahad, 7’h(j .So I if~t F.’nerg?

.Yj’.stern. He.sc)ur[e [ ‘.sf arl(i I)olicie.s (Washington, DC.: V. 11.tirinston & Sons, 19791, p. 268.

1“See Theodore Shahad, ‘( Sit)erian (ias 1+’ield Delayed hySoviet, ” .T’eI/ }rorA Tim{>.s, Aug. 20, 1981.

“V. V. (irishin, “AI] F;nergy for the Fulfillment of the Deci-sions of the 25th Congress of the Communist Party of theSoviet Union, and for the Successful Completion of the TenthFi\e-1’ear Plan, ” in .Vdwtd .Speeche.v (Ind A rticlev of b’. V.(;ri.shin (Nloscow’: Izd, politicheskoi literature, 1979), p. 562.


as exports and chemical feedstocks. Coal ad-vocates also argued that, because of the highlabor productivity of surface mining, coaldeveloped in the Kansk-Achinsk region isamong the cheapest fuels available. Thosewho placed first priority on an oil and gasstrategy asserted that, because overall coaloutput has not expanded rapidly andbecause of the low quality of much of thecoal produced in Siberia, the coal industry isnot a reliable energy supplier. Indeed, de-mand for coal from Kansk-Achinsk andEkibastuz has consistently fallen belowquota. While coal advocates expected thatthe European U.S.S.R. would be a great mar-ket for coal, consumers there and in Siberiahave tended to prefer more reliable naturalgas supplies.

Strong institutional resistance to a coalstrategy evidently came from Gosplan,whose research reported unfavorably onthe idea of using lignite as a major source ofelectricity for population and industrialcenters in the European U.S.S.R. Further-more, Gosplan has placed priority on an oiland gas strategy in its allocation and admin-istrative functions, obstructing the con-struction of the long-distance powerlines.These powerlines area critical element in thecoal strategy which is oriented toward in-creasing supply of “coal by wire” electricityto consumers in the European U.S.S.R. De-spite the fact that construction of the lineswas approved by the Ministry of Power andElectrification, Gosplan delayed and re-duced allocations for the project.22 Withoutthis crucial powerline link, the lignitestrategy foundered.

Gosplan's reluctance to rapidly developthe long-distance powerlines can be ex-plained by a number of factors. First, Gos-plan experts calculated that capital invest-ment in the transportation of natural gaswas more efficient than investment in thedevelopment of coal production. This is animportant point. The “coal v. gas” decision

“V. kl. ‘1’uchke\rich, “Speech at the Session of the Genera]kl(~t~ting of the Academ? of Sciences of ~he U .S. S. R.,L’t,stnik an S,$.S1{, No. 5, Nlay 1980, pp. W-99.

also entails basic choices affecting thetransportation sector, i.e., whether invest-ment should be directed toward the con-struction of gas pipelines or additional railcapacity for coal. At a seminar held in Wash-ington, D. C., in March 1980, a Gosplan of-ficial stated that his research institute fa-vored postponement of Kansk-Achinsk lig-nite development, because capital in-vestments could be more effectively directedtoward the purchase of French gas industryequipment. 23 Gosplan’s electricity cost pro-jections were also important. It was calcu-lated that nuclear and gas-burning powerstations located in central Russia could pro-vide cheaper electricity to consumers in thatarea than electricity transported from theKansk-Achinsk and Ekibastuz mine-mouthstations.24 In short, Gosplan’s research on in-vestment and energy costs worked against alignite strategy and tended to favor develop-ment of the more ‘‘progressive and efficientgas industry.

The coal and power and electrificationministries also opposed the lignite strategy,but for different reasons. Where Gosplan of-ficials stressed investment and energy costconsiderations, the ministries charged withimplementing plans for coal developmentwere concerned with the past performance ofthe coal industry. Surprisingly, even theMinistry of Coal has been ambivalent to-ward the development of lignite complexes.While it is naturally anxious to increase coalproduction, its officials have been slow tocommit resources to the construction andequipment of new mines, evidently pre-ferring to direct investments to older minesin areas where regional ties to the ministryare long-standing. Moreover, since the earn-ings of coal enterprises depend primarily onthe quantity of coal shipped, the quality of

“Interview with Albina ‘1’retiako\a, Demographic I)i\i-sion, Department of Commerce, M’ashington, D. C,, Ilec. 17,1980, concerning R. V. orlov’s comments at the ‘ ‘Seminar onI+:nergy Nlodelling Studies and Their Conclusions on EnergyConser\’ation and Its Impact on the l+~conom~’, ” held inM“ashington, D, C,, hlay 24-28, 1980.

“I;/(~k trichc.ski}Ic .s tan tsii, No. 12 ( 1978). pp. 11-14,translated in ‘‘.News Notes, ” ,S~J(Iic( (;(~ogr(lphj’, hlar. 20,1979, pp. 188-190.


the coal mined is a secondary consideration.Electricity producers are consequentlyvulnerable to being forced to rely on poor-quality Kansk-Achinsk and Ekibastuz coal.It is no wonder that reliable and cheaphydropower is much more popular amongthe electricity producers in Siberia. As thecoal and power ministries each attempt tomaximize their profits and performance, theresult is systemic suboptimization (delays inexpansion of overall coal-fired power produc-tion).

The Ministry of Power and Electrification(Minenergo) has neglected construction oflignite or coal-fired powerplants not onlybecause hydroelectric plants are cheaper tooperate, but also because of the poor qualityof delivered coal. High in ash, and often cer-tified above its actual calorific content, thecoal tends to cause power equipment break-downs and consequent loss in productiontime. Since Minenergo’s performance ismeasured in terms of total output and bygrams of standard fuel consumed per kilo-watt-hour of electricity produced, the minis-try’s record is jeopardized by coal-fired pow-er production. Although Minenergo was di-rected to construct coal-fired power stationsin the Tenth FYP, the system of perform-ance indicators actually embodies strong dis-incentives to carry out such orders. As longas the ministry maintains a good overall rec-ord in production of electricity, it is unlikelythat it will be punished for failing to speedup construction of coal-fired plants.

As chapter 3 has described, efforts to in-crease coal production and consumption dur-ing the Tenth FYP clearly fell behind expec-tations. Where former Premier Kosygin hadforecast a growth in coal output from 701million metric tons (mmt) in 1975 to 790 to800 mmt by 1980, actual output for 1980was only 716 mmt. Stated in calorific terms,these statistics reveal an actual decrease incoal output during the plan period due to theincreasing share of low calorie lignite in coalproduction. Furthermore, labor productivityin the coal industry has been declining since1978. Recently published guidelines for the

Eleventh FYP now reflect diminished expec-tations for coal. Targets for 1985 coal pro-duction have been set at 770 to 800 mmt,equivalent to the original goals for 1980, andthe coal’s calorific value will continue todecline as most of this growth will come fromincreased production of lignite. The newFYP guidelines can therefore be interpretedas a resolution of the coal v. petroleum con-troversy in favor of the latter.

A second and equally important consid-eration is the relative priority which hasbeen accorded oil and gas. These are handledby different ministries which compete for in-vestment, drilling capacity, and pipelinepriority. The most widespread interpretationof the current FYP—in which oil productionis set to rise 7 percent and gas production 47percent–is that the U.S.S.R. is now placingits emphasis on gas.

This view is supported by the fact that inhis speech before the Party Congress onFebruary 23, 1981, Brezhnev emphasizedthe importance of Siberian gas development:

As a task of paramount economic andpolitical importance I consider it necessaryto single out the rapid expansion of output ofSiberian gas.

The deposits of the Western Siberianregion are unique . . . . The extraction of gasand petroleum in Western Siberia and theirtransportation to the European part of thecountry are becoming a predominant link ofthe energy program of the 11th and even ofthe 12th Five-Year Plan. This is the line ofthe Central Committee of the Party, and Ihope it will be supported by the Congress. 25

Summary and Conclusions

Controversy among Soviet energy plan-ners and among various energy-related in-stitutions suggests that in order to be suc-cessful, a Soviet energy strategy needs more

25 "Report of the Central Committee of the CPSU to the26th Congress of the CPSU on the Immediate Tasks of theParty in the Sphere of Domestic and K’oreign Policy: TheReport of the General Secretary of the Central Committee ofthe C PSU, Comrade 1,.1. Hrezhne\, Pra[ Ida, Fell. 24, 1 $)~ 1,

p. 5.

Ch. 8—Energy and the Soviet Economy 261.-

than the formal support of the leadership. Inaddition to the backing of members of thePolitburo and the Council of Ministers, it re-quires the cooperation of Gosplan, otheragencies, and the several ministries directlyinvolved in its implementation. The person-alities and preferences of top leaders can beimportant. The decline of the coal strategy,for instance, was surely affected by thedemise of a prime advocate, the late PremierKosygin; the present emphasis on gas hasbeen underscored by Brezhnev. The actionsof many institutions and ministries, how-ever, have also been important. This facttakes on added significance in light of the ad-vanced age of much of the present Sovietleadership.

On the evidence of the new FYP, ad-vocates of gas development and of nuclearpower have had the most influential voice inenergy planning. Current policy guidelinesindicate a strong commitment to the de-velopment of these fuels. But the energy de-bates of the last few years suggest that com-petition for resources may well reappearamong ministries involved in the develop-ment of oil, gas, and nuclear power—par-ticularly when the impending change inSoviet leadership takes place. Both interna-tional and domestic developments may af-fect priorities placed on various types ofenergy development. The gas industry,because of its reliance on Western equip-ment imports, is likely to be more committedto pursuing a strategy of interdependencewith the West than the nuclear power in-dustry, which prides itself on the develop-ment of indigenous technology. Whateverthe strategy chosen at the top, however, suc-cessful implementation will depend on thecooperation of a variety of organizations andregions.

ENERGY AND FUTUREECONOMIC PERFORMANCE

Whatever the energy policy pursued, itwill affect and be affected by Sovieteconomic performance in the present decade.

Any understanding of the ways in whichenergy availability is related to and affectedby the range of Soviet economic optionsmust carry with it a sense of the multitude ofeconomic variables, the complexity of theirinteraction, and the considerable range ofplausible values for many of them. Asimplified and stylized way of understandingthe Soviet economy is shown in figure 23. Inthis scheme, Soviet planners are assumed tomake decisions regarding the allocation ofthe fixed resources at their disposal—the ex-isting capital stock, labor force, and resourcebases (e.g., timber, mineral, and energy re-serves)—to produce a range of intermediateproducts (industrial materials and energy)which are principally valued for their use inproducing other goods, and final products(capital, consumer, and defense goods). Bothintermediate and final products may be ear-marked for domestic use or exported, requir-ing decisions on the allocation of exports be-tween other Council for Mutual EconomicAssistance (CMEA) nations and the rest ofthe world.

Soviet planners are assumed to attempt tomaximize the contribution of foreign tradeto domestic growth, subject to foreignmarket conditions, regional balance ofpayments constraints, and possible “non-economic constraints on trade with eachregion. In theory, and noneconomic con-straints permitting, the planners would wantto expand trade with a region as long as theterms of trade (the weighted price of exportsrelative to that of imports) exceeded the re/-ative marginal productivity of the exports todomestic growth. This is the principlebehind actual “foreign trade effectiveness”indices developed by Soviet and East Euro-pean economists and designed to guide deci-sions on the structure of foreign trade.

An example of the kind of decisions facingplanners can be found in Soviet oil trade withthe West. Assuming for simplicity that thistrade consisted solely of the export of Sovietoil in return for oil industry technology andequipment and that the main economic goalwere to maximize the amount of oil available


Figure 23.—The Soviet Economy

b — - - - - - - - - - - - - - - - - - - . - - - - - - — - . - - - - . . - -- - J


to domestic industry, political considera-tions aside, the Soviets would find it eco-nomically advantageous to expand thistrade as long as their terms of trade (the ex-port price of oil relative to the price of im-ported machinery and technology) weregreater than the relative marginal produc-tivity of the exportable oil in making oilavailable domestically. In other words, itwould only make sense in this case to exportoil to the West if the the proceeds could beused to buy sufficient technology to yield (ona present value basis) more oil than was ex-ported.26

26 ’1’hotnas A, Klro]f, “Soviet Petroleum ‘1’rade and WesternTechnology in a (ieneral I+;quilibrium Context: Some Pre-liminary Notes, ” paper presented at the Twelfth National(’on\ention of the American Asswiation for the Advance-ment of Sla\’ic Studies, Philadelphia, No\, 6, 1980.

The actual calculations are not nearly sosimple, and even in this highly stylizedframework, the process of deciding whetherand where oil should be exported would en-tail consideration of numerous tradeoffs. Ob-viously, Soviet planners could not make allpossible calculations and comparisons giventhe tremendous informational requirementsand the lack of a price system which effi-ciently generates such information. Butpresumably, to the extent that the plannersexhibit economic rationality, these types ofcalculations implicitly enter into the mediumand longrun planning of Soviet foreigntrade. Complicating the calculus are various“noneconomic” constraints or goals. For ex-ample, the proportion of domestic oil outputexported to Eastern Europe may be higherthan that suggested solely on the basis ofeconomic criteria alone.


The remainder of this section seeks toelucidate some of the complex relationshipsand the nature of the costs and benefitsassociated with different Soviet policy op-tions as they concern energy. For purposesof illustration, it hypothesizes a fall in oiloutput at existing levels of use of capital,labor, and intermediate products in the oil in-dustry. Faced with this disturbance, Sovietpolicy makers can follow one or both of twobasic courses of action. They can attempt toregain the previous level of oil output, orthey can attempt to “make do” with a lowerlevel of domestic oil production.

In order to boost oil output, the plannerscould increase the proportion of total laborand capital available to the oil industry.Wage rates could be raised in the hope of at-tracting workers, but such material incen-tives might have to be very large to over-come the disadvantages of working in WestSiberia and the East. Assuming that othermoney wage rates were not reduced, such ameasure would increase aggregate money in-come in the U.S.S.R. If increased real outputof consumer goods were not forthcoming,this would be inflationary and could in turnnegatively affect labor productivity.

The diversion of labor and current invest-ment from other sectors would reduce therate of growth of output in those industries.To the extent this diversion were at the ex-pense of investment in the machine buildingand heavy industry branches, the potentialfor future growth in all other sectors, in-cluding oil, would be reduced. Diversion ofinvestment spending from the consumergoods sector would reduce the future rate ofgrowth of real consumption, which could inturn adversely affect the rate of productivitygrowth throughout the economy, as dis-satisfied workers work less hard and spendmore time away from the job queuing forconsumer goods. A decline in productivitygrowth would cause a further slowing inoverall Soviet economic growth. In short,the diversion of resources would not onlyhave direct adverse consequences for outputin various sectors. There would also be sec-

ond, third, and higher order “multiplier” ef-fects throughout the economy.

One way to try to reduce the adverse ef-fects on economic growth in other sectorswould be to raise the labor force participa-tion rate. This is already very high, however,and the impact on overall economic growthof any conceivable changes would be negligi-ble. Moreover, in order to induce additionalpeople to enter the work force, it might benecessary to raise the output of consumergoods, at the expense of investment andfuture growth.

Another option would be to improve thedecisionmaking, information, and incentivesystems of the economy enough to raise therate of growth of combined factor produc-tivity. This could both raise the rate ofgrowth of output in the oil sector itself, andstimulate higher output growth in other sec-tors. This approach might not involvesignificant economic costs, except insofar aschanged indicators and norms might createconsiderable uncertainty among managersand workers during the transition period.Further, it would avoid the type of directand indirect economic costs involved in anypolicy of resource reallocation. But suchsystem change invokes other potential costs.The conventional wisdom among most West-ern observers is that any changes in plan-ning and management systems profoundenough to significantly affect productivitymay well carry unacceptably high ideologicaland political costs for the Soviet leadership.

Finally, Soviet planners could attempt toincrease and accelerate imports of Westernoil equipment and technology. This strategywould presumably be based on the percep-tion that the opportunity cost of such im-ports was relatively low. The calculation,however, is not so simple as might appear.Increased imports of technology for hardcurrency would have to be paid for withsome combination of the following: increasedexports of energy or industrial materials,reduced hard currency imports of othergoods, greater exports of gold, and an in-crease in hard currency debt.


The latter two choices would carry thecost of reducing future external financialflexibility. Increased real exports of energyor industrial materials would reduce the sup-plies available to domestic industries,thereby slowing output growth in these sec-tors. A decline in hard currency imports ofindustrial materials or nonenergy capitalgoods and technology would likewise slowdomestic output growth. A reduction in im-ports of grain or other consumer goodswould reduce domestic consumption growthand indirectly adversely affect productivitygrowth. World market price trends for allthese products, for gold, and for Western ex-port credits, would influence the final choice.At the same time, the planners would becomparing the costs and benefits of ex-panded technology imports with the costsand benefits associated with other majorpolicies, such as intersectoral reallocation oflabor and capital.

In effect, each option has its economic andpolitical opportunity costs. The economiccost of a given policy lies in the direct or in-direct negative effect it has on outputgrowth in one or more sectors, and the im-pact it has on future external financial flex-ibility. The benefit of a given policy could bemeasured in terms of its direct or indirectpositive effect on output growth in one ormore sectors. The planners’ intersectoralpriorities would determine the implicitweight attached to the induced change inoutput in each sector.

In addition to pursuing policies aimed atreviving petroleum output, the plannerscould seek to make a new lower level of oilproduction go farther, thus minimizing itsnegative impact on economic growth. Suchan approach would involve some combina-tion of reallocation of available energy sup-plies, direct energy conservation, interfuelsubstitution, and expansion of energy im-ports.

One possibility is that Soviet plannersmight seek to absorb any fall in oil output bycutting back on oil allocations to the capital

goods and industrial material sectors.27 Thiswould have an especially profound effect onthe overall rate of economic growth. Con-sumption would only be affected indirectly,through the slowdown of investment spend-ing in that sector, but eventually productionin the consumption sector would slow, andthus there might also be a decline in the rateof growth of productivity.

As output declined in certain sectors as aresult of reduced energy availability (com-bined with unchanged energy-use coeffi-cients), either domestic consumption ofthese products or exports would have to fall.In the former case, the impact on futuregrowth would be direct; if exports are re-duced, the impact would be less immediate.In that case the multiplier effect would comethrough an eventual fall in real imports in-duced by the deteriorating trade balance.

Output declines stemming from factorreallocation, energy reallocation, or otherpolicies, could in principle be avoidedthrough fuel conservation and substitution.But a conservation-substitution policy is notwithout cost. Significant retrofitting andother conversion measures would claim somenew investment which otherwise would beused to expand productive capacity. On theother hand, as chapter 7 points out, much ofthe Soviet conservation effort is aimed aturging industry to use less energy andmotivating management to reduce thematerials intensity of production, which inturn indirectly reduces energy consumption.

Another way of “conserving” oil would beto export less of it. The costs of pursuingthis policy are similar to those attached to in-creased imports of oil technology. Reducedexports of oil or other energy products toCMEA and/or the West would indirectly in-volve some combination of a fall in domesticoutput of some sectors and reduced future

‘T’l’his is the basic policy assumption built into theeconometric model of the So\riet economy used b}’ the CIA.Se~~ C 1A, .S{1 Vi’SIM: A hlodcl of th~ ,Yo(’iet L’conom>,” E R79- 10001” (Washington, D. C.: CIA, February 1979); and CIA,.Sirnulutions, op.. cit.


external financial flexibility. In the case ofCMEA there are also the “political” costs ofreducing oil exports.

Alternatively, the U.S.S.R. could step-upits imports from selected oil-producing lessdeveloped countries (LDCs) in return for ex-ports of Soviet capital goods and arms. Butthis “soft currency solution” would not becostless to the Soviet economy. Expandedexports of Soviet capital goods would slowSoviet domestic output growth. Increasedarms exports, unless from inflated inven-tories, might also come either at the expenseof the Soviet military or at the cost of divert-ing investment from one or more ‘‘civilian”sectors into defense. Successful pursuit ofthis policy would also be predicated on theexistence of sufficient demand by oil-producing LDCs for Soviet capital goodsand arms. If demand is weak relative toSoviet export offers, Soviet terms of tradewith this region would decline, eliminatingmuch of the economic advantage of suchtrade. In other words, the relative price ofLDC oil would no longer be below its relativemarginal productivity to the Sovieteconomy.

Finally, the effect of a partial or totalWestern embargo of energy technology and

ENERGY AND THEBEST AND WORST

While Soviet leaders have already madeand publicized their energy policy pref-erences for the Eleventh FYP period, their(or their successors’) options for the late1980’s seem for the most part to remainopen. The scenarios constructed for both1985 and 1990 suggest some parameters anda few of the policy choices facing Sovietpolicy makers during the 1980’s. These arenot predictions. The intention here is simplyto provide the reader with a sense, not onlyof the number and complexity of factorswhich together determine the outcomes ofpolicy choices, but also of the sensitivities ofthe Soviet economy to various energy-re-

equipment exports must be considered. Anembargo policy that stopped or interruptedeconomically beneficial trade would meanthat Soviet demand for this technology atexisting prices would be frustrated. Thiswould increase the relative attractiveness ofall other policy options. It would also meangenerally lower rates of growth for Soviet in-vestment, consumption and defense thanotherwise.

In sum, virtually any policy that theleadership pursues carries with it botheconomic costs and benefits. The task is toselect that combination of policies whichtogether yield the highest benefit-cost ratio.The remainder of this chapter attempts tosuggest a plausible range of parameterswithin which these policies will have to bemade. It seeks to shed light on the ways inwhich energy availability in the presentdecade will affect Soviet economic growth,and on the ways in which energy availabilitycould affect Soviet hard currency trade pros-pects. To accomplish this, OTA has positedhigh and low levels of output for 1985 and1990 in the various Soviet energy sectorsand used these to generate “best” and‘‘worst’ case scenarios for Soviet economicgrowth and hard currency trade.

SOVIET ECONOMY:CASE SCENARIOSlated developments. Because OTA has notrelied on formal econometric modeling, all es-timates are in highly aggregative terms.28

One basic assumption entailed in thesescenarios is that Western exports of energyequipment and technology to the U.S.S.R. incoming years will have a greater effect onthe Soviet energy sector after 1985 than dur-ing the Eleventh FYP. This assumption isbased on the length of time usually required

“Reaciers wishing to consult such formal models should seeC IA. ,S() L’,Sl,tl, op. cit.; and Daniel 1,. Bond and Herhert S.I.e\’ine, “rI’he So\iet l-; conom} to the Y’ear 2000: An ()\rer-\’ iew, paper presented to tht) .lirlic I louse Conference, oct,2:3-25, 1980.


to consummate deals with Western firms,the lags generally encountered in utilizingWestern technology and equipment, and thelong lead times involved in most largeenergy projects. Even the West Siberian ex-port pipeline project, discussed below and inchapter 12, is not scheduled to begin gasdeliveries until the latter part of the decade.Thus, in the 1990 scenarios an attempt ismade to address the question of the dif-ference alternative “extreme” Western tradepolicies might have on Soviet economicgrowth, fuel balances, and East-West tradein the late 1980’s and beyond. The extremesconsidered are “maximal” and “minimal”Western energy-related trade, technology,and credit assistance to the U.S.S.R. in the1980’s. It should be noted, however, thatOTA does not assume that Western assist-ance to Soviet energy industries will haveonly a negligible effect before 1985. There isevidence, for example, that the U.S.S.R. is inpart relying on imported pipe and possiblycompressors to further expand its internalgas distribution system during the EleventhFYP.

ALTERNATIVE SOVIETECONOMIC GROWTH ANDHARD CURRENCY TRADE

SCENARIOS, 1981-85

OTA's “best” and “worst” case scenariosfor the Soviet economy for the period1980-85 are based on assumptions for Sovieteconomic growth, domestic energy supplyand demand trends, and basic foreign tradeconditions. The scenario “outcomes” areestimates of the Soviet net fuel balance aftermeeting domestic needs and commitmentsto other CMEA countries, as well as an im-plied maximum rate of growth for Sovietnonenergy imports from the non-CMEAregion. It must be emphasized that most ofthe assumptions employed here are informedguesses and as such subject to question. Thescenario outcomes can be visualized as order-of-magnitude indicators of the range of theplausible. But while each of the assumptionsmade is in itself plausible, it is far less likely

that all these conditions would ever be simul-taneously either “best” or “worst.” Con-sequently, while these cases define a reason-able universe of possible developments, themost extreme outcomes are unlikely.

As noted above, the rate of Soviet eco-nomic growth both influences and is in-fluenced by the size as well as the composi-tion of the Soviet energy balance. All otherthings being equal, the greater the supply ofdomestic energy supply relative to domesticenergy demand, the higher the expected rateof economic growth. At the same time, themore rapidly the economy is growing, thegreater will be the growth in demand forenergy.

This chapter assumes that the rate ofgrowth of Soviet GNP is basically deter-mined by the rates of growth of the fixedcapital stock, the labor force, and combinedfactor productivity, respectively. But chang-ing levels of domestic energy output have anindirect influence on Soviet economicgrowth. The growth rate in the capital stockis influenced by current investment deci-sions; the size of the labor force is affectedby labor market policies; and productivitygrowth is influenced by both economic policyand “reforms” in the system. All of thesepolicies are affected in turn by domesticenergy conditions.

Plausible growth rates for the EleventhFYP period seem to be bracketed by “low”and “high” annual averages of 1.6 and 3.2percent respectively. The low rate suggests aperhaps politically unacceptable growth ratefor per capita consumption, well below 1.0percent per annum, but given that estimatedGNP growth for the U.S.S.R. was only 0.8percent in 1979 and 1.4 percent in 1980, thelower bound is clearly not impossible.

The methodology used in developing these“extreme” GNP growth rates is as follows:

1. The labor force is alternatively assumedto grow at 0.4 and 0.5 percent per an-num. The higher rate assumes variouspolicy measures designed to raise the


labor force participation rate above 88percent.

2. The growth rate for the Soviet fixedcapital stock is projected on the basis ofpublished CIA estimates of fixedcapital investment and the net fixedcapital stock for individual years in thelate 1970’s; and Soviet figures for 1980investment and planned investment in1981 and for the Eleventh FYP as awhole.29 By making reasonable assump-tions about the distribution of this in-vestment over the Eleventh FYP, it canbe estimated that, if plans are met, thenet fixed capital stock would increaseabout 5.4 percent annually.

3. Combined factor productivity is alter-natively assumed to decline by 0.5 per-cent and to rise by 1.0 percent annually.While the former prospect would bevery unwelcome, it is not out of thequestion. As indicated in table 53, com-bined factor productivity in theU.S.S.R. fell at an annual average rateof 0.7 percent between 1976 and 1980.The higher growth rate assumes thatthe various announced measures forraising productivity in the EleventhFYP would be enormously successful.OTA makes the conventional assump-tions of 0.66 and 0.34 for the imputedshares of national product accruing tolabor and capital respectively.

The Eleventh FYP projects the rate ofgrowth of “national income utilized” todecline by about one-fifth from the averagerate for 1976-1980. 30 Applying this same pro-portionate decline to the rate shown in table53 above for Soviet GNP growth for 1976-80,yields a rate of 2.2 percent per annum for1981-85, which is close to the midpoint of the“plausible” range posited here.

For each of the GNP growth rates, anestimate is made of the net energy tradebalance that would result from best-worst

alternatives for domestic and foreign tradeconditions with the non-CMEA world. Theprincipal assumptions underlying both casesare listed in table 57. The worst caseassumes an income elasticity of energy de-mand of unity (i. e., a l-percent increase inGNP leads to a l-percent rise in the demandfor energy). This corresponds roughly to therelationship existing in the U.S.S.R. between1965 and 1975. (For the Tenth FYP periodthis elasticity apparently significantly ex-ceeded unity. ) In the “best” case the energydemand elasticity is assumed to fall to 0.8.This would probably be considered highlyoptimistic by most experts, particularly inthe near future. For example, some esti-mates assume that the Soviet energyelasticity will remain at about 1.00 for thenext 20 years, or possibly fall to 0.9.31

The worst and best case assumptions fordomestic output of oil, natural gas, coal,nuclear, and hydroelectric power are listed intable 57, and are based on the analyses inchapters 2 to 5 of this report. With the ex-ceptions of gas and hydropower, these pro-jections somewhat discount official Sovietplan targets. The worst case assumption foroil, 550 mmt, is the upper bound of the re-vised range estimated by the CIA.

Table 58 presents the estimated Sovietfuel balances, both aggregated and by majorenergy category, for 1980 and for each of thefour 1985 scenarios (worst energy: high andlow GNP growth; best energy: high and lowGNP growth). Lacking sufficient informa-tion regarding fuel-specific conservation andinterfuel substitution possibilities, OTA hasrefrained from disaggregating domestic con-sumption by energy source. In table 58,estimated domestic energy demand (cal-culated using the appropriate energy de-mand elasticities from table 57) is subtractedfrom the total available domestic energysupply, leaving an estimated net fuel exportbalance. To this is added an assumed levelof Soviet 1985 energy imports from non-CMEA sources, leaving a gross fuel balanceavailable for export outside CM EA. For sim-.—.

“ Se[J (’amph[>ll, op. cit., table 1.

268 - Technology and Soviet Energy Availability

Table 57.—Major Assumptions Underlying1980-85 Scenarios

Worst case Best case

Income elasticity ofenergy demand. . . . . . . . . . . . . . . .

Petroleum output (mmt) . . . . . . . . .Natural gas output (bcm) . . . . . . . .Coal output ( mmt) . . . . . . . . . . . . . . .Nuclear power (bkwh) . . . . . . . . . . .Hydroelectric power (bkwh) . . . . . .

Average annual growth ratesfor real exports to non-CMEA area of (1979share of total exportsin brackets):

Timber products (7,5%) . . . . . . . .Platinum group metals (2.1%) . .Raw cotton (2.0%) . . . . . . . . . . . . .Chemicals (6.5%) . . . . . . . . . . . . . .Automobiles (1.4%) . . . . . . . . . . . .Diamonds (1.7%) . . . . . . . . . . . . . .Other products (23.7%) . . . . . . . .

Maximum permissiblenormalized trade balancea. . . . . . . .

Average annual growth ratesfor Soviet foreign tradeprices with non-CMEA area:

Export prices . . . . . . . . . . . . . . . . . .Import prices . . . . . . . . . . . . . . . . . .

1.0 0.8550 645600 640750 800170 227237 237

0%2.20

12,35.000

-0.50

2 .5%4,42.5

17.710.05.05.0

-0.50

10.0% 12.5%10.0 7.5

aMerchandise trade balance divided by the value of exports, see P 270


plicity OTA assumes that these imports re-main at their estimated 1979 level (roughly 7mmt of crude oil, and 2 billion cubic meters(bcm) of natural gas from Afghanistan.)32

This is not a forecast (indeed, gas shipmentsfrom Iran may have only temporarilyceased) but an assumption made to facilitatethe computations underlying the alternativescenarios.

The figures in table 58 raise some impor-tant issues. For example, the worst energy/low growth scenario (column 3) suggests anet fuel export balance of nearly 61 milliontons of oil equivalent (mtoe) (1.22 mbd), withcoal consumption declining from 1980 levels,and oil consumption virtually stagnating.Thus, unless significant substitution of gas

‘JCampbell, op. cit.; and tJan Various, “F;astern F;uropeanand Sot’iet Fuel ‘1’rade, 1970-1985, discussion paper No.80- 1() (1’ancou\’er: [department of ~:conomics, [Jni\rersity ofHrit ish Columbia, April 1980).

for oil in domestic consumption occurredfairly quickly, most or all energy exportswould have to be composed of natural gasshipments. An export level of 61 mtoe is im-posing by 1979 or 1980 Soviet gas exportstandards, however. OTA has estimatedthat present pipeline capacity might support27 to 29 mtoe of natural gas exports toWestern Europe. 33 For the “best” casescenarios, which yield even larger net fuelbalances but also larger implied natural gasdeliveries, the possible pipeline capacity con-straint could be even more serious.

Assessment of the foreign trade implica-tions of these net fuel balances also involvesassumptions regarding the possibilities forexpanding Soviet nonenergy exports to non-CMEA countries and Soviet terms of tradewith these nations. It is assumed here thatall non-CMEA trade roughly reflects pat-terns of trade with the Soviet Union’s hardcrrency partners. Given the difficulty ofseparating hard currency from non-CMEAsoft currency trade, and the very aggre-gative level of this analysis, it was notthought worthwhile to strive for a greaterdegree of accuracy. In any event, the focushere is on the net Soviet energy balanceavailable for export to the non-CMEA re-gion, and most of these exports are un-doubtedly made for hard currency.

Western trade statistics show that Sovietenergy exports accounted for an estimated55.1 percent of the total value of Soviet ex-ports to 17 “Industrialized West” (IW) coun-tries in 1979. 34 Six nonenergy export product

‘‘ 1980 Soviet gas deli\’cries to W’estern h;urope totaledroughl~r 23 bcm. The excess capacity of the orenhurg gaspipeline (i.e., after meeting annual commitments of 15.5 bcmto I’; astern ~~urope) a\’ailable for export to 1$’estern F;urope isabout 1‘2 to 11] bcm. Present pipeline capacity could, there-fore, support possibly 23 + 13 = 36 bcm x ().8 123 = 29 mtoe ofnat ura 1 Kas exports. .See Campbell, op. cit.: and (ioldman, ~.cit.

“rI’hese estimates are based on adjustments to unpub-lished data made a\ailable b~r the I)epartment of (’ornmerce.According to Vrze,shrljIcJ?I{l tc]r~()[lj’(1 S.%SR, 1!17.9, energy ac-counted for 50 percent of total 1979 exports to nonsmvalistcountries. A study b~’ .Jan Various (‘‘So\’iet and K;asternF;uropean Foreign Trade in the 1970’s: A Quantitati\’eAssessment, discussion paper No. 80-11 (Vancou\er: I)e-partment of I-; conomics, Uni\crsity of Hritish C(~lumbia,April 1 980) suggests that 1979 So\riet energy exports

Ch. 8—Energy and the Soviet Economy - 269

Table 58.—Fuel Balances by Category, 1985 Scenarios and 1980 Base Year(millions tons of oil equivalent)

1980 1985 1985 1985 1985base (worst energy, (worst energy, (best energy, (best energy,year a high GNP growth) low GNP growth) h igh GNP g row th ) low GNP growth)

Hydro, Nuclear Power and

“other” . . . . . . . . . . . . . . . 1075 138 134 150 146

Coal. ., . . . . . . . . . . . . . . . . 319.3 300 300 320 320

011 and products . . . . . . . . . . . 3541 362 364 444 446

Natural gas . . . . . . . . . . . . . . . . . 2496 368 370 396 399

Total . . . . . . . . . . . . . ., . 1,030.5 b 1,168 1,168 1,310 1,311

Domestic and CMEA energydemand c. ... . . . . . . . . . . . . . (1206) (1 116) (1169) (1099)

Net fuel balance . . . . . . . . . . . . 8 3d

(38) 52 141 212

1979 energy Imports fromnon-CM EA. . . . . . . . . . . . ., . g d

9 9 9 9

Gross fuel balance (availablefo r expo r t t o non -CMEA) . , 92 (29) 61 150 221

—a From CampbelI op cit table 2

b Net of alI exports and Imports of energyc The methodology for deriving the amount of energy available for domestic consumption and hard currency export relies heavily on Campbell OP cit and may besummarized as foIIows

a Assurn P a level of d omes!jc energy output I 011 gas coal hy dro and nuclear generated eleclrjcjt y and other e g Peal firewood shale 011) Output for the latter IS

ass~j med I per Campbell I to decl Ine from about 5 percent of energy demand n 1980 10 3 percent In the year 2000 at a rate of O 5 percent every 5 yearsb Suhlract net losses and Internal consumption and net lntrasector outflow per Campbell( SU bl rac, t ass~~ med level of net ex ports to the CM EA F o r SI m pl IC If y It IS assumed t hat a I I elect riclty ex ported to E astern E (I rope w II I be generated by nuclear power

f Ch 9 eslfmates 16 bkWh per year In 1981 85 } Other estimates are coal I net of coal [reports from Poland I 8 mmt 011 80 mmt annually m 1981-85 to EasternEurope arid 11 mmt annual Iy to non-European CMEA gas 30 bc m per year O TA ass urnes fhat fhese are fixed comrn(lmenfs that the S ovfe(s wI1/ horrorregdrd/e5S of Ihefr owrl frlle(lla / energy S,luaf) On

rj ~(, (tl ~ I ~ fhe resu It of f a ~\ C I by Convp rslon faC!Or 10 Obta I n amount av al la hle fol dlstr bl)tl On

P Subtract nonfuel uses fror 011 and gas assuming the following per annum growth rates

GNP Oil Natural gas

32% 2 5% 4 0%24 15 3016 10 20

d Based on C I A InternationalI Energy Statistical Review March 31 1981 Wharton Econometric Forecas!lng Associates Inc Centrally Planned Economics Projectun PU bl IS hed data

groups, listed in table 57 and together ac-counting for an additional 21.2 percent ofSoviet exports to the IW in 1979, wereanalyzed and assigned individual best andworst case growth rates, in terms of real ex-port growth. In each of these markets realexport growth is determined by both supplyand demand. Detailed analyses taking intoaccount such conditions for each productgroup were beyond the scope of this study.

[l nlf)u nt t’[i to :i 1)( )u t 6 1 pvr[’(’nt f)f Lt}lal S(j\it’t nonarnls LIX -port \ to non-(” 71 t: ~1 c(~un[ rit’<. ( ii\cn the r-ou~h equl\alvncef ) f a II t h[>w’ pr( )p( )r t i [ )n ~. i t ~t~t~nlt>(l rt’a son;i t) It> t () u WI t ht’ nmr[~{i{’t a t 1(’(J I if \t a t is t i(i :]+ a t)a ~i + for ~’alcu la t ing t ho w(~igh[s oft’n(’rg~ ii nd s(’ltIt!t {I(1 md 1 or n On(~nm-gy (IX pOr(s in total SOY’1(’tJI( I JI:i rm < (Ix pOr t < t ( )r h :i rd (’u rr(’n c}’.

Past real export and domestic output per-formance was investigated for some prod-ucts, however, in an attempt to generateplausible worst and best case estimates forreal export growth in the 1980’s. Some ofthese considerations are briefly set forth inappendix A.

Attempting to estimate price develop-ments for each of these product groups is aneven more speculative exercise than makingreal export growth projections. This is equal-ly true for the prices of Soviet imports fromnon-CMEA sources. Consequently, OTA hassimply assumed a uniform rate of inflationfor all exportable, and a uniform rate of


price increase for all importable. Indeed,assuming an unchanged relative price struc-ture within each category of goods is morereasonable than attempting to estimaterates of inflation for separate productgroups. By distinguishing clearly betweenexports and imports, one can still assumethat Soviet terms of trade change.

Price indices developed on the basis of of-ficial Soviet trade statistics suggest thatSoviet export and import prices in trade withnon-Socialist countries increased at annualrates of 4.5 and 3.1 percent respectively be-tween 1970 and 1978.35 This implies an aver-age annual improvement in terms of trade ofabout 1.3 percent. However, a possible up-ward bias in the export quantity indexemployed here may understate the rate ofexport price increase. It has been estimated,for instance, that between 1971 and 1977Soviet export and import prices in “hard cur-rency trade” (a subset of trade with non-socialist countries) increased at average an-nual rates of 20, 21, and 12 percent respec-tively. This suggests an average annualterms-of-trade improvement of about 7 per-cent.36

As a “best” case, OTA assumes thatSoviet export prices in trade with the non-CMEA area increase by 12.5 percent annual-ly, whereas import prices rise by 7.5 percent.The implied annual terms-of-trade improve-ment is about 4.7 percent. For the worst caseit is assumed that all foreign trade prices riseat 10 percent a year, leaving Soviet terms oftrade with the non-CMEA region un-changed.

Soviet import capacity is not determinedsolely by the growth of Soviet real exports ofenergy and nonenergy products and theterms of trade. Revenues from gold sales,services, and military sales to variousdeveloping countries have often accounted

“)Hewett, “rI’he Foreign Sector, ” op. cit.“’Paul l~ricson and Ronald S. Miller, “Soviet Foreign Eco-

nomic Behavior: A Balance of Pa~’ments Perspective, inJoint Econorilic Committee, U.S. Congress, So{ Iie( Econorn.vin u ‘Ti mc of ( ‘hu ngc, vol. 2 IMrashington, D.C’,: U ,S. Govern-ment Printing office, 1 979), pp. 208-243.

for more than enough hard currency to offsethard currency merchandise trade deficits.Furthermore, the U.S.S.R. has financedmuch of its trade deficit in recent years withWestern credits.

Data on gold sales and arms shipmentsare notoriously poor, and erratic movementsin gold prices increase the difficulty of pro-jecting hard currency revenues from thissource. Moreover, any attempt to estimateSoviet credit drawdowns would be an ex-tremely complicated and speculative under-taking. OTA has therefore assumed that,regardless of Western credit availability andsupply-demand conditions on world gold andarms markets, Soviet policy makers wouldavoid allowing the hard currency merchan-dise trade deficit to exceed, at least for anyextended period of time, some reasonablyconservative proportion of current Soviet ex-ports. This analysis therefore utilizes theconcept of a “normalized” trade balance,which is the merchandise trade balancedivided by the value of the exports.37

The U.S.S.R. normalized balance variedbetween – 0.11 and – 0.82 in the 1970’s. Itreached its most negative value in 1975, dueto a rapid increase in Soviet imports and aweakening of Soviet exports to the Westbecause of recession. The U.S.S.R. was ableto bring the normalized deficit to below– 0.30 by 1977. Changes in the value of thenormalized deficit have also typically(though not inevitably) been associated withmore gradual changes in the Soviet debtservice ratio, because varying degrees of themerchandise trade deficit can be financed bygold and arms sales.

For both the “worst” and “best” casesOTA has assumed that maximum permissi-ble normalized trade deficit for 1985 is – 0.5.

“rl’his concept was first used by Edward A. Hewett in,“So\iet Primary Product Exports to CMEA and the West, ‘“paper presented to the Association of American GeographersProject on National Resources in the World Economy, May1979; and has also been used by Thomas A. Wolf, “Alter-native Soviet Hard Currency Scenarios: A Back of theP;nvelope Analysis, ‘“ app. I I I in Phillip D. Stewart, Souietfi>ncrg?’ ~)ption. s und United Stutes Interests (Columbus,ohio: hlershon Center, April 1980), pp. 37-56.

Ch. 8—Energy and the Soviet Economy ● 271—

In other words, the hard currency deficit isallowed to equal one-half the value of Sovietexports (or imports could be 1.5 times asgreat as exports). The exact manner in whichthis deficit is financed remains unspecified.Possibly under the “best’” conditions moreWestern credit would be available, and theU.S.S.R. would be more willing to take ondebt obligations, whereas in the “worstcase” scenario credit sources might dry upand the U.S.S.R. would have to more rapidlyincrease gold and arms sales.

Table 59 presents the different hard cur-rency trade outcomes implied by alternativeassumptions regarding: 1) GNP growth, 2)domestic energy supply and demand condi-tions, and 3) foreign trade conditions. Soviethard currency import capacity has beensingled out for the following reasons: 1) TheSoviets view hard currency imports–whether grain, machinery and equipment, ortechnology-as an important stimulus todomestic productivity growth and to generaleconomic development. 2) The U.S.S.R.cannot afford to run indefinitely a hard cur-rency deficit above some “prudent” level, afact which will constrain Soviet ability to im-port both fuels and nonenergy items, andunder certain circumstances, may seriously

constrain Soviet economic growth. 3) Thedegree to which the U.S.S.R. can increase itsreal hard currency imports will have a bear-ing on its foreign economic and politicalpolicies.

Most observers of the Soviet energy situa-tion now dismiss—if indeed they ever enter-tained–the possibility that the U.S.S.R.itself might become a net importer of energyby 1985. This judgment is easily supportedby the outcome in table 59 for the high GNPgrowth/worst case scenario in which theU.S.S.R. would have to import 38 mtoe(763,000 barrels per day) of energy in orderto meet domestic demands and fixed com-mitments to other CMEA countries. Even ifthe normalized trade deficit quintuples to– 0.5 by 1985, Soviet real imports ofnonenergy products from the non-CMEA re-gion would in this case still have to declineby an average of 9.2 percent a year. By 1985real nonenergy imports would be only 56 per-cent as great as they were in 1979. Whilesuch a circumstance is not impossible, itwould send East-West trade into sharp de-cline and could put enormous pressure on theSoviet Union to solve its energy problems inother ways.

Table 59.—Alternative Scenarios for 1980-85a

GNP growth Worst case Midrange b Best case

(Average Net fuel Maximum Net fuel Net fuel Maximumannual rate) balance growth of balance balance growth of

(MTOE) non energy (MTOE) (MTOE) nonenergyimports from imports fromnon-CMEA non-CMEA

(average (averageannual annual

rate) rate)

3.2% (38) -9.2% 141 1 9.3%12.7% 92 15.2%

1,6% 52 3,3% 212 24.2%

aAl I growth rates are actually calculated for the period 1979-85, because base year value and export weight figures are Included In the appendix expressions and 1979 IS themost recent year for which dwaggregated value data on Soviet foreign trade IS presently available The actual value for the normalized trade deffclt tn 1979 was -O t 1 TheSoviet net fuel balance (as defined In table 58) for 1979 was estimated as 83 mtoe (60 8 mmt of petroleum and petroleum products, 207 bcm of natural gas, and roughly102 mmt of coal exported to non-CMEA destlnatlons) Add!ng to this estimated Soviet energy Imports from non CMEA sources of 9 mtoe gives a gross fuel balance (I eavailable for export) In 1979 of 92 mtoe The total percentage growth of energy exports between 1979 and 1985 IS then calculated by relat!ng the estimated gross fuel balan ce for 1985 (e g 61 mtoe for the worst casellow growth scenar{o) to the base year balance for 92 m toe

bin this Scenario, middle range values for GNP growth and domestic energy supply and demand conditions are assumed for bofh cases Worst and best cases heretherefore refer only to rates of real nonenergy export growth The terms of trade are assumed to Increase by the same amount In both casesSOURCE Off Ice of Technology Assessment


While military and political solutions tothe “worst case” energy situation are possi-ble, a less drastic and perhaps more likelyresponse would be to permit the energy con-straint to slow the rate of economic growth.Maintaining some level of hard currencyenergy exports would lead to growingdomestic energy shortages. These shortagescould stimulate redoubled conservation andsubstitution efforts, but the near-term im-pact might largely be in terms of reducedeconomic growth. As growth slowed, energydemand would fall, and the U.S.S.R. wouldmove toward the low growth-worst case out-come in the lower left corner of table 58.

When GNP growth slows to 1.6 percent,the ability of the U.S.S.R. to expand its realnonenergy imports from the non-CMEAregion is respectable, albeit limited. A yearly3.3-percent growth of real imports wouldmean a dramatic slowdown in the enormousgrowth of the past two decades, financed inthe second half of the 1970’s by windfallgains caused by exploding energy prices.(Soviet real imports from nonsocialist coun-tries grew at annual rates of 9.3 percent inthe 1960’s and 12.7 percent between 1970and 1978.38) Such a low GNP growth ratemight be politically intolerable. Even withinvestment growing at only 2.5 percent ayear, and with a slowdown in the growth ofdefense spending, annual GNP growth of 1.6percent could easily reduce annual per capitaconsumption growth below 0.5 percent. Thiscompares with an annual average growthrate of 2.5 percent in the period 1971-79.39

If the low extreme of the new CIA oil out-put estimate for 1985 (500 mmt) were usedfor the “worst case” analysis, the outlook forSoviet hard currency trade and economicgrowth would worsen. Specifically, the max-imum growth rate for Soviet nonenergy hardcurrency imports would fall to minus 16 per-cent and minus 3.1 percent for the high and

‘“ Ilewett, “’i’he Foreign Sector, ” op. cit.“’Schroeder-( lreenslade, op. cit.

low growth scenarios respectively. The cor-responding net fuel balances would be (83)and 16 mtoe (1.67 million and 321,000 bar-rels per day respectively).

The “best case” scenarios yield muchhigher net fuel balances and permit annualgrowth of real nonenergy imports from thenon-CMEA region of between 19.3 and 24.2percent. Even in the event of rapid GNPgrowth, the U.S.S.R. would emerge with anet fuel balance larger than it has today.Both these instances, however, raise thequestion of how this much energy would bephysically exported, particularly if consider-able substitution of gas for oil in domesticuses were not achieved. Energy exports toEastern Europe could be raised above plan-ned levels, but again, if most of the increasewere to be in the form of natural gas, thelogistical feasibility of transporting the gasis uncertain.

It is highly unlikely that the U.S.S.R. willbe faced with either the worst or best cases.Assuming that the most probable outcomefalls between, OTA has also calculated theimplied maximum growth of nonenergy im-ports from the non-CMEA region under mid-range economic growth and domestic energyconditions that yield a net fuel balance of 92mtoe (1.85 mbd). Depending on the rate ofgrowth of nonenergy exports to the non-CMEA area, real non-energy import capaci-ty would grow in this case by 12.7 to 15.2percent annually, consistent with Soviet per-formance in the 1970’s. This result is essen-tially due to the assumed improvement ofroughly 5-percent- per-annum in Sovietterms of trade under conditions of netenergy exports. Indeed, this analysis showsthe very important role that the terms oftrade play in determining the growth ofSoviet real import capacity. For the bestcase scenarios, for example, a l-percent-per-annum improvement in the terms of tradehas the same impact on Soviet import ca-pacity as an increase of 17.8 mtoe (357,000bpd) in the Soviet net fuel balance.

.

Ch 8—Energy and the Soviet Economy . 273

ALTERNATIVE SOVIET HARD CURRENCY TRADESCENARIOS, 1990

The effects of different levels of Westernassistance will be reflected much morestrongly in Soviet energy output by 1990than will be the case by 1985. An interestingissue here is the difference Western assist-ance might make in the Soviet Union’scapacity in 1990 to import nonenergy prod-ucts (grain, machinery and equipment, tech-nology, consumer goods, intermediate in-dustrial products) from outside the CM EA.

OTA has considered two cases: maximalWestern trade, technology, and creditavailability for Soviet energy projects; andminimal Western energy assistance. Theformer case assumes development and com-pletion of the West Siberian gas exportpipeline (see ch. 12) by 1985 or 1986, as wellas other large-scale projects possibly di-rectly involving the United States andJapan. The minimalist case assumes a vir-tual embargo or at best a very low level ofWestern energy-related technology transfer,pipe deliveries and energy credits to theSoviet Union. No attempt is made in thisanalysis to examine the feasibility of themaximalist case on the supply side.40

Rather than deal with a number of com-binations of Western trade policy, Sovietenergy conditions and economic growthrates, a single plausible Soviet energy situa-tion is assumed, and a single constant rate ofSoviet economic growth for the entire periodis posited. The growth of nonenergy exports,the terms of trade and the maximum allow-able “normalized’ trade deficit are alsoassumed to be the same regardless of the

“)fjecaus(’ of the d[)art h of hard data and hecause the focusher-c is on th~’ %~iet side of the }Zlast-il’est r-elat ionship, thea na 1}’ <is proceeds n~)t from [’s t i ma tes of the scale o f \f’es tern[’x ports and credit a\a ila hilit~’, but r-at her from aggregati\’ehut plausihlr assurnptioms r(~garding the impact of suchass i sta nce on 1990 So\’iet output lc\’els for d i ff~’ren t ~’nrr~r>rW)U reels, Such issues as whet hc>r or at what ttlrnls suffici(>ntM’cstern financing for such \cntures could he arranged arenot considered.

state of Western trade policy.41 Specifically,OTA assumes that the Soviet economygrows at an average annual rate of 2.4 per-cent, which is the midpoint of the extremegrowth rates considered for 1980-85. An in-come elasticity of energy demand of 0.9 isassumed, again half way between the highand low elasticities considered for the earlierperiod. Nonenergy exports are assumed toincrease at rates that are for the most partintermediate between the 1985 worst andbest case assumptions. Soviet terms of tradeare assumed to increase at 2.3 percent an-nually, and the normalized deficit is per-mitted to rise to – 0.5. Planned levels ofSoviet energy exports to CMEA are retainedat 1985 levels. Again, worst and best casesfor energy production are based on chapters2 to 5 in this study. These assumptions aresummarized in table 60.

The discussion in the foregoing chaptersleads to the conclusion that Western energytechnology and equipment would have arelatively greater quantitative impact on theSoviet gas industry than on the oil industry.Translating such a judgment into numericalproduction levels is a highly speculativeexercise. The figures in table 60 should,therefore, be seen as merely illustrative ofthe possible impact of Western assistance onthese industries.

For oil, OTA assumes that Western assist-ance would make no more than a 10 percentdifference in output levels. Given a policy ofmaximal assistance, OTA estimates thatSoviet natural gas production in 1990 couldbe 100 bcm (or 15 percent) higher than other-wise. This assumes that the new export pipe-line to Western Europe would lead to an an-

‘1 For simplicity}. the normalized trade deficit is assumednot t o app]~’ to credits rel a t ccl t o nrwf energ}’ projm’ts. )1s con-templat d, t hose projects would in\ol\re a \cr~ rapid huildupin credits to ahou t 1 W5-86 a ncl then equa ll~r fast repa~nwn thy ahout 1990.

274 Technology and Soviet Energy Availability

Table 60.—Major Assumptions Underlying1990 Scenarios

Worst case Best case(minimal Common (maximalWestern to Westernenergy both cases energy

assistance) assistance)

Income elasticity ofenergy demand. . . .

Petroleum output(mmt) . . . . . . . . . . . . .

Natural gas output(bcm) . . . . . . . . . . . . .

Coal output (mmt) . . .

Nuclear power(bkwh) . . . . . . . . . . . .

Hydroelectric power(bkwh) a

Average annualgrowth rates forreal exports tonon-CMEA area:

Timber products. . .Platinum groupMetals . . . . . . . . . . .

Raw cotton . . . . . . . .Chemicals. . . . . . . . .Automobiles. . . . . . .Diamonds . . . . . . . . .Other products . . . .

Maximum permissiblenormalizedtrade balance. . . . . . . .

Average annualgrowth ratesfor Sovietforeign tradeprices withnon-CMEA area:

Export prices . . . . . .Import prices . . . . . .

0.9

500

665

850

411

271

1.0%

3.01.0

10.05 02.02.0

550

765

875

470

271

of existing 1990 production estimates istremendous. These are from 350 to 450 mmt(CIA) to 750 mmt (The Economist Intel-ligence Unit). (see ch. 2). The assumed rangeof 500 to 550 mmt in table 60 falls roughlyhalfway between these two extremes.

The outcomes for the worst-best case sce-narios are reported in table 61. WithoutWestern assistance, the Soviet net fuelbalance (i.e., net fuel available for export tothe non-CMEA region) declines from 83mtoe (1.67 mbd) in 1979 to a deficit of 12mtoe by 1990. With maximal Western help,on the other hand, the net fuel balance in-creases by over one-third to 126 mtoe (2.53mbd) in 1990. As with the scenarios for 1985,however, one would want to examine in somedetail the technical capacity of the Sovietsactually to export such large volumes offuels, particularly natural gas.42

42 For the best case scenario, 1990 Soviet energy demand isestimated as 1,276 mtoe. 1990 estimated Soviet “availableenergy” (i.e., after assumed exports to CMEA), balances foreach fuel category (Campbell, op. cit., estimates of 1980domestic energy consumption by category are in paren-theses) are: hydro, nuclear, and “other”’= 209 mtoe(108); coal= 350 mtoe (319); oil= 404 mtoe (354); and gas= 480mtoe (250).

-0.50Table 61 .—Alternative Scenarios for 1990 (percent)

1 O . O %7.5%

a Based on Campbell OP cit.


nual output increase of from 40 to 70 bcm,that joint U.S.-Japanese-aided projectscould yield an additional 20 bcm, and othersmaller scale efforts could augment Sovietgas output (but not necessarily Soviet ex-ports) by 10 to 40 bcm.

The assumed production levels are, ofcourse, key to the quantitative outcomes ofeach scenario. For oil in particular, the range

Worst case Best case(minimal (maximalWestern Westernenergy energy

assistance) assistance)

1990 net fuel balance . . . . . . (12) mtoe 126 mtoe

Percentage change in netfuel balance (1979-90) . . . -100% 51%

Percentage change incapacity to import non-energy products from non-CMEA area (1979-90) . . . . 14% 163%

Implied average annualgrowth rate for real importcapacity. . . . . . . . . . . . . . . . . 1.2% 10.2%

aThis would be the average annual rate of growth of nonenergy Imports from thenon-C MEA region Implied by the level of real nonenergy related Imports that theU S S R could purchase in 1990 after repayment of energy project-related debtThe actual average annual rate of growth of such Imports prior to debt repaymentwould be considerably smaller



Given the foreign trade conditions positedabove, the Soviet Union’s capacity to importnonenergy products from the West grows inreal terms between 1979 and 1990 by 14 per-cent in the worst case and by 163 percent inthe best case. These changes translate intoper annum growth rates of 1.2 and 10.2 per-cent respectively. The latter figure, however,must be interpreted with great care. Thesignificant increase in energy exports im-plied in the best case outcome would only oc-cur in the second half of the decade, aftercompletion of the massive natural gas pipe-line projects and after technology transfer inthe coal, nuclear, and oil sectors had had anappreciable effect. Furthermore, a good por-tion of these incremental energy exports

would have to be used to pay off project-related debts in the 1986-90 period. Conse-quently, under the assumed conditionsSoviet real imports of nonenergy and non-energy-project products would actually growat a rate somewhere between 1.2 and 10.2percent. Nevertheless, assuming that thebulk of these large Western credits had beenretired by 1990, Soviet real import capacityat that time would have increased by 163percent, having grown at an average annualrate of 10.2 percent since 1979. In the worstcase scenario Soviet real import capacity in-creases at a negligible rate. In the best case,the growth in import capacity almost mat-ches the growth rate of the 1960’s.


Soviet economic growth has graduallyslowed in recent years, and even without anenergy “problem, it is likely that growthwould continue to decelerate in the 1980’s.The basic causes of this slowdown are fallingrates of growth of the Soviet capital stockand labor force. Recently their impact hasbeen reinforced by stagnating or decliningproductivity, only in part the result ofadverse weather conditions. Even in theabsence of a serious decline in Soviet oil out-put, the Soviet economy in this decade willprobably not be able to attain the growthrates of the 1970 unless significant gains inproductivity can be achieved.

It is generally agreed in the West thatsignificant productivity increases are unlike-ly to occur in the absence of more profoundchanges in the Soviet planning and manage-ment systems than are presently contem-plated. Superimposed on these fundamentaltrends and challenges to the Soviet plannersis now the possibility of a plateauing or evendecline in oil output. A decline would certain-ly cause Soviet growth to slow even more,although the magnitude of such a slowdownis not at all obvious. The impact of fallingdomestic energy supplies will depend on a

system of complex relationships in the econ-omy, and on Soviet priorities and actualpolicies regarding the composition of thefuture energy balance and foreign trade pat-terns. The formulation of Soviet energypolicy takes place in a political context andinvolves a number of different interests andactors. It now appears that this policybroadly favors gas and nuclear development,partly at the expense of the oil and coal sec-tors.

The foregoing discussion has attempted tosuggest the major direct and indirect eco-nomic ramifications of basic Soviet economicpolicy options. There is nothing to keepSoviet planners from pursuing some or all ofthese policies simultaneously. They prob-ably will pursue most of them in somemeasure. But every policy carries with itcosts and benefits to the Soviet economy. Inan effort to give some rough order-of-mag-nitude sense of how the Soviet economymight be affected by the energy situation,OTA has developed several alternative sce-narios for Soviet energy and aggregate eco-nomic conditions in the 1980’s. The “worst”and “best” case scenarios are meant tobracket plausible outcomes for Soviet eco-


nomic growth, energy balances, and growthin hard currency import capacity. Thesescenarios should not be viewed as pre-dictions. They are simply attempts to setforth plausible ranges for the parametersunder which Soviet economic policy makerswill have to operate over the next decade.Each scenario is based on a long list ofsimplifying assumptions.

The scenario outcomes for the period1981-85 suggest that if most or all of the‘ ‘worst case assumptions materialize, So-viet economic growth could slow considera-bly during the Eleventh FYP. Annual ratesof GNP growth would probably be much low-er than the 2.8-percent-per-annum averagerecorded for 1976-80, and could result insmall and perhaps politically unaccept-able increases in real per capita consumptionfor the Soviet population. Under such condi-tions the ability of the U.S.S.R. to increaseits real nonenergy imports from the Westwould also be seriously impaired. This wouldnegatively affect the overall growth pros-pects for East-West trade and would in turnplace further strains on the Soviet economy.

Under a series of “best” case conditions,the Soviet Union would be able to continueto grow at a rate approximating overallSoviet performance for the Tenth FYP. Atthe same time, its net fuel balance availablefor export to the West would increase over1979-80 levels. This, combined with con-tinued improvements in Soviet terms oftrade under “best” conditions, would permitthe U.S.S.R. to expand real hard currencyimports at historic rates and possibly todivert more energy than presently con-templated to Eastern Europe.

Actual conditions will likely fall some-where between these extremes. If theU.S.S.R. encountered economic growth,energy, and foreign trade conditions mid-range between those assumed for the worstand best cases, the Soviet Union might beable to maintain energy exports to the Westat about 1979-80 levels and continue to in-crease its real hard currency imports at ratesestablished over the past 15 to 20 years. This

would make possible annual per capita con-sumption growth well above 1 percent.

OTA assumed that Western assistance inthe development of Soviet energy resourceswould have its greatest quantitative impactafter 1985. The 1990 scenarios therefore con-sider the possibility of minimal Westernenergy assistance (the “worst” case) andmaximal Western cooperation (the “best”case). Such help, in the form of exports ofenergy-related equipment, materials andtechnology, and extensive export credits,would be forthcoming principally in the1981-85 period. The credits are assumed tobe more or less fully repaid by 1990. Most ofthe assumptions regarding energy and for-eign trade conditions are essentially “mid-range’ estimates.

In the worst case scenario, Soviet fuel ex-ports would disappear by 1990. Soviet ca-pacity for hard currency imports (in realterms) would grow at a little more than 1 per-cent per annum in the 1980’s, contrasted toannual growth of over 12 percent in the1970’s. With massive Western assistance inenergy development, on the other hand, oncethese project debts were repaid, Soviet im-port capacity would more than double. Thiswould mean that the Soviet capacity to pur-chase real imports from the non-CMEA areawould have increased at an effective annualrate of over 10 percent a year. Real non-energy-related imports in the interim wouldnot have grown so rapidly because most ofthe increase in the net fuel balance would oc-cur only after 1985, and debt repaymentwould eat into energy export revenues up to1990. In both cases, real GNP was assumedto grow at a ‘‘midrange" value of 2.4 per-cent, a rate that would be compatible withreal per capita consumption growth in ex-cess of 1 percent a year.

Sizable increases in the Soviet fuel balanceavailable for export to the West raise thequestion of whether all of the impliedbalance could really be exported. The issuearises because the big gains in domesticenergy production are likely to come innatural gas. In most cases sizable oil exports


could only be maintained if very significantsubstitution of gas (not coal) for oil werepossible. If gas is to replace rather than aug-ment oil exports, a much-expanded naturalgas pipeline network, perhaps even beyondthe scale of ongoing and contemplated proj-ects, is needed. More precise judgmentsabout these constraints, however, wouldonly be possible after examining much moreclosely the degree to and rate at which gascan really be substituted for oil in domesticconsumption.

range of plausible outcomes, they suggestthat the simultaneous maintenance of apolitically feasible rate of economic growthin the U. S. S. R., the further expansion of realenergy exports to Eastern Europe after1985, and a reasonably high rate of growthof East-West trade (in real terms), will hingeimportantly on whether or not the Westplays a significant part in developing Sovietenergy sources, and particularly gas, in the1980’s.

Assuming that the worst-best casescenarios for 1990 are at all close to the

Appendix A. – Export and Domestic OutputPerformance for Selected Nonenergy Products

TIMBER

Although subject to considerable cyclical fluc-tuations, Soviet real exports to the West of tim-ber products (mainly sawn lumber to WesternEurope, sawlogs to Japan, and pulpwood) tendedto stagnate in the 1970’s. Real exports of sawlogsincreased only about 4 percent in the course of the1970’s and declined between 1975 and 1979. Lum-ber exports declined by 20 percent between 1970and 1975 and then increased to slightly morethan their 1970 levels by the end of the decade.Timber export prices tended to grow at 10 to 12percent per annum in the first half of the decadeand at about 10 percent annually after 1975. Ac-cording to Soviet statistics the volume of timber-cutting in the U.S.S.R. actually declined between1975 and 1979. ’ The Eleventh Five-Year Plan(FYP), however, calls for a 17- to 19-percent in-crease in output in the wood products sector overthe next 5 years.2 On the basis of this informa-tion, OTA assumed a plausible range of zero to2.5 percent annual growth in Soviet real timberproduct exports to the non-Council for MutualEconomic Assistance (CMEA) region. The upperlimit is based on an optimistic Western assess-ment of Soviet timber production by 1990.3

PLATINUM

Soviet platinum group exports, primarilydirected to Japan, West Germany, and theUnited States, have fluctuated considerably overthe past decade, presumably because of rapidlychanging demand conditions and the possibletendency to utilize platinum exports as a residualfinancing mechanism, much the way gold appearsto be used.4 Estimated Soviet production of thesemetals increased at an average annual rate of 4.1percent between 1970 and 1979, although growthslowed to 2.2 percent per annum after 1975.5 OTA— —.— —-—

‘Jlrur(dnove kht)z~u}st{ I() S.S.SR, 1979.‘F~kt]/lf~r~~~ch~’.\k[~}~~ Hazetu. No. 49, I)ewmher 1980.‘Hrenton It!, tlarr, “I)omestic and 1 nternational Implications of Re-

gional (’hange in the So\iet ‘1’imber and W’ood. Processing Industries,Association of American (;eogr-aphers Project on So\riet Natural Re-sources in the W’orld ~kwnom~., .J urw 1978, manuscript.

4See Ronald (; oechsler and Iiedija 11 Kravalis, “(’on~plt’nlentari~}”in LJ S, I repor t Needs and So\’iet F]xport Capahilit ies: I)latinum,

;,

unpublished study, F’eh. i 5, 19’79; and Thomas A. W’el f , “So\ietPrimar} Product b:xports to the W’est: An k:mpirical Anal}sis ofLlarket l’ower and I)rice St~nsiti\it~, stud}’ prepared for- the ( )f’fice ofE;xternal Research, {~ S I)epartmt’nt of State, Septemher 1 W)

“(’al culatt’d from (’1A, }I[ltt(ih,)ok [)~}’;([ln(~mi[ StalI.stIcs. op. cit.

has taken this latter rate as a basis for the lowerbound of real export growth up to 1985, with theupper bound assumed to be twice this rate (4.4percent).

COTTON

Soviet production of cotton grew considerablyin the 1970’s, with output rising at an average 2.7percent annually from 1970 to 1975 and 3.8 per-cent between 1975 and 1979.6 From a fairly lowbase, Soviet exports of raw cotton to the West(principally Western Europe and Japan) rose byan average 30 percent a year in the first half ofthe decade, slowing to about 2.5 percent per an-num after 1975.7 In his 26th Party Congressspeech, Soviet Prime Minister Tikhonov in-dicated a goal of 9.2 million to 9.3 million tonsaverage annual cotton production between 1981and 1985, which suggests essentially no growthover 1979 output.8 OTA’s range for exportgrowth was therefore set at an annual rate of zeroto 2.5 percent, the worst case figure assuming aconstant ratio of hard currency exports to output,the latter assuming that the export growth rateof the late 1970’s could be maintained.

CHEMICALS

About three-quarters of Soviet chemical ex-ports to the West in 1979 were accounted for by“radioactive chemical elements’ shipped pri-marily to France and West Germany. No data areavailable on these exports in real terms, but realgrowth has obviously been dramatic, as the totalvalue of shipments to the IW rose from only $60million in 1975 to $922 million in 1979.9 OTA hasfairly arbitrarily assumed that these exportswould increase by another $250 million to $500million by 1985, in 1979 prices.

The Organization for Economic Cooperationand Development (OECD) has estimated that an-nual CMEA deliveries to the West of chemicalson the basis of recent compensation agreementswill total some $1.0 billion to $1.5 billion in the-— . . - — —

6 ,!”(lro(ino}{” kho:)w \\t/ I() S.S.S}{, 19N\“ri(].ihff w\r(J t(JrR(~(/\w S.$.SR, t’arious issues.

“fi.’k(~nt~n~l(h(~.~k[j~[~ g(Jzt’t(J, No. 10, hlarch 1981.‘+lledija f I Kra\ahs, et al., “So\it’t F;xports to tht> I ndustriallzed

}f’est: l’erformanct> and l’respect ~,’ in L I S. (’ongress <Joint ~;cononl]c(’omnlittee, S’()[ict ~~((III~)m 11 n u 7’Im{ of ( ‘han,Kc, vol 2 (lt’ashington,1).(’ : LI S ( ;o~ernn]~’nt I’rlnting office, 19’79), pp. -t 1 -t.-l(; 1; and IJ.S.I )epart mmt of (’onlmerc(l data

278


early mid-1980’s, presumably in constant (i.e.,1979 or 1980) prices. Roughly 90 percent of thesedeliveries are to come from the Soviet Union.OTA has, therefore, taken $1.0 billion to $1.5billion as a plausible range for the increase by1985 in Soviet chemical exports to the West in1979 prices. (As OECD points out, however,whether all of these compensation deliveries willaugment rather than replace current deliveries isnot known. ) Combining the very rough estimatesfor enriched uranium and compensation deliveriesyields a range for average annual growth of realSoviet chemical exports to 1985 of 12.3 and 17.7percent.

AUTOMOBILES

Soviet exports of automobiles to the IW coun-tries increased from 8,000 units in 1970 to 60,000in 1975 and 110,000 by 1979.10 The average an-nual growth rate for 1975-79 was about 16 per-—. . . . .—

10 ~’ne~hnyava t(jrgol IVU S.~.VR, ~’ari~us issues.

cent. Assuming a continued strong Soviet push inthis area, OTA set a 5- to 10-percent-per-annumplausible growth rate range for automobile ex-ports in the 1980-85 period.

DIAMONDS

Soviet diamond exports are in many respectsmore of a mystery than platinum group metals. Ithas been estimated, however, that real diamondexports fluctuated relatively little and withouttrend between 1971 and 1977.11 Rather arbitrari-ly, real diamond exports are estimated to increaseat an average annual rate of zero to 5 percent to1985.

All other Soviet exports to the West, (no one ofwhich, at the SITC 4- to 5-digit level of aggrega-tion, exceeded more than one percent of Soviet ex-ports to the IW in 1979), are also arbitrarilyassumed to grow within the range of O to 5 per-cent to 1985.

‘‘Ericson and Miller, op. cit.

CHAPTER 9

East EuropeanEnergy Options

84-389 0 - 81 - 19

CONTENTS

Page

INTRODUCTION . . . . . . . . . . . . . . . . . .284

ENERGY SUPPLY AND DEMANDIN EASTERN EUROPE, 1960-79:MAJOR THEMES. . . . . . . . . . . . . . . .285

Reserves . . . . . . . ...................285Energy Imports . . . . . . . . . ...........285The Energy Balance. . ...............285The Role of the U.S.S.R.. . ............286

EAST EUROPEAN ENERGYSUPPLIES IN THE 1980’S. . .......290

The Coal Industry. . .... . . . . . . . . . ....291The Nuclear Power Industry . . . . . . . . ..295Soviet Electricity Exports to

Eastern Europe. . ... . . . . . . . . . . . . . .299Other Domestic Sources o fEnergy .. ...299Conclusions. . . . . ... . . . . . ...........300

EAST EUROPEAN ENERGYDEMAND IN THE 1980’S. . .......301

EAST EUROPEAN ENERGYIMPORTS IN THE 1980’S:IMPLICATIONS FOR TRADEWITH THE SOVIET UNION ANDTHE REST OF THE WORLD. ......304

Import Needs: Best, Worst, andMiddle Cases . . . . . . . . . . . . .........304

Soviet Energy Exports toEastern Europe. . . . . . . . . . . . . . . . . . .305

Hard Currency Requirements. . . .. ....306

SUMMARY AND CONCLUSIONS. .. .308

LIST OF TABLES

Table No. Page

62. Soviet Exports to CMEA of CrudeOil and Oil Products, 1970-80.......288

63. Soviet Natural Gas Exports,1970-80 . . . . . . . . . . . . . . ..........289

64. Comparison of Unit Values forSoviet Gas and Oil Exports, 1976...289

65.

66.

67.

68.

69.

70.

71.

72.

73.

74.

75.

Page

East European Plans for CoalOutput in 1985 and 1990..........291Projected and Planned EastEuropean Coal Production. . .......294Nuclear Power Capacity, andProduction of Electricity FromNuclear Powerplants, 1979, andPlanned for 1985 and 1990.........297Planned and Projected NuclearCapacity to 1990 . . . . . . . . . . . . . . . . .298East European Energy: 1979-90,Plans and Projected ActualSupplies. . . . . . . . . . . . . . . . . . . . . .. .300Energy GNP Elasticities in EasternEurope: Past Trends and FutureProjections . . . . . . . . . . . . . . . . . . . . .301Energy Demand Projections forEastern Europe, 1985 and 1990.....303Projected Energy Consumption andProduction in Eastern Europe,1985 and 1990 . . . . . . . . . . . . . . . . .. .304Soviet Energy Exports to CMEA,Actual in 1976-80, and Plannedfor 1981 -85. . . . . . . . . . . . . . ........305East European Projected NetEnergy Imports, 1985 and 1990:Total, From the Soviet Union, andFrom the Rest of the World. . ......306Projected Hard Currency Burden onEastern Europe of VariousProjected Net Imports of Energy,1985 and 1990 . . . . . . . . . . . . . . . . .. .307

LIST OF FIGURES

Figure No. Page

24.

25.

26.

Consumption, Production, and NetImports-of Energy for All ofEastern Europe, 1960-79, . . . . . . . . . .286East European EnergyConsumption by Energy Source,1960-78 . . . . . . . . . . . . . . ..........286Energy Production in EasternEurope, Total, and by Country,1960-79 . . . . . . . . . . . . . . ..........287

CHAPTER 9

East European Energy Options

Eastern Europe is now struggling to ad-just to an energy-expensive world. Duringthe present decade, the six Council forMutual Economic Assistance (CMEA orCMEA-6) countries examined here–Bul-garia, Czechoslovakia, East Germany, Hun-gary, Poland, and Romania–will attempt toresolve their energy problems while si-multaneously increasing living standards ata politically acceptable pace, and withoutfalling more deeply into debt with Westernbanks. All this must be done without thedegree of reliance on Soviet subsidies in theform of cheap energy which has played suchan important role in East European energysupplies in years past. The outcome will haveimportant implications not only for politicalstability and economic development in East-ern Europe, but also for Soviet-East Euro-pean relations.

The most important international dimen-sion of Eastern Europe’s energy problem liesin its relations with the U.S.S.R. Soviet oilsubsidies to Eastern Europe at present areenormous, their value in 1980 amounting tohalf of all Eastern Europe's exports to theWest or to half the value of all Soviet im-ports from developed countries. As theU.S.S.R. has faced the prospect of increasingconstraints on its own energy supplies, itswillingness to supply Eastern Europe withcheap energy has diminished. But it is by nomeans clear that the Soviets could quicklyreduce these subsidies without precipitatinga degree of economic crisis and politicalunrest in some East European countries.

The Soviet Union’s strategy with regardto East European energy combines plans tostabilize the level of its energy exports (i. e.,by cutting the increments of energy, espe-

l’l~urt’~ tf)r f’xpf)rt ~, I report ~ 0 nd d{Il)t ti rf’ 1):1 ~(d f)n 1979[id t a i n (‘ 1 I\, II(I I) ~ i~)( )( )/, f J/ }’.’{ ‘f I II t ) m I r ,S (~~ ( I \ tif f F; 1{ N()- 1 ()452.{ )(1( )I)t,r 1 $)$), iin(l on 1 $<N() (J<l i tll:i( t,i [)r{ I\ 1(1(’(1 t t) ( )“1’ 1 l)f l.:(i-

w ii r( I ,1 I I f ~w’tL[ I

cially oil, to be supplied) with assistance tothe CMEA countries in their efforts to devel-op their own energy resources and to useenergy more efficiently. At the basis of thispolicy seems to be the assumption that tightenergy supplies in the U.S.S.R. preclude in-crements to shipments comparable to thoseof the 1960’s and 1970’s.

The purpose of this chapter is to illumi-nate the degree to which this Soviet strategyis feasible, given the problems and oppor-tunities in domestic energy production andconsumption which will confront the nationsof Eastern Europe in the next decade. Thechapter briefly reviews energy trends inEastern Europe over the last 20 years. Itthen analyzes the energy problem from boththe supply and demand sides, identifyingconstraints and opportunities and evaluat-ing the political and economic implicationsfor East European energy imports-particu-larly imports from the Soviet Union. The dis-cussion addresses the important issue ofwhether Eastern Europe will be able to coverits energy needs with Soviet imports sup-plementing domestic production, or whetherlarge energy deficits which must be met withother imports may occur. The latter situa-tion could augur heightened domestic polit-ical and economic difficulties in EasternEurope and might necessitate alterations inSoviet policy.

The East European countries make up afairly well-defined energy system, charac-terized by relatively few options for ex-panded domestic energy production andwell-established historical trends of energyusage. Therefore, it is possible to makereasonable guesses about future trends, Inthe analysis that follows, East Europeanplan targets for energy production areevaluated and contrasted to best and worstcase projections for energy production, de-mand, economic growth, net energy imports,

283

284 - Technology and Soviet Energy Availabity

and hard currency debt. These cases, con- delineate a range of possible alternatives.structed by OTA, are judgments of what ap- They are not predictions, but informedpear to be most and least optimistic alter- guesses about likely possibilities.native futures, and are included in order to

INTRODUCTION

The key goals of the Soviet energy strat-egy for CMEA are outlined in the “Long-Term Target Program for Cooperation in theAreas of Energy, Fuels, and Raw Materi-als.” They are: 1) the development of naturalresources to their fullest in every membercountry through expanded exploration andquick development of newly discovereddeposits; 2) strong promotion of nuclearpower, particularly through intra-CMEA co-operation; 3) promotion of the developmentof energy-saving technologies and the appli-cation of energy-saving processes; and 4)changes in the structure of output designedto reduce the share of energy-intensive prod-ucts in gross national product (GNP).2

The emphasis in this program, one evi-dently supported by East European plan-ners, has been on supply-side remedies to theenergy problem. But while there has been lit-tle discussion of conservation, and few con-crete measures have been designed to pro-mote it, at least one Soviet expert has recent-ly raised serious doubts concerning theviability of a supply-side approach in view ofrecent difficulties in expanding East Euro-pean production of coal and other energysources. He suggests that conservationmeasures deserve serious considerationsince the only other alternative—energy im-ports from third countries—is simply too ex-pensive.3

The energy-saving approach recognizesthat it is cheaper to conserve than to in-——

2 P. Bagudin, “The Long-Term Tar-get I)rogram for Cooper-at ion in the Area of h: nm-gy, Fuels, and Ikl a terials, and its Re-alization, ” ~’n{.shn~~~}u t{Jrg(~t’/Ju, october 1980, pp. 13-18.

‘L’ladimir hl. (izo\rskiv, “The h;conomics of Energ~’ Re-sources in the (’ hl 1“; A (’OU n t ries, L ‘[~prf),s)f (’Af)r/on7iki, I)e-cemtwr 1980, pp. 96-103.

crease production, but the problem of howgenuine conservation can be achieved re-mains. $ One way is to change the structure ofGNP to reduce the share of energy-intensiveindustries and product. This approach hasadherents, but it gives rise to other dif-ficulties, since energy-intensive sectors(chemicals, fuels, metallurgy, and construc-tion materials) are so important in CMEAeconomies. The development of energy-sav-ing technology is a promising long-term solu-tion, but the quickest short-term option—reform of the economic system—is under-standably downplayed. An enhanced role formeaningful prices, and for profits, combinedwith a workable set of bankruptcy and enter-prise reorganization laws, would probablyhelp to reduce energy wastage by industries.The political costs of such a strategy couldbe quite high, however, and such reformshave not received widespread support.

Understanding East European domesticpolitical and economic considerations, aswell as those that govern relations withU. S. S. R., is important for comprehendingthe policy choices which East Europeanleaders have made, and those which they arelikely to make in the years ahead. The ap-proaches they take to the energy problemwill combine three elements: 1) increaseddomestic energy supplies; 2) reduced energydemand; and 3) increased imports. Eachcountry calculates the costs and benefits ofthese strategies differently, depending on itsenergy situation and on perceptions of thepolitical consequences of one or anotherpath.

.—“N! iklos Szocs, 4’ Program for the Next F’i\’e Years,”’

f’i~]clf~, I)ec. 24, 1980, pp. 1, 4.

Ch. 9—East European Energy Options . 285— . .

ENERGY SUPPLY AND DEMAND INEASTERN EUROPE, 1960-79: MAJOR THEMES

This section reviews major trends in thedevelopment of East European energy pro-duction and consumption over the past 20years. These themes will form the contextfor the choices facing planners, and willbecome the basis for OTA own projectionsfor Eastern Europe’s energy future in thecoming decade,

RESERVESEast European energy reserves are small

and dwindling. The size of Eastern Europe’soil reserves is only about 3 percent of that ofthe estimated proved oil reserves of theU.S.S.R. Gas reserves are even smaller.Most of this petroleum is concentrated inRomania, which has about 89 percent of allEastern Europe’s proven oil reserves. In1976, however, Romanian oil productionpeaked and now appears to be in long-termdecline. If reserves are exploited at late1970’s production rates, they will be ex-hausted in a little more than 10 years.Romania also holds Eastern Europe’slargest gas reserves, about 40 percent of thetotal. Here too declining production trendsare clear.

Forty percent of Eastern Europe’s coalreserves, and almost all of its hard coal, arelocated in Poland. These reserves have beenthe sole source of net energy exports fromEastern Europe, but recent events in Polandput continued exports in considerable doubt.The other major deposits, located in Czech-oslovakia and East Germany, are coals withlow calorific value that have served as thebackbone of those countries’ primary energyand electricity production.

ENERGY IMPORTS

East European net energy imports havebeen rising rapidly. In every year since 1961,Eastern Europe as a whole has been a netenergy importer, with imports rising to 23percent of consumption in 1978. The rate of

increase, too, has been growing. One in-dicator of this has been the recent rise in themarginal import to consumption ratio, whichrecords the proportion of the increment toconsumption that is covered by net imports.In recent years, two-thirds of the increase inenergy consumption has been covered by in-creases in energy imports. The increasingimport/consumption ratio represents asignificant policy problem in that it createsan added strain in export requirementsnecessary to pay for the additional energy.Almost all of these imports are of oil and gasand the percentage of the latter is rising.

Figure 24 shows the growing importanceof net energy imports in Eastern Europe.Some perspective may be gained by compar-ing the East European energy situation withthat of Western Europe.5 In 1978 the coun-tries of the European Economic Community(EEC) produced 81 million barrels per day ofoil equivalent (mbdoe) or 438.7 million tonsof oil equivalent (mtoe), importing 54 percentof all their energy. During the same year,consumption in Eastern Europe was about9.5 mbdoe (473.1 mtoe) and production 6.24mbdoe (3 10.7 mtoe). Thus, it was necessaryto import only 23 percent of energy con-sumed. But the EEC's far higher import de-pendence is declining over time, and between1974 and 1978 net imports to the EEC ac-tually fell as North Sea oil production began.The opposite is true in Eastern Europewhere import dependence is growing andwhere there is no prospect of a North Sea.

THE ENERGY BALANCE

Figure 25 illustrates the strikingly domi-nant position of coal in East Europeanenergy consumption. In 1979, 78 percent ofthe energy produced in the area was coal;

—5International Energy Agency Organization for E;conomic

Coopcrat ion and I)e\(>lopnlent (01’:(’1)1, }~~ttr,g) Bf//~/n{~Ji ,~/”OE(’1) (’~jf{n tri(,i 1!);./ 1,97(~ ( I’aris: OF;(’1), 19S()),


Figure 24.—Consumption, Production, and NetImports of Energy for All of Eastern Europe, 1960-79

3.5-

2.5-

1,5-

1960 1965 1970 1975 1980

SOURCE Data are from CIA Energy Supplies in Eastern Europe A StatisticalCompilation, " ER 7610624, December 1979, and CIA, Handbook ofEcorrorrrIc .Sfatlsflcs ER 80.10452 October 1980

natural gas constituted 14 percent. andnuclear and hydropower together 3 percent.Poland, the mainstay of this production, pro-vided 2.7 mbdoe (134.4 mtoe) in 1979—42percent of all energy output for the region.The second largest energy producer, Ro-mania, contributed 17 percent in the sameyear, but Romanian energy production hasbeen falling since 1976. Figure 26 illustratesthe crucial importance of Polish coal. Polandwas primarily responsible for increases inenergy production during the 1970’s. With-out those increases the small output gainsmade by other countries would have beencompletely canceled by Romania’s decline.

Figure 25.—East European Energy Consumptionby Energy Source, 1960-78

9.00

8.00

7,00

6.00

@ 5.00$Q>

4.00

300

200

1.00

0

Total consumption

Other

1960 1965 1970 1975 1979

SOURCE Data are from CIA “Energy Supplies in Eastern Europe A StatlstlcalCompilation ER 76-10624 December 1979, and CIA Handbook ofEconomic Statlstlcs ER 80-10452. October 1980

cent of total energy consumption; in EasternEurope in 1979, 57 percent of energy wasconsumed in the form of coal. In contrast, oiland gas-–which made up 74 percent of EECenergy consumption-provided 40 percent ofthe total in Eastern Europe. Consumption ofpetroleum has increased over the last twodecades in Eastern Europe, but world pricerises have slowed that process. This givesCMEA one advantage relative to the rest ofthe world. As many nations attempt toswitch back to coal, Eastern Europe canmerely slow its transition to oil.

THE ROLE OF THE U.S.S.R.

The Soviet Union is overwhelmingly im-portant as an energy supplier to EasternEurope. Table 62 shows estimated Soviet

— — —

Figure 26.— Energy Production in Eastern Europe,

7 0 0

6 0 0

5 0 0

4 0 0a:D>

3 0 0

2 0 0

1 0 0

0

Total, and by Country, 1960”79

All others

1960 1965 1970 1975 1980

SOURCE Data are from C 1A Energy Supplies in Eastern Europe A StatiticalCompdatlon ER 76 10624 December 1979 and Cl A Handbook ofEconom!c Staflstlcs ER 80-10452 October 1980

crude oil and product exports to CMEA dur-ing the 1970’s. The Soviet Union’s oil ex-ports to all nine CMEA countries have gen-erally been about 55 percent of its exports tothe world. In 1979, for example, the SovietUnion shipped to CMEA 87.1 million tons( 1.74 mbd) of crude oil and oil products, morethan half of all its exports (158.1 million tonsor 3.16 mbd). This percentage has remainedrelatively constant, although the rate ofgrowth of Soviet oil exports to CMEA hasslowed. This reflects a reduction in totalSoviet oil exports over the past 5 years.

Even more important than the huge quan-tities of Soviet oil shipped to Eastern Europeis its relatively low price. This has con-stituted a substantial subsidy. The average

Ch 9— East European Energy Options - 287—

price per ton chargedl by the Soviet Union forcrude oil shipped to Eastern Europe in 1980was about half of the world price.6 This priceis calculated according to a method, adoptedin 1975, called the ‘‘Five Year Moving Aver-age." This system uses world oil marketprice averages over the previous 5 years as abasis for annual price negotiations in intra-CMEA oil trade. The result is a considerablelag in CMEA prices for oil. The advantage toEastern Europe has been enormous. Whileworld oil market prices rose almost thirteen-fold between 1972 and 1980, prices paid byEast European countries for Soviet oil roseonly about 4.5 times. In 1980, Soviet exportsto Western nations brought an estimatedaverage price of $230/ton, while exportprices to CMEA countries were $105/ton.Assuming a subsidy amounting to the dif-ference between the two prices, the 1980 sub-sidy was 81.1 million tons x $125 = $10.1billion. This was one-half the value of allEastern Europe’s exports to the West. IfEast European nations were forced to paythe full world market value for this oil, theywould have had to increase their dollar ex-ports by 50 percent, or double their annualhard currency borrowing. Such loans wouldbe very difficult, if not impossible, to Ob-tain. 7 Conversely, by selling this oil on theworld market. the U.S.S.R. could increase itshard currency, imports 50 percent. Obvious-ly, however, the subsidy is so large that ifthe Soviets tried to eliminate it quickly, theresult would be chaos for Eastern Europe.

I t must be noted, however, that EasternEurope actually imports Slightly moreenergy from the Soviet Union than yhe totalof its net energy imports. The reason is thatwhile Eastern Europe has been a net im-porter of energy from the Soviet Union, ithas also exported energy, mostly coal, to


Table 62.–Soviet Exports to CMEA of Crude Oil and Oil Products, 1979-80

Exports toBulgarla . . . . . . . . . . . . . . . . 48Czechosolvakia . . . . . . . . . 9.4East Germany. . . . . . . . . . . 9.2Hungary . . . . . . . . . . . . . . . . 4.0Poland . . . . . . . . . . . . . . . . . 7,0Romania. . . . . . . . . . . . . . . . —

CMEA-6 ., . . . . . . . . . . . . . . . 344Cuba . . . . . . . . . . . , ... , , ,. 43Vietnam . . . . . . . . . . . . . . . . —Mongolia . . . . . . . . . . . . . . . —

CMEA-9 . . . . . . . . . . . . . . . . . 387

7.1 99 11.6 10.0 11.9 108 12.9 11,3 13.4 13,0 14.1 13.0 14.0105 155 16.0 163 17.2 17.0 17.0 17.7 17.7 183 18.3 19,2 19.29 3 15.1 15.0 16.0 168 17.0 17.0 17.8 17.8 185 18.5 19.0 19.04.8 6.9 7.5 7.7 84 7,7 9.1 85 10,2 8.6 11.0 9.5 12,08 6 10.9 133 11.7 14.1 12.8 14.7 13.4 15.5 12.9 14.0 13.1 15.9— — — —. — — — — — 0.4 0.4 1.0 1,0

403 58.2 63.4 61.7 68.4 65.3 70,7 68.6 74.6 71.7 76.3 73,8 81.16.0 58 8.1 6.0 8.8 6.2 9.2 6.4 9.6 6.7 9.6 7.0 10.00.4 – 0.4 –- 0.4 — 0.5 — 0.5 — 0.6 – 0.60.3 – 0.4 –- 0.4 — 0.5 — 0.5 — 0.6 – 0.6

4 7 . 0 6 4 0 72.3 67.7 780 71.5 80.9 750 85.2 78.4 87.1 80.8 92.3

Entire world . . . . . . . . . . . . . 668 95.8 93.1 130.4 110.8 1485 N A 1 5 2 , 5 N A 1 6 5 , 6 NA 1581 NA NA

C Crude T Crude plus productsNA = not availablea These are estimates necessitated by the fact that the Sovtet Unlon stopped reporting quantlty data on its energy exports in 1977, but they are probably fairly reliable in-

dlcators of actual shipmentsb T hesf> are estimates but son)ewhat Ies5 rel la ble I han the 1977-78 f(g ures T hey should be taken only as I nd Icators of genera I mag nltudes In some cases the actual number

cou Id be eas!ly 1 ton larger or smal Ier

SOURCES The data through 1976 are from Sovle! foreign trade yearbooks ( Vnestrnyaya torgov/ya .SSSR) Figures concerning the proportion of crude and products forCuba, Vietnam, and Mongolla are estimated Data beglnnlng In 1977 are estimates based on CMEA, Vneshayaya forgovlya (Stat lstlcal Yearbook of theMember-Countries of the Council for Mutual Economic Assistance) (Moscow “Statlstlka,” 1979 and 1980), and The ,/ourna/ of Commerce

nonsocialist countries. In effect, EasternEurope as a whole is reexporting in the formof coal some of the energy it imports fromthe Soviet Union in the form of oil.

Table 63 shows estimated Soviet naturalgas shipments to CMEA in the last decade.The Soviet Union only began to develop itsnatural gas export capabilities in the 1970’s,with the completion of the Orenburg (orSoyuz) gas pipeline, the result of a 3 billiontransferable ruble joint development proj-ect involving the U.S.S.R. and the CMEA-6.Each of the East European countries pro-vided some combination of equipment, labor,and hard currency to buy Western equip-ment for construction of the 2,750-km pipe-line, 22 compressor stations, gas treatmentplant, and gas condensation unit at Oren-burg. The pipeline began operating at fullcapacity (transporting 15.5 billion cubicmeters or bcm of gas per year to EasternEurope) during 1980.

It is likely that most future increments inSoviet energy shipments to Eastern Europewill be in the form of natural gas. The im-

plications of this trend are important be-cause, in contrast to oil, the Soviet Unionhas not been subsidizing natural gas pricespaid by Eastern Europe. In fact, it appearsthat while the Soviet Union has sold EasternEurope oil at one-half the world marketprices, it has sold gas at about the worldprice level,

Table 64 provides a rough comparison ofaverage 1976 prices of Soviet oil and gas ex-ports to both Eastern and Western Europe.This table shows that Soviet gas prices toWestern Europe on a per calorie basis wereabout one-half oil prices, 35 rubles/ton of oilequivalent of gas compared to 68.6 rubles/ton of oil. This is consistent with world prac-tice: gas prices generally are lower on acalorific basis than are oil prices, reflectingthe higher transport costs and the fact thatgas is an imperfect substitute for oil. In con-trast, Soviet gas and oil exports to EasternEurope in that year cost about the same percalorie—39.5 rubles/ton of gas v. 38.1 rubles/ton of oil. Moreover, the gas price was ac-tually higher than the average price to WestEuropean countries.

Ch. 9—East European Energy Opt/ens ● 289

Table 63.–Soviet Natural Gas Exports, 1970-80

1970 1975 1976 1 977a 1978a 1979b 1980b

Bulgaria. . . . . . . . . . . . . . . . — 1.19 2.23 2.90 3.00 340Czechoslovakia. . . . . . . . . 130 3.69 4,29 5.20 5.30 7.30East Germany . . . . . . . . . . — 3.30 3,37 355 3.62 4.33Hungary . . . . . . . . . . . . . . . — — 1,00 1,03 2.50Poland . . . . . . . . . . . . . . . . . 1 00 2,51 2,55 2.77 2.76 3.99Romania . . . . . . . . . . . . . . . — — — — — 0.75

Total, CMEA-6 . . . . . . . 230 10.69 1244 1542 1571 22.22Total, all countries . . . . 330 19.33 25.78 3123 NA NA

5.808.105703835.561,49

30.48

55.00

NA = not availableaThese are estimates necessitated by the fact that fhe Soviet Umon stopped reporting quantity data on Its energy eXPOrts In 1977. but they are probably fairly rellable In.dlcators of actual shipments

b These are estimates also but somewhat less reliable than the 1977-78 figures They should be taken only as indicators of general magnitudes the actual figures could differfrom these

Table 64.—Comparison of Unit Values for Soviet Gas and Oil Exports, 1976

1976 1979Gas Oil Rubles per Gas Oil

B c m T o ed T o n B c m T o e T o n

Exports to:West Germany . . . . . . . . . . . . . . . . . . . . 2 2 7 27.8 65.5 N A N A N A

Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 7 3 57.8 80.9 N A N A N A

France . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 6 31.3 66.4 N A N A NAItaly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4 0 17.1 6 5 0 N A N A N AAustria . . . . . . . . . . . . . . . . . ., . . . . . . 3 3 5 40,9 6 5 4 N A N A NAAverage, West . . . . . . . ., ., . . . . . . . . 28.6 350 686 NA NA NA

Bulgaria. . . . . . . . . . . . . . . . . . . . . . . . . . . 334Czechoslovakia. . . . . . . . . . . . . . . . . . . . 34.5East Germany . . . . . . . . . . . . . . . . . . . . 277Hungary . . . . . . . . . . . . . . . . . . . . . . . . . . 33.9Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320Romania . . . . . . . . . . . . . . . . . . . . . . . . . .Average, CMEA . . . . . . . . . . . . . . . . . . 323

408 37.5422 34.133.9 32.041 1 44.739.1 42.0

39.5 38.1

45 9a45.950.550.649.551 1489

56156161.761960.5630599

64.456155,376.0716

—64.7

NA = not availableBcm BilIions of cubic metersToe Tons of oil equivalent of 1000 cubic meters of gas 0818 toe)a Assumed equal to the Czech unit value

SOURCE Vneshnyaya torgovlya SSSR

If, as it appears, Soviet gas sold in East-ern Europe is not being subsidized,8 one

8 ‘Set’ er:i] aclditi{)nal factors temper these gas prices, how-eter. F’irst, the official exchange ra tt~ understates the rate ofsubsidy. Even at roughly equivalent gas prices at official ex-change rates, Eastern Europe is receiving some implicit sub-sidy in being able to pay for the gas with manufactured goodssold to the Soviets at what are, in effect, inflated prices. Sec-ondly, gas prices are complicated because of compensationdeals. For example, the Orenburg pipeline agreement in-volved machinery and equipment, labor, and money capital inexchange for gas. I t is possible that those East European in-vestments of labor, money, and goods were overvalued rela-tive to the final prices of gas.

possible explanation lies in the fact thatlarge gas shipments only began after the1974 world oil increases, and the Sovietsmust have been able to force through a fullmarket price for gas. This would have beenpossible because even at that price, Sovietgas remains attractive for Eastern Europe.In any case, CMEA countries can buy addi-tional increments of energy only at the worldmarket price, and the world price of gas isstill much lower than that of oil on a calorificbasis. Transport costs also make the closestsupplier the cheapest.


1 -

. ..- - - - -● .’


Orenburg gas pipeline

Imports of Soviet gas have, therefore,grown rapidly. In 1977 these amounted toabout 15.42 bcm or 18 percent of the 70.7

million tons of the Soviet crude oil and prod-ucts imported. By 1980 the Soviets wereshipping 30.48 bcm of gas to Eastern Eur-ope. This equals 24.93 mtoe, or 31 percent ofthe 81.1 million tons of crude and productsshipped to Eastern Europe that year.Assuming that oil shipments from theU.S.S.R. will not increase above 1980 levels,the critical issues for Eastern Europe arehow rapidly the oil subsidy will be reduced,and how quickly imports of natural gas willincrease.

These major themes—dwindling East Eu-ropean energy reserves, rising imports, thecontinuing importance of coal, and the over-whelming importance of the Soviet Union asan energy supplier—delineate the policy con-text of future East European energy plan-ning. The next two sections, on supply anddemand prospects for the 1980’s, investigatecritical opportunities for and constraints onfuture East European energy strategies.

EAST EUROPEAN ENERGY SUPPLIES IN THE 1980’S

A centerpiece of the East European ener-gy strategy is the commitment to increasedcoal and nuclear development to cover in-creases in demand over the next decade.Almost all of the additional coal output willbe used in conventional powerplants, con-densing stations, and cogeneration units.Coal and expanded nuclear power togetherwill thus cover incremental electricitydemands. At the same time, petroleum willbe freed for use as chemical industry feed-stocks, for automobile fuel, and other useswhere solid fuels are inappropriate. InRomania, where state policies already pro-hibit the commissioning of any new heat orpower stations operating on oil and gas, theproportion of electricity generated fromthese fuels is projected to drop from the cur-rent level of 65 to 40 percent by 1990.9 OtherEast European nations, lacking Romania’s

9 "WPC Host Country Romania Swaps Tools and Technol-ogy for Crude, oil and Gas Journal vol. 77, No. 35, I)ec, 27,1979, p. 76ff.

domestic petroleum reserves, have been at-tempting to cover all of their incrementalenergy needs with coal and nuclear power.For example, Czechoslovakia employed thisstrategy during its 1976-80 plan period, butdid not succeed by the amount originallytargeted. 10

Coal is likely to remain the predominantsource of domestically produced energy inEastern Europe, at least in the near future,and official plans for the next 10 years fea-ture expanded output of coal, particularlylignite. Eastern Europe’s success in domes-tic energy output over the next decade willrest mainly on its ability to increase coal out-put.

A second major source of energy will benuclear power. Despite the currently tinyfraction of East European domestic energyproduction (1.25 percent) accounted for by

10 "The National Economy . .,” 1980, p. ] 1. SW also RadioFree Europe (RI~P~), Czechoslo~ak SR No. 4, tJan. 31, 1979,pp. 1-2.

Ch. 9—East European Energy Opt/ens - 291

nuclear power, future prospects for the in-dustry are promising. It is the focus of one ofthe major, and apparently rather successful,cooperative efforts within CMEA. (Seebelow and ch. 4.) Finally, prospects for theRomanian petroleum industry are poor. Thesections that follow explore the constraintsand options for each of these energy sectors,as a foundation for the projection of futurenet energy import needs.

THE COAL INDUSTRY

Table 65 summarizes the plans of variousEast European countries for coal output inthe 1980’s. Since the quality of informationvaries considerably for different countries,these data should be viewed only as generalapproximations. All six countries are plan-ning a major expansion of coal output, most-ly lignites. Taken together, the plans sug-gest a growth rate of lignite and brown coalproduction of 5.4 percent per annum during1980-85, and a growth rate of 3.8 percent forhard coal production during the same period.Lower growth rates are projected for the sec-ond half of the decade, but these are less cer-tain, as a number of the countries have notyet announced formal plans.

The projected growth rates for coal areambitious. During the last 5 years (1975-80)lignite and brown coal output grew 2.9 per-cent and hard coal grew 1.9 percent per year.

1980 production was slightly below that of1979, reflecting a drop in Polish coal produc-tion, and continued stagnation in Hungar-ian, Czech, and East German output. Theplans for the 1980’s thus call for a doublingof the growth rates of the past 10 years, anda substantial improvement over 1979-80 per-formance. While this is not impossible, thereis normally a considerable lag between thetime that the decision is made to increaseoutput, and the actual completion of themine capacity necessary to implement thisdecision. Investment processes to increaselignite production have, to some extent, beenset in motion in all six East European coun-tries. When these investments will begin tobear fruit, and what type of coal will be pro-duced, remain to be seen.

There are at least three potentially seriousobstacles to the fulfillment of coal outputtargets. The first applies mainly to open-pitmining of lignite and is a technology con-straint: East European machinery in thisarea is apparently of low quality, but plan-ners are reluctant, or unable, to approvelarge imports of Western equipment becauseof severe foreign currency constraints. Sec-ond, there may be labor problems in under-ground mining of both brown and hard coals.Finally, there may be an environmental con-straint, again associated primarily withlignites. The following sections briefly dis-cuss each of these problems, describe intra-

Table 65.— East European Plans for Coal Output in 1985 and 1990

(1980 estimate) 1985 (plan) 1990 (plan)Total Total Total

HC BC + LIG Mtnat Mbdoe HC BC + LIG Mtnat Mbdoe H C B C + L I G M t n a t M b d o e

Bulgaria . . ., 0 31 31 0.12 0 37 37 0.15 0 45 45 0.18Czechoslovakia . . . . 28 95 123 0.91 28 104 132 0.96 28 109 138 0.99East Germany ., . . 0 250 250 1.05 0 275 275 1.16 0 300 300 1.26Hungary. . . . ... . 3 23 26 0.14 3 32 35 0.18 3 34 37 0.19Poland . . . . . . . 193 37 230 2.30 235 85 320 3.20 260 115 375 3.75Romania . . . . . . . . . 8 32 40 0.20 13 74 87 0.44 15 82 97 0.49

Total . . . . . . . . . . . 232 467 700 4.72 279 607 887 6.09 306 685 992 6.86— —

HC = hard coal BC = brown coal LIG = Iignites. Mtnat = million tons in natural units: mbdoe = million barrels per day of 011 equivalent Hard coal contains at least 57million kilocalories per ton.All tonnages rounded off to the nearest ton. Thus some "0"s simply indlcate a figure of less than 0.5 tons, and some totals will not equal the sum of the components ofthe columns due to rounding



CMEA cooperation in coal, and evaluate thefeasibility of plans to increase coal output.

TechnologyThe Polish and Czech cases, about which

there is a good deal of information, illustratethe types of measures which East Europeannations are taking to increase lignite produc-tion. Hoping to set aside as much hard coalas possible for export, Polish planners arepushing lignite for domestic consumption.

Much of Poland’s planned expansion oflow-calorie coal and electric power centers onthe Belchatow Power Plant and the Szcezer-cow lignite mine. The Belchatow station isdesigned to have twelve 360-MW generatorsby 1985 (completion of which may be de-layed by such problems as water incursion).The entire station will run on lignites withcalorific contents ranging from 1.600 to1.900 kilocalories/kg.11 At full capacity, thestation should produce 26.5 billion kWh ofelectricity per year, the equivalent of 23 per-cent of all the electricity produced in Polandin 1979. A second station (Belchatow II),with a total generating capacity of 2,880MW, is to come online in the period 1985-90.This complex is the major source of Polishincremental demand for lignites in the1980's. Between 1980 and 1985, the complexwill use 33 million tons of lignite, or 87 per-cent of the total increase in Poland’s plannedlignite production.12

While it is difficult to judge the progressof the Polish project, there are indications of

11 ~~~Udi~, OP. ~i t., p. 1s, r~p~rts these calOrific values forthe coal and calls it “lignite.”’ Bartosetrich cal]s it “brown”

coal of approxima tel:’. 2,000 kilocalories kg. See Abignev Bar-tosel’ich, “The Sign] flcance of Cooperation in the I,ong-Term])e~relopment of Ejnergy in Peoples’ Repub]ic of Poland, ”Ekonomicheskoye sotrudnichestuo stran-chlenou SEV, Feb-ruary 1980, pp. 37-42. The calculations assume that the lowerfigure is correct.

12 These calculations assume a 70-percent load factor in thestat ion and 40-percent efficienc~’. F;ach 1,000 k~’h equals0.0875 toe, and at 40-percent efficiency!’, it will require 0.219toe to produce that 1,000 kWh. The hgnites feeding Belch-atow run from 1,600 to 1,900 calories. Assuming the a~’erageis 1,750, they conk’ert at O. 175 toe. Thus 1,000 k~rh, which re-quire 0.219 toe, will require 0,2190.175 = 1.25, or 0,00125tons of lignite per kl$’h. 26.5 billion klf’h multiplied b~’().001 25 yield 33.125 million tons of lignite to produce the 26.5billion k~’h.

problems similar to those which have devel-oped in Czechoslovakia in attempts there toexpand lignite production. First, open-pitmining equipment of East European designis evidently inferior in quality to comparableWestern equipment; it breaks down fre-quently, causing delays in removing over-burden, mining the coal, and moving it byconveyor belt. The Czechs, who have re-ported repeated problems with excavatorsand conveyors, were finally forced to importconveyors from the West. A second problemis that East European suppliers of miningequipment are not meeting their orders ontime. It may well be that the sudden increasein demand for mining equipment is pushingthe suppliers beyond their capabilities. Atthe same time, severe hard currency short-ages preclude imports of high-quality West-ern mining equipment. These common andrecurring problems suggest that East Euro-pean plans to expand lignite production maybe overly ambitious.13

LaborA second potentially important impedi-

ment to the fulfillment of East Europeanplans for expanded coal output lies in the un-willingness of the labor force to work longhours in underground mines. The labor con-straint is a key to Polish coal production, butit is also significant in Hungary, where newbrown coal mines run 24 hours a day, 6 daysa week; and in Romania, where miners in theJiu Valley have shown reluctance to work forlow wages.

Indeed, Poland’s plans for hard coal–about 42 million tons, constituting almost all

13 Hungary may be the one CMEA country that has tried todirectly deal with the technology problem by buying theproper equipment in the Wrest, and then using it effecti~elv.In the earl}’ 1970’s it completed construction of the VisontaThorez Open-Pit mine which was then responsible for a 20-percent increase in the output of surface-mined coal. It wasequipped with what was called “world le~’el technolog~’,Judging from the pictures accompanj’ing the story, this con-sisted of Western equipment. ,N’epsza hud,sug, Dec. 7, 1980, p.1. The Hungarians are now finishing construction of twohighly mechanized brown coal mines, Nlarkushegy and Nag-~’eg?’haz, which will increase brown coal production by 9.6million tons by the mid- 1980’s, an increase of 40 percent.Again, it would appear that they are relying heavily on West -ern equipment.

Ch. 9—East European Energy Options - 293

of Eastern Europe’s planned increment to1985—seem unattainable. Goals for ligniteproduction increases in all the countries ofEastern Europe amount to 140 million tons,but in calorific value this equals only 30mtoe. If Polish targets for hard coal are notmet, two-fifths of Eastern Europe’s pro-jected coal increment will be eliminated.

Nevertheless, it is difficult to imagine howsuch growth in Polish coal output can be at-tained. Increased production in the 1970’swas made possible by the implementation ofa four brigade system of working the mines,supplemented with overtime and, more re-cently, Sunday work. This effort was part ofa frantic search for hard currency export-able brought on by Poland’s severe debtproblems. One source of Polish labor unrestin the summer of 1980 was the rapid pace ofmining activity, and one concession won wasreversion to a 5-day workweek. Polish hardcoal output for 1980 fell to 193 million tons,14 million tons below plan. The original 1981plan of 188 million tons was abandoned inmidyear after output during the periodJanuary-June amounted to only 81.3 milliontons. Now planners feel that they canachieve approximately 170 tons for all of1981 only if workers will again agree to work6 days a week; otherwise, an output of 160million tons—41 million tons below the 1979peak of 201 million tons—appears likely. 14

As of this writing, no one can say how thePolish situation might be resolved, and inparticular, how the resolution will affect coalproduction. Certainly the old targets of 235million tons in 1985 and 260 million tons in1990 seem unattainable, having been con-structed on the now impossible assumptionthat Polish coal mines could be worked 7days a week. On the other hand, the low coaloutputs in 1980-81 are surely below what ispossible with given capital stock and a nor-mal 5-day workweek.

14 See RFE. Polish SR No. 10, May 9, 1979, pp. 1 -4; andRFF;, Polish S[{ No. 1, .Jan. 26, 1981, p. 13: }{F’F:, Polish S1{No. 12, ,Jul~’ 3, 1981, p. 14; and Petrolf>urn Econo mist,” August1981, p. 359.

Environmental Costs

Environmental costs form another poten-tially important political and economic con-straint on lignite production. Two majorproblems are the loss of land to other uses asopen-pit mines are developed, and the effectson air and water of mining and coal burning.

The land costs have not been quantified,but they are potentially important. In bothEast Germany and Czechoslovakia, coun-tries which are heavily engaged in open-pitmining, cities and rivers have been moved toobtain access to coal deposits.15 Aside fromthe enormous costs in capital and labor, thedislocation of people and the disruption ofthe countryside may create popular dissatis-faction which cannot be discounted.

Even more serious, however, are the airand water pollution which result from heavyreliance on coal. Environmental damagecaused by coal mining dates back to the1950’s in Eastern Europe. At that timeheavy fallout of particulate matter and emis-sions from chemical plants in some areas inCzechoslovakia reduced morning light by 50percent, killed 37,000 spruce trees, and cut90 percent of the ultraviolet rays.16 These im-pacts evidently presented enough of a politi-cal problem that the Dubcek government re-sponded by halting work in the North Bohe-mian brown coal basin in 1968. Today officialstatements recognize the environmentalproblems associated with open-pit mining. ”While there is insufficient evidence of howdeep feelings run, it seems possible that ma-jor attempts to increase coal output will doenough damage and displace enough peopleto turn this into a political issue.

15 Leslie Dienes, “Energy Prospects for Eastern Europe, ”~;ncr~~~ ~(~licj’, June 1976, p. 126; V. 13eliano~’, “11’orking Suc-cesses of the Miners, Ekonomiche.~ka>a gazc~ta, Feb. 9,1978, p. 21.

‘“,J, (;. Polach, “The Det’elopment of Energ}’ in East Eur-ope, “ ‘ in ,Joint F;conomic Committee, Subcommittee on For-eign Economic Policy, U.S. (’ongress, Ecf)n{)mic l)f~r ‘f~l-

opmf>n ts in C’()[I n tn”e,s of F;as tern F.’u r[)pc (Jtrashington, 1), (’.:(J. S. (lokernment Printing office, 1970), p, 360,

‘-R F’P; , Czechoslo\’ak S}{ No. 4, tJan. 31, 1979, p. 2.


CMEA Cooperation in CoalThere are currently no joint CMEA coal

mining efforts, but some cooperative activi-ty is aimed at developing coal-fired plantsusing low-calorific coals, and at cogenerationfrom conventional plants. For example, Bul-garia and the U.S.S.R. are reconstructingpower stations to burn low-calorie coalswithout prior preparation. East Germany,the U. S. S. R., Poland, and Hungary are work-ing on a joint project in East Germany in-volving the construction of mines and powerstations for low-calorie coal. At variousresearch institutes, cooperative work is be-ing conducted in cogeneration, high-produc-tivity steam boilers, and centralized steamproduction. However, none of the coopera-tive CMEA projects hold real promise of in-creasing coal supplies in the next decade.Such efforts may have some effect in effi-cient utilization of coal, but even in that areathe joint R&D effort is modest. Prospects forEast European coal in the next decade willdepend to a great extent on the initiativestaken by individual countries.

The Feasibility of MeetingCoal Output Targets

The success of aggregate East Europeanplans for the coal industry rests on devel-opments in Poland and Romania. These twocountries account for all of the planned incre-ment to hard coal production in the 1980’s,and 65 percent of the planned 140-million-ton increase in brown coal and lignites. Thisequals approximately 80 percent of plannedincreases when these figures are convertedto tons of oil equivalent. The key problem inevaluating these targets is the uncertaintyassociated with the Polish crisis. At the veryleast, it seems impossible for Poland to re-introduce 7-day workweeks for miners.

Mindful of these uncertainties, OTA hasconstructed “best” and “worst” case esti-mates for coal output. Table 66 summarizesthese best and worst case projections, andcompares them to plan targets.

Table 66.—Projected and Planned East EuropeanCoal Production (million barrels per day of oil equivalent)

1980 1985 1990

Actual . . . . . . . . . . . . . . . . . . . . . . . 4.72Plan . . . . . . . . . . . . . . . . . . . . . . . . . 6.09 6.86Best case projection . . . . . . . . . . 5.46 5.98Worst case projection . . . . . . . . . 4,99 5.44


For Poland, the best case assumes thatoutput levels in 1985 will reach 210 millionand in 1990 220 million tons (as opposed tothe planned targets of 235 million and 260million tons). These best case figures are stillabove what the Minister of Mining has im-plied are possible; they assume a settlementof labor troubles, some new investment, andproductivity improvements. OTA’s worstand increasingly probable case assumes thatalthough output will fall below long-termtrends in the early 1980’s, it will recover inthe latter half of the decade, reaching 190million tons in 1985 and 200 in 1990. Currentevents in Poland are a reminder that thingscould be worse in 1985 than even this worstcase. But the year 1985 here is merely repre-sentative of the mid-1980’s, and it is unlikelythat the current level of chaos in the Polisheconomy can or will be sustained for thatlong. This is, therefore, not the worst imagin-able case (which is no coal output), but ratherthe worst case within the range of likely coaloutputs.

Romanian plan targets appear to be nomore realistic. Indeed, since 1977 these havebeen consistently underfulfilled. In 1980, forexample, Romania planned to produce 54million tons of of coal, but probably attainedan output of no more than 40 million tons.The situation has been serious enough thatthe army has been called in to assist theminers.18 While it is difficult to estimate

18 RFE, Romanian SR No. 18, Dec. 10, 1980, p. 15. It seemscertain that they will not meet the 1979 plan, but the figure of40 is a guess which assumes that they underfulfill in 1980 bythe same amount they underfulfilled in 1975.

Ch. 9—East European Energy Options ● 295

future output, OTA projection of a reason-able best case is 60 million tons in 1985, 20million tons above actual performance in1980. Since there are no Romanian planfigures now available for 1990, projectionsare necessarily speculative. But it would ap-pear unlikely that total output could riseabove 80 million tons for that year. A worstcase projection would put 1985 output at 40million tons, and 1990 output at 60 milliontons.

The other countries of Eastern Europe areless important in coal production, but if theirplanned targets are taken as a best case, andsomewhat lower levels as a more realisticcase, it appears unlikely that Eastern Eur-ope will be able to attain regional productiongoals. Even under the best case conditions,therefore, the combined coal output forEastern Europe as a region is likely to growonly half as much between 1980 and 1985 asplanned (0.74 mbdoe or 36.8 mtoe v. 1.37mbdoe or 68.2 mtoe).

THE NUCLEAR POWERINDUSTRY

Nuclear power is the only other feasiblesource of substantial increases in domesticenergy production in Eastern Europe, al-though at the moment it contributes only asmall portion of the electric power producedin the region, Eastern Europe’s nuclearpower program has been behind schedule forsome time. As late as 1976, forecasts of10,000 MW of installed nuclear capacity by1980 were common.19 But in 1979 installednuclear capacity in the six countries was3,100 MW, or about 3.4 percent of total gen-erating capacity. This amounted to about 4.7percent of all electricity generated inEastern Europe during that year.20 In 1980installed capacity was increased to 4,440

— . . — —19 For 1976 forecasts, see Figyelo, Sept. 11, 1976, p. 9; M.

\’irius and ,J. Balek, “Co(lperation Between (’NI ~; A (’oun triesin Securin~ Suppl it’s of F’uels and F; nerg~, ” ( ‘zefh~~ sl{~ [ ‘(1AF;(onomi(>” I)l,g(’i t, No. 8, !kIa? 19’76, p. 39.

20 These calculations simply assume a O.i’ load factor for nu-clear powvrplant ~, and then di~ide t hc elect ric. it ~’ generateda t that load fac t or b.v a 11 clt’c t ri (’i I ~’ ~renw-a t ed t ha t y’t>a r.

MW by the addition of new reactors in Bul-garia, Czechoslovakia, and Hungary.

Current plans for nuclear power produc-tion contrast sharply with past performance.The six individual East European countryplans, added together, call for a fourfoldcapacity increase between 1979 and 1985,and a tripling of that between 1985 and 1990(see table 65). These plans depend heavily onan extremely complex cooperative CMEA ef-fort involving specialization and cooperationin the production of, and trade in, equipmentfor nuclear powerplants. This program aimsat raising nuclear capacity to 37,000 MW by1990. With the exception of Romania, whichis developing its own industry using Cana-dian “Candu” reactors, East Europeannuclear power is being built with Soviettechnology -Soviet-designed VVER-440 re-actors, produced in Czechoslovakia and theU.S.S.R. These 440-MW pressurized waterreactors are apparently both reliable andeconomical. Another series of Soviet reac-tors, the 1,000-MW VVER-1000, is now un-der development and in the mid-1980’s EastEuropean countries plan to commission sta-tions using the new design. (see ch. 4 for adetailed description of the Soviet nuclearpower industry). Plans call primarily forVVER-440 reactors to be introducedthrough 1985, and for VVER-1000s to beadded thereafter. One exception is Bulgaria,which hopes to have a VVER-1000 in opera-tion by 1985. Romania hopes to produce itsown 660-MW “Candu” reactors and to havesix of these operating by 1990.21

Two joint enterprises have been estab-lished to assist in this effort. One, Interatom-istrument, oversees the manufacture of high-technology equipment for nuclear power-plants; another, Interatomenergo, handlesshipment of equipment, parts, materials,and apparatus for nuclear powerplants. Ithas already been decided that two 4,000-MWnuclear power stations will be constructed inthe Ukraine with Polish, Hungarian, Czech,and Romanian participation. Repayment to

— — —21 RFE, Romanian SR No. 2, February 1981, pp. 12-13.


Eastern Europe will be in the form of elec-tricity, shipped via 750-kV powerlines. Thefirst of these powerlines, between Albertirsanear Budapest in Hungary and the Ukraine,was completed in 1978.

The first Ukrainian 4,000-MW station isscheduled to be completed in 1984-85.Czechoslovakia, Poland, and Hungary willpay half of the estimated total cost of 1.5billion transferable rubles (TR). Poland’scontribution of 400 million TR will be madein goods and services; the Czechs will cover240 million TR through supplying equip-ment and machine tools; and the Hungarianswill supply 110 million TR. Half of thecapacity of the new station will be dedicatedto shipments to each of the East Europeannations in proportion to their contributionsto its construction. A second 4,000-MW sta-tion, Konstantinovka, is projected for thelatter part of the decade, but the details re-main unclear. In addition, draft agreementson cooperative development of atomic cogen-eration units and atomic boilers for produc-ing steam for industry are in preparation.CMEA agreements on specialization andcooperation in manufacturing generally lacksubstance, but it appears that those relatingto the nuclear power industry may be excep-tions. The most plausible explanation for theexceptional efforts being made in the area ofcooperative nuclear programs is that Sovietleaders recognize the importance of EastEuropean development and are determinedto retain control of the technology.

One great attraction of nuclear power isthat it relieves pressure on the coal industry,which otherwise would be called on to pro-vide the fuel necessary to generate equiv-alent amounts of electricity. But while theamount of coal “displaced” by an extensivenuclear power program could be significant,nuclear development will not much diminishthe importance of Eastern Europe’s coal in-dustry.

Assuming that it replaces a conventionalthermal powerplant working at 40-percentefficiency, a new 440-MW reactor operatingat 70-percent capacity can displace 2.94

million tons of lignite per year.22 Nuclearpowerplants are now usually built with atleast four VVER-440s (i.e., with installedcapacities of 1,760 MW). Commissioningsuch a plant would thus obviate the miningof nearly 12 million tons of lignite per year.This amount of lignite equals 2.3 mtoe or0.047 mbdoe. The best case increase in coaloutput between now and 1985 was 0.74mbdoe. Thus, it would take almost sixteen1,760-MW nuclear powerplants (each withfour 440-MW reactors) to match that incre-ment. This is clearly impossible. Even in thebest case, therefore, nuclear power’s con-tribution to increased supplies of domesticenergy in Eastern Europe in the 1980’s willbe much smaller than that of coal.

The potential obstacles to fulfillment ofnuclear targets differ sharply from thoselikely to be encountered with coal produc-tion. As in the U. S. S. R., there are no EastEuropean counterparts to the Western anti-nuclear groups. Nuclear power is officiallyconsidered much cleaner than coal, andtherefore a very attractive energy source.Press reports include little discussion ofsafety issues, and individuals who mayworry about the safety of nuclear powerhave no easy way to express their concern.Barring an accident near a major populationcenter (a prospect not to be dismissed sincecurrent plans call for cogeneration usingnuclear reactors situated in heavily popu-lated areas), it is unlikely that safety and en-vironmental concerns will impede the devel-opment of nuclear power. Labor problemsare also unlikely to be a major factor, sincethe nuclear industry is not as labor-intensiveas the coal industry.

22 A new 440-MW reactor operating 70 percent of the timecan produce 2.6981 billion kWh of electricity per year (24hours per day x 365 days x .70 x 440 MW = 2.6981 billionkWh). Modern fossil-fired plants can produce 1,000 kW ofelectricity using approximately 0.218 toe of energy equiva-lent inputs. 1,000 kW equals approximately 0.0875 toe of en-ergy, and therefore energy out divided by energy in is 0.0875/0.218 = 0.4 efficiency of energy conversion. A 440-MW lig-nite-fired plant working at that efficiency level will require2.6981 billion kWh x 0.000218 mtoe = 0.588 mtoe of energyinputs per year. Assuming the lignite inputs average 0.2mtoe per ton, that requires 0.58/0.2 = 2.941 tons of lignite.

Ch. 9—East European Energy Options - 297

The two potentially significant con-straints on the development of nuclearpower in Eastern Europe are technology andcapital costs. While there appear to be fewproblems with the VVER-440 reactors, theintroduction of new VVER-1000s and theirattending support equipment is tantamountto an experimental program and delays arenot unlikely. The capital costs of nuclearpower may also impede the realization ofplans for nuclear power development in the1980’s. Nuclear powerplants are huge,highly visible investment projects. If, asseems likely, East European GNP growthrates are low during this decade, the need tomaintain living standards might result in aslowdown in nuclear power development,and possibly a heightened interest in conser-vation.

The Feasibility of Meeting InstalledNuclear Capacity Targets

East European plans for 1985 nuclearpower capacity appear to be fairly realistic(see table 67). These foresee a capacity of12,000 MW in 1985, 2,000 MW above mid-1970’s forecasts for 1980. This installed

capacity would support electricity produc-tion amounting to 0.320 mbdoe (15.9 mtoe).Most of the planned increment for the1980-85 period is associated with the in-troduction of additional VVER-440 reactors,with which the East European and Sovietpower industries now have considerable ex-perience. Therefore, 12,000-MW installedcapacity in 1985 can be viewed as a reason-able best case. A worst case could assumethat Bulgaria’s VVER-1000 is not oper-ational until after 1985, that the Czechs onlymanage to achieve the low end of their plan(2,200 MW of capacity operating in 1985),that the Poles can get none of the capacity atZarnowiec operational in 1985,23 and thatRomania’s first reactor does not make itsscheduled commissioning in 1985. It is en-tirely possible that all of these delays couldcoincide. Under these worst case conditions,9,250-MW capacity might be in place by thatyear, which would produce 56.66 billion kWhor 0.247 mbdoe (12.3 mtoe) of electricity.

It is difficult to determine best and worstcases for nuclear power for 1990 since in-

23 ‘See RFE, background report No. 11 -Eastern Europe, Jan.20, 1981.

Table 67.— Nuclear Power Capacity, and Production of Electricity From Nuclear Powerplants,1979 (actual), and Planned for 1985 and 1990

Actual Planned1979 1985 1990

Capacity Production a Capacity Production a Capacity Production(mkW) (bkWh) (mbdoe) (mkW) (bkWh) (mbdoe) (mkW) (bkWh) (mbdoe)

Bulgaria . . . . . . . . . . . 0.88 54 0.024 2.76 16,9 0.074 3.76 231 0101Czechoslovakia . . . . 0.44 2.7 0.012 2.42 14,9 0.065 10.52 67.5 0,295East Germany. . . . . . 1 76 10,8 0.047 (3.52) b (21 .6)b (0.094) b (3.52+)d (21 .6+)d (0.094+)d

Hungary . . . . . . . . . . . 0 0 0 1 76 10.8 0.047 (2.76)e (16.9) e (0.074) e

Poland . . . . . . . . . . . . 0 0 0 0.88 5.4 0.024 4.90 30.1 0.132Romania. . . . . . . . . . . 0 0 0 0.66 4.1 0.018 3.96 23.9 0.104——. ———Eastern Europe,

—

total . . . . . . . . . . . . . 3.08 18,9 0.083 12.0 73.7 0.320 37.00’ 226.9’ 0.991 c

a These are estimates assure Ina a O 7 load factorbThis is the German Democratic RePubll~~ 1980 ~Ian ~u~te OTA had no information for 1985 or 1990, and assumed that the GDR planS to fulflll thts early VerSlon Of the

1980 plan by ?985, and that more plants are planned (n 1990cTh IS IS an independent est I mate of total nuclear capac!ty by 1990 The elements I n the CO I umn add up to 2942 mkWh Some of the remain I ng u nex plalned portion must

be In the East German plans, and whatever IS left apparently represents upward plan revision(s) that have not been publlshedd A~sumes that the German Democraflc Republl~ plans rnor~ capacity by 1 g$lo than the plan (guessed) for 1985



formation on the plans themselves is in-complete. Several sources indicate that allCMEA countries except the U.S.S.R. plan tohave a total nuclear capacity by 1990 of37,000 MW24 (see table 57). The availablefragmentary 1990 official plan data showsthat over the 1986-90 period Czechoslovakiaapparently expects to bring on line eightVVER-1000 reactors; Poland, at a muchearlier stage in its nuclear program andtherefore less experienced, is planning to addfour; and Bulgaria’s target calls for the con-struction of an additional two. By 1990Romania plans to have six Candu reactors inoperation, at least three of which will be pro-duced by the Romanians themselves underCanadian license. Romanian expectations forsolving both the problems of constructionand manufacturing of nuclear reactors in thenext decade are especially ambitious. Thecountry first 660-MW reactor is notscheduled for commission until 1985.

Based on past experience, OTA believesthat goals for nuclear power developmentwhich rest on the timely installation of all ofthe planned reactors are too optimistic toserve as a best case projection. A realisticbest case would assume that some, but notall, of the VVER-1000 reactors are in opera-tion by the end of the decade, and that totalcapacity reaches about 30,000 MW. Thisassumes that Poland and Romania each fall2,000 MW short of their 1980 targets, andthat Czechoslovakia falls 3,000 MW belowits plans. The scenario is still optimistic inthat it assumes no slippage in Bulgarian andHungarian plans. This best case projectionfor 1990 is 7,000 MW below the estimatesreferred to above by East European sources.If there are considerable investment con-straints, or if there are significant difficultiesin introducing the large VVER-1000 reac-tors, a worst case for 1990 would be totalnuclear capacity of 20,000 M W (see table 68).

Even under best case conditions, nuclear—.—— —

24 Iu. Savenko and M. Samkov, “Cooperation of the Mem-tJer-Countries of CNIEA in the Development of ElectricEnergy, ” Ekonomicheskoye sotrudnichestuo stran-chlenovSEV, February 1980, p. 52.

power generation is likely to supply only asmall increment to the growth in domesticenergy production through the end of thedecade. In the best case, production willreach 184 billion kWh in 1990 (0.804 mbdoeor 40 mtoe), accounting for a little over 1 per-cent of the yearly growth rate in energy pro-duction to 1990. If, instead, the worst caseobtains, then the 20,000-MW capacity (0.536mbdoe or 26.7 mtoe) would add 0.6 percentper annum to the growth in energy produc-tion over the same period.

It is interesting to compare feasiblenuclear and coal production increments toget a sense of the contributions each is likelyto make to Eastern Europe’s energy supplyin the next decade. Total energy productionin Eastern Europe in 1979 was 6.737 mbdoe(336 mtoe). Production in 1980 was certainlyno higher, due to leveling coal output. Underthe best case conditions, nuclear power willadd 0.201 mbdoe (10 mtoe), 3 percent of 1979production, by the year 1985. In the bestcase coal could contribute more than fourtimes that amount of energy over the sameperiod, 0.86 mbdoe (43 mtoe). The worst casefor coal is nearly equivalent to the best caseincrement to energy supplies from nuclear.Under the best of circumstances, by 1990nuclear could provide a 0.684-mbdoe (34.1 -

Table 68.—Planned and Projected Nuclear Capacityto 1990 (million barrels per day of oil equivalent)

—1990

1979 1985 1990 (Coal)

Actual . . . . . . . . . . . . . . 0.119(out of

6.37 totalenergy

produc-tion)

Plan . . . . . . . . . . . . . . . . . . . . . . . . . 0.320 0.991 a (6.86)Best case projection . . . . . . . . . . 0.320 0.803 (5.98)Worst case projection . . . . . . . . . 0.247 0.536 (5.44)

Best case Increment provided by nuclear (1979-90) = 0.684Worst case increment provided by nuclear (1 979-90) = 0.417Best case increment provided by coal (1979-90) = 1.36Worst case Increment provided by coal (1979-90) = ,62

a

Estimate Using 37000 MW and a load factor of O 7SOURCE Off Ice of Technology Assessment

Ch. 9—East European Energy OptIons - 299

mtoe) increment to 1980 total energy produc-tion; under the worst case nuclear power in1990 would provide a 0.417-mbdoe (20.8 -mtoe) increment. Coal, on the other hand,would provide under best conditions 1.36mbdoe (67.7 mtoe), and under worst condi-tions an increment of 0.62 mbdoe (30.9mtoe), by 1990. In sum, even in the best ofcircumstances, throughout the 1980’s nucle-ar power will provide no more of an incre-ment to domestically produced energy inEastern Europe than coal.

SOVIET ELECTRICITYEXPORTS TO

EASTERN EUROPE

Soviet electricity exports to EasternEurope have never been large. In 1979 theseamounted to 12.6 billion kWh, about 3 per-cent of Eastern Europe’s own electricity pro-duction that year. One important constrainton exports of electricity has been the lack ofhigh-voltage transmission lines to link upwith the East European system. The previ-ously mentioned 750-kV line running fromthe Soviet Ukraine to the Hungarian electricpower grid near Budapest was the first stepin breaking this bottleneck. The Sovietsbuilt the portion of the line within theirborders, while the Hungarians built the restwith Polish and Czech assistance. At fullcapacity of 6.4 billion kWh the line will in-crease Soviet electricity export capacityabout 50 percent above 1978 levels.25 Thisline accounts for all of the increment toSoviet electric energy export capacity toEastern Europe in 1978 and 1979.

The transmission network will grow fur-ther. When the two jointly built Ukrainiannuclear power stations are operating at fullcapacity in the latter half of the decade, 20billion to 22 billion kWh of electricity will beshipped to Eastern Europe through the com-pleted Hungarian line, and two similar linesto Poland and Romania. This will triple pres-

25 Leslie Dienes and Theodore Shabad, The Soviet EnergyY},st(tn 1{(.s~j~~rc~ 1’,sP (In(i l’(~lic~(s {M’ashington. 1).(’,: F’. 1{.L~’instOn & Sons, 1 979), pp. 2~19-40,

ent levels of Soviet exports of electricity toEastern Europe.

In the absence of projections for total elec-tricity production in Eastern Europe in the1980’s, it is difficult to say how large the con-tribution of imported Soviet electricity willbe. An additional 20 billion to 22 billion kWhof electricity would amount to 0.096 mbdoe(4.8 mtoe), or less than 25 percent of theworst case increment to domestic energysupplies coming from nuclear power in thenext 10 years. Clearly, the exports of elec-tricity from the Soviet Union will not make acontribution as large as is likely to comefrom coal and nuclear power development.

OTHER DOMESTIC SOURCESOF ENERGY

Romania is the only significant East Euro-pean producer of petroleum, supplying mostof Eastern Europe’s oil and two-thirds of itsgas in 1979. However, Romanian output ofboth oil and gas has been declining since1977 and it is generally agreed that thistrend will continue. Romanian plans call formaintenance of oil production at the 1979level (0.25 mbd or 12.4 mtoe) and a reductionin natural gas production to 0.51 mbdoe or25.4 mtoe (down from 0.61 mbdoe or 30.4mtoe in 1979). Hungary, which produces0.04 mbd (1.99 mmt) of oil and 0.11 mbdoe(5.48 mtoe) of gas expects to maintain, butnot increase, those levels. Poland’s naturalgas production plans are unknown, but itseems unlikely that output will increasesignificantly. Therefore, it is realistic toassume that East European hydrocarbonproduction, which totaled 1.22 mbdoe (60.8mtoe) in 1979, will probably fall to about 1.10mbdoe (54.8 mtoe) for the 1980’s.

The only remaining East European do-mestic energy source is hydroelectric power,the contribution of which is small in com-parison to coal, nuclear, or even oil and gas.Since plans for hydropower either have notbeen developed or are not available, it is verydifficult to make meaningful predictions. Afew hydropower development projects can


in 1979, and present plans where these wereavailable.

Between 1970 and 1979 total East Euro-pean energy production grew at an annualrate of 2.4 percent.27 Projections of totalenergy production in Eastern Europe for1985 are at best 7.07 mbdoe (352.1 mtoe) andat worst 6.43 mbdoe (320.2 mtoe). The bestcase figure represents annual growth inenergy production of 1.8 percent, while theworst case represents virtual stagnation inproduction over the 1980-85 period. The1990 projections range from a best case of7.88 mbdoe (392.4 mtoe) production, whichimplies a 2-percent annual growth rate overthe decade, to a worst case of 6.89 (343.1mtoe) mbdoe which implies a growth rate of0.7 percent.

be identified, however. Two of these–in Bul-garia and Hungary–are aimed at the devel-opment of pumped storage capacity to han-dle peakloads and have evidently receivedpreliminary approval in CMEA.26 A numberof East European nations are also discussingthe development of minihydro stations (lessthan 100 MW) to supply small rural areas.Finally, there are traditional hydroelectricstations under construction in several coun-tries. Overall, however, it does not appearthat hydroelectric power can make a majorcontribution to added domestically producedenergy supplies.

CONCLUSIONS

OTA’s best and worst case projections ofEast European energy supply in the 1980’sare summarized in table 69, which alsoshows actual and official energy production

26 Bagudin, op. cit., pp. 39-40.

27 This is a simple compound growth rate, computed from1980 CIA data.

Table 69.—East European Energy: 1979-90, Plans and Projected Actual Supplies(million barrels per day of oil equivalent)

1979Elec-

Oil Gas tric

1985Elec-

Total Coal Oil Gas tric a Tota l Coal

1990Elec-

Gas t r ic d T o t a lCoal Oil

Bulgaria Plan b . . . . . . 0.11Projected (b)c . . . . —Projected (w)c . . . . —

Czechoslovakia Plan b . . . . . . 0.93Projected (b) . . . . . –Projected (w) . . . . . —

East Germany Plan b . . . . . . 1.06Projected (b) . . . . . —Projected (w) . . . . . —

Hungary Plan b . . . . . . 0.14Projected (b) . . . . . —Projected (w) . . . . . —

Poland Plan b . . . . . . 2.56Projected (b) . . . . . —Projected (w) . . . . . —

Romania Plan b . . . . . . 0.16Projected (b) . . . . . —Projected (w) . . . . . —

Total Plan b . . . . . . 4.96Projected (b) . . . . . —Projected (w) . . . . . —

0.01 0 0.04 0.16 0.15 NA NA 0,09 NA 0.18— 0.15 0.01 0 0.09 0.25 0.18— 0.12 0.01 0 0.06 0.19 0.15

0.97 0.96 NA NA 0.08 NA 0.99— 0.96 0 0.01 0.08 1.05 0.99— 0.93 0 0.01 0.08 1.02 0.96

1.17 1.16 NA NA NA NA 1.26— 1.15 0 0.05 0.09 1.29 1.26— 1.06 0 0.05 0.09 1.20 1.15

0.29 0.18 0.04 0.10 0.05 NA 0.19— 0.18 0.04 0.10 0.05 0.37 0.19— 0.16 0.04 0.10 0.05 0.35 0.18

2 . 7 0 3 2 0 N A NA 0.03 NA 3.75— 2.82 0.01 0.12 0.03 2.98 3.06— 2.42 0.01 0.12 0.01 2.56 2.60

2.08 0.44 0.25’ 0.51 0.07 1.27 0.49— 0.30 0.25 0.51 0.07 1.13 0.40— 0.20 0.25 0.51 0.05 1.01 0.30

6.37 6.09 NA NA NA NA 6.86— 5.56 0.31 0.79 0.41 7.07 6.08— 4.89 0.31 0.79 0.34 6.43 5.34

NA0.010.01bd

00NA000.040.040.04NA0.010.01NA0.250.25NA0.310.31

NA 0.12 NA0 0.12 0310 0.09 0.25bd 0.33 NA

0.01 0.23 1.230.01 0.12 1.09NA NA NA0.05 0.09 1.400.05 0.09 1.290.10 0.07 0.400.10 0.07 0.300.10 0.05 0.37NA 0.14 NA0.12 0.09 3.280.12 0.03 2.76NA 0.15 NA0.51 0.10 1.260.51 0.09 1.15NA NA NA0.79 0.70 7.880.79 0.45 6.89

——

0 0.01 0.03——

0 0.05 0.05——

0

———

0.04 0.11——

0.01 0.12 0.01——

—0.26 0.61 0.05

——

0.32— —

0.190.90——

NA = not availablea This includes electricity produced in 1979, plus the planned Increment from nuclear PowerPlantsb The 1979 figures are actual productionc Projected (b) IS best projected case, Projected (w) IS worst projected cased This includes electticity produced in 1979 and the Increment planned from nuclear power through 1990



The results of this analysis suggest thatEastern Europe’s plans for domestic energysupplies in the 1980’s are overly optimistic.The plans assume that growth in energy pro-duction can be maintained at levels attainedin the last decade—an assumption whichseems unjustified. While there are no dataavailable on total planned energy output inEastern Europe in 1985, it is reasonable toassume that planners’ expectations forenergy production resemble OTA best caseprojections for all fuel sources except coal,where their plans show much higher produc-

tion levels. The implied plan for 1985 is 7.6mbdoe (378.4 mtoe) total energy production,an annual growth of 3 percent over 1979; for1990 the plan is 8.66 mbdoe (431.2 mtoe) or2.8 percent per annum growth rate over the1979-90 period. These growth rates arehigher than those actually achieved in thelast decade, and probably unattainable. Itwould be more reasonable to assume that, atbest, East European energy production willgrow at 1.8 percent, and at worst at less than1 percent yearly.

EAST EUROPEAN ENERGY DEMAND IN THE 1980’S

In the last 15 years, energy consumptionin Eastern Europe has grown at approx-imately 4 percent per year, while productionhas been growing at about 2.5 percent peryear. The difference has been met withSoviet oil. This situation cannot continue.As previously noted, the U.S.S.R. has an-nounced that henceforth it intends to main-tain its oil exports to Eastern Europe at1980 levels. Thus, even maintaining thestatus quo would involve East Europeancountries’ increasing imports of OPEC oil atworld market prices. As the analysis in theprevious section has shown, even under thebest of circumstances the growth rate ofEast European energy production in the1980’s will be no more than 2 percent, andunder worst case conditions the growth ratemight fall below 1 percent. These statisticsunderline the importance of efforts to mod-erate growth in energy consumption in theyears ahead.

A critical determinant of the growth ofenergy demand in any country is the produc-tion of goods and services, as measured byGNP. One indicator of the relationship be-tween GNP and energy is energy/GNP elas-ticity, i.e., the percentage change in the con-sumption of energy divided by the percent-age change in GNP. Table 70 summarizes es-timates of historical trends in energy/GNPelasticity for Eastern Europe. A coefficient

Table 70.— Energy GNP Elasticities in Eastern Europe:Past Trends and Future Projections

1965-78 1974-78 1981-90(project ion)

Bulgaria. . . . . . . . . . . . . . . . . . . . . . 1.79 1.50 1.65Czechoslovakia . . ., . . . . . . . . . . 1.06 2.34 1.00East Germany . . . . . . . . . . . . . . . . ,76 .79 .75Hungary . . . . . . . ... , . . . . . . . . . . 1.20 1.34 100Poland . . . . . . . . . . . . . . . . . . . . . . . 1.01 1,29 1,00Romania . . . . . . . . . . . . . . . . . . . . . 1,34 1,10 1.21

Total - Eastern Europeb . . . . . 109 1.28 1,00

aNone of these elastlcltles IS slgnlflcantly different from the elastlc[fy for the enttre1965-78 period

bwelg hted average from a regression for al I of Eastern EU roPeSOURCE All the elastlcltles are from the equation

log (cl q -al + bl 10g (DUM) + Cl 10g (GNp) + d, 10g (DUM) - iOg(GNP)

where C l

e - consumption of energy (n the Ith country

G N P1 GNP of the Ith country

DUM ❑ a dummy variable -1 through 1973 and e for 1974-78

For a dlscusston of the econometric techn[que used here see EdwardA Hewett, “Alternative Econometric Approaches for Study{ng theL Ink Between Econom IC Systems and Econom{c Outcomes Journa/of Cornparaf[ve EconornIcs, 4 ( 1980) pp 274-290

(an indicator of energy/GNP elasticity) of“1” for a given period means that when GNPhas grown by 1 percent, average energy con-sumption has grown by a like amount.

Several important conclusions can bedrawn from table 70. First and most impor-tant, the energy/GNP relationship has beenabove “1“ for each covered period for everyEastern European nation except East Ger-


many. For the six countries together, be-tween 1965 and 1978 a l-percent increase inGNP was associated with a 1.12-percent in-crease in energy consumption.

Secondly, the figures for the brief 1974-78interval show no statistically significant dif-ferences from the elasticity for the entireperiod, although clearly the trend was forelasticities to increase during this period.There is no evidence that frequent publicstatements on energy conservation in East-ern Europe have had any tangible effect. Onthe other hand, one should not place a greatdeal of weight on the 1974-78 elasticities.The sample period is quite short, and thefact that there is no statistically significantdifference between these estimates andthose for 1965-78 indicates high variabilityin energy/GNP elasticities. Hence these1974-78 coefficients are averages of a broadrange of numbers,

Third, there is evidence that levels of eco-nomic development influence the energy/GNP elasticity. In countries such as Bul-garia and Romania where industrialization isoccurring at a fairly rapid pace, energy/GNPelasticity is high. East Germany and Czech-oslovakia, on the other hand, have lowerenergy/GNP coefficients. This suggests thatthe elasticities may fall over time as develop-ment proceeds.

East European leaders have become in-creasingly concerned with energy/GNPelasticity, and their concern has been en-hanced both by recognition of the costs in-volved in expanding domestic energy pro-duction and awareness of the U.S.S.R.’s in-tentions not to increase its energy exports.Not surprisingly, therefore, discussions ofconservation as the least expensive policyfor avoiding a full-fledged energy crisis arebecoming increasingly frequent,28 and a vari-ety of energy conservation measures are nowbeing contemplated or employed. The mostimportant of these include the following:

1. reducing the proportion of energy-intensive products in total output;

28 Gzovskiy, op. cit.

2.

3.

4.

development and installation of energy-saving machinery in energy-intensivesectors, including efforts to recaptureheat lost in power stations;introduction of various administrativeregulations designed to control house-hold and industrial energy demand; andincreasing prices to cut energy usethroughout the economy, including inthe household sector.

These efforts appear to have had little effectso far on the energy/GNP ratio. Slowdownsin the growth of energy consumption inEastern Europe in the late 1970’s were dueto slowdowns in production, not to conserva-tion. Now, as concern about energy supplyincreases, energy conservation is beingtaken more seriously. Soviet leaders havealso apparently urged their East Europeancounterparts to adopt conservation meas-ures, particularly those aimed at restructur-ing GNP and modernizing capital stock inenergy-intensive industries.

These policies may have some effect, butit is doubtful whether they will seriouslyreduce energy/GNP elasticity. Excess use ofenergy in Eastern Europe is a manifestationof a general pattern of excess use of all in-dustrial materials. The situation is similar tothat in the U. S. S. R.: traditionally, economicinstitutions have emphasized high outputgrowth rates over economizing on inputs tothe production process. In most cases, EastEuropean leaders are attempting to dealwith the energy crisis by using the same ad-ministrative techniques they have relied onin the past. In 1979 and 1980, for example,East European countries introduced specialplan targets designed to reduce energy useby industry, with penalties for noncom-pliance. However, this consumption target isonly one of a variety of targets which enter-prise managers must consider. Oftenmanagers give preference to the fulfillmentof production tasks rather than to ra-tionalization measures. For example, a sur-vey in East Germany, a country which hasbeen fairly successful in controlling energydemand, showed that one-third of all enter-

Ch. 9—East European Energy OptIons ● 303

prises simply ignored theirmizing targets.29

Enterprises will probablyconservation until they are

energy -econo-

avoid energyforced to do

otherwise. Administrative measures havelimited impacts since enterprise managersknow a number of ways to get around them.The only effective method of introducingconservation may be to weave energy con-servation into a package of comprehensiveeconomic reform. This is presently being at-tempted in Hungary. If the Hungarian ex-periment proves successful, it may suggest apromising approach for other countries.30

Overall, it appears unlikely that theenergy/GNP coefficient will fall sharply inthe absence of economic reforms. As the in-dustrialization drives in Romania and Bul-garia slow, coefficients for those countriescould fall slightly, but Hungary is the onlycountry in which the energy/GNP elasticitymay fall significantly, Assuming no othermajor economic reforms, it is reasonable toexpect that during the next decade theenergy/GNP coefficient for all of EasternEurope will fall from 1.09 to 1.00, if Hungaryis able to achieve relatively higher levels ofconservation (see table 70).

In order to make energy demand projec-tions based on energy/GNP elasticity, it isnecessary to consider likely developments ineconomic growth. Analyzing the prospectsfor East European GNP is complicated bytwo problems. First there are no reliableGNP projections for Eastern Europe. Sec-ond, it is possible that tight energy suppliesmay constrain GNP in the 1980’s, reversingthe situation of the last decade. This wouldoccur if the supply projections developed inthe last section result in import and balanceof payments problems which force East

Table 71 .—Energy Demand Projections forEastern Europe, 1985 and 1990 (million barrels per day

of oil equivalent)

1979 energy 1985 energy 1990 energyconsump ton consumption consumptlon

High Low High Low—

Bulgaria . . . . . . . . . . . 0.65 0.80 072 093 079Czechoslovakia . . . . 1.59 1,77 1 68 2.08 1 75East Germany. . . . . . 1.74 1.97 185 2.18 196Hungary . . . . . . . . . . . 060 071 0 6 5 0.81 070Poland . . . . . . . . . . . . 2 3 8 2,86 2 6 2 3 3 3 2.83Romania. . . . . . . . . . . 1 3 9 2.00 1.68 2 6 8 1.96

Eastern Europe,Total . . . . . . . . . . . . 8 .35 10 .10 9 2 0 1 2 0 1 9.99

SOURCE The 1979 figures are an estimate based on 1978 figures the ener-gy/GNP elasticities in table 70, and 1979 GNP growth rates reportedby CIA for each East European country The 1985 and 1990 projec-tions are derived by applying the high and low GNP growth rates as-sumed for 1981.90, and the assumed energy demand elasticities toestimated energy consumption in 1979 For example the figure forthe high case for Bulgaria in 1985 IS derived as 21 percent x 165 =3465, which IS the estimated per annum growth rate of energy consumption 1.03456’ x 0.65 = 0.80 mbdoe

European countries to curtail imports andGNP. With these caveats in mind, OTA hasattempted projections of likely rates ofeconomic growth in the next 10 yearswithout considering a feedback from energyconstraints.

During the 1970's, GNP growth rates inEastern Europe declined from about 5 per-cent to less than half that figure. Althoughthe reasons for this are multifarious andcomplex, the energy crisis exacerbatedalready existing problems by putting tre-mendous pressure on Eastern Europe’s bal-ance of payments. OTA here assumes as abest case that Eastern Europe will be ablesomehow to maintain the levels of growthachieved for the latter half of the 1970’s (2.9percent per year) in the next decade. A worstcase would involve growth at half of thisrate—i.e., rates of GNP for 1981-90 of 1.5percent. These GNP projections, combinedwith the energy/GNP elasticity projectionsabove, yield the energy demand projectionsin table 71. The final section of this analysiscombines these demand projections with thesupply projections developed above. Theresult is a projection of Eastern Europe’senergy import needs in the next decade.


EAST EUROPEAN ENERGY IMPORTS IN THE 1980’S:IMPLICATIONS FOR TRADE WITH THE SOVIET UNION

AND THE REST OF THE WORLD

IMPORT NEEDS: BEST, WORST,AND MIDDLE CASES

Combining projections of domestic pro-duction and energy demand can yield areasonable estimate of energy import needsfor the next decade. Table 72 summarizesthese estimates, and outlines best, worst,and middle cases for net imports in the1980’s. The worst cases for both 1985 and1990 assume that energy consumption con-tinues to grow at a high rate, while simul-taneously domestic energy productionfollows the worst case in table 69. The bestcase is based on the lowest projections forgrowth in energy consumption and thehighest for production. One middle case isalso identified. This assumes that whileenergy consumption grows at a high rate,the six East European nations are successfulin attaining the best case energy productionprojections.

Table 72 posits a best case in whichEastern Europe maintains a stable net im-port/energy consumption ratio throughoutthe 1980’s. This outcome is not impossible,

although it is based on the assumption thateverything goes well for Eastern Europe;i.e., demand grows slowly and production in-creases at best case rates. Under these condi-tions, which are certainly less optimistic onthe production side than those outlined inthe official plans, net imports for the sixEastern European countries together will ac-tually fall from about 24 percent of allenergy consumed in 1979 to about 21 per-cent in 1990.

The worst case is dramatically different.Under worst case conditions even Polandbecomes an importer of energy and by 1990Eastern Europe as a whole will import 43percent of all the energy it uses. For all coun-tries except Poland, the net import/con-sumption ratio is even higher by 1990—52percent. Like the best case, this is a possibleoutcome. It is conceivable that energy pro-duction will grow slowly while energy con-servation programs fail to have significantimpacts.

The middle case, which is probably themost likely, assumes favorable develop-

Table 72.—Projected Energy Consumption and Production in Eastern Europe, 1985 and 1990(million barrels per day of oil equivalent)

1979 actual 1985 projected 1990 ProjectedCon- Pro- Consump- Produc- Consump- Produc-

sump- duc- Net tion tion Net Imp.a tion tion Net Imp.a

t i o n t i o n I m p . High Low Worst Best Worst Mid Best High Low Worst Best Worst Mid Best

Bulgaria. . . . . . . . . . 0.65 0.16 0.49 0.79 0.72 0.19 0.25 0,60 0.54 0.47 0.93 0.79 0.25 0.31 0.68 0.62 0.48Czechoslovakia . . . . 1.59 0.97 0.62 1,77 1,68 1.02 1.05 0,75 0.72 0.63 2,08 1.75 1.09 1,23 0.99 0.85 0,52East Germany . . . . 1.74 1,17 0.57 1,97 1,85 1,20 1.29 0,77 0.68 0.56 2,18 1.96 1.29 1.40 0.89 0.78 0.56Hungary . . . . . . . . . 0.60 0.29 0.31 0.71 0.65 0,35 0.37 0.36 0.34 0.28 0,81 0.70 0.37 0.40 0.44 0.41 0.30Poland . . . . . . . . . . . 2.38 2,70 -0320 2.86 2.62 2.56 2,98 0.30 -0.12 -0.36b 3.33 2.83 2.76 3.28 0.57 0.05 -0,45Romania . . . . . . . . . 1.39 1,08 0.31 2.00 1.68 1.01 1.13 0.99 0,87 0,58 2.68 1.96 1.15 1.26 1.53 1.42 0.70

East Europe,Total. . . . . . . . . . . 8.35 6.37 1.98 10.10 9.20 6.43 7.07 3,77 3.03 2.16 12,01 9.99 6.89 7.88 5.12 4.13 2.11

a The worst case IS when consumption IS ‘h{gh and production IS worst Thus for Bulgarla In 1975, the worst case ISO 79-019 = O 60 mbdoe The mid (middle) case IS wher{consumption IS high and production is ‘best The best case IS when consumption IS low and product Ion IS best

blnd[cates net energy exports

SOURCE Office of Technology Assessment Actual 1979 consumption data are estimated by multiplying the 1978 Consumption data by actual 1979 GNP growth rates,and those by the elastlcltles In table 70


ments in energy production, combined withhigh-GNP growth rates. This case assumesthat for political reasons East Europeanplanners will place high priority on attempt-ing to maintain relatively high economicgrowth rates, hence acceptable growth ratesfor personal consumption.

SOVIET ENERGY EXPORTS TOEASTERN EUROPE

Thus far, this chapter has approached thequestion of East European energy in the1980’s from the perspective of the EastEuropean planners themselves. But EasternEurope’s energy future rests heavily on theactions of the Soviet Union. The amount ofenergy that the Soviet Union is willing to ex-port to Eastern Europe for transferablerubles will to a large extent determine theamounts which Eastern Europe will beforced to buy on world markets–at worldprices, for hard currency.

In order to make precise projections here,one would have to know the intentions andcapabilities of the Soviet Union regardingenergy exports to Eastern Europe. All thatis known about Soviet intentions is em-bodied in several statements by the latePremier Kosygin, indicating that energy ex-ports to all CMEA countries will be about 20percent more in the 1981-85 period than theywere in the 1976-80 period, and that crude oilexports to CMEA during the first half of thedecade will total 400 million tons.31 If thesestatements are accurate, the Soviet Unionwill export about 117.98 mtoe (about 2.36mbdoe) of energy annually between 1981-85to Eastern Europe. This is a substantial cutin increments to energy exports as comparedto the situation in the last decade. Table 73summarizes plans for Soviet energy exportsto CMEA.

Table 74 combines estimates and projec-tions of Eastern Europe’s net energy im-ports in 1979, 1985, and 1990, with esti-

31 A.N. Kosygin, “Speech of the Head of the Delegation ofthe Union of Soviet Socialist Republics, Comrade A. N.Kosygin," Ekonomicheskoye sotrudnichestvo stran-chlenolSEV, April 1980, p. 30.

Table 73.—Soviet Energy Exports to CMEA,Actual in 1976-80, and Planned for 1981.85

1976-80 (estlmates)c 1981-85 planNatural a Mtoe Na tu ra la Mtoe

Natural gas. . . . . . . . . . 97.8 80.1 152.4 d 124.8 d

Crude Oil, . . . . . . . . . . . 370.4 370.4 400.0e 400.0e

Oil products. . . . . . . . . 55.0 55.8 64.4i 65.3 i

Electricity . . . . . . . . . . . 55.6 19.5 80.0 h 28.0 g

Coal and cokeb. . . . . . 41.0 28.1 41.0 g 28.1g

Total . . . . . . . . . . . . . . — 553.9 – 646.2f

Eastern Europe . . . — 501.2 j — 589.9k

aNatural unlts of measure bcm for natural gas metric tons for crude oil. Oilproducts coal and coke and bkWh for electricity

bThese figures are net of East Europe s coal exports to the Soviet UnloncEach of these figures cnclude estimates for 1980 as well as earner years in somecases The hydrocarbon exports are from tables 1 and 2 Electricity exports aregiven in table 11 For coal and coke the assumption IS that 1976-80 exportsremained at the 1976 level since value data suggest that this trade is quite stable

d Assumes 1980 levels of Soviet gas exports through 1985 since Orenburg was at

full capacity in 1980e Statement by Premier Kosygln, 1979f Kosygin in 1980 stated that energy exports to Eastern Europe from the SovietUnion wiII rise 20 percent in 1981.85 over 1976-80, and he gives the figures for1976-80 Those figures which equal 538.5 mtoe, multiplied by 0.12 yield the6462 mtoe for 1981-85 Note that Kosygin's preliminary figures were apparent-ly low

g Assumes 1976-80 delivery levels wiII be maintainedh Assumes 1979-80 Ievels IS of electricity exports and that Khmel nitska nuclearpowerplant begins full shipments in 1984 (Optimisic)

I Th IS IS a resldu al obtained by su blracl! ng al I other elemenls from the total derivedfrom Kosyg[n statement

j T hls subtracts the 52 7 mtoe of 011 and products shipped to Cuba V letnam andMongolla

k Assumes that 563 mtoe of 011 and products WIII be shipped to V Iefnam CU ba

and Mongolla during 1981-85 which IS 5 x the 1980 level


mates and projections of Soviet energy ex-ports to Eastern Europe in those years. Thetable shows that in 1979 Eastern Europe asa whole was a slight net exporter of energyto the world outside the Soviet Union. Thiswas due to Poland’s imports of energy fromthe Soviet Union and simultaneous exportsof coal to the rest of the world. The otherEast European countries were able to covermost of their needs with Soviet energy, ex-cept for Romania, which had significant im-ports from outside CMEA.

If the best case obtains, Eastern Europewill be able overall, and in each individualcase, to cover virtually all of its net energyneeds with imports from the Soviet Union.Overall, Eastern Europe would remain aslight net exporter of energy to the rest ofthe world. If the worst case should occur, by1985 Eastern Europe will switch from beinga small net energy exporter to a net importerof 1.41 mbdoe (70.2 mtoe); by 1990 importswould reach 2.74 mbdoe ( 137 mtoe). Even in


Table 74.—East European Projected Net Energy Imports, 1985 and 1990: Total, From the Soviet Union, andFrom the Rest of the World (million barrels per day of oil equivalent)

1979 actual 1985 projected 1990 projectedF r o m N e t Total From Net from ROW a Total From Net from ROWa

Total U.S.S.R. from Worst Mid Best U.S.S.R. Worst Mid Best Worst Mid Best U.S.S.R. b Worst Mid BestR O Wa

Bulgaria. . . . . . . . . . 0.49 0.45 0.05 0.60 0.54 0.47 0.49 0.13 0,05 -002 0.68 0,62 0.48 0.49 0.19 0.13 -0.01Czechoslovakia. . . 0.62 0.53 0.09 0.75 0.72 0.63 0.57 0.18 0,15 0.06 0.99 0.85 0.52 0,57 0.42 0,28 -0.05East Germany . . . . 0.57 0.51 0.06 0.77 0.68 0.56 0.55 0.22 0.13 0.01 0.89 0.78 0.56 0,55 0.34 0,23 0.01Hungary . . . . . . . . . 0.31 0.30 0,01 0.36 0.34 0.28 0,36 0 -0.02 -008 0.44 0.41 0.30 0.36 0.08 0.05 -006Poland . . . . . . . . . . . -032 0.22 -054 0.30 -012 -0.36 0.30 0 -042 -066 0,57 0,05 -0.45 0,30 0.27 -0,25 -075Romania . . . . . . . . . 0.31 0.05 0.26 0.99 0.87 0.58 0,09 0.90 0.78 0,49 1.53 1.42 0.70 0.09 1.44 1.33 0.61

Eastern Europe,total . . . . . . . . . . . 1.98 2.06 -008 3,77 3.03 2.16 2,36 1,41 0.67 0.20 5,10 4.13 2.11 2.36 2.74 1.77 0,25

aNet Imports from the rest of the world, derived by subtracting the imports from the U S S R from 1979 actual I n the case of 1979, and for the projections, by subtractingImports from the U S S R from the worst medium and best cases Thus the worst case for East German net Imports from the rest of the world in 1985 equals their worst casenet imports from all sources (0.77) minus net imports from the U.S.S.R. (0.55) - 022

b There are no public Commitments for Soviet energy shipments to Eastern Europe after 1985 This assumes the same commitments made for the 1981-85 period


the worst case, Hungary and Poland wouldbe able to cover their energy needs withSoviet imports. However, Bulgaria, Czech-oslovakia, East Germany, and Romaniawould be forced onto world markets to pur-chase substantial amounts of energy.Energy imports would surely be in the formof oil or gas, the most easily transportedfuels. The middle case projects net energyimports to Eastern Europe from the rest ofthe world at 0.67 mbdoe (33.4 mtoe) in 1985,and 1.77 mbdoe (88.1 mtoe) in 1990. In themiddle case, Poland remains a net energy ex-porter, and Hungary exports a small amount(0.02 mbdoe or 1.0 mtoe) to the rest of theworld. Romania accounts for two-thirds ofall net imports in the middle case.32

It is possible, although unlikely, thatPolish energy production will fall belowOTA’s worst case projections. Should thatoccur, it will probably be accompanied by a

32 The only other comparable estimates have been done byJan Various with results strikingly similar to OTA’s projec-tions. Various estimates that in 1985 Eastern Europe will bebuying from the Middle Eastern suppliers at worst 1.23mbdoe (OTA's projection is 1.41), and as a medium projection0.88 mbdoe (0.67 in the OTA projection). See Various, op. cit.

general economic slowdown which will alsocause a reduction in Polish energy demandbelow the low case. Because of this connec-tion between energy supplies and energy de-mands, OTA’s forecasts of energy balancesin Poland (and Eastern Europe) are less sen-sitive to unforeseen events than are eitherthe production or demand forecasts by them-selves. Therefore, even in light of recentevents in Poland, OTA regards these bal-ances as a realistic view of the rangesible outcomes in 1985 and 1990.

HARD CURRENCYREQUIREMENTS

In order to evaluate the feasibility

of pos-

of anyof these outcomes, it is important to ascer-tain whether the foreign exchange burdenimplied by a projection can actually behandled by the East European nations,given their export capacities and theirabilities to absorb new debt.

Table 75 shows Eastern Europe’s hardcurrency debt in 1979, and projections of thehard currency requirements for 1985 and1990 based on the energy import levels

Ch. 9—East European Energy Opt/ens ● 307

Table 75.—Projected Hard Currency Burden on Eastern Europe of Various Projected Net Imports of Energy,1985 and 1990 (millions of dollars)

Net Hard Hard currency Net oil Imports at $30/barrelcurrency exports (dev. 1985 1990debt 1979 countries) Best Medium Worst Best Medium Worst

Bulgaria. . . . . . . . . . . . . . . . 3.73 1.29 -0.22 0.55 1.42 -0.11 1.42 2.08Czechoslovakia. . . . . . . . . 3.07 2.85 0.66 1.64 1.97 -0.55 3.07 4.60East Germany . . . . . . . . . . 844 4.10 0.11 1.42 2.41 011 2.52 3.72Hungary . . . . . . . . . . . . . . . 7.32 2.64 -0.88 -0.22 0 -066 0.55 0.87Poland . . . . . . . . . . . . . . . . . 20.00 5.04 -7.28 -4.60 0 -8.21 -2.74 2.96Romania . . . . . . . . . . . . . . . 6.70 3.45 5.37 8.54 9,86 6.68 14.56 15.77

Eastern Europe,total . . . . . . . . . . . . . . . . 49.23 19.37 -2.24 7.34 15.66 -2.74 19.38 30.00


outlined above at 1980 oil prices ($30/barrel).These data provide a very conservativeestimate of the hard currency burden im-plied in each of the three cases, since theworld market price of oil may rise faster thanthe value of Eastern Europe’s exports in thenext 10 years.

The best case is a possible scenario forEastern Europe as a whole and for eachcountry. It is, however, rather implausible,since it assumes that per capita consump-tion growth rates will stagnate. The worstcase would impose extreme difficulties, bothfor Eastern Europe overall, and for each in-dividual country with the possible exceptionof Hungary. If the worst case actually oc-curred, Romania would be spending threetimes its 1979 dollar exports for energy im-ports. Bulgaria, Czechoslovakia, and EastGermany would all be forced to significantlyincrease their debts. For all of these coun-tries, the 1990 worst case is even more unat-tractive. Hungary appears to be the onlycountry which might be able to surmountthe worst case with no critical difficulty.

The worst case should therefore not beviewed as a feasible outcome. The nations ofEastern Europe have neither the exportreserves nor the borrowing capacity to han-dle such hard currency problems. If the con-ditions underlying this case actually begin todevelop, a number of factors are likely to in-tervene and prevent its fulfillment. In the

short run, growth rates would fall sharply ifhard currency constraints hold back importsof energy and other inputs. Stagnating pro-duction, which would accompany such a situ-ation, would create political tensions overdeclining living standards, and perhaps evenrekindle discussion of significant economicreforms. Under such conditions, the SovietUnion would surely participate in all deci-sions, and might choose to alleviate part ofthe crisis by increasing energy exports (par-ticularly natural gas). Soviet preoccupationwith a politically stable Eastern Europewould probably stimulate the U.S.S.R.’sassistance if worst case conditions devel-oped. The other eventuality which mightredirect a worst case scenario would be theintroduction of significant economic reformsaimed at reducing energy demand, and in-creasing production of manufactured goodswhich could be exported for hard currency.This would not be an easy road, nor one thatthe East European nations are likely to free-ly choose. In a worst case situation, how-ever, there might be no alternative.

The middle, and probably most likely, caseis closer to the worst outcome than to thebest. It suggests that in 1985 an amountequal to 38 percent of Eastern Europe’s 1979hard currency export proceeds will be re-quired for the purchase of oil, and that all ofthe amount of 1979 export sales will benecessary to cover oil imports in the year


1990. In this case, Hungary would be underno apparent pressure and Poland would bemuch better off than it is likely to be in theworst case. The pressure would be greateston Romania, which would spend more thandouble its hard currency export proceeds onoil imports, and on Czechoslovakia, whichwould be spending more than half. The pres-sure would be comparatively strong on Bul-garia and East Germany as well, but neitherof these nations would face such strong hardcurrency constraints as Romania and Czech-oslovakia.

If, as is likely, hard currency burdens inthe middle case are actually greater than isindicated by table 74 because of rapidly ris-ing oil prices, then Bulgaria, Czechoslovakiaand East Germany would all face addedpressure. If these countries are forced tospend more than half their hard currency ex-ports on oil, they will be less able to import

the machinery and industrial materials nec-essary to expand output. If the medium caseactually transpires, there will be pressure onthe Soviet Union to increase energy exports.In the absence of such assistance from theSoviet Union, pressure for economic reformwithin Eastern Europe, as well as growingdifficulties in the East European-Soviet en-ergy relationship, will likely result.

This analysis suggests that most EastEuropean nations can make it through the1980’s without major crisis, if their domesticenergy production develops according to thebest case, and if the Soviet Union will con-tinue to provide them heavily subsidizedenergy shipments at the quantities promisedin the early 1980 ‘s. Should an energy crisis inthe Soviet Union cause a cutback in Sovietenergy exports, or should Eastern Europe’senergy production stagnate along worst caselines, there will be serious difficulties.


A review of Eastern Europe’s energy op-tions in the 1980’s suggests the followingconclusions: First, there is a wide disparityin the energy situations of various EastEuropean nations. Eastern Europe’s naturalresources are concentrated largely in Polandand Romania. Some nations such as Ro-mania appear quite likely to encounter dif-ficulties associated with requirements for ad-ditional imports of energy in the decadeahead, as domestic supplies are depleted;others such as Hungary may be capable ofwithstanding even worst case developments,Thus, while this chapter has treated EasternEurope as a region, there are good reasons towatch the developments in individual na-tions. For example, a continuing and severePolish crisis might strain domestic energyproduction for the region as a whole.

Second, and even more important, is thecrucial position of the Soviet Union as anenergy supplier to Eastern Europe. EastEuropean economic development has beensignificantly assisted by the subsidization of

its oil imports from the Soviet Union. If thissubsidy were abruptly removed, the nega-tive impacts would be serious. While it isunlikely that the Soviet Union will opt toquickly end the subsidy, the transition fromoil to gas exports in itself embodies a deci-sive change, since the U.S.S.R. is selling itsgas to CMEA at world market prices.

An energy crisis in the Soviet Unionwould seriously impact the nations of East-ern Europe. If, for some reason, the U.S.S.R.decisively reduced its energy exports to theCMEA-6, these nations would be faced witha difficult set of choices. Hard currency con-straints would preclude massive purchasesof oil on the international market, butdemand-reduction measures might be politi-cally problematic.

While it is true that Eastern Europe as aregion is much less dependent on importedenergy than is Western Europe, there area variety of additional constraints whichbound the energy options available to


CMEA planners. With limited prospects for Regardless of whether best, worst, or middleincreased energy production, and with rela- cases actually transpire, East Europeantively energy-intensive economies, Soviet energy plans and strategies will be sig-energy exports occupy a critical position in nificantly affected by those of the U.S.S.R.the energy situations of these countries.

CHAPTER 10

The Soviet Bloc and WorldEnergy Markets

.

CONTENTS

Page

CMEA ENERGY TRADE: A MIDRANGE SCENARIO FOR 1985.......314

CMEA Impact on World Oil Markets. . . . . . . . . . . . . . . . . . . . . . ..........315The Volume and Composition of Energy Exports to the West. . ...........316The Hard Currency Position of the CMEA. . . . . . . . . . . . . . . . . . . . . . .. . . . .318Soviet Energy and Eastern Europe. . . . . . . . . . . . . . . . . . . . . . ............319

CMEA ENERGY TRADE IN 1990 . . . . . . . . . . . . . . . . . .................320

CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........321

LIST OF TABLES

Table No. Page

76. CMEA-Seven Net Hard Currency Energy Exports, 1979 and 1985......31477. World Oil Supply–Noncentrally Planned Economies, 1985 and 1990....31678. Possible Composition of Soviet Net Energy Exports. . ...............317

—.- -—

CHAPTER 10

The Soviet Bloc and WorldEnergy Markets

One important theme in the debate overthe Soviet Union’s energy future has beenthe potential impact on the west of a declinein Soviet oil production. The prospect ofsuch a decline has been greeted with the ap-prehension that it could cause the Councilfor Mutual Economic Assistance (CMEA) asa whole, or even the U.S.S.R. itself, tobecome a net oil importer. Many have arguedthat, by increasing demand, net oil importsby the countries of the CMEA could initiateadditional competition on world markets andfurther push up the price of oil, OTA’s anal-ysis indicates that this is improbable. Amore likely eventuality is that CMEA’s netexports will decline. This would have reper-cussions for the countries of both the West-ern alliance and the Eastern bloc. Such anoutcome would certainly place strains on theeconomies of the U.S.S.R, and EasternEurope, strains which would have both do-mestic and foreign policy consequences.

This chapter addresses the question of thelikelihood and implications for both the Eastand West of the CMEA’s changing its posi-tion as a net energy exporter. Informed dis-cussion of the probability and consequencesof the Soviet bloc’s importing or exportingless oil is hampered by a number of com-plicating factors, foremost among them theenormous range between plausible best andworst case oil production scenarios extend-ing 5 and 10 years into the future. But oilproduction is not the only important vari-able. Oil is obviously important to Sovietand East European energy balances, but it isonly part of a far larger energy picture.Future prospects—for energy self-suffi-ciency or dependence—will be determined bytotal energy production and consumption inall energy sectors. Thus, the continued abil-

ity of the U.S.S.R. to fill most of the energyneeds of Eastern Europe on favorable termsand to earn large amounts of hard currencyby exporting energy to the west will rest ona complex array of factors. These include thevolume and mix of total CMEA energy pro-duction and consumption (the latter stronglycorrelated in the past with economic growthrates and also dependent on the success ofconservation programs); and perhaps mostimportant, on the degree to which otherfuels–i.e., gas–can be substituted for oil.

Given the range of outcomes possible foreach of these variables, attempting to makefirm predictions on this subject is futile.OTA has instead chosen to devise and ana-lyze a scenario which will illuminate likelyprospects for the present decade. This sce-nario is constructed from the foregoing ma-terial. Chapters 2 through 5 of this study cul-minate in sector-by-sector projections of rea-sonable levels of Soviet energy productionfor 1985 and 1990; chapter 8 employs theseprojections to construct plausible best andworst case energy production, consumption,export, and hard currency import scenariosfor the U. S. S. R.; and chapter 9 consists of asimilar exercise for six East European coun-tries. The present chapter combines theseseparate analyses into one that focuses onthe CMEA as a whole.

Although previous chapters have pre-sented both best and worst case scenarios,here only one “midrange,” outcome is con-sidered. OTA’s decision to employ a mid-range scenario in the analysis is based on theexpectation that, while extreme develop-ments are of course possible, the most prob-able outcome will lie between them. Foreither extreme possibility to materialize, a

313


large number of parameters must simultan- ber of worst case developments occurred si-eously exhibit either “best” or “worst” char- multaneously, the U.S.S.R. could well beacteristics. This is improbable if for no other forced to any of a number of drastic ac-reason than that political events are likely to tions—e.g., military adventurism, economicintervene to prevent extreme consequences. reform, or massive Western imports. NeitherIf, for instance, the most optimistic energy of these extremes illuminates the more likelyproduction targets were fulfilled, planners intermediate outcome. A far more informa-might reallocate investment away from the tive discussion can, therefore, result fromenergy sector. On the other hand, if a num- consideration of a medium case.

CMEA ENERGY TRADE: A MIDRANGE SCENARIO FOR 1985From the perspective of the Soviet bloc,

the future of CMEA participation on worldenergy markets will be determined not sim-ply by production in each energy sector, butby a number of other factors as well. Theseapply to the countries of Eastern Europe aswell as to the U.S.S.R. and include overalllevels of economic growth (which affect ratesof growth of energy consumption), the de-gree of substitution among fuels, and levelsof debt and hard currency requirements. If,for instance, the worst possible conditionsprevail in the U. S. S. R.–i.e., energy produc-tion in all sectors falls far short of targets;and oil is replaced with gas to only a limitedextent—the Soviet Union may itself experi-ence an oil deficit. Beyond a certain point,however, hard currency constraints will al-most certainly preclude Soviet purchases ofoil on the world market. Instead, there maybe no alternative but to cut back on econom-ic growth and energy consumption.

On the other hand, if the Soviet economycontinues to grow comparatively slowly(about 1.6 percent), and domestic demand foroil can be kept down, the U.S.S.R. might beable to maintain oil exports even in the faceof declining growth in oil production. More-over, to the extent that gas can replace oil asan export to the West, the criticality of oil inSoviet hard currency exports will decline,and the key question for the U.S.S.R. willbecome not whether it can maintain its oilexports, but whether it can continue to earnhard currency as a net energy exporter.

Chapters 8 and 9 show the enormous rangeof outcomes in the Soviet and East Euro-pean energy balances which are possiblefrom different combinations of assumptionsregarding economic growth, the growth inenergy demand, and domestic energy pro-duction. These scenario outcomes are sum-marized, in terms of net hard currencyenergy balances, in table 76. In each case itis assumed that Soviet energy exports toEastern Europe (the CMEA-6) remain asplanned for 1981-85 (in other words, about118 million tons of oil equivalency (mtoe) an-nually, or about 18 percent above the aver-age annual level in 1976-80). Soviet exports

Table 76.—CMEA-Seven Net Hard CurrencyEnergy Exports, 1979 and 1985

1979 1985(Esti- Worst Mid- Best

mated) case range case

/Vet hard currency energy exports (mtoe)

U.S.S.R. . . . . . . . 83 (38) 92 212

CMEA-6. . . . . . . 4 (70) (33) 10

CMEA-7 . . . . . . . 87 (108) 59 222

Change in net hard currency energy exports (mtoe)

U.S.S.R. . . . . . ,. . . . . . . . . . . (121 ) 9 129

CMEA-6. . . . . . . . . . . . . . . . . (74) (37) 6

CMEA-7 . . . . . . . . . . . . . . . . . (195) (28) 135

SOURCE Chs. 8 and 9

Ch. 10—The Soviet Bloc and World Energy Markets ● 315

to other CMEA countries (notably Cuba) areassumed to reach about 11 mtoe annually, arate slightly higher than in 1976-80. Thetotal of assumed Soviet energy exports toCMEA countries (129 mtoe), as well as the1979 level of Soviet energy imports from out-side CMEA (9 mtoe), is netted out of thefigures shown in table 76.

As the table indicates, CMEA was a netexporter of energy in 1979, the last year forwhich reliable estimates are available, ofroughly 87 mtoe. By 1985, under OTA’sworst and best case scenarios, the net hardcurrency energy balance for CMEA couldrange from a deficit of 108 mtoe to a surplusof 222 mtoe, As noted earlier, a much morelikely outcome would fall between these twoextremes and the analysis which follows con-centrates on the midrange scenario.

In this case, Soviet gross national product(GNP) is assumed to increase at 2.4 percentannually, and midrange estimates are usedfor the income elasticity of Soviet energy de-mand and for Soviet energy production (seech. 8, tables 53-55). The midrange assump-tions for Eastern Europe include GNPgrowth comparable to that achieved in thelate 1970’s (about 2.9 percent annually), com-bined with a lower income elasticity of en-ergy demand and favorable developments indomestic energy production (see ch. 9, tables70-72).

Given these midrange assumptions, theSoviet Union in 1985 would be in a positionto export a slightly greater amount of energy(net) than in 1979, about 92 mtoe. EasternEurope, on the other hand, would changefrom being a net exporter of energy outsidethe CMEA of 4 mtoe in 1979, to a net im-porter of energy for hard currency of 33 mtoeby 1985. Overall, CMEA would remain a netenergy exporter (59 mtoe), but it would be of-fering 28 mtoe less to the world market in1985 than it was in 1979.

The impacts of this midrange situation forthe West and for the Soviet bloc itself areequally important. The relevant question for

Western nations is twofold. First, what arethe implications of this outcome for world oilmarkets; and second, what are its implica-tions for the volume and composition of theU.S.S.R.’s energy exports to the West? Theissues faced by Eastern nations have to dowith their hard currency situations and withthe implications of Soviet energy export de-cisions for the economies of Eastern Europe.

CMEA IMPACT ON WORLDOIL MARKETS

From the point of view of the West, anyassessment of the likely impact of theCMEA on world energy markets must takeinto account the worldwide availability ofpetroleum during the 1980’s. OTA has else-where provided a basis for estimates ofworld oil production.l Table 77, which isbased on this work, shows that between 1980and 1990 world oil production, excludingthat produced by the U.S.S.R. and other cen-trally planned economies, is unlikely to risesignificantly.

Such predictions are complicated by thefact that a number of oil-producing countriesdo not produce at full capacity. If the ca-pability of these “swing” nations is con-sidered, the capacity for oil production is in-creased 2 by as much as 500 million metrictons (mmt). The rather conservative esti-mates 3 of excess capacity in table 77 showthat world oil production could be signifi-cantly increased in this decade if Iraq,Kuwait, Libya, Iran, and Saudi Arabia(which alone accounts for over half of the ex-cess capacity shown in table 77) so wished.

A variety of economic and political fac-tors–the price and demand for oil, and the

1 See Office of Technology Assessment, World PetroleumAtazlabilit~~, I!WA2W)0, October 1980.

2 See Department of Energy, International Energy Evalua-tion S}~stems, VI, Sept. 1, 1978,

3 See Congressional Budget Office, The World Oil Market inthe 1980’s, lmpliration.q for the United States, May 1980. Theestimates for excess capacit~’ are 300 mmt higher for both1985 and 1990 than those in this chapter.


Table 77.—World Oil Supply—Noncentrally PlannedEconomies, 1985 and 1990

(million metric tons to nearest 25 mmt)

1980 1985 1990

OPEC mediumproduction . . . . . 1,350 1,600 1,650

Non-OPECLDC’sb . . . . . . . . . .

}

375-450 375-5001,625

Developedcountries . . . . . . . 650-775 550-750

Worldproduction . . . . . 2,975 2,625-2,825 2,575-2,900

Excess capabilityof OPEC swingcountries overproduction . . . . . 775 550 500

World capacityc . . 3,750 3,175-3,375 3,075-3,400

Capacity above1980 levels . . . . . . 775 200-400 100-425

SOURCES ‘1980 estimate– Monthly Energy Review May 1981 DOE, 1988 and1990 projections are mean figures in World Petroleurn A valuability1980-2000 OTA October 1980 with 1990 figures obtained throughInter polation1980 estimates Monthly Energy Review May 1981 DOE 1985 and

1990 projections are from World Petroleum Availability 1980-2000OTA October 1980Excluding centrally planned economies

international and domestic political situa-tions of the “swing” countries—will affectdecisions to use excess production capacity.Barring intensified political instability in theMiddle East, the pressure of growing worlddemand would likely result in an increase inthe capacity utilization level of the OPEC“swing” producers. This could mean that in1985 and 1990, there would be an additional200 to 400 mmt and 100 to 425 mmt respec-tively of oil available in the world marketfrom noncentrally planned economies. Thiswould more than compensate for even theworst case Soviet production declines.

But while these additional supplies arepossible, it would be a mistake to count onthem. It is by no means clear that demand isthe most important stimulus for increasedcapacity. The most important limits are po-litical, and, as recent events in Iran haveshown, cannot be forecasted. Even if thiswere not the case, experience followingOPEC oil price increases in 1979-80 has

shown the limitations of demand forecastingmodels which rely on historical price elastici-ties. At present, oil demand has slackenedand further production cutbacks have beenannounced.

To the extent that these uncertaintiesallow reasonable projections, however, it isclear that the outcome described in OTA’smidrange scenario would likely have only anegligible impact on the supply-demand bal-ance in world energy markets. A decline ofnet CMEA exports of 28 mtoe would equalonly about one percent of estimated pe-troleum production capacity in the non-Com-munist world in 1985, as reflected in table77 .

THE VOLUME AND COMPOSITIONOF ENERGY EXPORTS

TO THE WEST

Table 78 shows that under midrangeassumptions the Soviet Union could entirelycover Eastern Europe’s incremental energyneeds if it chose to do so, and still have someenergy left to export for hard currency. Theissue, however, is not just one of aggregateenergy balances. It is also important for theCMEA countries to ensure that energy issupplied in volume and form appropriate tomeet local demand. Thus, an important con-sideration for both energy producers andconsumers is the composition of incremental1985 supplies.

In 1979, the Soviet Union exported anestimated 83 mtoe to countries outside East-ern Europe. Of this, 60 mtoe (more than 70percent) was oil and oil products; 16 mtoewas gas; and 7 mtoe was coal. But while in1979 oil exports clearly dominated CMEAnet energy exports, by 1985 the situationmay change. Although it is difficult to an-ticipate the precise contribution of eachenergy sector to Soviet incremental energyproduction or exports, it is clear that evenunder best case conditions oil production inthe U.S.S.R. is unlikely to increase rapidlyenough to carry the primary weight of incre-mental energy exports. Likewise, OTA ex-

Ch. 10—The Soviet Bloc and World Energy Markets ● 317

Table 78.— Possible Composition of SovietNet Energy Exports

1979 1985 Midrange

Oil = O i l =(Estl- 50 40

mated) percent percent

(mi l l ion tons of o i l equ iva len t )

Net export . . . .

Oil . . . . . . . . . . . .

Coal . . . . . . . . . .

Required gasand electricityexports . . . . . .

Estimatedpresentcapacity forgas exportsto West . . . . . .

RequiredIncrease in gasexport MTOEcapacity if noelectricityexports . .

(bcmequivalent) . .

83 92 92

(60) (46) (37)

(7) (7) (7)

16 39 48

(29) (29) (29)

10 19

12 23 34

Oil =30

percent

92

(28)

(7)

57

28


pects that by 1985, coal production will atbest rise little above 1980 levels. Gas produc-tion, however, is projected to increase sub-stantially. The only remaining energy sectorwhich is growing rapidly is electricity pro-duced from nuclear and hydropower. Thissuggests that gas, in conjunction with elec-tric power, must supply the preponderanceof additional energy available both for ex-port and for internal substitution.

Chapter 2 demonstrates clearly that theU.S.S.R. can produce as much gas as itneeds, provided it can be moved and utilized.This raises two issues, the feasibility of re-placing oil with gas in hard currency-ex-ports, and the prospects for internal substi-tution of gas for oil.

The countries of Western Europe havemade it clear that they are willing, indeedeager, to import substantially greater quan-

tities of Soviet gas. Table 78 shows the levelof Soviet gas exports to the West in 1985necessary to maintain net energy exports of92 mtoe. This table assumes that coal ex-ports are maintained at estimated 1979 lev-els and that oil exports fall, alternatively, to50, 40, and 30 percent of total net energyexports.

These calculations raise important ques-tions concerning the logistics of such sales.At present, there is limited pipeline capacityin place to support additional gas exports. In1980, the excess capacity of the Orenburgpipeline (after meeting annual commitmentsto Eastern Europe of 15.5 bcm) was 12 to 13bcm. During that year an additional 23 bcmof gas were exported to the West. Presentpipeline capacity could therefore support 23+ 13 bcm = 36 bcm of natural gas exports tothe West. This is equivalent to 29 mtoe/yr.When this figure is subtracted from indi-cated required gas exports (see table 78), itappears that by 1985 additional gas exportpipeline of from 12 to 34 bcm might have tobe constructed–if oil exports do declinewithin the indicated range and to the extentthat the export shortfall is not made up bysales of electricity.

According to the U.S. Defense IntelligenceAgency, two new lines are already under con-struction, and altogether six to seven arecontemplated during the present Five YearPlan (FYP) period, including the controver-sial pipeline which will carry West Siberiangas to Western Europe. Four of these pipe-lines should be available for supportinggrowth in domestic gas consumption.4TheWest Siberian export pipeline, discussed inchapter 12, is scheduled to support from 40to 70 bcm of additional gas exports to West-ern Europe, but whether it will be completedby 1985 remains an open question.

The second important issue is the abilityof the Soviet Union to substitute other typesof energy for oil. Current Soviet plans reflect

4 Statement of Major General Richard X. Larkin, DeputyDirector, Defense Intelligence Agency, before the Joint Eco-nomic Committee, Subcommittee on International Trade, Fi-nance, and Security Economics, Sept. 3, 1981,


a high level of optimism in this area. The tar-gets for rapidly increasing gas production inthe next 5 years imply a good measure of do-mestic substitution. The capability of theCMEA to maintain net oil exports–or avoidthe need to import more oil—will depend onits success in substituting gas and non-oil-fired electric power for domestic oil con-sumption. In other words, the greater thesuccess of energy policies promoting substi-tution, the more oil will be available for ex-port in 1985. Some idea of the sensitivity ofthe CMEA export position to substitutioncan be gained from considering the conse-quences of the U.S.S.R.’s achieving a ratherlimited level of substitution.

OTA has amassed very little hard data onsubstitution of gas for oil, but it seems rea-sonable to assume that while complete sub-stitution is unlikely, 20 percent may be at-tainable. For purposes of illustration, OTAhas assumed that gas is substituted for 20percent of Soviet oil consumption. This levelof substitution is equivalent to 6.8 percent oftotal U.S.S.R. energy consumption—87 mtoeor 1.75 mbdoe. Complete substitution of oilwould imply a major effort—displacing 439mtoe (almost 9 mbd of oil). But since theU.S.S.R. uses oil extensively to generateelectricity, and since ECE data for 1980show that both the U.S.S.R. and EasternEurope depended on oil as a source of energyto a much lesser extent than did many West-ern nations,5 there would seem to be fairpotential for substitution on the order of 20percent.

Under these circumstances, roughly 40mmt less oil would be available for export. Inthis case, the Soviet Union could probablymeet the projected incremental East Euro-pean energy import needs (about 33 mtoe)with oil exports. However, the U.S.S.R.would have only about 10 mtoe of oil above1980 levels available for export to countriesoutside the CMEA. In other words, theU.S.S.R. could actually have as much as 70

5 United Nations, Economic Commission for Europe, Eco-nomic Bulletin for Europe, June 1981, p, 162. In 1980, Sovietdependence on liquid fuel was 38 percent of total energy con-sumption. East European dependence was 25 percent.

mtoe of oil for export if a substantial degreeof domestic substitution were possible. As-suming continued exports to Eastern Eu-rope at 1980 levels and low levels of substitu-tion, domestic oil demand would preclude anexpansion of energy exports in the form ofoil.

In sum, the U.S.S.R.’s great gas potentialcould allow it to compensate on world energymarkets for stagnating or even declining oilproduction. For this to occur, gas will haveto replace oil to a certain extent in domesticconsumption, but more importantly it willhave to become much more prominent as ahard currency export. Since the countries ofWestern Europe are already eager to importmore Soviet gas, and since this gas is widelyregarded as replacing rather than supple-menting current Soviet oil deliveries, suchan outcome need not present problems forthe West. It is contingent, however, on thesuccessful and timely completion of suffi-cient pipeline capacity to transport the gas.

THE HARD CURRENCY POSITIONOF THE CMEA

Under the midrange conditions of mod-erate GNP growth, energy production andconsumption posited here, it does not appearthat the U.S.S.R. itself will face a hard-currency crisis by 1985. Indeed, under themidrange scenario, the analysis in chapter 8shows that the Soviets would be in a posi-tion, in terms of the aggregate energy bal-ance, to possibly increase the amount ofenergy they export for hard currency atroughly 1979-80 levels and, given favorableterms of trade developments, continue to ex-pand hard currency imports at a respectablerate.

The U.S.S.R. cannot be considered in isola-tion from Eastern Europe, however. The en-ergy position of the entire CMEA-7 will setthe parameters for the Soviet leadership.The situation facing the bloc as a whole israther less sanguine. The midrange caseshows a drop in net energy exports for hard-currency of 28 mtoe. Where this burden falls

Ch. 10— The Soviet Bloc and World Energy Markets ● 319

will be determined by Soviet policy makers.The “energy squeeze” could conceivably beborne by the U.S.S.R. itself in an effort toameliorate Eastern Europe’s economic prob-lems; it could be shared; or the U.S.S.R.could leave the CMEA-6 to purchase ener-gy–most likely in the form of oil—on world

.

If the Soviets were to make up the entire1985 shortfall of Eastern Europe (33 mtoe),hard currency pressures on these countrieswould be reduced. They would not be elim-inated because presumably Eastern Europewould have to divert increasing amounts ofrelatively high-quality exportable awayfrom the West and towards the Soviet mar-ket, as payment for stepped-up Sovietenergy deliveries. But such a policy wouldalso reduce Soviet energy deliveries to theworld market by one-third, and as chapter 8suggests, would seriously erode Soviet hardcurrency import growth.

On the other hand, if the net East Euro-pean hard currency energy balance deteri-orates through the purchase of 37 mtoe (seetable 76), it will be extremely difficult formost of these nations to pay for imports.Romania will be particularly hard pressed.As chapter 9 points out, Romania alone maybe responsible for one-third of all energy im-ported by Eastern Europe in 1985. Roma-nian energy imports, moreover, are expectedto triple between 1979 and 1985. Changes inPoland’s energy situation could also affectthe overall position of the group-Poland isthe only East European country with achance of remaining an energy exporterthrough the decade.

Assuming for purposes of illustration thatincremental East European net hard cur-rency energy requirements reached 37 mtoein 1985, and that they were met entirely withimports of oil from the world market (pricedat $36/barrel), hard currency requirementsfor the region would increase by almost $10billion annually. Because one or two of thesecountries are likely to remain net energy ex-porters, an even greater burden would ac-tually fall on the others, particularly

Romania. Romania would be forced to usefrom one-half to three-quarters of its exportearnings to pay for oil imports—a situationwhich is neither feasible nor likely. (Use of 25percent of export earnings to finance oil im-ports is considered a reasonable hard cur-rency “breakpoint.”)

There are, of course, a number of develop-ments which might ease the hard currencyconstraints on Eastern Europe. Poland couldimprove its hard currency position if oil con-sumption could be held at 1980 levels, and ifcoal and electricity were used to meet addi-tional energy needs. Even more beneficialfrom the perspective of the CMEA as agroup would be measures taken by Romania,the nation most dependent on oil, to meet allof its incremental energy needs by importinggas instead. This would considerably im-prove Romania’s hard currency situation,since gas is currently priced at half the costof oil per Btu. The overall situation of theCMEA-6 could, furthermore, be amelioratedby conservation and improvements in en-ergy efficiency. Even in the absence of suchmeasures it is unlikely that Eastern Europewill be able to rapidly increase purchases ofenergy (particularly oil) from outside theCMEA. If energy demand should increase inline with high consumption scenarios, it isfar likelier that economic growth will slowand energy demand consequently fall. Hardcurrency constraints thus reduce the prob-ability of a sudden increase in oil purchaseson world markets by Eastern Europe.

SOVIET ENERGY ANDEASTERN EUROPE

This exercise has shown that under mid-range conditions for GNP growth, energyproduction, and substitution, the CMEA asa group is not likely to become a net energyimporter by 1985. Increases in aggregateSoviet energy production will overall offsetrising Eastern European energy require-ments. Soviet leaders are thus faced with atradeoff between supplying cheap energy tothe Eastern alliance and potential hard cur-


rency earnings through energy exports tothe West.

As chapter 9 has pointed out, the criticallinkage between Soviet energy exports andEast European energy supplies cannot beoveremphasized, and since prospects for ex-panded energy production in East Europeare dim, the U.S.S.R. is certain to continueas an important supplier. Thus, while oilsales to Western Europe are obviously at-tractive to the U. S. S. R., it is fully cognizantof the risks to itself should Eastern Europebe faced with economic chaos. When EastEuropean countries suffered shortfalls in oilimports from Iran and Iraq in 1980, theSoviet Union expanded its own exports to itsallies—at the expense of hard-currency-earning sales to Western Europe. (It must benoted, however, that given the rising world

market price of oil, the U.S.S.R. can main-tain its hard currency earnings while export-ing less oil. )

But the extent to which the U.S.S.R. willbe willing to continue this assistance re-mains to be seen. In late summer 1981,Romania requested increased Soviet deliv-eries of both oil and gas. The U.S.S.R. hadalready offered to export additional gas toRomania—in return for Romanian partic-ipation in gas pipeline, nuclear power, andiron ore mining projects. As of this writing,it is not known whether Romania has ac-cepted these terms or whether the U.S.S.R.’swillingness to supply additional energy willextend to oil. It might be expected that theU.S.S.R. will encourage its allies to importincremental energy supplies wherever possi-ble in the form of gas.

CMEA ENERGY TRADE IN 1990World oil production in 1990 is likely to be

only slightly higher than that for 1985—reaching a maximum of 2,900 mmt (com-pared to 2,825 mmt for 1985). If the excesscapacity of the swing producers is taken intoconsideration, world production capacity for1990 could reach 3,400 mmt (v. 3,375 for1985) (see table 77.)

This production differential is enormous.When the range of scenarios constructed forSoviet energy trade in chapter 8 are takeninto account, the range of 1990 possibilitieswidens even further, significantly beyondthose postulated for 1985. Chapter 9 showstoo that a similarly wide range of possibil-ities exists for the CMEA as a whole. Underworst case conditions, the Soviet Union by1990 could become a net hard currency en-ergy importer (ch. 8: table 60), and EasternEurope would have incremental net hard cur-rency energy import requirements well in ex-cess of contemplated Soviet energy exportsin 1981-85 (ch. 9: table 73). On the otherhand, if-optimistic assumptions are used as

the basis for calculation, the U.S.S.R. wouldbe in a position to expand its hard currencyenergy exports over 1979-80 levels, andEastern Europe would remain a net hard cur-rency exporter of energy.

This tremendous range of possibilitiesmakes the construction of a midrange sce-nario for 1990 an extremely tenuous exer-cise—and one of little utility. What can besaid with some degree of certainty, however,is that the same constraints operating onenergy trade outcomes for 1985 will be rele-vant in 1990. Regardless of whether theU.S.S.R. is able to reach its energy produc-tion targets, levels of Soviet economicgrowth, the degree to which gas and elec-tricity are substituted for oil, and the abilityof Eastern Europe to hold down oil importswill all influence CMEA incremental oil im-port needs. The message here is that a vari-ety of factors, amenable at least in part topolicy direction, could significantly amelio-rate or aggravate the CMEA’s oil import/ex-port situation.

Regardless of whether theable to meet its own energygets, a variety of additional

Ch. 10—The Soviet Bloc

CONCLUSIONSSoviet Union isproduction tar-factors will sig-

nificantly influence its ability to maintain itsstatus as an energy exporting nation. Thosefactors include the degree to which economicgrowth proceeds at a moderate or low (ratherthan a higher) level, and the ability ofEastern Europe (particularly Poland andRomania) to hold down demand for importedoil, but the most crucial are the ability of theU.S.S.R. to substitute gas for oil in domesticconsumption and the rate of construction ofnew pipelines for gas exports to the West.The ability of the CMEA to develop an ener-gy policy which results in the better caseconditions for substitution, demand, andeconomic growth will be as important as itsability to meet production targets in deter-mining the degree to which CMEA’s nethard currency energy balance will deteri-orate.

The formulation of such policy will con-front the U.S.S.R. with difficult choices in-volving tradeoffs which will inevitably bemost difficult if worst case conditions de-velop. The most obvious example here is thetrade-off of hard currency earned through oilexports to the West against supplying sub-sidized energy to Eastern Europe. There arealso costs involved in decisions over gas ex-ports, where the primary problem is not pro-duction, but rather transportation of the gasboth to Eastern and Western Europe andwithin the U. S. S. R.. To the extent that theSoviet bloc is able to increase its domesticuse of gas, nuclear power, and other energysources, it frees oil for export to the West.The development of gas and other energysources, however, requires considerable in-vestment and economic adjustment. Whileexpansion of gas production and consump-tion is an attractive option, it is not a cost-less alternative,

Should it become necessary for EasternEurope to increase its purchases of oil on the

and World Energy Markets ● 321

world market, these nations will be facedwith decisions about the reliability of supplysimilar to those that must be made by policy-makers in the industrial West. One ap-proach, consistent with past patterns ofenergy imports to the CMEA, would be tostrengthen special relationships with a fewkey Middle East oil producers like Iran andIraq, perhaps through an expansion of bar-ter trade. The difficulty here is that thispolicy would increase CMEA vulnerabilityto interruptions in supply by one of thesekey suppliers. Indeed, the Iranian revolutionhas already demonstrated precisely such vul-nerability. Thus, while the “special relation-ship” option may appear just as attractiveto CMEA leaders as it has to certain West-ern policy makers intent upon building bilat-eral ties with producer countries, it offers noeasy solution. Even military occupation ofan oil producing nation would not necessar-ily eliminate such supply uncertainties—theongoing costs of a military solution areclearly high, albeit difficult to measureprecisely, and oil supplies could be highlyvulnerable to sabotage.

In the final analysis, oil and energy importproblems must be viewed as critical threadsin the fabric of CMEA economic viability. Ifthe U.S.S.R. and Eastern Europe togetherfind it increasingly difficult to produce en-ergy needed for both internal consumptionand export earnings, it will be more difficultto sustain a growing economy. While con-strained energy supplies are commonlyassumed to lead directly to increased pur-chases in the international market, OTA’sanalysis makes it clear that the domesticeconomic impacts of such problems are ex-tremely important. In fact, if the worst con-ditions materialized and the CMEA faced anoil deficit, hard currency constraints wouldalmost certainly preclude large purchases onworld markets and, therefore, the mostlikely immediate impact would be to reducelevels of economic growth and domesticconsumption.


In short, a growing CMEA energy crisiswould signify difficult and long-term eco-nomic and social adjustment—as has beenthe case in the West. Energy must be viewedas one of a number of critical policy factorswhich could either severely constrain orgreatly enhance the economic and politicalviability of the Soviet bloc. Shortfalls or sur-pluses in Soviet oil are probably more signif-icant from the perspective of the domesticeconomic adjustments that they will engen-der within CMEA than in their implicationsfor the nature of CMEA participation inworld energy markets.

The significance of this analysis for U.S.policy makers, of course, rests on the ques-tion of the maximum possible oil importneeds of the CMEA relative to projectedworld oil production in the decade ahead.Assuming that the most likely future for

the CMEA lies somewhere between the ex-tremes sketched in chapters 8 and 9, through1985, at least, it appears that if moderateconditions of production, substitution andeconomic growth prevail, the CMEA as abloc will not become a net energy importer.The U.S.S.R. could meet all incrementalEast European oil needs by reducing itsenergy exports to the West—if it chose to doso—although this would have a significantimpact on Soviet hard currency importcapacity. Regardless of which policy theSoviets pursue, the decline in net CMEAenergy balances available for hard currencyexport by 1985 would probably have a farless significant effect on world energymarkets (amounting to roughly 1 percent ofexpected non-Communist oil productioncapacity) than on the economies of theSoviet Union and its East European allies.

CHAPTER 11

Japanese-SovietEnergy Relations

CONTENTS

Page

JAPAN’S ENERGY AND TECHNOLOGY TRADE RELATIONSWITH CMEA DURING THE POSTWAR PERIOD. . ... . . . . . . . . . .326

Japanese Energy Imports From the Soviet Union. . . . . . . . . . . . . . . . . . . . . .326Japanese Energy Technology Trade With CMEA. . . . . . . . . . . . . . . . . . . . . .329

JAPANESE POLICY TOWARD ENERGY TRADE WITH THE CMEA:THE INSTITUTIONAL AND INTERNATIONAL POLITICALCONTEXT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .........331

The Domestic Institutional Setting for Policy. . . . . . . .... . . . . . . . . . . . ...332

JAPANESE PARTICIPATION IN SIBERIAN ENERGYDEVELOPMENT ., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 338

Yakutian Natural Gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...339South Yakutian Coal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..340Sakhalin Offshore Oil and Gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....342Other Prospects for Japanese Participation in Soviet Energy Development . . . . . . .344

RECENT DEVELOPMENTS IN JAPANESE-SOVIET RELATIONS:PROSPECTS FOR THE FUTURE . . . . . . . . . . . ... . . . . . . . . . . . . . . . .345

SUMMARY AND CONCLUSIONS. . . . . . . . . . . . . . . . . . . . . . ..... . . . . . .348

LIST OF TABLES

Table No. Page

79.80.81.82.83.

International Comparison of Dependence on Imported Energy-1979 ...326Japanese Energy Balance—1979. . . . . . . . . . . . . . . . . . . . . . . . . ........327Japanese Energy Dependence-1979. . . . . . . . . . . . . . . . . . . . . . ........327Soviet-Japanese Trade–1975-80. . . . .... . . . . . . . . . . . . . . . . . . . . . . . ..329Projected Japanese Energy Imports From the U.S.S.R.During the 1980’s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..,340

LIST OF FIGURES

Figure No. Page

27. Japan’s Provisional Long-Term Energy Supply and Demand Outlook. ..32828. Soviet East Siberia and Japan. . . . . . . . . . . . . . . . . . . . . . .............336

CHAPTER 11

Japanese-Soviet Energy Relations

Japan’s postwar energy-related trade withthe Soviet Union has been limited. AlthoughJapanese leaders are committed to cooperat-ing in Soviet energy development in East Si-beria, Japan depends on the U.S.S.R. foronly a miniscule part of its energy supply.Similarly, Japan is the West’s largest suppli-er of energy-related technology and equip-ment to the Soviet Union, yet these exportsconstitute a relatively small part of Japan’stotal world exports. Both of these facts re-flect a situation in which Japan’s politicalrelations with the U.S.S.R. have tempered,but not precluded, energy interaction be-tween the two countries.

A variety of factors—political economic,and energy-related-provide a mix of incen-tives and disincentives for Japanese energyinteraction with the U.S. S, R. On the politicalside, Japan’s orientation has been clearlytoward the West. It is a member of the Inter-national Energy Agency (IEA), the Organi-zation for Economic Cooperation and Devel-opment (OECD), and CoCorn,* and its for-eign policy has been anchored on the U. S.-Japan Security Treaty. Despite a number ofpersisting disputes between Japan and theSoviet Union, however, Japanese leadersconsider joint energy development projectsto be an important signal to the SovietUnion that they are committed to peacefulcoexistence in Asia. From energy and eco-nomic perspectives, there is clear com-plementarity between Japan’s energy im-port requirements and Soviet plans forenergy and economic development. Japan isunderstandably anxious to diversify itssources of imported energy so as to reducedependence on Middle East oil, and its

leaders have for years looked to the SovietUnion as a potential—and nearby-energysupplier. The Soviet Union also provides asignificant market for Japanese energyequipment and technology exports. T h ebalance of these factors favors a positive,albeit cautious, Japanese approach to energyrelations with the Soviet Union.

A systematic look at the way in whichJapanese leaders evaluate the potential risksand benefits of trade and energy cooperationwith the U.S.S.R. is essential for an evalua-tion of past trends and future prospects forJapanese-Soviet energy relations. The pur-pose of this chapter is to explore from theJapanese perspective the dimensions anddynamics of Japan’s energy and trade rela-tionship with the Soviet Union. The focusunderscores Japan’s importance—for boththe Soviet Union and for the United States.1

Japan is the single most important marketfor Soviet timber and coal, and a potentialmarket for gas produced in Eastern Siberia.Thus, Japanese policy is a critical factor inSoviet economic calculations in Asia. ButJapan is also the strongest non-Communisteconomy in Asia, and Japanese cooperationis important for the success of Americanforeign policies, globally and toward theregion. The chapter outlines the nature ofJapan’s trade and energy relations with theU. S. S. R.; explores the domestic organiza-tional and international political context ofJapanese policymaking; examines three pri-mary examples of Soviet-Japanese joint en-ergy development; and assesses likely futuredevelopments in energy relations betweenthe two nations.

1 Allen S. Whiting, “The Japan Connection.” Siberian De-velopment and East Asia: Threat or Promise? (Stanford,1981).

325


JAPAN’S ENERGY AND TECHNOLOGY TRADERELATIONS WITH CMEA DURING

THE POSTWAR PERIOD

JAPANESE ENERGY IMPORTSFROM THE SOVIET UNION

Japan is highly dependent on importedenergy and other resources. It must pur-chase over 90 percent of the energy it con-sumes (see table 79). A large portion of theseimports consists of oil, for Japan is moredependent on oil for its total energy re-quirements than any other Western nationexamined here (see table 80 and ch. 12, tables86-89). Oil accounts for more than 78 percentof the nation’s total primary energy supply,and virtually all of it is purchased abroad.Japan has for years sought to relieve itsdependence on the Persian Gulf, which sup-plies 75 percent of its imported crude oil, bydecreasing the share of oil in its energybalance and by increasing imports from non-OPEC nations.

Despite this extreme energy dependence,however, Japanese energy imports from theU.S.S.R. have been small, both in valueterms and as a percentage of total energysupplies. During the last 5 years, the valueof all Japan’s imports (including energy andother commodities) from all communist na-tions has annually averaged less than 5 per-cent of its total imports, and the relative im-portance of energy-related imports has ac-tually fallen. The U.S.S.R. is the only Coun-cil for Mutual Economic Assistance (CMEA)nation that exports energy—oil and coal—insignificant quantities to Japan, but thedollar value of this trade has been con-sistently low. In recent years the total valueof all Soviet energy exports to Japan has notexceeded $300 million annually. Thisamounts to less than 1 percent of all Japan’simports.

Table 81 illustrates Japan’s very limiteddependence on Soviet energy, which com-prises a miniscule part of total Japaneseenergy imports and available primary ener-gy. In recent years energy imported from the

Table 79.—lnternationaI Comparison of Dependenceon Imported Energy—1979(million tons of oil equivalent)

WestGer- United

Japan many France Italy States

Total energyrequirements 1979 ..327.5 283.3 184.9 132.5 1,747.0Energy importsas percent oftotal energyrequirements . . . . . . . . 94% 67% 96% 109%b 25.2%Oil importsas percent oftotal energyrequirements . . . . . . . . 78% 53% 75% 91% 2 4 %Gas importsas percent oftotal energyrequirements . . . . . . . . 4% 12% 9% 10% 2%Coal importsas percent oftotal energyrequirements ., . . . . . . 12% 2% 11% 7% 0.1%

Conversion factor 1,000 million tons coal equivalent (MTCE) = 6859 MTOEaTotal energy requirements by commodity - observed consumption data IS usedwherever available for coal and natural gas due to the Iimited avaliability ofInventory data, otherwise requirements are computed by the followingformula domestic primary production + imports exports international bunkersInventory changes Total energy requirements are computed only if inclusive ofall commodities (oil, gas, coal, primary electric power, and net electricity imports)Other electricity Includes net electricity Imports Graphs of total energy

requirements do not account for inventory changes if production and import dataare separatedb Italy re-exports imported energy

SOURCE Business Information Display World Energy Industry, Volume 1 FirstQuarter 1980

Soviet Union has not exceeded 1 percent ofJapan’s total primary energy requirements.Even Soviet coal, the most important ofthese imports, represented only 5 percent ofall hard coal imports in 1979.2

2 The 1979 total import figure is taken from World Energylndustry, while the U.S.S.R. import figure is taken fromMITI data. See table 81.

During 1979 imports from the U.S.S.R. probably repre-sented less than 3 percent of total Japanese coal imports. Forthe first 9 months of 19’79 imports of Sovet hard coal totaled1.7 million tons, while Japan's total coal imports from allsources for that year amounted to 60 million tons. See SorenToo Boekikai Chosa Geppo (hereafter Chosa Geppo) (Month-ly Report of the Soviet–East European Trade Association),November 1980, p. 3; for total coal import data for 1979, seeJapan Economic Journal, Industrial Review of Japan, 1 9 8 0 ,p, 60,

Ch. 1 l—Japanese-Soviet Energy Relations ● 327

Table 80.—Japanese Energy Balance—1979(million tons of oil equivalent)

Hydro and ImportedOil Gas Coal Nuclear electricity LNG

Total energy requirements1000 percent . . . . . . . . . 74.0% 0.6% 15.5% 1 ,3 % 1 .5 % 7 1 %327.5 mtoe. . . . . 242,3 2.0 50.7 4.4 4.9 23.2

Energy imports:—as percent of total energy

requirements . . . . . . . . . . . 78.4% — 12.1% — 3.5%308.3 mtoe. ., .

.256.7 — 39.9 — . 12.0

Energy exports:11.2 mtoe

SOURCE Business Information Display op C it.

Table 81 .—Japanese Energy Dependence—1979(million tons of oil equivalent)

.Oil/oil Imported Total

products Gas Hard coal Nuclear electricity LNG energy

Requirements . ., . . ... . . 242.3 2.0 50.7 4.4 4.9 23.2 327.5

Imports from world . . . . ., 256.7 — 39.9 — — 1 2 0 308.3

Imports from U. S. S. R,. ., . . . . . 0.7 — 2.0 . — 2.7

Imports from U.S.S.R. as percento f t o t a l i m p o r t s . 0.3% — 5.0% — — — 0.9%

Imports from U.S.S.R, aspercent ofrequirements . . . . . . . . . . . . . . . . . . . 0.3% — 9.9% — — — 0.8%

Conversion factors 1 kiloliter = 6.289 barrels, 1 barrel = 0.1358 thousand rnetric tons oil equivalent, 1.000 mtce = 0.6859 mtoe

SOURCE: For Imports from world Business In forma/ion Display World Energy Industry VO l. 1 NO 3, First Quarter 1980 p 116 For imports from U S S R Ministry ofInternatonal Trade and Industry (Japan) Energy Tokei Nenpo [Yearbook of Coal Petroleum and Coke Statistics) (Tokyo Tsusho Sangyo Chosa Kai 1979) pp.

30 39 82 176ff

From the Japanese perspective, then,Soviet energy has been relatively unimpor-tant. From the Soviet perspective, however,Japan is a very important customer, pur-chasing virtually all of the lignite and morethan half of the hard coal that the SovietUnion has sold to the industrialized West. In1979, about a quarter of the U.S.S.R.'s totalpetroleum product exports to Japan, WestGermany, France, Italy, the United King-dom, and United States were purchased bythe Japanese. In short, Japan, is presentlymore important to the U.S.S.R. as a cus-tomer than the U.S.S.R, is to it as an energysupplier.

This situation may change in the yearsahead, but probably only in limited ways.Current Japanese official energy forecastssuggest that, theoretically at least, Sovietenergy might play a role in meeting pro-jected needs, Japan’s official long-termenergy forecast, first drawn up at the end of1979 and now under revision, shows adramatic reduction in the use of oil over thenext decade. Recent revisions for 1990 callfor the share of oil in the energy supply tofall from 74 percent to 47 to 48 percent,’ and


for the proportion of oil-fired electricity uefied natural gas (LNG); rapid developmentgeneration to be reduced by nearly half– of new energy sources; and continuing suc-from 46 percent to about 24 percent. These cess in energy conservation (see fig. 27). Theambitious plans assume rapid increases in plans will require imports of all types of coalconsumption of coal, nuclear power, and liq- to rise rapidly from about 60 million tons

Figure 27.—Japan’s Provisional Long-Term Energy Supply and Demand Outlook

10

9

8

7

6

5

4

3

2

1

0

412mllllon kl

—

582miIIion

kl

-

1977 1985 1990

/807

mill ionkl

/

/

/

348mill ion

kl

1995

Energy conservation

New fuel 011,new types of energy

“Geothermal energy

LNG

Coal Imports

Coal product ion

011 and natural gasproduction

Nuclear power

Hydroelectric power

011 Imports

Fiscal year

Note The projections shown in this diagram are now under revislon According to the long-term 011 supply plan published in May 1981 Japan s 011 imports durinq 1985 wiIItotaI 308 miIIion kl In 1985 This figure IncIudes imports of crude oil and refined products excluding L N G The new oil supply plan reflects a reduction in oil imports toJapan from a level of 63-69 millilon barrels per day for 1985 set at the time of the Tokyo summit in 1979 to a level of about 57 million barrels a day for the year 1985 SeeTsusho Sangyosho (MITI), Showa 56-60 Nendo Sekiyu Kyokyu Keikaku (Oil Supply Plan for 1981- 1985) May 27 1981

SOURCE News from MITI NR-213 (79-281 Tokyo Sept 29 1979 p 9

Ch. 1 l—Japanese-Soviet Energy Relations ● 329

(40 million tons of oil equivalent (mtoe)) in1979 to 143 million tons (98 mtoe) by 1990.Steam coal imports are expected to soarfrom less than 1 million tons per year in thelate 1970’s to more than 50 million tons (34mtoe) by the end of the decade, as the ce-ment and steel industries reduce their oilconsumption by substituting coal, and asmore coal is used to generate electricity.

Soviet coal could contribute to this plan-ned energy transformation, but not on anymassive scale. Japan is now participating ina joint effort to develop Siberian coal inSouth Yakutia (see below). But the projected4 million to 6.5 million tons (2.7 to 4.4 mtoe)of coal for export to Japan which the projectis expected to produce by the mid-1980’swill still constitute only a small portion ofJapan’s anticipated 1985 coal imports ofmore than 100 million tons (68.59 mtoe).4 Insum, Japan’s urgent need to diversify itsenergy imports, both by geographic sourceand by type of energy, means that the SovietUnion will continue to be seriously consid-ered as a potential energy supplier. At thesame time, however, energy imports fromthe Soviet Union will not rapidly increase asa share of total supplies.

4 Nihon Keizai Shimbun, Dec, 25, 1980). ‘l’ho articlt> cites arevised delivery schedule for South Yakutian and Kuznetskcoal: 1 million tons annually 1979-82; 4.5 million tons,1982-85; and 6.5 million tons, 1985-99. Nihorz Keizai Shirn-burz, Feb. 9, 1981, reported that it is unlikely that supplieswill reach 3.2 million tons by 1983.

JAPANESE ENERGYTECHNOLOGY TRADE

WITH CMEA

The second dimension of Japan’s commer-cial relationship with the Soviet Union andEastern Europe has been in exports ofJapanese manufactured equipment andplants to CM EA. Japan has been an impor-tant contributor to both Soviet and EastEuropean economic development, and hastraditionally maintained a positive overallbalance of trade with CMEA. The relativevolume of Japanese exports to the U. S. S. R.,however, has not been large. Between 1975and 1979, these accounted on average forless than 3 percent of Japan’s total yearlyexports ($2.4 billion in 1979). As a rule, thevalue of Japan’s exports to the U.S.S.R. hasbeen two to four times as great as those toEastern Europe. Thus, even if all CMEA na-tions are included, exports to the Soviet blocrepresented less than 4 percent of Japan’stotal exports during most of the 1970’s.5

Similarly, in 1979 Soviet goods made up lessthan 2 percent of all Japanese imports. Infact, from the Soviet perspective overalltrade with Japan has diminished in im-portance during the last decade, falling froma high of 12.7 percent of all Soviet trade withindustrial nations in 1975 to 8.8 percent in1980 (see table 82).—- — - —.

5 "1979 Nen no Nisso Boeki” (Japan-U.S.S.R. Trade in

1979), Chosa Geppo, April 1980,

Table 82.—Soviet-Japanese Trade—1975-80(millions of rubles)

—1975 - 1976 1977 ‘- 1978 - 1 9 7 9 a 1980

A. Soviet Imports from Japan. . . . . . . . . . . . . . . 1 ,253.5 1 ,372.1 1,444.4 1,583.7 1,653,5 1,772.6B. Soviet exports to Japan. . . . . . . . . . . . . . . . . . 668.9 748.4 853.4 736.1 944.4 950.2C. Total Japanese-Soviet trade turnover. . . . . 1,922.4 2,210.5 2,297.8 2,319.8 2,597.5 2,722.8D. Total trade turnover between U.S.S.R.

and industrial nationsb . . . . . . . 15,843.9 18,658,1 18,741.6 19,679.9 25,753.8 31,583.1C/D . . . . . . . . . . . . . . ., . . . . . . . . . . . . . 12.8% 11 .40/o 12.30/o 11 .80/0 1 O.OO/O 8.60/0

a Revised figures— —

b "lndustrial nations” iS a standard Soviet trade classiflcation which includes Western Europe, North America, Japan, and AustraliaSOURCE Moscow Narodny Bank Press Bulletin, 1975-1980 (inter alia Soviet Foreign Trade, 1975-1980, inter alia

13 84-389 0 - 81 - 22


In certain industrial sectors trade with theU.S.S.R. is disproportionately important.The bulk of Japan’s exports to the U.S.S.R.and Eastern Europe (86.7 percent in 1979)has been in plants and equipment for heavyindustry. In 1979, almost half of these werein iron and steel.6 This trade is concentratedin areas which complement Japan’s own ef-forts to restructure its domestic industries.Heavy and petrochemical industries have foryears dominated Japan’s industrial struc-ture, but current government plans foresee adiminished importance for these sectors. Ex-ports are viewed as a way to help decliningindustries. Moreover, declining plant ex-ports in 1980, due mainly to contractcancellations by the Chinese, have led Jap-anese plant exporters to hope for a compen-sating growth in CMEA markets.7 Beforethe Soviet invasion of Afghanistan, Japa-nese plant exports to the U.S.S.R. and East-ern Europe were growing briskly, earningJapan about 10 percent of the world plantexport market.8

Japan has made an important contribu-tion to energy-related technology trade withthe Soviet Union and Eastern Europe (seech. 6). In 1979, Japanese worldwide energyequipment and technology exports werevalued at more than 6 billion. Exports to theSoviet Union accounted for 15.9 percent andthose to Eastern Europe 2.6 percent of thistotal. (Exports to all communist nations, in-cluding the People’s Republic of China, to-taled almost 30 percent of all Japan’s en-ergy-technology related exports during thatyear.) 9 Between 1975 and 1979, Japan alonesupplied almost 30 percent of all Western

6 Kin Murakami, “TaiSo Boeki no Genjo to Hatten" (Cur-rent Status and P’u ture Prospects for Japan- [ 1.S.S. R. ‘1’rade),,1’/ k ir(~n (;(’ppo (, Japan hlachiner? I ndustr~’ F e d e r a t i o nXlont hl?’1, No\’emher 19W, p. 4.

7 1 nter~’iew. with I’resident of New’ (Japan Steel, .I’ihonA’[’iz(li Shimblln, Ipeh. 2, 1981, p. 3.

8“ l)lant Pjxports to the Soviet Union and East European(’oun t ries, l)i~f)s t (}[ ,Iapa Ilc’.se Irtciu.vtr> clftci Tec/t fl~}i{~~jI,N(). 144, 1 W), p, 41.

9 Data from the Japan Tariff Association, ,Japan Exports(i H (i tInpo rt.~. f ‘om m miit )’ /j\’ ( ‘(JU n tr?’, 1979 (’1’ok~’o: 1 9 8 0 ) .CC F’’I’S categories were ~hosen to correspond with those de-~eloped I)J’ orl’)\ for [1, S, 1 )epar-t ment of (’ommerce data.(’ompiled h~ Stephen Sternheimer for OTA.

energy-related exports to the U.S.S.R.About 45 percent of Japan’s total exports tothe U.S.S.R. during 1979 were of energy-related equipment.

Such trade has been heavily concentratedin a few areas—pipes, tubes, pumps, andlight vessels. Japan has not been a majormanufacturer of seismic equipment for oilexploration, but Japanese companies havebeen important suppliers of pipe and otherpetroleum production equipment. Japaneseexports of “tubes, pipes, and fittings” ac-counted for 34 to 53 percent of all tradein these commodities between the UnitedStates, Germany, France, Italy, UnitedKingdom, and Japan and CMEA between1975 and 1979.10 Between 1975 and 1979,Japan ranked first among Western nationsin the dollar value of energy equipment andtechnology trade with the U.S.S.R.

Japan is undoubtedly a major exporter ofenergy-related equipment and technology toCMEA; opinion as to the significance ofthese exports differs, however. Many Japa-nese businessmen believe that Americantechnology in these areas is superior to theirown; U.S. manufacturers suggest that thereare many items which can be produced inJapan as well as anywhere in the world.Japanese drill pipe, for example, incor-porates the latest technology, including iner-tial welding of the tool joints at the end ofthe pipe, and it is widely recognized as atleast comparable to that produced by Amer-ican firms. 11 Japanese firms such as Mitsui,Sumitomo, Nippon Kokan, Kawasaki, andothers have supplied quality pipelines fortransporting oil and gas, as well as pipelinevalves, pipeline booster stations, and pipe-laying equipment. Mitsubishi has builtquality offshore semisubmersible rigs suchas the Hakuryu II (White Dragon), used inexploration around Sakhalin Island. Japa-nese firms are capable of producing almostall of the major pieces of equipment needed

— — . —10 “U. N. SITC data, compiled by Stephen Sternheimer for

OTA.11 See ch. 6, on Western Energy Equipment and Technology

Exports to the U.S.S.R.

Ch. 11—Japanese-Soviet Energy Relations ● 331

/’

.

The Japanese-built Hakuryu oil rig, off Sakhalin Island

for coal mining. In almost every majorcategory of energy technology, therefore,there are Japanese companies competingwith those from the U.S. and Western Eur-ope. In some cases, Japanese manufacturersare able to produce items at low cost, makingthem attractive suppliers for CMEA energydevelopment projects.12

In sum, past patterns of trade betweenJapan and the U.S.S.R. in fuels and energy-related equipment and technology showthat—despite the potential for mutuallybeneficial exchange of Japanese equipmentand know-how for Soviet energy and rawmaterials—the interaction between thesetwo nations has been limited. Japan’s pres-ent reliance on Soviet energy is very small.However, in certain sectors, includingenergy-related technology and equipment,Japan has been a major Soviet supplier. Ex-cept in specialized areas, Japanese energyequipment is on a par with equipment pro-duced by other Western nations.

Japan’s consistently positive trade bal-ance and its low level of energy imports fromthe Soviet Union indicate a cautious ap-proach to energy and trade relations. Thisbrief outline of past patterns of interactionshows that while there are strong underlyingincentives for Japanese participation in Si-berian energy and economic development,there has been no rapid development of suchties. Japan has avoided dependence on theU.S.S.R. for energy, although its exports ofenergy-related technology have increased.

[’rlfl~]~rt] pip[> [(~ f i 11 [i ( )rl]t>< [ i(> {It’rlltl rl(l. .St’(1 “,Japarl(’+(’ NI akt~r-sof .Sca m les \ I‘ i p(, Swarl]p(d 1$’ it h 1>( )r~~lgr) ( )rdt}rs, ,1 ,si(i//It ‘(ill ,Strf,(, t ,/()// rll(I/, 1 )(~c H, 1 $)h(J.

JAPANESE POLICY TOWARD ENERGY TRADE WITH THECMEA: THE INSTITUTIONAL AND INTERNATIONAL

POLITICAL CONTEXT

Japan’s postwar policies concerning ener-gy cooperation with the Soviet Union havedeveloped both informally and officially.Semigovernmental and private organiza-tions, as well as government agencies, haveplayed important roles in exploring potentialtrade and joint energy projects, and in carry-ing out agreements. These organizations—which include the large trading companies(sogo shosha), companies manufacturingvarious types of machinery and equipment,Japanese utilities and other potential con-

sumers of energy, the Federation of Econom-ic Organizations (Keidanren), the Ministry ofInternational Trade and Industry (MITI),the Foreign Ministry, and the Export-Import Bank (Ex-Im Bank) of Japan–allparticipate in development and implemen-tation of joint Japanese-Soviet energy proj-ects. The persistence of an identifiable groupof institutions responsible for these policieshas ensured a degree of policy continuity.This section briefly identifies the central ac-tors in this institutional setting, and then ex-


amines the international political context ofJapanese energy trade with the U.S.S.R.

THE DOMESTICINSTITUTIONAL SETTING

FOR POLICY

Private OrganizationsThe Keidanren has played a leading role

among the private organizations, companies,and institutions involved in negotiating andparticipating in joint Japanese-Soviet ener-gy projects. Since the 1960’s Keidanrenleaders have taken a strong personal interestin prospects for Siberian development, andbusinessmen from Keidanren, as well asother economic organizations such as theJapan Chamber of Commerce, have partici-pated in these negotiations with the SovietUnion.

The Keidanren’s Japan-Soviet EconomicCommittee (Nisso Keizai Iinkai), which ismade up of more than 100 Japanese busi-nessmen, works to coordinate opinionsamong interested Japanese firms. The com-mittee includes a number of subcommittees,each of which has primary responsibility fora particular type of project area (gas, coal,oil), and is made up of corporate executivesfrom these firms. At times one individual orfirm may exert decisive influence. An in-dividual from Tokyo Gas, for example, hasbeen the leading figure in negotiations overSiberian gas development.

Preparatory negotiations over potentialenergy development projects normally spana number of years. During this time a seriesof meetings are held to discuss the project’spossibilities and to specify the nature of par-ticipation on both the Japanese and Sovietsides. A Soviet organization, the U. S. S. R.-Japan Business Cooperation Committee,parallel’s Keidanren’s committee, and isheaded by the Soviet First Deputy Ministerof Trade. The Keidanren and Soviet commit-tees hold discussions; a protocol agreementis signed; and finally a “general agreement”specifies the overall commitment of both

sides. The latter agreement outlines thefinancing, cost estimates, and plans forequipment purchases, and carries the com-mitment of both the governments.

In addition to their participation as mem-bers of Keidanren, a number of privatetrading, manufacturing, and energy com-panies play important roles at various stagesof the development of joint energy projects.The sogo shosha have handled the bulk oftrade between Japan and the Soviet Unionsince 1956. In 1980 the primary trading com-panies dealing with the U. S. S. R., in rankorder, were Mitsubishi, Mitsui, C. Itoh,Nissho Iwai, Sumitomo, and Marubeni. Thefirst three of these were responsible forabout a third of all Soviet trade.13 These com-panies all have Moscow offices. Since thesefirms are associated with other related cor-porations in company groups (keiretsu) theyare in a good position to bring affiliated com-panies into projects as they develop. Manyof the trading companies have specializeddepartments, comprised of Soviet area spe-cialists, who deal in trade with CMEA. All ofthese factors make the trading companiesimportant participants in the developmentof joint Japanese-Soviet energy projects,both during preliminary negotiations, and inlater discussions of supply contracts.

Another secondary actor on the privateside is the Soren Too Boekikai, the Associa-tion for Trade with the Soviet Union andEastern Europe. This group specializes ineconomic and trade research, publishingmonthly journals and assembling trade data.When requested by member firms, the Asso-ciation undertakes special studies. It also ar-ranges for visits of Soviet delegations,assists Soviet participation in Japanesetrade fairs, and helps Japanese businessmeninterested in trading with U.S.S.R. andEastern Europe.

Consortiums may be formed to organizeparticipation of Japanese firms in joint ven-

13 Chosa Geppo April 1978, p. 212. See also Alexander K.Y o u n g , The Sogo Shosha: Japan 's Mul t ina t ional TradingCompanies (Boulder, Colo.: Westview Press, 1979), p. 8.

Ch. 11—Japanese-Sov\it Energy Relations ● 333

tures. The Sakhalin Oil Development Corp.(SODECO), for example, is composed offirms that represent a variety of Japaneseindustries—manufacturers of equipment, en-ergy corporations, banks, and trading com-panies engaged in joint ,Japanese-Soviet oiland gas development offshore Sakhalin.Such consortia spread the financial riskamong a group of firms and facilitate coor-dination among them, The businessmen in-volved in joint energy projects with theSoviet Union are generally also in closetouch with Japanese Government officials.In some cases, such as the unfruitful nego-tiations that took place over joint oil de-velopment in T’yumen, businessmen havepreferred to move more positively towardcooperation than have government offi-cials.14 But despite a natural difference in theperspectives of government officials (par-ticularly those in the Foreign Ministry) whohave broad policy concerns, and Japanesebusinessmen interested in expanding trade,the two sides are normally in fairly closeagreement.

Government organizations

The Ministry of Foreign Affairs is the for-mal coordinator of Japan overseas policies.However, in general, the ministry has beenless involved in the development of specificjoint Japanese-Soviet energy projects thanother government agencies. Since 1956,when Japan and the Soviet Union officiallyresumed diplomatic relations, overall tradeagreements have been reviewed and revisedevery 5 years. These 5-year trade agree-ments do not generally spell out the precisedetails of joint energy development projects.When a proposed project becomes a matterof political debate—and this has generallynot been the case—the Ministry of ForeignAffairs can play a decisive role in thenegotiations.

The government's trade and financiala gencies ( MITI, the Ministry of Finance,.

14 Gerald L. Curtis, “The ‘1’~’um~n oil I)e~el~pment Pr~je~tand tJapanese Foreign I’cJli~~ I)e~isi~n-N1akin~, in The F’OFQign Polic II of ,f!()(i(jrn .jajI(In% Rohert Scalapino led. ] { Rerke-1(’} , (’:il]t [ If Ii\ IJr+lt \ 01 ( ‘:illforni;] l’rt’~~, 1 !~Y7}, p I tio

and the Ex-Im Bank) all routinely play moreimportant roles in the development of ener-gy projects. MITI, through its InternationalTrade Policy Bureau, supports Japanesefirms with export insurance, and tax andcredit incentives. Since MITI implementsthe foreign exchange and trade control laws,including Export Control Division oversightof items restricted by CoCom, it plays an im-portant role in the development of trade andexchange with the Communist nations.Through its support for the Japan NationalOil Corp. and other public energy corpora-tions, M IT I has helped to provide financingfor overseas energy development.

Government financial institutions are alsodirectly involved in negotiations over energyprojects with the U.S.S.R. The Ministry ofFinance is authorized to provide policyguidance to financial institutions makingoverseas loans and investments; it normallyplays an important indirect role through itsbudgetary oversight of the Ex-Im Bank.Through its loans, the Ex-lm Bank suppliesthe major share of government funding forlarge-scale development projects in theSoviet Union. These loans can be made toJapanese importers and exporters and toforeign governments for financing importsof Japanese plants and equipment.

Officials of the Ex-Im Bank are usuallyconsulted by Japanese firms at a number ofstages in project negotiations. Through itsassessments of risk and projections of creditneeds and appropriations availability, theEx-Im Bank determines which Soviet proj-ects should be supported, and eventually theBank signs a loan agreement with theU.S.S.R. Bank of Foreign Trade. Thisestablishes bank-to-bank credits used by theSoviet bank to reimburse Japanese firms.15

As early project stages are completed, prog-ress is reviewed and financing arrangements

15 ‘Ipor :] d(jwriJ~t ]~m of ,J ap:]n~~w~ f ]nontin~ of j o]nt ,J;Ip;]ntw~-%1~ it’1 C(XI I [it~~ IJl{IpIn[~n t In Sil)t~rla, <(’[’ ( ‘(J k 1 tl,q ( ‘f )11 I ,1 1(1111/(11,1980, p. 289, According to experts, the bank pro~rided $4 mil-lion in loans for Siberian de~elopment projects as of 1979. SceA hen l$rh iting, op. cit., p. 137, and Henry Scott St ekes, ‘‘ tJ a-pan Facing Complex Polir)’ Issues Almut Sanctions on So\i-et IJnion and I ran,” A’(II{ lror.k Times, ,Jan. 9, 1980.

334 • Technology and Soviet Energy Availability—

renegotiated. Under routine circumstances,the financial arrangements form the frame-work for development and review of jointprojects.

Japanese commercial banks are legallyprohibited from lending more than 25 per-cent of their capital funds to any one recip-ient; therefore, firms interested in par-ticipating in large projects often turn to theEx-Im Bank for assistance. While projectloans generally involve a combination ofgovernment credits and monies from com-mercial banks, the Ex-Im Bank’s commer-cial assessment of the project is important indetermining loan rates.16 The Bank does notusually make public the exact proportion ofthe loan it provides, or the differential be-tween the loan rate charged by it and thatcharged by private banks. Since its purposeis to stimulate Japanese exports, Ex-ImBank financing is concentrated in thoseparts of a project that involve purchases ofJapanese-manufactured plants and equip-ment, rather than in those involving pur-chases of Soviet-made goods.

The institutional and financial supportprovided by the Japanese Governmentthrough the bank and other agencies hasbeen a distinguishing feature of the jointdevelopment projects in which Japanesefirms have participated.17 Even when Japa-nese Government and business officials arefavorably disposed toward a project, finan-cial considerations can delay or significantlymodify it. The example of the joint Japan-U.S.S.R. oil and gas project offshore Sakha-lin illustrates the central role of financial in-stitutions.

In the first stages of the Sakhalin negotia-tions in the early 1970’s, Keidanren’s Japan-

161n 1976, the OECD instituted guidelines for lendingra t~~s c.hargt~ci h~’ memher na ti{)ns for l a r g t ~ - s c a l e projectssuch as t host) t~st ahlishtd t ~) promot (~ S()\’i(>t [~nerg~ d(~Y’elop-mthnt. llefort~ t hat t imc, interest rates set 1)~’ tht’ h~x- I m Bankand other financial institut ions could t)(~ the key cieter-minan ts of wh(>t her tJapan{Jse firms or their compct,itor-s won:1s s(x.ia ttd e.x port (“on t ra~. [s. I n t ~~rest ra t e c ha r~res continuet () ht’ a focus of negotia t ions olcr So\iet ent’rgy projects.

17 Terutomao Ozawa, .J[l/)an(I.sf’ ,Il[{ltin(l (l(~nuli.sn~ ( Prince-t on, N. .J,: l’rin(t’ton [Jni\t~rsit~’ f)ress, 1980), p. ;1;1.

Soviet Economic Committee held discus-sions with Soviet representatives. Once thetwo sides reached a preliminary understand-ing, Keidanren leaders undertook extensiveconsultations with various Japanese Gov-ernment agencies. The Ministry of ForeignAffairs apparently was not extensively in-volved, but the Ex-Im Bank made an impor-tant contribution to these discussionsthrough its project risk assessments. MITIofficials helped to develop the consensusamong Japanese parties that provided theworking basis for a new round of more de-tailed negotiations between the Keidanrencommittee and the Soviets.

After both sides agreed on a protocol,discussions took place with the U.S.S.R.’sBank of Foreign Trade. A Japanese consor-tium was formed to organize corporate par-ticipation in the project. This consortium,the aforementioned SODECO, signed the ba-sic contract with the Soviet Ministry ofForeign Trade in January 1975. A “generalagreement” outlined the financial participa-tion of both sides, and set various projecttargets.

The formation of SODECO and the ar-rangements for financial backing from theEx-Im Bank and other institutions were cru-cial to the progress of this project. The Japa-nese initially advanced risk money of $100million for drilling at Sakhalin. Much of thatcapital came from the Japanese corporateshareholders in SODECO, as well as fromthe Japan National Oil Corp. The Ex-ImBank’s risk assessment and its financing sig-naled the commitment of the Japanese Gov-ernment.

The Political Context of Japanese-Soviet Energy Relations

Political Relations With the U.S.S.R.–Japan’s lack of indigenous energy resourcesand history of export-led economic growthboth suggest strong incentives for coopera-tion in Soviet energy development. How-ever, the historical and political context ofJapanese-Soviet relations is marked by avariety of complicated and persisting dis-

Ch. 11—Japanese-Sov\it Energy Relations ● 335

putes and tradeoffs. These are importantfactors that Japanese policy makers weigh intheir negotiations with Soviet leaders. Whilethe political factors are usually viewed asconstraints on interaction between these twonations, incentives for cautious Japaneseinterdependence with the U.S.S.R. can alsobe identified.

It is often noted that Japanese publicopinion surveys demonstrate acute publicdislike and distrust of the Soviet Union. Thisis generally assumed to indicate fundamen-tal opposition to expanded Japanese-Sovietrelations. The implications of such surveysare, however, far from clear. A recent surveyof Japanese elite views on security issues in-dicates that Japan’s policymaking leader-ship holds no clearly distinguishable orcoherent view of the “Soviet threat."18 Mostof the respondents considered a Soviet mili-tary attack unlikely, supported only a mod-est (Japanese defense build-up, and perceivedthe “Soviet threat” as primarily psychologi-cal and political rather than military. Likenumerous other polls on the subject, thissurvey provides no conclusive indicationsabout what policy Japanese leaders are like-ly to initiate, but it does indicate that theSoviet Union is not perceived by them inblack-and-white terms.

A second factor commonly viewed as anobstacle to increased cooperation is theNorthern Islands issue (see fig. 28). Persist-ing disputes over territorial claims to fournorthern islands were reflected in the failureof Japan and the Soviet Union to conclude apeace treaty following World War II. TheNorthern Islands issue is a recurrent themein the Japanese media. The problem has beenrecently exacerbated by a Soviet militarybuild-up on these islands between 1978 and1980.

The emotional significance of the issue,however, has not prevented the establish-ment of diplomatic relations between thetwo nations or the development of a number

of joint Siberian projects.19 In other words, itis not clear that there is any direct policylink between the Northern islands and Japa-nese-Soviet interaction in Siberia. Publicly,the domestic salience of the issue precludesany Japanese public official from concedingthe improbability of the return of the islandsto Japan. Privately, however, many admitthat there is no precedent for the U.S.S.R.returning territory it has occupied for solong.

The China Factor. -The “China Factor” isshorthand for another set of policy issueswhich are often assumed to inhibit Japan'sinteractions with the U.S.S.R. It has beensuggested in the West that China and theSoviet Union pose an either/or choice forJapanese economic involvement, for reasonsof both politics and competitive economics.According to this argument, Japan's historicties to, cultural compatibility with. andnearness to China mean that priority isplaced on Japanese-Chinese relations.

Japanese leaders nevertheless stronglydisagree with the idea that they can orshould choose between their two Asianneighbors. A prime concern is that theSoviet Union not be provoked to take ag-gressive action in Asia. Japan’s basic alle-giance is clearly to the United States, butJapanese leaders worry that Moscow mayperceive Tokyo as cooperating (tacitly or ex-plicitly) with Washington and Peking in ananti-Soviet alliance. As a result, Japaneseleaders attempt to signal the U.S.S.R. as toJapan’s peaceful intent, without alienatingChina.20

19 Richard L. Edmonds, ‘‘Sib(~rian f{t’+our(’c 1 )(~k(’loprnt~rl ta nd t hc .J a pa m+e K;conorn}: ‘1’1)[’ ,Japanwt~ 1){’rspt’t.t i~~’,paper prepared for t\ ssociat ion Of A rncriran ( ;(~()~raph()rs[)roject on So\it’t Natural l{twource~ in the tf’orld F;conorn}.August 19’79.

1 t is interesting to note t hat a par~ille] disput[’ ht’tw(~t’rltJapan and China 01 er the Senkaku Islands - located hrt we(~r~‘1’aiwan and the R\’uk~u-has not inhihitwi joint oil de~[~l(~pment between t hcsc nat ions. Ad min isterrd l)?’ t ho { ! nit t~dSta[es and t hen rrturnvd t o Japan at the time t~f t h(’ return (Jtokinawa, t hes(l islan(j+ h~i ~(~ rt~[~~if[d l[~s< m[dia att[’rlt](}n!)u t t ht~ disput (~ oi[~r t h(~nl i~ n{) lt~+s st>rl~it i~e, ‘1’h i< i~ :Inot 11(’rca sc of a n u nrc solt’ed (’( )n fl i(’ t w h i [’ h has not pre~’erl t d a w i(i(’ra ng[’ of in t [~r[]( t lorr \ ]n~’lu(] i n,g .J apa r~twv part i(.ipat ion i n( )t fshorc o i] d (~~.el( )p men t I n ot h(’r a r(’as n(~a r (1 h i rra

20 ~f’h it irl~, op. cit.


To this end, Japanese leaders both in andout of government depict cooperation inSiberian energy development as necessary toJapan’s political interest–not for abstractreasons such as winning good will, but inorder to reduce perceptions of hostility.Sakhalin offshore oil and gas development isa prime example. Sakhalin was contested byJapan and the Soviet Union for nearly a halfcentury, finally falling under Soviet controlin the final stages of World War I I after theU.S.S.R, hastily renounced a neutrality trea-ty and entered the war against Japan. If theisland represents a symbolically sensitivepiece of lost territory, the oil and gas re-sources there are also strategic commoditiesimportant for both Japan and the U.S.S.R.Japanese participation in the developmentof these resources symbolizes commitmentto peaceful cooperation in the Asian region.Japan’s Sakhalin “signal” has continued–despite the Soviet invasion of Afghanistan.Furthermore, China has not protested jointenergy development there, Indeed, the sameJapanese firm exploring for oil offshoreSakhalin won the first foreign contract to ex-plore in the Bohai Gulf near China.

Nor does it appear that such signals in-volve unusually great economic risks, atleast compared to those incurred in par-ticipation in energy and development proj-ects in other nations. Following China’s re-adjustment of national planning priorities in1980-81, Japanese contracts valued at $1.5billion were canceled as projects were post-poned. While China has indicated its will-ingness to renegotiate the bulk of these con-tracts, the incident cautions against overlyoptimistic expectations about the Chinamarket, No similar renegotiation or reversalhas affected Japanese-Soviet interactionsince the abortive Tyumen pipeline proposalof 1974-75, which ended before any contractswere signed. Nor is there any concrete evi-dence that firms which participate in Chi-nese economic development are denied ac-cess to the Soviet market, or vice versa.Indeed, a number of Japanese firms havefigured prominently (and simultaneously) inboth Soviet and Chinese development proj -

ects, supported by export credits from theJapanese Ex-Im Bank.

Policy Stance. — Contrary to popularstereotypes, it appears that Japan attitudetoward energy cooperation with the U.S.S.R.is based on a careful assessment of bothpolitical and economic tradeoffs. Politically,Japan hopes to avoid strong associationwith either China or the U.S.S.R. Econom-ically, Japan needs diversified sources ofenergy and prospers through expandedplant, equipment, and technology exports.The Japanese organizations and institutionsinvolved in formulating policy toward ener-gy cooperation with the U.S.S.R. naturallyweigh the potential risks and benefits ofvarious projects from different perspectives–financial, political, energy, and trade.However, there appears to be widespreadagreement on the broad outlines of Japanesepolicy regarding Japanese-Soviet interac-tion. This is best described as cautiously op-timistic. Disagreements within Japan’spolicymaking leadership inevitably ariseover the details of specific projects, andrecur when international political or eco-nomic conditions change—but the generalorientation of Japanese policy has been fair-ly consistent. For Japanese policy makerswho are officially committed to diversifyingJapan’s energy supplies–both by types offuels and geographic sources–both the Sovi-et Union and China are viewed as potentialalternatives. During the 1980’s Japan hopesto import a modest amount of oil from China,some gas from the Soviet Union, and consid-erable coal from both.

The Soviet Union is thus viewed as apotential supplier of additional energy—inlimited increments. So long as the U.S.S.R.remains merely one among many more-or-less equal suppliers, the Japanese believethat the political leverage likely to accruethrough a threat of a cutoff will be minimal,if not nonexistent. A further and commonlyheld extension of this view is that to the ex-tent that the Soviet Union relies on Japanfor capital, technology, and equipment todevelop its energy resources, the likelihood


of political manipulation or pressure is re-duced and international tensions obviated.

Japan’s willingness to cooperate with theSoviet Union in developing the latter’s ener-gy resources is in no sense an unboundedcommitment. Informally and unofficially,Japanese leaders often cite 20 percent as themaximum safe level of reliance on Soviet im-ports for any commodity, energy included.Japanese are quick to point out that thisfalls well below the dependence of a numberof West European nations in some fuels, andthat actual Japanese energy imports fromthe Soviet Union are likely to fall far short ofthis level in the next few years. Another in-dication of the bounds to Japanese coopera-tion is the fact that, despite Soviet pro-posals, Japan has not entered into compre-hensive trade agreements lasting longerthan 5 years. ” Additionally, Japaneseleaders have been reluctant to move ahead insome cases of Siberian development withoutAmerican approval, and even participation.This reluctance is illustrated by the case ofthe now dormant proposed gas developmentproject in Yakutia (see below), in whichJapanese firms under the leadership ofTokyo Gas strongly requested Americanparticipation.

While Japan’s positive attitude towardenergy and trade interaction with theU.S.S.R. has been cautious, at the same timethere is little sympathy among Japaneseleaders for a policy of strong controls overtrade and technology exports to the SovietUnion. Nor do they support the idea of at-

tempting to employ trade as a political leverin order to promote long-term Western secu-rity interests. Despite the continuing con-cern, particularly of Foreign Ministry of-ficials, that Japan not take a position thatisolates it from the United States and West-ern Europe, expanded controls on bothequipment and technology trade are viewedas intrinsically unattractive options.

This position is in part based on the appar-ently widespread view within the Japanesebureaucracy that where there is trade, thereis bound to be some technology leakage.Japan participates in CoCorn and Japaneseleaders believe that some export controls arefeasible and necessary. But MITI officials inparticular contend that controls on tech-nology transfer are both difficult to con-struct and to implement. Such controls, theysay, are best applied to limiting the sale ofspare parts and manufacturing know-how,and then only to technology that is easilyidentifiable and separate from products.

In sum, the political context of Japanese-Soviet energy relations includes complicatedand persisting issues such as the NorthernIslands dispute and the “China factor."These lie behind Japan’s policy of cautiousinteraction with the U.S.S.R. The economicand cultural complementarily of Japan andChina make it unlikely that Japan’s rela-tionship with the Soviet Union will be pro-moted to a position of equal importance withits relationship with China. However, fromthe Japanese perspective, it is importantthat, in principle at least, Japan offer similaropportunities for economic cooperation toboth nations. Japan’s “omnidirectional di-plomacy” thus implies involvement withboth China and the U.S.S.R. in energy devel-opment and trade.

JAPANESE PARTICIPATION IN SIBERIANENERGY DEVELOPMENT

Japanese-Soviet energy development proj- Tyumen never even began, despite the in-ects have been beset by repeated problems terest of Japanese firms. Oil and gas de-and delays. Joint development of oil in velopment offshore Sakhalin is progressing

Ch. 11—Japanese-Sov/it Energy Relations ● 339—

very slowly; 5 years after the signing of theinitial agreement, the exploration stage hasstill not been completed. Technical problemselsewhere have caused coal shipments fromthe Soviet Union to fall below anticipatedlevels.

The following sections describe three keyJapanese-Soviet energy projects–Yakutiannatural gas and coal development schemesand the Sakhalin offshore oil and gas proj-ect—analyzing the nature and prospectiveresults of Japanese participation. These arethe most significant examples of Japanese-Soviet joint energy cooperation to date, andillustrate the type of interactions likely to befeasible in years ahead.

YAKUTIAN NATURAL GAS

The Yakutian gas development project isa trilateral effort involving Japan, the SovietUnion, and the United States. Since theearly negotiations, Japanese firms and orga-nizations have taken the lead. Japanese par-ticipation is organized in a consortium of 21firms called Siberia Natural Gas. The con-sortium includes major trading companies,utilities, banks, steelmaker, and other plantexporters. Hiroshi Anzai, President of To-kyo Gas and Chairman of Keidanren’s Ja-pan-U.S.S.R. Joint Economic Committee’ssubcommittee on gas, is Chairman of theconsortium, and has been the leading figurein the development of the project. El PasoNatural Gas, Occidental Petroleum, andBechtel Inc. were involved on the Americanside.

At the time of the preliminary negotia-tions and signing of the first contracts in1975, the extent of Yakutian gas reserveshad not been determined. ” Under the termsof the original agreement, the beginning ofactual production would await initial ex-ploration, during which an anticipated 1 tril-lion cubic meters of gas reserves would be

2 2 U . S . S e n a t e [{, ,S-, Tra(ip u n (] in ( ,P.s tmen t i n th c .70 1s ic t

Union and ~;u.st~m Europr, staff report for the Subcommit-tee on hlultinational Corporations, Committee on F’oreign Re-lations (Washington, D. C.: U.S. (jo\ernment Printing Office,1974), p. 19.

verified. This stage is now 90 percent com-pleted but production has yet to commence.When and if it does, one-third of the gas willbe retained by the U.S.S.R. and the othertwo-thirds divided equally between Japanand the United States at prevailing marketprices–roughly 7.5 million tons of LNG an-nually to each country over a period of 25years. 23

Initial estimates of development costs forYakutian gas stood at $3.4 billion. A loan of$50 million–half from Japan’s Ex-Im Bankand half from the Bank of America-wasprovided for purchases of exploration equip-ment. The bulk of the Japanese financingcame directly from the Ex-Im Bank, withonly about 20 percent supplied by privatecompanies. 24 U.S. law (i.e., Jackson-VanikAmendment), however, precluded U.S. Ex-port-Import Bank loans to the Soviet Union,

The project developed slowly, due todelays caused by cold weather and exportlicensing problems with the shipment of aU.S. computer. By the time of the Soviet in-vasion of Afghanistan, proved reserves werestill about 10-percent short of the target:after the invasion, a tripartite meetingscheduled for the spring of 1980 was can-celed. I t has now been tabled. At thismeeting a second general agreement to coverthe next stage of the project was to havebeen developed. Those involved believe thatit will take at least another year to concludea second-stage agreement, and that evenunder such best-case conditions, actual com-mercial production of gas will not begin until1987. Moreover, in formal Japanese esti-mates suggest that the costs of the projectmay climb to $7 billion to $8 billion, doublethe initial figure.

In addition to the costs for explorationand production, huge investments will be re-quired to complete the necessary infrastruc-ture. Gas produced in Yakutia was to beshipped by a new pipeline to the Soviet portof Olga on the Pacific Coast, where liquefac-

23 Soren Too Boekikai, Handbook of the U.S..S.R. (Tokyo :Sort~n ‘1’{J{J Ilookikai,” 19’ihI. pp ii I- l(i.

24 Raymond S. Mathieson. Japan's Role in Soviet EconomicGrowth (New Yourk: Praeger, 1979), p. 112.


tion plants and additional port facilities willbe constructed. Original plans called for theUnited States and Japan to share the costs.The planned pipeline would be longer thanthe 1,700-mile Orenburg pipeline and wouldrun over extremely cold and mountainousterrain. Japanese experts view this ventureas being at least on a par with the effortswhich will be required to construct the gasexport pipeline across West Siberia to West-ern Europe. The cost of the equipment (pipe-line and liquefaction facilities) needed for thenext stages of the project will be very large,and any previous consensus that might haveexisted regarding who should pay for facil-ities to be built within the Soviet Union hasbroken down.

For the Japanese, Yakutian gas offers amarket for energy equipment and technol-ogy and a source of LNG. To date, Japanesefirms have supplied drill pipe and bits, gasdetectors and masks. The Japanese firm I HIHeavy Industries has apparently offered tosell 36-MW compressors for the pipeline, andthere will certainly be opportunities for salesof a variety of other Japanese equipment ifthe gas is actually developed.

But even assuming that all goes accordingto plan, it is not likely that Yakutia willrender Japan greatly dependent on Sovietnatural gas. The planned 7.5 million tons ofLNG, to be supplied to Japan by the year1990, will amount to less than 15 percent ofJapan’s projected total LNG imports forthat year (45 million tons), or a little morethan 1 percent of Japan’s total primaryenergy supply. Soviet gas from Sakhalin (seebelow) might add 3.5 million tons per year,however, The two projects together, there-fore, could provide one-quarter of Japan’sgas imports by 1990 (see table 83).

These considerations belong to the future,however. With delay in proving reserves,mounting cost estimates, and delays due tointernational political tensions, the ultimatefate of the tripartite Yakutian gas project re-mains uncertain. Participants continue tomaintain that it is economically and techni-cally feasible, but there is little likelihood

Table 83.—Projected Japanese Energy ImportsFrom the U.S.S.R. During the 1980’s

(million tons of oil equivalent)

Gas(liquefied

natural gasCoal Oil -LNG)

A. 1979 Imports fromthe U.S.S.R. . . . . . . . . . . . 2.0 0.683

B. Projected incrementali reports 2 4—1985cfrom U.S.S.R. +1979 imports . . . . . . . . . . 6.4a 2.051 b 5.1 —1 990

C. Projected total Japaneseimports fromall sources, 1985 . . . . . . . 69.2 312 19.8

D. projected total Japaneseimports fromall sources, 1990. , . . . . . 98.0 294 308

B/C . . . . . . . . . . 9.2% 0 . 6 5 % 1 2 . 1 %d

B/D ., ... . 6.5% 0.69% 24.3% d

Conversions 1000 metric tons coal , 06859 1.000 metric tons oil equivalent1000 barrels day , 01358 1,000 metric tons oil equivalent1 kiloliter 6.28 U.S. barrels.

a Assumes 65 million tons (4.4 mtoe) additional coal imports from SouthYakutia.b Assumes 10,000 barrels/day (1.6 mtoe) additional oil from Sakhalinc Assumes 35 million tons from Sakhalin (2.4 mtoe) + 7.5 million tons (5.1 mtoe)from South Yakutia In all Iikelihood, the Yakutia gas wiII not come on streamuntil 1990 or later.

LNG reports from all sources wi II provide 72 percent of Japan's pr imary energy

suppIy In 1985 and 90 percent In 1990 according to official Japanese Governmentforecast

S O U R C E S M i n s t r y o f I n t e r n a t i o n a l T r a d e ( J a p a n ) E n e r g y T o k e i N e n p o(Tokyo: Tsuko Sangyo Chosa Kai 1979) and Japanese governmentlong-term energy forecast

that all three parties will quickly move aheadin the current international environment.

SOUTH YAKUTIAN COAL

In contrast to the situation with Yakutiangas, where adequate recoverable reserveshave not yet been established, a sufficientamount of coking coal, much of it located inthick seams, is known to exist in the area,and feasibility studies by the Soviets and on-site inspection by Japanese experts have ledto the joint development of the Siberian Ya-kutian coalfields. Although South Yakutianproduction is still very small, ” generallyhigh-quality coal has been mined here for anumber of years.


An initial agreement, signed in 1974, pro-vided $450 million in Japanese credits forYakutia, $60 million of which were to bespent within the U.S.S.R. for onsite costsconnected with the labor force. The rest ofthe credits were set up to facilitate Sovietpurchases of plant and machinery. The loanperiod extended from 1975 through 1982,with repayments in the form of coking coalto begin in 1983. Japan is to receive 85 mil-lion tons of medium-quality coking coal bythe end of the century. In addition, thegeneral agreement provides for the import ofSoviet coal from the Kuznetsk basin at a rateof 1 million tons annually from 1979 to 1999.

The South Yakutian coal project encoun-tered no major negotiation problems, buttechnical obstacles appear to have furtherdelayed delivery schedules of both Kuznetskand Yakutian coal. In December 1980, a re-vised timetable projected exports of 4.5 mil-lion tons to Japan between 1982 and 1985;and exports of 6.5 million tons between 1985and 1999.26 In the opinion of Japanese ex-perts, schedules may be set back by as muchas 2 years, due to difficulties associated withthe use of equipment in such harsh cli-mates. 27 In addition, inadequacies in the“coal chain” on the Soviet side—insufficientnumbers of coal tankers and poorly devel-oped transportation facilities—may raisefurther difficulties. A 400-km section ofrailroad connecting the mine site to theTrans-Siberian Railroad was completed in1978. The city of Neryungri and nearby re-gions of Chulman are expected to experiencea population influx, and the progress ofregional infrastructure development willgreatly influence the delivery schedules ofcoal produced in the mines.

Japan has sold the U.S.S.R. a variety ofcoal mining equipment for use in South Ya-kutia. This has included coal rotors, drag-lines, coal-washing and sorting equipment,—

26 Nihon Keizai .Sh(mbl{n 1)[’c. 25, 19H().“Information in English on South Yakutian coal reserves

is scanty. The Central Intelligence Agenc~r (CIA) expectsthat the Neryungri mine, which will supply .Japan, will pro-duce 13 million tons of coal after 1985. CIA, .U. tS..’SR. (’ou1 ln-dust~~ Problems and Prospects, Pill 80-10154, March 1980,p. 15,

and earth-moving and excavation equip-ment, The Komatsu Co. has sold 190 bulldoz-ers for the project, worth about $40 million.other Japanese companies have suppliedtransport vehicles, electric locomotives, acrusher station, coal-washing equipment,and a coal terminal. The latter went intooperation in 1978.28 (Since U.S. firms are ableto produce larger capacity trucks, draglines,and excavators than are available elsewhere,some American equipment has also beenused here.29) Japanese firms expect to haveexpanded opportunities for sales as the proj-ect continues.

Even if produced on schedule, Yakutiancoal is unlikely to provide a major portion ofJapan’s future coal imports. If Japan’s im-ports reach the projected 100 million tons by1985, 4 million to 6.5 million tons per year ofSouth Yakutian coal would make up lessthan 1 percent of 1985 total Japanese pri-mary energy supplies. In 1979, Japan im-ported about 2.0 million tons of Soviet coal(about so percent below the level con-tracted), all of it from the Kuznetsk basin.Even combined with this, Yakutian coal willstill represent well under 10 percent of Ja-pan’s total imports of coal in 1990–a muchlower percentage than supplies from theUnited States, Canada, or Australia (seetable 83).

Yakutian coal development has pro-gressed more rapidly than the tripartite gaseffort, but deliveries from this area are notscheduled to start before 1983 and even thenmay not proceed before the latter part of thedecade. Nevertheless, the Yakutian projectis one of the centerpieces of joint Japanese-Soviet energy development. At the end of1980, after holding up new loans for Siberiandevelopment in the wake of the invasion ofAfghanistan, the Japanese Government ap-proved a loan of $42.3 million for this proj-ect.30 This, as much as anything, demon-strates its importance to Japan.

28 Mathieson, op. cit., pp. 76-78; Soviet Geography, Febru-ary 1979, pp. 125-126.

29 Ibid, p. 77.30 Asian Wall Street Journal, Dec. 29, 1980.


SAKHALIN OFFSHORE OILAND GAS

Sakhalin Island is located between Japanand the continental Soviet Union (see fig.28), about 50 miles from the northernmostJapanese island of Hokkaido; at points on itsnorthwest coast, the island is even closer tothe continental Soviet Union. Japan’s par-ticipation in Sakhalin onshore oil develop-ment began before World War II, when thesouthern half of the island was Japanese ter-ritory. Offshore development dates from the1960’s, when Japanese oil refiners, as well asGulf Oil Corp. (which had been supplying in-dependent Japanese firms with oil fromother regions) became interested in the proj -ect. Inspections began at the site in the early1970’s.

As noted above, Japanese participationhere is organized through the consortiumSODECO. SODECO is comprised of 18 cor-porate shareholders, the largest of which is apublic corporation–the Japan National OilCorp. tJNOC). JNOC holds more than 40 per-cent of the equity, as well as stock in anumber of other shareholding firms. Jap-anese oil and trading companies also haveshares in the project, and Gulf Oil holdsabout 5.7 percent of the total equity.31

In 1975, SODECO and the Soviet Unionsigned a basic agreement. The contract pro-vided some $100 million to $150 million inJapanese credits, to be used for explorationequipment, including excavators, drillingrigs, drill casing, and computers. In return,for 10 years Japan is to receive 50 percent ofany crude oil or gas produced offshore at adiscounted price.32

The Soviet Union is the project operator.Day-to-day operation is supervised by asecretariat which has offices on SakhalinIsland. Onsite work teams are composed oftechnicians from a variety of different com-panies and nationalities. On the Japanese——————

31 Japan Petroleum and EnergyHandbook (Tokyo: Japanf)t~trolt~unl (Consultants, 1 97/i), pp. T 11 N 19.

‘‘Sor(~n ‘I’()() f30(Jkikai, //(/)? (~/)()()1/ (J/’ th( i ‘ .S .$. /{ ~Tok~o:Sor(~n Too flo(~kika i, 197HI, p. 446.

side, technical experts from the various par-ticipating companies are periodically “de-tailed” to the project, allowing the con-sortium to draw on a wide range of skills.Working in teams with Western technicians,Soviets gain “hands on” experience inoperating the equipment.

The U.S.S.R. is contributing money aswell as labor to the project. Soviet expenseshave run about $100 million, paid in rublesto cover the costs of labor and constructionfor the 1980-82 exploration period. To date,SODECO and other Japanese sources suchas the Ex-Im Bank have probably providedas much as $170 million.

Western technology has played an impor-tant role at Sakhalin. In 1976, SODECOleased a French geophysical vessel and com-puter equipment, and a variety of Japanese-manufactured rigs have been used. Thesemisubmersible White Dragon II, built byMitsui, as well as the Okha jack-up rig, builtby the same firm to a design patented byArmco, have been used for offshore test drill-ing. In July, 1979, the marine department ofC. Itoh trading company sold a Mitsui-Liv-ingston Class I I I jack-up rig for use atSakhalin. This rig was especially designedfor very cold conditions.33

One of the project’s most important tech-nological requirements will be for ice-pene-trating rigs. Because of the thickness of icearound Sakhalin, Western technology devel-oped for the Alaskan slope cannot be usedwithout modification. In instances wherespecialized equipment is needed, Americancompanies will probably be given marketopportunities. However, the general patternto date has been for Japanese firms to do thebasic hull construction, finally assemblingthe rigs with equipment from a variety ofcompanies.

The last phase of test drilling has nowbegun, with exploration concentrated in twofields, where 13 test wells have been drilled,seven of which have proved promising.Three more test wells will be sunk in 1982 to

Ch. 11—Japanese-Soviet Energy Relations • 343

complete the exploration phase. If all goeswell thereafter, plant construction and theinstallation of equipment will begin. This isscheduled to be completed by 1986, when athird stage will feature production and ship-ment of LNG.34 The final stages of the proj-ect will involve the most costly outlays.Costs of building an LNG plant, extendingthe pipeline system on the island, tankers,and receiving facilities could add $5 billion toinvestment requirements.

An oil discovery has already been made inthe Sea of Okhotsk, northeast of Sakhalin,35

and as exploration has progressed, prospectsfor gas production have appeared more andmore promising. Test wells sunk in the samearea have confirmed gas reserves adequateto produce 5 bcm annually and oil depositsproducing 6,600 bcm (0.328 mtoe/yr).36

In recent months, the major point ofdiscussion among project participants hasbeen how offshore gas will be transported toJapan. The initial Soviet proposal was tobuild a north-south pipeline on Sakhalin,with an underwater connecting link to Hok-kaido. The U.S.S.R. favored the pipelinebecause it would be cheap and technicallyfeasible to build, given the shallow waters.The Japanese have opposed this plan forsecurity reasons, i.e., the pipeline might tiethe northern part of Japan too strongly toone Soviet source of energy, and because itentails piping gas to the rural island of Hok-kaido, where demand is low and where do-mestic coal producton is significant.

At the beginning of 1981, agreement wasreached on a different option—constructionof LNG facilities on Sakhalin.37 JapaneseLNG tankers will transport the LNG direct-ly to areas on the island of Honshu where de-mand is strong. As mentioned above, thisplan will involve huge capital outlays for

34 1 nfr)rrrl~it ion {Jn Sakhalin pr{)j[ct ~ta~{s from SO I) I”;C()officials i n ‘1’ok}{), ,Ji]pan, N1 arch, 19X 1 , and from A“r’honh’{t:(~i $l)imlj~( n. ,Jun(~ 9, 19H 1

35 Mathi[~s{)n, op. (it., p. f)936 /h//l\’ /1/(/(/ \tri .1’(’// f, I )(’(’ %, ] 9X(). 1“/ // ()// A“(’/:(Ii ,s’/// 7)/

1~~~ n. ~{}~ I 1, 1 !!N() ((’orl~[’r-t (L(i a[ 1 kilo]it [~r = f;. ?,R<)H llarr[~ls),o n (i ,J u n [’ 9. I !M 1, ft jr i n form o t I c ) n t ~n t t’i t w’(’11 ~.

37 ‘‘N I ~+{) 1,\ (; k:] d~I ( ;(}i ~ ,J apii n u nd [ I S S, R, ,,\gr[xl onI,N( i l’a(ilit 111+1, ! (h~)~~ h’{lr~~~ S/~/n~/j/~)1. I;[l) 2, 1 w 1,

building an extended pipeline to the LNGfacilities, the construction of the liquefactionplants, and the related harbor and loadingfacilities. While many details must still beworked out and the financing arranged, theagreement in principle indicates serious com-mitment by both sides to the continuanceand development of the project.

Problems in U.S. participation have alsodelayed Sakhalin development. The exportlicense for drilling equipment to be suppliedby an American division of Armco was tem-porarily held up by the U.S. Department ofCommerce.38 This led to concern that Amer-ican equipment could not arrive in time forthe very short Sakhalin drilling season.After clarifications were sought by both theJapanese firm assembling the rig forSODECO and the U.S. firm, the export li-cense was reinstated. The decision was takenquickly enough so that drilling proceeded onschedule.

Other problems have been largely tech-nical, and generally related to the coldclimate and difficult terrain. The ice aroundSakhalin is so thick that drilling can only becarried out during a few months of the year,and special equipment is needed. Test rigshave been hauled out and then transportedback to Japan when the drilling season ends.Storms and difficult weather conditionshave periodically damaged equipment. Thisdoes have one bright side. Experience withdrilling offshore Sakhalin will be invaluableto the U.S.S.R. as it exploits its potential foroffshore exploration in other very cold re-gions.

The Japanese do not expect Sakhalin toever provide them with large quantities ofoil. But the hoped-for 3 million to 3.5 milliontons of LNG per year would be a significantcontribution to Japan’s LNG imports whichare expected to reach 29 million tons by1985, and 45 million tons by 1990. Sakhalingas alone could represent more than 10 per-cent of Japanese LNG imports in 1985, butit is far from certain that deliveries will begin— — —

38 Based on interview with officials from National Supply,:1 (1 i ~ Is I ( )n ( )f \ r rllc’fl I n l]:1 r[’ h I !)(< I.


so soon. If LNG makes up the expected 7.2percent of Japan’s total primary energy sup-ply in 1985, the contribution of Sakhalin gasto Japan’s overall energy supply will beminimal—less than 1 percent of total pri-mary energy in 1990 (see table 83). If Sakha-lin gas came onstream at 3.5 million tons peryear, and if Yakutian natural gas were avail-able at the projected 7 million tons per year,Japan could receive almost 24 percent of itsLNG imports from the Soviet Union in 1990.This is optimistic, however, considering thedelays that have developed at Yakutia andthe fact that the decision was only recentlymade to set up an LNG facility on Sakhalin,the financing for which must still be workedout. It seems more probable that Sakhalindevelopment will progress more quickly thanYakutian. Prospects for Soviet natural gasare fairly certain. Therefore, a respectablecontribution to Japan’s energy needs may beanticipated.

In the final analysis, the real significanceof the Sakhalin project is as a test case forjoint Japanese-Soviet development. Withthe Yakutian gas project stalled, and Si-berian coal development proceeding slowly,Sakhalin remains the brightest spot inSoviet-Japanese energy cooperation for thenext decade. For the Japanese, it offers a po-tential for diversification of energy suppliesas well as a market for equipment and tech-nology. For the Soviets, it offers a chance todevelop exploration expertise and perhapsproduction capability in offshore oil and gas.Should Sakhalin become a significant sourceof energy to Japan, the proximity of theisland to Japanese territory would certainlyheighten chances for interchange betweenSoviet and Japanese industrial and technicalpersonnel.

OTHER PROSPECTS FORJAPANESE PARTICIPATION

IN SOVIET ENERGYDEVELOPMENT

A few other areas of Japanese energytechnology assistance to the U.S.S.R. arealso worth mentioning. The Japanese

Science and Technology Agency has signedan agreement with the U.S.S.R. State Com-mittee on Science and Technology to pro-mote scientific and technical exchanges be-tween the two nations. These exchanges donot appear so far to have directly aidedenergy development. Between 1968 and1978, the U.S.S.R. sent more than 100 mis-sions to Japan under the auspices of theagreement, but only about 12 percent ofthese were even peripherally related to ener-gy.39 During the 1970’s these energy-relatedmissions visited power plants, and factoriesproducing generators and steel pipe. One re-cent Soviet delegation has studied high-voltage transmission technology, necessaryto bring power generated in Siberia to theEuropean U.S.S.R. Missions from EastEuropean nations have focused primarily onthe study of Japanese energy conservationtechniques.

Another potential area for energy tech-nology transfer between Japan and theU.S.S.R. is in nuclear power. The SovietUnion has approached Japan several timeswith requests for cooperation in this area,but although Japan and the Soviet Unionsigned a Cooperative Agreement on thePeaceful Use of Nuclear Energy in 1978,there have been few results. Initially theSoviets hoped to obtain a pressurized waterreactor which Mitsubishi manufacturesunder license from Westinghouse, but thesenegotiations never proceeded far. Exports ofnuclear reactors are controlled by CoCom,and Japan announced in 1978 that it was inprinciple willing to fabricate a nuclear reac-tor for the U. S. S. R., but only if constructionwas to Soviet design.

Japan has a large, well-integrated andtechnologically sophisticated nuclear in-dustry. There is natural interest in exportingits equipment and technology for peacefulpurposes. However, exports to other Asianneighbors are more likely than to the SovietUnion. As of 1981, the only Japanese sale tothe U.S.S.R. in the area of nuclear power pro-


duction has been a l5,000-ton press for man-ufacturing heads for atomic vessels. Thisutilized a type of manufacturing processalready well-established in the U.S.S.R.

The U.S.S.R. has offered to provide ura-nium enrichment services for Japan: Diffi-culties with the U.S. over consignment com-mitments led in 1976 to the Chairman of Kei-danren’s energy policy committee broachingthe possibility of using either French orSoviet enrichment services.40 The U.S.S.R.offered in 1977 to enrich and return Japa-nese-supplied uranium. Japan, with long-term enrichment contracts with the UnitedStates and France, would consider purchas-ing enriched uranium from the U.S.S.R. on acommercial basis, but was not interested inproviding the feedstock. Nothing more cameof this deal.

In a few instances, Japan has actually im-ported energy technology from the SovietUnion. Japanese steel companies have pur-chased Soviet technology for the treatmentof coking coal and for top furnace gas tur-bines, which have reportedly resulted insignificant energy conservation. Most ofthese transactions, however, occurred in the

— —-—40 “’SfJic>hi N1 at ~unc~, “( ;t~nshir}oku h;i[ sud(’n ni f)k(lru kaku -

nt~nr~’o ● a ik(jru no kak uritsu ni t ● u it e, ~“(~i(i({ n r(~~~ ~;(’[jpo,

f\ugu\t 19’i6, pp. r) 1 (;- 19.

late 1960’s and early 1970’s. Today perhapsthe only area in which Japanese energy ex-perts are studying Soviet techniques is inhigh voltage electricity transmission.

This overview of Japanese participation inSoviet energy development reveals cautiousparticipation on the part of Japanese firms.Joint Japanese-Soviet energy projects haveevolved slowly and unevenly. Japanesefirms, like their counterparts in the UnitedStates and Western Europe, produce equip-ment and possess technology which canassist Soviet energy development. As Japa-nese firms develop their technological exper-tise in electronics and other areas, there maybe even greater demand for their products inthe U.S.S.R. In militarily sensitive areas likenuclear power, however, the Japanese havebeen reluctant to deal with the Soviet Union.Security issues aside, Japanese businessmenhave been inclined to participate in technol-ogy trade, both because of the prospect ofexpanded worldwide energy supplies and be-cause of the potential market for Japaneseexports, although this predisposition hasbeen tempered to some extent by the chang-ing shape of international politics followingthe Soviet invasion of Afghanistan. The finalsection of this chapter briefly reviews theserecent developments in Japan’s trade andenergy relations with the Soviet Union.

RECENT DEVELOPMENTS IN JAPANESE-SOVIETRELATIONS: PROSPECTS FOR THE FUTURE

The worsening of U.S.-Soviet relationsfollowing the invasion of Afghanistan, andthe second oil crisis triggered by the suspen-sion of oil production in Iran, have provideda new context for Japan’s interactions withthe U.S.S.R. Beginning in early January,1980, when President Carter ordered sanc-tions, Japan’s policy toward the U.S.S.R.has been under review and reconsideration.American policy, as it gradually evolved, in-cluded expanded restrictions on the exportof products (such as grain and phosphoricacid used in the manufacture of fertilizer)

and of high technology, particularly com-puters, The U.S. Department of Commercewas to act on all applications to export in-dustrial technology for manufacturing oiland gas production and exploration equip-ment with a presumption of denial,41

Japan, like the West European nations,actually increased its exports to the U.S.S.R.during the period of the sanctions, although


probably not as much as would otherwisehave been the case. During 1980, Japaneseexports to the U.S.S.R. rose almost 25 per-cent over the 1979 levels. The Japanese re-sponse to the U.S.-initiated sanctions wasthus similar to that of Western Europe—lukewarm (see ch. 12). Officially, Japanesepolicy prohibited the extension of new gov-ernment credits for the U. S. S. R., and sus-pended high-level diplomatic exchanges.This effectively froze all financing throughthe Japanese Ex-Im Bank. At the privatelevel, however, trade continued unabated.

During most of 1980, those joint energyprojects already underway were continued,with no new official funding. Japan’s officialpolicy thus amounted to a kind of holdingpattern—maintaining prior commitments,but studiously avoiding their extension orthe initiation of any new ones. This policywas pursued despite the fact that the SovietUnion both warned Japan about possibleSoviet retaliation if it participated in suchsanctions,42 and invited it to join in thepipeline project designed to carry Soviet gasfrom West Siberia to Western Europe.43

By the end of 1980, Japanese businessmenwere publicly criticizing the sanctions, argu-ing that government policy disadvantagedJapanese firms vis-a-vis their competitors inWestern Europe but had no real effect onSoviet foreign policy.” Industrial leaders inJapan claimed that the sanctions accountedfor the loss of 14 plant export contractsworth some $4 billion to $5 billion. Theypointed to examples of trade lost to otherWestern nations which failed to participatein the sanctions. For example, the plannedexport of an electrical steel sheet plant bythe U.S. firm Armco International and Nip-pon Steel Corp. fell through after more than3 years of preliminary negotiations. The con-tract was awarded to the French firm

42 Asian Ii’ull Street li’c~kl?I. Itlay 12, 1980.43 "So ren Daikei Shakkan o Yosei ” ( U.S.S.R. Asks for

I.arge-Scale I.oans), Yomiuri Shimbun, Sept. 9, 1980.44A.sian llralf Street .Journui, Nov. 10, 1980; “Japan Fears

Sanctions Breakdown,” ~1’ashin~ton P().sf, Sept. 23, 1980.

Creusôt Loire.45 In other cases vacillations inU.S. policy–e.g., denying license applica-tions for Sakhalin drilling equipment andthen reinstating them,46 as well as the deci-sion to grant export licenses to the Americanfirm Caterpillar for pipelaying equipment (anitem which Japanese firms were also in-terested in selling to the Soviet Union) werecarefully noted in the Japanese press.

By the end of 1980, there were indicationsthat the Japanese government was ready torelax the measures it had imposed. It made asignificant step in approving new loans,which were reported to carry a 7.25-percentinterest rate repayable over a 5-year period,through its Ex-Im Bank for the continuationand expansion of two Siberian developmentprojects. The loans included $42.3 million forcoal development in South Yakutia, and$96.3 million for a Siberian forest resourcedevelopment project. In return, the SovietUnion committed itself to increased exportsof coking coal to Japan.47

In April 1981, the Japanese Governmentresumed official trade talks with the SovietUnion. These had been suspended, althoughthe previous bilatral trade agreement had ex-pired. Under the new trade accord, whichruns until 1985, Japan will import about 90Soviet commodities including coal and oil; inreturn the U.S.S.R. will import items in 70different categories from Japan. Anothersignal of a thaw in the trade freeze was theannouncement in late January 1981, thatagreement had been reached over the con-struction of the Sakhalin LNG facility.48 Fi-nally, additional new loans of $949 millionfor two Siberian development projects wereapproved in June 1981, evidence of the loos-ening of sanctions following the U.S. deci-sion to end the grain embargo. The bulk ofthis money is for forestry, with about $40million earmarked for coal development.49

The loans will allow the U.S.S.R. to purchase—— —-—

4r’SeetJapan [lcorlomi(tJolirnal,” Sept. 2, 1980, p. 1.“.$o(ict Business and Tra(ic, Nlay 21, 1980.4’Asian Uruil Street tJournal, Dec. 29, 1980.4H’’Nisso, I.NGka de Goi ” (tJapan and the Soviet Union

Agree on I. N(l), A’ihorz h’eizai, Jan. 28, 1981.“,k’el~’ l’orh Tim f~.s, June 11, 1981.


equipment and services from Japanesefirms.

The U.S.S.R. has also sought Japaneseparticipation in the West Siberian gas pipe-line project. At present, there are no firm in-dications of the role Japan might play, butthe Soviet Union has been calling forJapanese financing amounting to as much as$3 billion. Japan would not receive gas, butits prospects for sales of large diameter pipeand other related commodities and equip-ment are good. The Soviet Union has ap-parently approached two Japanese firms—Hitachi and Marubeni–about the possibilityof buying at least 10 gas boosters, eachworth more than $1 million, and NipponElectric Co. was reported to be consideringbidding on contracts for the central pipelinecontrol system.50 The Japanese firm Komat-su is negotiating for a sale of pipelay -ing equipment worth $1.5 million to theU.S.S.R.51 In late May 1981, press reports in-dicated that Japan’s four largest steel firmshad reached agreement with the SovietUnion to supply 750,000 metric tons of largediameter pipe over the next year. It was fur-ther reported that the Japanese Ex-Im Bankwould extend $500 million in credit for thesale. Evidently the pipe is to be supplied on aregular commercial basis, without any clearspecification that it will be used for the WestSiberian project.

All of these developments reflect signifi-cant controversy within Japan over theeconomic sanctions, and a general recon-sideration of policies toward the Soviet

——50 "Russia Said to offer one Billion I)ollar Cent ract to ,Jap-

anese F’irms, ,.1.~{arz Ii’all Stre(’t ,Jc>urnal, A p r . 2 ’ 7 , 19H 1.“IV iden, ‘1’aiw Shodan Kaiso ” ( N I+lC Begins Talks M’ith theSoYiet L[nion), ,~r[h~~rl h“(;zui, F’el). 4, 1 9 8 1 .

51 .J(l[MJ1 7’1 m(’ \, !LIa}r 20, 1981. Ther(> were $152 million in

crecfi t ~ rvport (d IJ’ ex tendecl h~ t ht’ tJ apanese (;o~’crn ment toco~’er S(j\r i{~t pure ha st~~ of plpela?er+ and hu lldozers fromKomatsu (’o. for a pip(’lint’ from (lrengc)~r, south of l’amhurgin ~$r~’st Siheria. StYJ .!’f~{ }’{~rL’ ‘J’Ifn(J\, Aug. 20, 1 9H 1.

Union during the last year and a half.Throughout most of that period officialJapanese foreign policy statements showeda chill in relations with the Soviet Union.The 1980 Foreign Ministry Blue Book, forexample, stressed the need for close alliancewith the free world in a period of growing in-ternational tensions.52 Additionally, Febru-ary 7 was designated as “Northern IslandsDay," 53 While there were apparently a varie-ty of domestic political reasons for the deci-sion to institute the new commemorativeday, the choice, as well as the rising salienceof defense issues, reflected growing concernwith East-West tension,

By mid-1981, however, signs were thatJapanese leaders were moving back to theircautious but positive approach to energyand trade with the Soviet Union. Soon afterhis appointment, Foreign Minister Sonodaannounced plans to ‘‘review’ policies towardthe Soviet Union with an eye toward renew-ing Japan’s “omnidirectional diplomacy."54

The events of the 18 months following theSoviet invasion of Afghanistan illustrate thefact that international political tensions canact as an effective brake on Japan-Sovietenergy and trade relations. Even in thepresence of such conditions, however, Japa-nese leaders tend to favor continuing coop-erative energy development. For JapanGovernment and business leaders, questionsof trade with and technology transfer to theSoviet Union are just as much energy andeconomic as they are political issues.

“Statements by Cabinet SecretarJ NI i~’azawa, ‘‘(’aut ionNecessar?’ About th(~ %~iet IJnion, ” }’(jmil~rl Shim hu n, Sept.12, 1980.

“”( I Ioppo Ryodo }’oron Lloriag(’ (J$’hipping (Jp I’uhlicopinion Ahout the Northern Islands), .4’/ h~~n A’cizal .Shim /)//nJan, 6, 1981); “Kono Koe Todoke Iloppo Ryodo ” (NorthernIslands Campaign), A’/hon Kcizai Shimhun, ,Jan. 23, 1981.

““’’ l’aiso Seizai Rosen o Shussen’” (Toward a Re~rision ofS a n c t i o n s o n T r a d e W’ith the Sotriet IJnion), .l’ih(~n h’eizai.Shimhun, hlay 21, 19811, p. 2,



This overview of past patterns of interac-tion between Japan and the Soviet Union, aswell as recent developments during theperiod of economic sanctions following theinvasion of Afghanistan, leads to the conclu-sion that Japan will probably continue topursue a positive approach to energy rela-tions with the Soviet Union. Available dataindicate that it is unlikely that Japan willbecome very dependent on the Soviet Unionfor energy in the next decade—even if all theprojects currently underway come to frui-tion. Table 83 shows projections forJapanese imports of Soviet energy as apercentage of the nation’s total energy im-ports, and total primary energy supply. IfJapan imports 6.5 million tons of coal fromSouth Yakutia, and if other Soviet fuelssuch as gas from Sakhalin are available asplanned, the Soviet Union will still supplyonly about 3 percent of Japan’s total energyimports, and about 2.2 percent of the na-tion’s total primary energy. The only sectorin which Soviet energy would be of morethan marginal significance is gas, where itcould account for nearly one-quarter ofJapanese imports by 1990. Even this, how-ever, is a relatively small portion of totalJapanese energy requirements. Thus, in con-trast to some West European countries,Japan does not risk any significant degree of“energy dependence” on the U.S.S.R.

While it is unlikely that Japan will becomevery dependent on Soviet energy in the yearsahead, it is certain that Japan will remain avery important supplier of energy-relatedequipment to the Soviet Union. Japan’sunique geographical proximity to the EastSiberian energy development projects en-sures a continuing Japanese role in Siberianenergy development. Over the last 5 years,

Japan has ranked first among all Westernnations as an exporter of such equipment tothe U.S.S.R. A few industrial sectors play adominant role in this trade–and Japanesebusiness leaders from those sectors havetraditionally taken the lead in trade negotia-tions with the U.S.S.R. In the last analysis,Japan may be much more important as asupplier of energy-related equipment to theSoviet Union than the U.S.S.R. is to the con-tinued dynamism of Japanese trade world-wide. Japan’s energy-related exports to theU.S.S.R. make up only a tiny portion of totalJapanese exports to all nations worldwide,but Japan is the largest supplier in dollarvalue of energy equipment to the U.S.S.R.Any policies aimed at affecting the volumeor nature of Western energy-related exportsto the U.S.S.R. must necessarily take intoconsideration the role of Japan.

When the variety of economic, energy, andpolitical factors influencing Japanese-Sovietenergy relations are weighed, the result is ageneral Japanese orientation that favors ex-panded energy and trade interaction. Thepotential gains—in increased exports, diver-sified energy supplies, and political signalsto Moscow that Japan is committed topeaceful coexistence in Asia—appear nor-mally to outweigh the persisting politicaldisputes and the technical and financial con-straints on joint energy development effortswith the Soviet Union. Only under extra-ordinary circumstances would Japaneseleaders support proposals for a policy of em-bargo or leverage against the U.S.S.R. Fromthe Japanese perspective, the benefits of ex-panded but limited energy and trade rela-tions with the Soviet Union clearly counter-balance the potential risks.

CHAPTER 12

West European-SovietEnergy Relations

CONTENTS

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......352

WEST GERMANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...355

Energy Cooperation Between West Germany and the U.S.S.R.. . ..........355FRG-Soviet Energy Trade, 1970-80. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....357

FRANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ..361

Energy Cooperation Between France and the U.S.S.R.. . ................361Franco-Soviet Energy Trade, 1970-80. . . . . ........... . . . . . .....362

ITALY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363

Energy Cooperation Between Italy and the U.S.S.R.. . . .... . . . . . . . . . ....364Italian-Soviet Energy Trade, 1970-80. . . . . . . . . . . . . . . . . . . . . . . . . . ......364

UNITED KINGDOM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ...367

Energy Cooperation Between Britain and the U.S.S.R.. . . . . . . . . . . . . . . ..,368British-Soviet Energy Trade, 1970-80. .., . ........ . . . . . . . . . . . . . . . . . . .369Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..369

FUTURE PROSPECTS FOR ENERGY INTERDEPENDENCE:THE WEST SIBERIAN GAS PIPELINE PROJECT. ... , . .........370

West European Policy Perspectives.. . . . . . . . . . . . . . . . . . . . . . . . . ........373Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..........378Prospects for West European Policy Coordination. . .... . . . . . . . . . . . . . . ..378

CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........380

LIST OF TABLES

Table No. Page

84. Western Trade With the CMEA–1979 . . . . . . . . . . . . . . . . . . . . . . . . ....35385. Western European Energy Dependence, 1979. . . . . . . . . . . . . . . . . . .....35486. Federal Republic of Germany-Energy Balance, 1979 , . . . . ... . . ......35687. France’s Energy Balance, 1979. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ....36288. Italy’s Energy Balance, 1979.... . .... . .. . . . . . . . . . . . . . . . . ....,,..36789. United Kingdom Energy Balance, 1979 .... . . . . . . . . . . . . . . . . . . . .....368

LIST OF FIGURES

Figure No. Page29. West European Energy Imports From U.S.S.R. and World–1979 .. ....35530. Gas Pipeline Feeding Western Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . ..359

CHAPTER 12

West European-Soviet EnergyRelations

In Western Europe, growing energy in-terdependence with the Council for MutualEconomic Assistance (CMEA)–the Com-munist world equivalent of the CommonMarket–is a fact of life. It is generallyviewed as a natural and desirable extensionof historic trade patterns, which is not dis-advantageous so long as it is kept withinprudent bounds. Evaluations of what consti-tutes a “reasonable” or “dangerous” level ofEast-West interdependence hinge on a vari-ety of factors, including the availability ofalternative export markets and energy sup-ply sources. Controversy over West Euro-pean-CMEA energy relations has grownamong observers—primarily on this sideof the Atlantic—who weigh these factorsdifferently.

This chapter explores the dimensions ofWest European energy relations with

CMEA, and particularly with the SovietUnion. It focuses on four Western nations—the Federal Republic of Germany (FRG orWest Germany), France, Italy, and theUnited Kingdom (U.K.), examining first pasttrends in both energy-related equipment ex-ports to, and energy commodity importsfrom, the U.S.S.R. The chapter then turns tothe proposed West Siberian gas export pipe-line, the controversial project which will sig-nificantly increase Soviet gas exports tomuch of Western Europe. “Yamburg,” thepopular name for this project, which willtransport gas initially from the Urengoyfield in West Siberia, is used here to il-luminate the differing perspectives of theseWestern nations on increasing East-Westtrade and energy interdependence, includingthe costs and benefits associated with suchinterdependence.

351


INTRODUCTIONTrade between Western Europe and

CMEA constitutes a relatively small, butgrowing, part of Western Europe’s world-wide trade. Between 1972 and 1978, thepercentage of European Economic Com-munity (EEC) exports that went to CMEAgrew from 2.9 to 3.7 percent. Similarly, com-modities from the CMEA constituted 2.9percent of EEC imports in 1972. These in-creased to 3.2 percent in 1978.1 Energy andenergy-related equipment and technologyhave made up an important portion of thistrade.

Western Europe has been importing en-ergy from CMEA for decades, but during thecourse of the last 10 years these imports—particularly those from the U.S.S.R.–havegrown. Exports of Soviet oil to WesternEurope rose from a level of 33.8 millionmetric tons (mmt) or 0.678 million barrelsper day (mbd) in 1971 to 54.8 mmt (1.1 mbd)in 1979.2 While exports of coal from theSoviet Union to Western Europe fell duringthe same period, gas exports grew exponen-tially from 0.005 to 0.06 billion cubic meters(bcm) per day.3 In 1980, Soviet gas exportsto the region were estimated at 24.5 bcm.4

This is the equivalent of 20 million tons of oilequivalent per year (mtoe/yr) or 0.40 millionbarrels per day of oil equivalent (mbdoe). In

1 International Monetary Fund, I)irf’ction of Tr(l(if~ Year-

/)()()/l, 1979. pp. 60-61.‘Central 1 nt,elli~ence A~enc~, I n tc~rnationul Energ>’

,Stuti.sticu/ Hc[ic’u, E;li I h;SR 81-003, Mar. 31, 1981, p. 25.(Wrestern P:urope here is defined as France, 1 taly, Finland, theNet herlands, Italy, Sweden, and West Germany. )

‘Coal exports to EEC from the U.S.S.R. fell from 448,000metric tons in 1970 to 3,’700 in 1975, and to 2,800 in 1979.Data for 1970 and 1975 is from Soviet trade statistics. After1976, however, Soviet data records coal exports in ruble valuerather than in volumes. Data for 1979 come from Business In-formation Display, World Energy Industry, vol. 1, No. 3, firstquarter, 1980, p. 195. It should also be noted that coal im-ports to EEC from Poland rose substantially until recentmonths, In 1979 EEC imported 15 mmt of hard coal fromI’eland (out of total hard coal imports of 81 mmt). During thesa m{) year, howe~’er, 1 ~ mmt of hard coal were exported b~’P;l+;(’. I hid., p. 313.

I)ata o n g a s e x p o r t s f r o m lhid., p. 26. I let-e, W’esternFlurope consists of Austria, Finland, F’rance, 1 tal?’, and Wrest( ;erman~’.

‘tJonat h a n P. S t e rn , ,S(~( i(~t .N’(1 tur(~l (;(1.s I)f’[ ‘f’loprncn t to

I$)$M) (}~’ashington, IJ.C’,: heath, 1980), p. ~~~~.

short, energy trade between the CMEA andWestern Europe has been one of the mostdynamic sectors of East-West trade duringthe last decade.

These trends are even more striking whenthe energy situation of Western Europe iscompared with that of Eastern Europe.Western Europe’s dependence on importedenergy is more than twice as high (54 per-cent) as that of Eastern Europe (23 per-cent) (see ch. 9). Despite the fact thatWestern Europe’s overall dependence on im-ported energy has declined since the first oilcrisis in 1973-74, imports of energy from theSoviet Union have been increasing.

Total Western exports to CMEA havealso increased over the last decade. His-torically, Western Europe’s exports toCMEA, unlike those of the United States,have been heavily concentrated in industrialgoods. Energy-related equipment and tech-nology have been an important part of thistrade. As was shown in chapter 6, theU.S.S.R.’s largest Western supplier of en-ergy-related technology and equipment hasbeen Japan, but West Germany is a closesecond. Between 1975 and 1979, Japan cap-tured nearly 29 percent of this market; WestGermany, 28 percent; Italy, 15.7 percent;France, 13 percent; the United States, 8 per-cent; and the United Kingdom, 0.2 percent.

Moreover, as table 1 demonstrates, theseenergy-related items constituted over one-third of Italy’s exports to the U. S. S. R.,about one-quarter of France and West Ger-many’s and 10 percent of Britain ’s. Thus,while overall trade between Western Europeand CMEA remains a relatively small part ofWestern Europe’s worldwide exports, en-ergy equipment and technology make up asignificant part of those exports which do goto the U. S. S. R..

There is disagreement about the sig-nificance of West European energy and in-dustrial trade with the Soviet Union. on theone hand, proponents of interdependence

—

Ch. 12— West European-Soviet Energy Relations ● 353

Table 84.—Western Trade With the CMEA—1979 (million U.S. dollars)

A. Energy-related exports to U.S.S.R. (see table 1)B . T o t a l e x p o r t s t o U . S . S . R .

A/B . . . . . . . . . ... . . . . . . .C . T o t a l e x p o r t s t o C M E A - 6 + U . S . S . R . .D. Total exports to world . . . . . . . . . . .

C/D . . . .

U n i t e dStates

2373,6076.5%5,672

181,8013.1%

West UnitedJapan France Germany Italy Kingdom

1,097 474 906 408 902,442 2,005 3,619 1,217 889

44.9% 23.6% 25.0% 33.5% 10.1%3,243 4.028 11,270 2,633 2.059

102,802 97,981 174,092 72,123 90,8103.1% 4.1% 6.4% 3.6% 2.2%

SOURCE Ch 6 and OECD Statistics of Foreign Trade

argue that growing trade and energy rela-tions between the East and West should beencouraged. Adherents of this position in allmajor political parties in Western Europeadvance both economic and political reasonsfor such interdependence being ultimatelybeneficial to both sides. Economically, it con-tributes to expanded energy supplies andproduces new trade opportunities. The coun-tries of Western Europe need imported en-ergy and, perhaps even more importantly,wish to export, particularly steel pipe.Politically, such trade is expected to lock theU.S.S.R. into long-term economic relation-ships which will give it a stake in maintain-ing the political status quo and increase thechances of its moderating its policies—toward Berlin, for instance.

On the other side, critics of interdepend-ence fear it will lead to heightened reliance ofWestern countries on the Soviet Union forboth energy and export markets, renderingthese nations more susceptible to pressuresfrom the East. The inevitable result as eco-nomic ties are strengthened becomes the“Finlandization” of Europe—i.e., the mod-eration of West European policy to placateSoviet demands.

These opposing views provide the founda-tion for dramatically different policy pro-posals, one aimed at promoting expanded in-teraction and the other at controlling it. Aprime example of such policy disputes hasbeen the controversy over the proposed5,000-km natural gas pipeline, which wouldbring 40 to 70 bcm of gas (32.9 to 57.3 mtoeor 0.66 to 1.15 mbdoe) annually from SovietWest Siberia to Western Europe. This proj-ect is the largest and most recent in a series

of gas deals between the U.S.S.R. and West-ern Europe. It could more than double thepresent level of imports (24.5 bcm). ForWestern Europe, the proposed pipeline of-fers prospects for significantly expanded gassupplies, as well as for exports of energy-related equipment and technology. At thesame time, however, the deal would meanthat Western Europe’s dependence on Sovi-et energy would increase.

Assessing either the economic benefit toWestern Europe or the potential degree ofdependency which this project raises ishampered by both practical and conceptualproblems. The most fundamental of these isthat much of the readily available energytrade data have not been standardized toallow analysis of CMEA-West Europe flows.Since 1976, for instance, the Soviet Unionhas recorded only the ruble value–not thevolumes—of energy exports.

Policy debate about interdependence isalso confounded by definitional issues.“Western Europe” is sometimes used as ashorthand for any of a variety of multilateralorganizations: the European Economic Com-munity (EEC), the Organization for Eco-nomic Cooperation and Development(OECD), the International Energy Agency(IEA), or the Economic Commission forEurope (ECE–part of the United Nations).Each of this confusing array of organiza-tions has a slightly different list of members.In 1979, for example, Soviet oil accountedfor 7.2 percent of all oil and oil product im-ports by the European OECD, and of 6.7 per-cent of such imports by the EEC. During thesame year, Soviet oil provided 0.2 percent of


all oil imported by the total OECD member-ship (which includes the United States, Ja-pan, and their nations).’ Similarly, the mag-nitude of Communist world coal exportschanges, depending on whether one includesexports from Poland. If West German im-

ports of Polish hard coal are added to thosefrom the Soviet Union, its dependence onCMEA coal in 1979 rises from 2.4 to almost30 percent of total coal imports.

There are also different ways to calculate“energy dependence.” It can be seen fromtable 85 and figure 29 that, except in thecase of Italy, levels of dependence are higher

Table 85.—Western Energy Dependence, 1979(million tons of oil equivalent)

Geothermal,Oil and oil hydro and importedproducts Gas Hard coal Nuclear electricity Total energy

Federal Republic of Germany

A. Total energy requirementsB. Total energy imports from

world . . . . . . . . . . . . . . . . . . . . . . . . . .C. Total imports, from U.S.S.R.D. Imports from U.S.S.R. percent of

total imports . . . . . . . . . . . . . . . . . .E. Imports from USSR as percent of

total energy requirements . . . . . .

France

A. Total energy requirements . . . . . . .B. Total energy imports from

world . . . . . . . . . . . . . . . . . . . . . . . . . .C. Total imports from U.S.S.R. . . . . . .D. Imports from U.S.S.R, as percent of

total imports . . . . . . . . . . . . . . . . . .E. Imports from U.S.S.R. as percent of

total energy requirements

ltaly b


world . . . . . . . . . . . . . . . . . . . . . . . . . .C. Total imports from U.S.S.R. . . . . . .D. Imports from U.S.S.R. as percent of

total imports . . . . . . . . . . . . . . . . . .E. Imports from U.S.S.R, as percent of

total energy requirements . . . . .

United Kingdom


world . . . . . . . . . . . . . . . . . . . . . . . . . .C. Total imports from U.S.S.R. . . . . . .D. Imports from U.S.S.R, as percent of

total importsE. Imports from U.S.S.R, as percent of

total energy requirements . . . . .

145,4

150.89.3

6.20/o

6.40/o

117.8

139.16.5

4.7%

5.5%

93.4

120.96.8

5.6%

7.2%

90.3

70.42.9

4.1 %

3.2%

49,6

33.58.0

23.9%

16.1%

22.7

16.11.6

9.9%

7.4%

24.1

13.25.7

43.2%

23.7%

43.2

8.2—

—

—

833

6.001

1 .7%

.1%

34.2

20.20.5

2.5%

1.5%

10.6

9.10.6

6.6%

5.7%

87.2

3.0—

—

—

3.4

——

—

1.6

——

—

——

3.2

——

7.0

1.4—

—

——

0.2

——

4,2

0.6—

——

—

2.8

—

—

0.5

———

——

— .

283.3

190.317.4

9.190

6.1 ‘/0

184.9

176.88.6

4.9%

4.7%

132.5

143.813.1

9.1 %

9.9%

224.0

81.62.9

3.6%

1.3%

aTotal energy requirements IS similar but not Identical to apparent consumption — observed consumption data IS used where available for coal and natural gas. Otherwiserequirements are computed by the following formula domestic primary production + imports - exports international bunkers - inventory changes Total energyrequirements are computed only if inclusive of all commodities (oil, gas, coal, primary electric power and net electricity imports) "Other EIectricity" includes net electricityImports Graphs of total energy requirements do not account for Inventory changes if production and import data are separated.b Italy reexports Imported energy

SOURCE Business Information Display World Energy Industry Vol 2 No 3 First Quarter 1980 Petroleurn Economlst Natural Gas Across Frontiers, December 1980,Petroleurn Intelligence Week/y July 21 1980

Ch. 12— West European-Soviet Energy Relations • 355— —

Figure 29.—West European Energy Imports From U.S.S.R. and World—1979(million tons of oil equivalent)

Percent imports from U.S.S.R.as part of total imports

Percent imports from U. S.S.Ras part of total

FederalRepublicGermany

France

Italya

UnitedKingdom

9.1%

4.9%

9.1%

3.6%

6.1%190.3 Total energy “

imports

importsfrom U.S.S.R.

176.8 Total energy imports

from U.S.S.R.

132.5 Total energy requirements

143.8 Total energy imports

13.1 Energyimportsfrom U.S.S.R.

. . . Total energy requirementsI

Importsfrom U.S.S.R.

a Italy reexports Imported energy

SOURCE Table 85

if one looks at Soviet energy imports as apercentage of all energy imports to each na-tion (fig. 29) than if one looks at energy im-ports as a percentage of a nation’s totalenergy requirements (table 85). Italy pur-chased 43 percent of its imported gas fromthe U.S.S.R. in 1979, but the Soviet Unionprovided less than 10 percent of the total

9.9%

1.3%

energy that Italy apparently consumed. Thedata thus provide no unambiguous indi-cators of levels of risk or dependence. In-dividuals make risk assessments based ontheir perceptions of vulnerability and theirjudgments about energy supply alter-natives—factors which cannot be preciselymeasured.

WEST GERMANY

Over the past decade, West Germany has E N E R G Y C O O P E R A T I O Nbecome a major Western supplier of energy BETWEEN WEST GERMANYequipment to the U.S.S.R. Meanwhile, theSoviet Union has become a major source of

AND THE U.S.S.R.

natural gas for West Germany, and for polit- There are three important explanationsical and economic reasons, Bonn is officially for West Germany’s interest in energycommitted to greater energy interdepend- cooperations with the U.S.S.R. These relateence with CM EA. The following sections to the energy, economic, and political realms.outline past and present patterns in West First, and perhaps most important, WestGerman energy and trade relations with the Germany imports 67 percent of its energy,U. S. S. R.. and is anxious to diversify sources of energy


supply (see table 86). In 1979, 51 percent ofthe FRG’s total energy requirements camefrom oil; 29 percent from coal; 17 percentfrom gas; and less than 2 percent fromnuclear and other energy sources. Eventhough West Germany produced nearly allof the coal and more than a third of thenatural gas it consumed in 1979, it remaineddependent on imports for 96 percent of its oiland 62 percent of its natural gas.6

Official government energy forecastsshow West German oil imports remaininglevel and thus declining in importance withinthe overall energy balance during the nextdecade. These plans require a doubling innuclear power production between 1979 and1984, and a quadrupling over the decade.7

Although politicians from all three partieshave expressed support for nuclear power,opposition from the left wing of the SocialDemocratic Party (SPD), segments of theFree Democratic Party (FDP), and variousenvironmental groups has slowed construc-tion of additional nuclear power plants. Oilwill also be replaced with natural gas andcoal, augmented by intensified conservationmeasures.

Soviet energy-particularly natural gas—offers an alternative for West German

6 Jochen Bethkenhagen, ‘“l+; nergy Policy of the F e d e r a lRepuhlic of Germany, ” paper presented at the NAT() Collo-quium, 1980, p. 11.

7 ’(; erman~’,” in Internat ional k: nergy Agenc~’ (I FJA),b;nerg,v Polici(’.s ar)(l Pro<r(lfnrne. v of IZ+,’A f ‘()//n t ri(’.s ( Paris:OP;C’1), 1980), pp. 115-121.

Table 86.—Federal Republic of

Oil

energy planners anxious to reduce de-pendence on Middle East oil. Currently WestGermany imports the bulk of its natural gasfrom the Netherlands; the Soviet Union isthe second-largest supplier, and Norway thethird. As figure 29 shows, energy importsfrom the Soviet Union made up 9 percent ofWest Germany’s total energy imports in1979 and 6.1 percent of its total energy re-quirements.

The second reason for West German in-terest in energy relations with CMEA is thatthe FRG depends on foreign trade for 30 per-cent of its gross national product (GNP).West Germany is the U.S.S.R. most impor-tant Western supplier of machinery andequipment, especially chemical equipment,and the largest supplier of high technology.8

West German exports to the U. S. S. R., likethose of Japan, are concentrated in a fewkey industries. Between 1973 and 1979, halfof its large-diameter pipe exports went to theU. S. S. R.; indeed, pipe exports were thelargest single export item in West German-Soviet trade during the period.’ Moreover,specific firms are strongly involved in East-West trade. The giant steel firm Mannes-mann exports 60 percent of its total produc-

8 John Young, ‘Quantification of Western Exports of High‘1’echnolog~r Products to Communist Nations’ (Washington,1). C,: U.S. Department of’ Commerce, 1 977).

“Deutsches Institut F u r W’irtschaftsforschung, ~l’(whcn-bericht, No. 15 (Berlin, 1980). h~xports of large-diameter pipem a d e u p 12 percent of al l W’cst (lerman exports to theU.S.S.R. during that period.

Germany—Energy Balance, 1979

Geothermalhydro and Imported

Gas Coal Nuclear electricity—

Total energy requirements

51 3% 17.5% 29.4% 1.2% .6%283.3 MTOE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1454 4 9 6 8 3 3 3 4 1 6

Energy imports:–-as percent of total energy requirements 53.2% 11.8% 2.1%190.3 MTOE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150.8 33.5 6 0

Energy exports17.2 MTOE . . . . . . . . . . . . . . . . . . . .

—SOURCE Business lnformation Display op cit.

tion of large-diameter pipe to the U. S. S. R.;Salzgitter, the other large West Germansteel producer, sells 40 percent of steel ex-ports to CMEA nations. Thus, while East-West trade represents only a small portion ofFRG’s total worldwide trade, in energy-related equipment, trade with the SovietUnion is disproportionately significant.Some experts estimate that 92,000 WestGerman jobs are dependent on trade withthe Soviet Union, and 220,000 on trade withCMEA.10

The third dimension of West German-CMEA energy interdependence is political.The ruling SPD-FDP Party coalition official-ly supports East-West trade as an incentivefor detente and as a basis for long-termpolitical interdependence which reduces thelikelihood of conflict between East andWest.11 The West German Government has,moreover, specifically stated that it is in theinterest of the West to assist the U.S.S.R, indeveloping its natural resources,12 The 1978Soviet-West German economic cooperationagreement contains a section committingboth sides to cooperate in joint energydevelopment, and in May 1980, officialspokesmen from the two nations agreed tointensify such efforts. Support for this posi-tion, among businessmen and others, iswidespread.

F R G - S O V I E T E N E R G Y T R A D E ,1 9 7 0 - 8 0

FRG Equipment and TechnologyExports

The FRG has been exporting energy-related equipment to the Soviet Union formore than 30 years, very often as part ofcompensation deals in which the exports arepaid for in other goods or commodities. In re-cent years, a pattern of growing equipmentexports linked to increasing imports of

Ch. 12—West European-Soviet Energy Relations • 357

Soviet energy has evolved. The greater partof FRG exports has been in pipe, compressorstations, and pumps for pipelines. Addi-tionally, West German firms have suppliedequipment for petrochemical plants in theCMEA region. Added together, these cat-egories of energy-related exports make upabout 25 percent of all West German exportsto CMEA (see table 84).

West German energy equipment tradewith the U.S.S.R. first came to prominencein 1963, when three large West German steelcompanies signed a contract to supply theU.S.S.R. with 163,000 tons of 40-inch steelpipe, valued at $28 million. In November1962, a North Atlantic Treaty Organization(NATO) resolution, passed at U.S. initiative,embargoed all sales of large-diameter pipe tothe Soviet Union. The intention of theUnited States was to impede the completionof the Friendship oil pipeline from theU.S.S.R. to Eastern Europe. While the gov-ernments of some other West European na-tions refused to cooperate, the FRG com-pelled its firms to cancel their contracts.This understandably provoked considerableoutcry from the West German business com-munity. One company, Phoenix-Rheinrohr,was forced to close one of its plants, andothers suffered substantial financial lossesand were forced to cut back capacity.

Since the United States did not have asgreat political leverage over its other alliesas it did over Bonn at the time, it was unableto prevent Great Britain, Italy, or Japan(which was not a member of NATO) fromselling similar pipe. Ultimately, the U.S.S.R.found alternative suppliers and completionof the pipeline was delayed by only 1 year,Moreover, many contend today that the em-bargo forced the U.S.S.R, to develop its ownpipemaking capability. This episode stillrankles. West German leaders still recount itand regard it as misguided.13 It remains animportant event in the shaping of West Ger-man opinion on the utility of economic sanc-

13 Angela E. Stent, From Embargo to Ostpolitik: The Politi-cal Economy of West German-So uiet Reh tions, 195.5-1.%0(New York: Cambridge University Press, 1981), ch. 5.

358 ● Technology and Soviet Energy Availability—— —

tions and the ineffectiveness of such sanc-tions in preventing the acquisition oftechnical capabilities in the U.S.S.R. Sincethen, pipeline equipment has played an in-creasingly important role in West German-Soviet trade.

In 1969, 3 years after the NATO embargowas lifted, the U.S.S.R. concluded a $25 mil-lion contract with the West German firmThyssen for joint construction of pipe- mak-ing factories in the U.S.S.R. and the FRG.The pipes were used to transport gas fromthe Soviet Union to Eastern Europe. Thiscontract marked the beginning of intensifiedWest German exports of energy- relatedequipment to the U.S.S.R.

The first major exchange of West Germanequipment for Soviet energy was arranged inFebruary 1970. West German banks, steel,and gas firms were all involved in the deal,which provided for the sale of 1.2 milliontons of pipe, worth $400 million, as well as in-creased imports of natural gas. A con-sortium of 17 West German banks under theleadership of the Deutsche Bank suppliedthe credits at an undisclosed, but reportedlyvery favorable, rate of interest. By charginghigh prices for the pipe they sold, steel firmswere evidently able to help to compensatethe banks for losses suffered in interest ratecharges. This deal assisted the ailing WestGerman steel industry, which, as notedabove, is highly dependent on foreign trade.The exchange was viewed as a success byboth sides; it was followed by similar con-tracts for West German pipe arranged in1972 and 1974.

Another important gas project was the“triangular” West European-Soviet-Irancontract signed in 1975. Here, West Euro-pean equipment was sold to Iran, Iraniangas to the Soviet Union, and Soviet gas toWestern Europe. In 1977, the deal wasenlarged to include construction of theIGAT-II, a 1,440-km pipeline designed tocarry gas from fields in southern Iran to thetown of Astara on the Soviet border (see fig.30). France, West Germany, and Austriawere scheduled to receive a combined total of

11 bcm of this gas in exchange for suppliesof equipment and cash.14 The project hasnow been abandoned.

West German firms also took a leadingrole in the Orenburg pipeline project. The2,750-km Orenburg or “Soyuz” pipeline is ajoint project involving the U.S.S.R. and theCMEA-6, which will supply the bulk of addi-tional Soviet gas exports to Eastern Europeover the next decade. After only 2½ years ofconstruction, the pipeline was completed onschedule in 1978, and heralded as a prime ex-ample of CMEA cooperation. West Germanfirms such as Mannesmann supplied pipeand other ancillary equipment, includingdrill pipe, casing, and equipment for 22 com-pressor stations. Japanese, French, Ameri-can, and Italian companies were also in-volved.

The possibility of exporting West Germanequipment for Soviet nuclear power stationshas been under discussion for some years.One project, initially discussed by theU.S.S.R. and the FRG in 1975, eventuallyfell through. The German Kraftwerkunionwas to construct a 1,200-MW nuclear power-plant at Kaliningrad in the U.S.S.R. at a costof $600 million. One major point of conten-tion was the West German stipulation thatsome of the power produced by the plantshould supply West Berlin. West Berlin’senergy situation is precarious—the city isnot connected to the electrical grids of eitherEast or West Germany. The project failed,not only because the Soviets asked a veryhigh price for the electricity, but alsobecause East Germany objected to trans-mitting electricity to West Berlin.15 SomeWest German firms have supplied equip-ment for Soviet powerplants, and while dis-cussions of prospects for new projects sur-face periodically, FRG Government spokes-men say that there is little likelihood ofWest German nuclear plant exports to theU.S.S.R. in the immediate future.

14 Stern, op. cit., p. 79.15 Walter B. Smith, “Securing Energy for West Germany

and West Berlin, ” paper presented at Department of StateExecutive Seminar on National and International Affairs,1978-79, pp. 13-15.

.

u0

.,. ”. ,

1 ?,

‘,

<

alc.-

.- .

cc

,4*,’*,,

/

I

z

:,.,,

a


FRG Energy ImportsImports of Soviet oil and natural gas to

West Germany have grown steadily over thelast decade, and have become increasinglysignificant in the FRG’s energy balance.Soviet exports of crude oil and products tothe FRG rose from 6.6 mmt in 1972 to 9.3mmt in 1979,16 about 0.187 mbd or 6.2 per-cent of total oil consumption17 (see table 85).However, the West German Government iscognizant of the declining rate of growth ofSoviet oil production and is not expecting itslevel of Soviet oil imports to significantly in-crease.

Clearly the most promising area for poten-tial Soviet hydrocarbon imports is naturalgas. When the first gas-pipe contract wassigned in 1970, the Soviet trading companySoyuzneftexport agreed to supply GermanRuhrgas with 51.5 bcm of gas (equal to 41.8mtoe) over a 20-year period beginning in1973. Soviet gas began to flow into Bavariain 1973. Subsequent deals have increasedsupplies from the Soviet Union to West Ger-many. Between 1974 and 1979 West Germannatural gas imports from the U.S.S.R. havegrown from 2.1 to 9.8 bcm/yr (9.8 bcm isabout 8.0 mtoe/yr or 0.16 mbdoe).18 As table85 shows, this represented about 24 percentof all West German gas imports and about16 percent of gas consumed in 1979. HadIGAT II come on line as projected, WestGermany might have been receiving an addi-tional 5.7 bcm of gas from the U.S.S.R. Im-ports of Soviet gas have thus become a sig-nificant part of West Germany’s gas im-ports.

Soviet gas supplies have been relativelydependable. In 1979, however, deliverieswere reduced by as much as 25 percent dueto technical problems accompanying a verysevere winter. Those living in Bavaria, the

“Marshall Goldman, The Enigma of Soviet Petroleum(Boston: George Allen & Unwin, 1980), p. 64.

17“l’he 1979 imports from the total Chl EA region to theFR(; made up 8 percent of (Ierman oil consumption. See /~er

Ileut.sche ().sthandel 1980, p. 19.InU. S. Department of Energy, 11’orld ,h’atural (iu.s l~~W and

P e t r o l e u m ~~conomist, N’a tural (;(Is Across F’ron tiers, De-cember 1980.

region primarily supplied by Soviet gas,have apparently not been adversely affectedby these supply cuts due to substitution ofgas from other parts of West Germany. ’gThe impact of any future cuts will dependnot only on the region involved, but thenature of the consumer (industry or residen-tial), the time of year and available storagefacilities.

West Germany also imports CMEA coal,particularly from Poland. In 1979, the FRGimported 2.4 mmt of hard coal (1.65 mtoe or0.03 mbdoe) from Poland and 0.210 mmtfrom the Soviet Union. Together theseamounted to 30 percent of all coal imports,or about 2.1 percent of West German coal re-quirements for the year.20 The FRG also im-ports substantial amounts of brown coal(lignite) from Eastern Europe, and the WestGerman and Polish governments are jointlysupporting a coal gasification projectscheduled to produce nearly 1 bcm/yr of gasby 1983. In addition, 55 percent of theuranium used in West German nuclearplants is enriched in the U. S. S. R.21

In sum, while West Germany’s oil importsfrom the U.S.S.R. are expected to decline,natural gas imports are expected to rise,perhaps doubling in volume by the end of thedecade.22 There appears to be little likelihoodof expanded imports of coal from Poland;Polish coal exports to Western Europe de-clined dramatically in 1980 due to falteringproduction. 23 Overall, the FRG now importsabout 6.1 percent of all the energy it usesfrom the Soviet Union; this represents about9.1 percent of its total energy imports (seetable 85). This level of dependence is sig-nificantly higher than that of Japan, for ex-ample, but still much lower than the FRG’sdependence on OPEC oil (about 60 percent).—. —.—

19 Interview with Ruhrgas spokesman.20 Workd Enprgy Industr?t, op. cit., p. 7 8 .“IlqrIleut.schc ().sthandel, 1980.“Stern, op. cit., p. 105.‘‘A’efI Yorh Times, May ’21, 1981, p. 1, Business Section.

“Y$restern governments and banks alike are concerned that inrecent months the Soviet Union has been receiving a growingproportion of Poland’s faltering coal production, always con-sidered the country best collateral, L$’hile the P1’est used toget two out of every 3 tons of coal shipped out of Poland, itnow receives only about half, bankers say,

Ch. 12— West European-Soviet Energy Relations ● 361— .

FRANCE

Like the Federal Republic of Germany,France has been interested in promotinggreater interdependence with the Sovietbloc. Since the Presidency of General deGaulle, French leaders have sought to main-tain a foreign policy stance distinct fromthat of the United States. In addition, pur-suit of detente with the Soviet Union haslong been a major policy goal.

French energy-related interaction with theSoviet Union is, however, tempered by twofactors. First, while France’s dependence onimported energy is much higher than that ofthe FRG, French energy planners have inthe past committed themselves to a very am-bitious nuclear power program. The fate ofthis program has now been called into ques-tion as the new Mitterrand government hasplaced a moratorium on new nuclear reactorconstruction, but if targets were met, nu-clear power, which made up only a minisculeportion of total energy requirements in the1970’s, would provide 30 percent of totalenergy by the year 1990. This has now beenscaled down to 21 percent.24 (See tables 86and 87 for a comparison of French and WestGerman energy balances in 1979.) Even thiswould minimize—theoretically at least—theneed to seek alternative foreign energy sup-pliers. Secondly, French political relationswith the U.S.S.R. have not been as sensitiveor complicated as those of West Germany.There is no French Berlin; nor are Soviettroops stationed on French borders.

ENERGY COOPERATIONBETWEEN FRANCEAND THE U.S.S.R.

French energy relations with CMEA are,like those of West Germany, informed byenergy policy, more general economic, andpolitical concerns, France is seeking tochange its energy balance so as to reduce itsdependence on imported oil. In 1979, 63.8

percent of France’s total energy require-ments were provided by oil (crude and prod-ucts); 12.3 percent by gas; 18.6 percent bycoal; and about 5.3 percent by nuclear, hy-dropower, and other sources. At the time ofthe first oil shock, only Italy among the EECnations had a higher oil dependence. Sincethat time French energy policy has operatedwith the assumption that such dependencecreates national security risks. Hence its em-phasis on nuclear power.

France has a tradition of strong state in-tervention in the economy, which has pro-vided a supportive context for strong guid-ance of energy industries.25 There are virtualstate monopolies in electricity supply, coalmining, and gas sales, and extensive reg-ulation of the oil sector. Official governmentstatements recently reflected a strong res-olution to develop nuclear power: “Francehas no viable alternative to nuclear powerother than economic recession and depend-ence."26 The vigorous nuclear program issupported by the huge Eurodif uranium en-richment plant, which started production in1979. It was envisaged that by 198549 reac-tors would provide 50 percent of French elec-tricity. 27 (In August 1980, there were 19French reactors in operation with a capacityof 10,000 MW. ) The French Communist Par-ty, and the Communist-dominated tradeunion federation CGT, have supported thisdirection. Socialists and environmentalgroups, however, have opposed nuclearpower in the past and the Mitterrand gov-ernment now appears to be formulating apolicy which compensates for reducedgrowth in nuclear power with coal and mas-sive investment in conservation and alter-native energy sources.

France’s attempts to reduce dependenceon oil have been accompanied by stress on

2 5 S e e Robert ,1, I,ieher, “Energ\’ policies of th~~ F’ifthP’ren(’h Repuhlic: Autonom~ L’ersus (’cons traint, ” in (’. .ln-d rews and .S. I 1 f)ffnlan (eds. 1, 7’// {~ I“’i/’//t p’r(~tl (’h Hop II hli( { !N’ewr

}’ork: State [lni~ersit~ of New JTork Press. 19R()),“hlinist ere de 1’ Indust ri~, Op. (“i[., p. 7.‘- Nicholas \f’ade, ‘‘ F’rance’s ~~ 11-ou t Nuclear Ih-ogram

T a k e s Shape. ‘“ .\(>i(I//Ce, ,AU~. 22, 1980.

3 - 81 - . II~ q – 4 a -,


Table 87.— France’s Energy Balance, 1979

Geothermalhydro and imported

Oil Gas Coal Nuclear electricity—

Total energy requirements:63.9% 12.3% 18.6% 1.7% 3.8%

184.9 mtoe. . . . . . . . . . . . . . . . . . . . . . . . . . . 117.8 22.7 34.2 3.2 7.0

Energy imports:—as percent of total energy requirements 75.5% 8.7% 10.9% — 0. 7%176.8 mtoe. . . . . . . . . . . . . . . . . . . . . . . . . . . 139.1 16.1 20,2 — 1.4

Energy exports:18.0 mtoe

SOURCE Business Information Display op cit.

diversifying geographical sources of oil sup-ply. In 1979, Saudi Arabia and Iran suppliedmore than 40 percent of France’s crude oilimports. As table 85 shows, France relied onSoviet oil and products for less than 5 per-cent of all imports in this category during1979 and for some 5.5 percent of oil andproducts consumed in that year. Soviet gasamounted to 9.9 percent of total gas importsand 7.4 percent of gas consumption. Whilegas from the U.S.S.R. could contribute to areduction in OPEC oil imports, spokesmen inthe previous French Government have ex-pressed concern that such imports not risetoo quickly.28 (More than 60 percent ofFrench gas supplies come from the Nether-lands.) Soviet coal constitutes an evensmaller share of French coal consumption.While, overall, France is very dependent onimported energy, supplies from the SovietUnion make up less than 5 percent of itstotal fuel imports and total energy consump-tion (see table 85).

French leaders are perhaps more inter-ested in energy cooperation with theU.S.S.R. because of the export possibilitiesit raises. East-West trade makes up only avery small share of French trade worldwide,but certain industrial sectors such as steelhave important stakes. France was the thirdlargest supplier of energy-related equipmentand technology to the U.S.S.R. during the1975-79 period, and this trade has become in-creasingly important (see table 84).

28 Interview with French Foreign Ministry officials.

The political incentives for energy cooper-ation with the U.S.S.R. relates to Frenchdesire to strengthen detente. Both businessand government leaders in France haveviewed trade with the U.S.S.R. as normaland desirable. This attitude was reflected inFrench reluctance to participate in the post-Afghanistan economic sanctions initiated bythe United States. In 1980, the French steelfirm Creusôt-Loire won a Soviet contract fora steel sheet manufacturing plant, a contractoriginally awarded to Japanese and Ameri-can firms and canceled when participation ofthe latter was prohibited by the UnitedStates on political grounds. France thus ap-pears unwilling to use trade as a politicallever in East-West relations, and indeed, theFrench Foreign Ministry has regarded ef-forts to assist CMEA–particularly theU.S.S.R.–as necessary and mutually benefi-cial. By helping the Soviet Union to developits resources, they say, the Soviet Union willbe less likely to extend its influence-mili-tary and otherwise—into the Persian Gulf.

FRANCO-SOVIET ENERGYTRADE, 1970-80

French Energy Equipment andTechnology Exports

France has never been as important a sup-plier of energy equipment and technology tothe U.S.S.R. as has West Germany, butFrench exports to the Soviet Union have

Ch. 12— West European-Soviet Energy Relations • 363

been significant in certain areas. Frenchsteel firms, especially Creusôt-Loire andVallourec, have shipped large amounts ofpipe and plants for pipe manufacturing, andFrench companies have also sold petro-chemical equipment and plants to theU.S.S.R. One French firm recently signed acontract with the U.S.S.R. to produce off-shore oil exploration equipment. In manycases the U.S.S.R. has paid for these inshipments of oil or gas.

At the same time that French firms haveattempted to enlarge their sales to theSoviet Union, the French government hassought economic ties. The first Franco-Soviet Economic Cooperation Agreement,signed in 1971 and later extended, identifiedseveral areas for cooperation, includingpower generation and the development ofnew energy technologies,29 and commissionshave been established to discuss mutualresearch in such areas. These commissionsand numerous associated working groupsprovide a forum where French and Sovietspecialists share technical information.Since both industry experts and governmentofficials participate, information about po-tential contracts and projects is dissemi-nated. French participants have repeatedlydemonstrated their reluctance to discuss cer-tain types of energy projects—such as ex-change of technical information about nucle-ar powerplants, or Soviet proposals for join-ing the European and Soviet electricitygrids-at these meetings. There is, however,shared interest in fusion technology, and aFrench delegation has recently visited aSoviet fast breeder reactor.

In sum, like the West Germans, theFrench take a positive view of sales of

29 Axel Krause "F’rance S1OWS Down on Soviet Gas Deal,”in International Herald T’ribune, Jan. 22, 1981,

energy-related equipment. At the govern-mental level, mechanisms for cooperation inenergy technology development have beenestablished and energy trade with theU.S.S.R. is supported by official policies aswell as by the informal efforts of business-men.

French Energy Imports Fromthe U.S.S.R.

Soviet energy has played a modest role inthe French energy balance. During theperiod following the Iranian revolution, theSoviets raised oil prices to France. These in-creases presented particular problems forcompanies like French BP, which depends onSoviet crude oil for as much as 25 percent ofits supplies. In 1980, the Soviets cut back oildeliveries to France by 15 percent; FrenchGovernment leaders were particularly con-cerned about these reductions since they in-cluded some 300,000 tons of oil contractedunder a compensation agreement.30 It ap-pears unlikely that Soviet oil exports toFrance in the next decade will claim a higherproportion of total French oil imports thanin 1979.

France has imported gas from the SovietUnion since 1976, although until 1980 Sovietgas was traded for Dutch gas originallydestined for Italy. Since then, Soviet gas hasflowed directly to France via a pipelinewhich crosses into Eastern Europe at theCzech border. In 1979, France importedabout 1.9 bcm of Soviet gas (1.54 mtoe/yr or0.03 mbdoe), almost 10 percent of total gasimports and 7.4 percent of the gas consumedduring that year. Thus, French reliance onSoviet gas has not been as great as that ofWest Germany or Italy (see table 85).

ITALY

Italy has been importing energy from U.S.S.R. and EasternCMEA since the late 1950’s, and Italian of West Germanypolicies toward energy relations with the political relationship

Europe resemble thoseand France. Italy’swith the U.S.S.R. is


less sensitive than that of West Germany.However, Italy’s position is distinguishedby the existence of a Communist party, thePCI, with 30 percent of the national vote.Despite its differences with Moscow, the im-portance of PCI influences Italian-Sovietpolitical and economic relations.

E N E R G Y C O O P E R A T I O NB E T W E E N I T A L Y A N D

THE U.S.S.R.

Italy’s dependence on imported energy ingeneral and on oil as a share of its totalenergy requirements is higher than that ofany other Western nation considered in thisreport. In 1979, oil made up more than 70percent of total energy consumed, and Italyis well aware of the need to reduce itsdependence on oil and diversify its energysuppliers. In late 1979 the Italian Govern-ment adopted measures, including highergasoline prices, to restrain energy demand,but progress in implementing these planswas slow.31 Official energy forecasts projectrising levels of oil imports during the presentdecade.

The main reason for this projected trend isthat nuclear power development has fallenbehind plans. Forecasts for nuclear power,which in 1979 contributed less than 1 per-cent to total Italian energy requirements,have been scaled down dramatically to lessthan one-half the levels projected a few yearsago. If all goes according to this revisedplan, nuclear power will contribute about 7percent of total energy consumed in 1990.Reaching this goal will require 12 newnuclear powerplants, only one of which wasunder construction in 1980.

A dominant trend in Italy’s energy bal-ance has been the rising importance of natu-ral gas. Since the early 1970’s, Italian natu-ral gas imports have grown steeply, while do-mestic production has remained stable.32 Astable 85 indicates, in 1979 Italy importedover 43 percent of its natural gas from the

31 See IF~A, op. cit., p. 13932

"Italy, ” in OECD, Economic” .’-l(/r-[ Ie?I, March 1980, p. 47.

U. S. S. R., which provided 23.7 percent of Ita-ly’s gas requirements in that year. Italiandependence on Soviet gas is currently thehighest of any of the Western industrial na-tions OTA has studied, although Italy plansto lessen this dependence through a trans-Mediterranean pipeline, currently under con-struction, which will carry Algerian gas.

Italy is facing continuing economic prob-lems, particularly in export competitiveness,and its leaders tend to take a positive view oftrade with the Communist world. Italy hasbeen an important supplier of pipe to theU.S.S.R. for many years, and continued ex-ports are important for Italy’s steel in-dustry, which, like steel industries in otherWest European nations, has been experi-encing a recession. Italian corporations, withgovernment encouragement, hope to in-crease cooperation with the Soviet Union inhydrocarbon exploitation and production. Inrecent years, Italy has had a negative bal-ance of payments with the U.S.S.R. andwould like to remedy that situation. 33

Italy also has a political interest in thepromotion of trade with the Soviet Union.While Italian officials are less likely to arguethat Western trade with the U.S.S.R. can actto moderate Soviet political ambitions, theyview cooperation in energy development asmutually beneficial and overall trade as partof their traditional relationship with theU.S.S.R.

ITALIAN-~SOVIET ENERGYT R A D E , 1 9 7 0 - 8 0

Italian Energy Equipment andTechnology Exports

The U.S.S.R. and Italy signed their firstpostwar bilateral trade agreement in 1948,and since the early 1960’s trade in energy-related equipment has been a major compo-nent of Italian exports to the Soviet Union.— .33 In 1979 total imports from the CME A amounted to 5 per-cent of all imports; exports were valued 3.6 percent of all ex-ports for the year. Department of State, Bureau of Intel-ligence and Research, “Trade of NAT() Countries With Com-munist Countries, 1976 -79,” report No. 31 -AR, Dec. 1, 1980.

Ch. 12— West European-Soviet Energy Relations • 365

Italian firms have exported large-diameterpipe, refinery and telecommunications equip-ment, gas turbines, electricity generators,and compressor stations.

Some Italian firms do as considerable abusiness with the U.S.S.R. as do Germancompanies such as Mannesmann. Finsider, asubsidiary of state-owned IRI, has been sell-ing large-diameter pipe to the U.S.S.R. since1962, when Italy defied the U.S.-initiatedNATO pipe embargo. Under current con-tracts, Finsider will sell 2,5 million tons oflarge-diameter pipe and 5,000 tons of steelpipe and special pipe to the U.S.S.R. over thenext 5 years.34 In all, some 25 to 30 percentof the firm’s annual production in pipe andother steel products goes to the SovietUnion. Finsider has concluded 5-year agree-ments that provide for partial payment bythe U.S.S.R. in coal, iron ore, and scrapmetal. The company issues promissory noteswhich are subsequently discounted and re-purchased, an unusual practice in East-Westtrade.

There is considerable cooperation betweenItaly and the Soviet Union in energy de-velopment. Finsider is currently consideringa proposal to assist in the construction of acoal slurry pipeline from the Kansk-Achinskbasin in Siberia to the Western U.S.S.R.Italian firms such as Nuovo Pignone, a sub-sidiary of EN I, have been important sup-pliers of equipment for gas pipelines—compressor and booster stations. ENI hasalso discussed prospects for cooperationwith the U.S.S.R. in offshore oil develop-ment.

As with West Germany, there have beendiscussions for years about joint nuclearpower development involving Italy and vari-ous CMEA members. In the Italian case,agreement in principle has been reached tobuild a nuclear power station–in theU.S.S.R. or Czechoslovakia.35 Since morethan 4,000 workers are now unemployed due

to setbacks in Italy’s domestic nuclear pro-gram, there is strong interest among theItalian corporations involved in such a proj-ect. If constructed, the joint Soviet-Italianpowerplant would supply some electricity toItaly. Reports also indicate that a con-sortium (Ansaldi Nucleari), in which both theItalian firm IRI and General Electric areparticipants, will build two nuclear power-plants in Romania, each with a capacity of700 MW. Since Romania plans to build morethan 10 power stations in the next decade,this contract may provide the basis for addi-tional Italian participation in CMEA nuclearpower development.]’ Italy has thus comecloser than any other European nation tojoint development of nuclear power withCMEA.

In order to encourage Italian exports, theItalian Government, like the French andBritish but unlike the West German, sub-sidizes credits to Communist nations.37 Until1972, this system of cheap credits evidentlyworked fairly smoothly, but since that timethe consensus on interest has broken downand many Italian firms have criticizedthe policy of granting low-interest rates tothe U.S.S.R. In 1980, previously arrangedcredits having expired, the Soviet invasionof Afghanistan led to controversy over therenewal of these cheap credits. The ItalianGovernment, heeding U.S. wishes, stoppedall negotiation with the U.S.S.R. on the sub-ject, but Socialist and Communist deputiesin the Italian parliament sharply criticizedItaly’s support of the United States. In theend, Italy announced that a new creditagreement would not be extended, but thatloans would be granted on a case-by-casebasis. This move was unprecedented forItaly, given its past commitment to East-West trade. There may, however, have beendomestic economic reasons for halting thecredits.

“>l{upert (’ornwtll, “ l{onlania to Iluj Rtwctors F’rf)m1 taliam[ J,S. (;roup, “ I.’irlafl(’ial ‘1’(m(~, \lar. l], 19N 1.

‘-1 n 1966, for example, 1 tal~ t>xt(’ndt’ci a $;)67 million creditw it h a 14 -}”t~:i r m[it urat ion p(’ri(d for t ht~ C>OIIS[ ruc’t ion of aIriat plant in the [ !.S, S. 1{. Sec ( ;l(JII .Alden Smith, ,$’f~~ i(f

L’or{i,qtj ‘/’r([(l(’ ( h’vw }’ork: f)raeg(’r, 197:11, p 16f;.


Finally, a number of bilateral forums havebeen established for discussions of energycooperation with the U.S.S.R. involving gov-ernment officials, businessmen, and tech-nicians. There have been a number of privatejoint symposia on Soviet energy devel-opment. At one such meeting in Moscow in1979, a major topic was proposed nuclearcooperation; at another, held in Italy in 1980,new developments in energy technology—including nuclear, geothermal, biomass, andpipeline technologies—were discussed.38

Government-to-government energy meet-ings, the most recent of which was held inMarch 1981, also provide opportunities forexploring potential energy developmentprojects.

Italian Energy Imports Fromthe U.S.S.R.

In 1979, more than 9 percent of all Italy’senergy imports and nearly 10 percent of allthe energy it used came from the SovietUnion. Since 1958, Italy has been importingSoviet oil under the terms of a series of 5-year agreements. In 1979, these importsamounted to 6.7 mmt (0.135 mbd) of oil andoil products,39 about 5.6 percent of Italy’s oilimports and 7.2 percent of its total oil re-quirements for that year. During 1976-81,the Italian company ENI alone imported 4mmt of oil annually (about 80,000 bd) fromthe Soviet Union. In 1981, however, for thefirst time, the supply agreement was notrenewed. At the same time all Western im-porters of Soviet oil—with the exception ofFinland—were the subjects of delivery cuts,which some attribute to Soviet failure toachieve production targets. Italian expertsbelieve that a new supply agreement willsoon be signed and that ENI will receiveSoviet oil at about the same level as in thepast. Since official energy plans projectgrowing oil imports, the share of Soviet oil islikely to decline as part of total Italian oilimports.

—--.————38 See S’ta~~ettCJ Quotidinia Petrolifia, July 2, 1980.‘qPctnjleum In t(~iligerrce U’eekl,V, ,July 21, 1980, compi led

by Petro Studies.

Italy has imported gas from the U.S.S.R.since 1974. In 1979, 7 bcm (5.7 mtoe/yr or0.11 mbdoe)—over 40 percent of Italy’s gasimports and nearly 24 percent of its total gasrequirements came from the U.S.S.R. Mostof the Soviet gas is imported by SNAM, astate-owned company which is part of theEN I group, and distributed throughoutItaly. Soviet gas is evidently competitivelypriced.

SNAM has arranged a variety of con-tracts with Libya, the Netherlands, theU.S.S.R. and Algeria, to cover Italy’s pro-jected rise in gas requirements over the dec-ade. Beginning in the fall of 1981, Italy willreceive Algerian gas via a new submarinepipeline to Sicily. Arrangements have beenmade for as much as 15.9 bcm (12.9 mtoe) tobe supplied to Italy through this pipeline inthe event of an emergency.

Italy’s official energy plan foresees a risein gas requirements from about 30 bcm (24.1mtoe) in 1979 (see table 88) to about 40 bcmin 1985. While domestic production is ex-pected to remain stable at about 12 bcm, im-ports will rise sharply to about 28 bcm. In-formed estimates show that in 1985 Libyawill supply about 3, the U.S.S.R. 7, theNetherlands 6, and Algeria 12 bcm.40 If thisdoes in fact occur, the Soviet Union will beproviding about one quarter of Italy’s totalgas imports in 1985—considerably less thanthe current percentage.

Until 1981 Italy received stable and de-pendable gas supplies from the U.S.S.R.These imports came during the early part ofthe 1970’s primarily from the Ukraine, andlater from Urengoy in West Siberia. It wasreported that in 1981 Soviet supplies of gasto Italy fell 30 percent—a fact which someattribute to “technical difficulties, ” andothers to rising Soviet exports to EasternEurope. 41 If such supply shortfalls persist,the U.S.S.R. is unlikely to be able to provide

40 These import projections, and much of the information inthis section, can be found in U.S. Department of State, Out-going Telegram, Rome, hlar. 28, 1980, “’I’he Italian PetrO-leum and Natural Gas Industry, 1978-79.”’

4 ’ 1 nterview with officials from Italian Ministry of Foreign‘1’rade.

Ch. 12—West European-Soviet Energy Relations ● 367

Table 88.—ltaly’s Energy Balance, 1979

Geothermalhydro and Imported

Oil Gas Coal Nuclear electr ic i ty

Total energy requirements70.9% 18.3% 8.0% 0.15% 3.2%

132.5 mtoe, . . . . . . . . . . . ,.. 93.4 24.1 10.6 0.2 4.2

Energy Imports—as percent of total energy requirements 91.7% 10.0% 6.9% — 0.46%143.8 mtoe. . . . . . . . . . . . . . 120.9 13,2 9.1 — 0 6

Energy exports.22.4 mtoe

S O U R C E Business Information Display op ci t .

the projected amounts of gas mentionedabove.

Italy also imports CMEA coal. In 1979,nearly 7 percent of its hard coal imports andalmost 6 percent of its hard coal require-ments came from the U.S.S.R. (see table 85).Coal imports from the U.S.S.R. have fallensteadily over the past decade—from morethan 2,000 metric tons in 1970 to only 925tons in 1979.42 Poland has remained a moreimportant source of Italy’s coal, providing26 percent of its coal imports in 1979. (Italyimports the bulk of its coal from the UnitedStates; deliveries from America made up 32percent of Italian coal imports in 1979.)Since late 1980, coal imports from the SovietUnion have fallen still further, as have thosefrom Poland.

42 “’A 1970 figure from Soviet trade data; 1979 figure fromWorld Energy Industry, op. cit., p. 108,

Italy, like West Germany and France, hasused Soviet uranium enrichment services.However, due to delays in the Italian nuclearprogram, there will be excess capacity inEurodif, the French enrichment facility inwhich Italy participates. This means thatItaly could easily depend on Eurodif ifnecessary.

In sum, Italy is more reliant on CMEA forimports of natural gas than the other WestEuropean nations examined here. In addi-tion, Soviet oil and coal have played signifi-cant roles in its energy imports. Altogether,the U.S.S.R. fulfills nearly 10 percent ofItaly’s total energy requirements. This com-paratively high level of dependence, togetherwith past patterns of Italian exports of pipeand other energy-related commodities, in-dicate an overall relationship of energy andtrade interdependence with the Soviet blocstronger than that of France and on a parwith that of West Germany.

THE UNITED KINGDOM

The United Kingdom has also been favor- tions. Britain’sably disposed toward East-West energy from North Seacooperation, but a variety of factors dif- 1969. In 1979,ferentiate the British approach from those of ported 81.6 mtoe

enviable position derivesoil and gas, discovered inthe United Kingdom im-of energy commodities and

the other countries discussed here. Most im- exported more than 51 mtoe. Its total energyportant among these is the fact that the requirements amounted to 224 mtoe (seeUnited Kingdom is more nearly self-suf- table 89). Therefore, Britain imported energyficient in energy than any of these other na- to meet only about 13 percent of all its


Table 89.—United Kingdom Energy Balance, 1979

Geothermalhydro and imported

Oil Gas Coal Nuclear electricity

Total energy requirements:40.3% 19.3% 39.0% 1 .3% .2@

224 mtoe. . . . . . . . . . . . . . . . . . . . . . . . . . . 90.3 43.2 87.2 2.8 .5

Energy imports:—as percent of total energy requirements 31.4% 3.6% 1.3%81.6 mtoe. ... . . . . . . . . . . . . . . . . . . . . .

— —70.4 8.2 3.0

Total exports:54.9 mtoe

SOURCE Business Information Display op cit

energy requirements. It can afford to bequite distanced from the U.S.S.R. in its roleas energy supplier.

A political factor also distinguishes thecurrent British approach. The United King-dom refused to follow the 1962 NATO pipeembargo, and in the past it has generallypursued a course of separating trade withthe Soviet bloc from politics. However, theThatcher government has been the strongestsupporter of U.S. initiatives aimed at usingtrade sanctions as a lever against the SovietUnion. Dissenters have questioned the ef-ficacy of such an approach, but Britain’spolitical stance has been considerably moredistanced than that of the continental Euro-peans to East-West trade and energy coop-eration issues.43 Britain’s weaker involve-ment with the Soviet bloc is illustrated in thetrade data. In 1979, only about 1 percent ofall British exports went to CMEA, and en-ergy-related trade represented only about 12percent of all British exports to the SovietUnion (see table 84).

ENERGY COOPERATIONBETWEEN BRITAIN AND

THE U.S.S.R.

As noted above, Britain’s very limitedenergy relationship with the U.S.S.R. isprimarily determined by its own fortunate

43 For a dissenting opinion, see I louse of Commons, FifthReport for the Foreign .Affairs Committee, Session 1979-80,

energy situation. The United Kingdom hassubstantial reserves of oil and gas andenough coal to last 300 years at current ratesof extraction. Table 89 shows Britain’s 1979energy balance. Energy use by the UnitedKingdom is more balanced among a varietyof fuel sources than in most other Westernindustrialized nations, and its dependence onoil is low—about 40 percent of its energy re-quirements. Coal occupies a position ofabout equal importance to oil, with gas third.

Britain’s long-term national energy policyis based on the development of a balanceamong four fuels (oil, gas, coal, and nuclear),and the further reduction of energy importsthrough increased domestic production. By1985, the government hopes to achieve a netsurplus in oil. In the year 2000—when NorthSea oil and gas production will havepeaked—the plan calls for an equal balanceamong various types of energy. Nationalenergy planning in Britain is facilitated bythe fact that many energy industries areowned or guided by the government.

Afghanistan: The Soviet Invasion and Its (Jon.sequence.s forB r i t i s h Polic~) (1.onclon: Her hlajesty’s Stationery office,1980), p. xxxi. The report warns:” . . . Despite large Soviet re-ser~’es of oil, technical difficulties with extraction could pro-duce circumstances in which a V1’estern embargo of oil tech-nology might lead the Soviet Union or its allies to action inthe Gulf to acquire oil on terms which would be detrimentalto J1’estern interests."


BRITISH-SOVIET ENERGYTRADE, 1970-80

British Energy Equipment andTechnology Exports

Only a very small portion of total Britishexports go to CMEA, and the United King-dom has not been as important an exporterof energy-related equipment to the U.S.S.R.as have the other Western nations studiedhere. Between 1975 and 1979, the UnitedKingdom ranked a distant sixth amongWestern nations in such sales.

British experts are skeptical about claimsthat Western technology is critical for So-viet energy development, but they do believethat Western exports can nevertheless makea significant contribution in speeding or eas-ing this development. In the past, Britishcompanies such as John Brown Engineeringand Rolls Royce have sold gas turbine com-pressor units and engines for use in the Oren-burg pipeline. The most promising area forenergy-related exports in the future is un-doubtedly in oil and gas exploration and pro-duction equipment. Britain has considerableexperience in offshore oil and gas develop-ment in the North Sea, and such technologycould contribute to the development of theSoviet Baltic and Barents seas.

In 1976, British Petroleum signed a tech-nological cooperation agreement with theSoviet Union which covered certain energy-related areas—modernization of refineries,secondary and tertiary oil recovery tech-nologies, and offshore exploration. But de-spite the fact that the British governmenthas extended credits to facilitate this agree-ment, little concrete action has yet beentaken on the Soviet side, and there exists noelaborate system of working groups (as isthe case in France) to manage the details ofspecific projects.

The British Government provides subsi-dized credits to Communist nations throughits Export Credit Guarantee Department. Inrecent years, the Soviet Union has not takenfull advantage of this cheap credit. The long-

term U.K.-Soviet trade agreement expired inearly 1980, but as was the case with Italy,the Afghanistan invasion led to no newagreement being reached, and since thencredits have been supplied on a case-by-casebasis.44

British Energy ImportsFrom the U.S.S.R.

The United Kingdom imports no Sovietgas and in 1979 imports of Soviet oil and oilproducts amounted to 2.9 mtoe (two-thirdsof it in the form of crude oil), about 4 percentof the nation’s oil imports and 3 percent ofits oil requirements (see table 85). During thesame year the United Kingdom exportedmore than 49.7 mtoe of oil and oil products.Soviet oil imports are clearly not critical toBritain’s energy balance. Nor could it beargued that coal imports (from Eastern Eu-rope) are important, since domestic coal pro-duction is so large.

In sum, Britain’s relatively high level ofenergy self-sufficiency gives it less incentivefor involvement in energy trade with theU.S.S.R. than other West European coun-tries. In addition, as past patterns of trade inenergy and energy-related equipment withCMEA show, the United Kingdom is less in-volved with CMEA in this area than any ofthe other four West European nations re-viewed here. Should these trends change anda policy of expanded trade with the Sovietbloc be instituted, however, Britain’s ex-perience with North Sea oil and gas couldput it and its corporations in a good positionto assist Soviet offshore petroleum develop-ment.

S U M M A R Y

The previous sections have briefly ex-amined the energy-related trade relationsbetween West Germany, France, Italy, theUnited Kingdom, and the Soviet Union. Thissurvey has shown that, although East-West

44 Testimony of Christopher Mallaby from the F’oreign andCommonwealth Office in the House of Commons, op cit..p. lo.


trade makes up only a small portion of theoverall trade of these nations, energy-relatedexports in 1979 constituted about one-thirdof Italian, approximately one-quarter ofWest German and French, and about 10 per-cent of British exports to the U.S.S.R. (Thismay be compared with 45 percent for Japanand 7 percent for the United States. ) In ab-solute amounts, this translates into nearly$1 billion worth of energy-related exports in1979 for West Germany, and nearly one-halfbillion each for France and Italy. Particular-ly in West Germany, much of this trade isconcentrated in the steel industry, where asignificant number of jobs depend on it. Im-portant industrial sectors in WesternEurope, therefore, have strong interest intrade with the U.S.S.R,

These nations also import energy from theSoviet Union. The most important Soviet

energy export to Western Europe is gas. Atpresent, 43 percent of Italy’s and about 20percent of West Germany’s imported gascomes from the U.S.S.R. The correspondingfigures for gas consumption show that Italyimports from the U.S.S.R. nearly 24 percentand West Germany about 16 percent of thegas they require. These figures may be inter-preted in several different ways. In no coun-try examined here, for instance, does Sovietenergy constitute more than about 9 percentof total energy imports or 10 percent of totalenergy consumption. Once again, it is clearthat while overall “dependence” on theU.S.S.R. is low, the importance of certainforms of Soviet energy -i.e., gas–may bedisproportionately prominent in the importsof some West European countries.

FUTURE PROSPECTS FOR ENERGY INTERDEPENDENCE:THE WEST SIBERIAN GAS PIPELINE PROJECT

OTA’s examination of past patterns of en-ergy cooperation and trade between WesternEurope and CMEA reveals increasing, butat present still limited, levels of in-terdependence. Except in specific sectors ofenergy or equipment trade (gas imports forFRG and Italy; energy equipment exportsfor FRG, France, and Italy), levels of in-terdependence have remained relatively low.This situation will not necessarily persist.The “Yamburg” gas pipeline project has thepotential for raising the level of Soviet-WestEuropean energy interdependence in bothquantitative and qualitative terms.

one reason for the controversy surround-ing this project is that it embodies theclassic dilemmas of interdependence withthe Soviet bloc. The U.S.S.R. has been anx-ious to enlist Western participation—particularly that of Japan, FRG, and Italy–because in terms of sheer construction andmanufacturing capacity, the project maywell be beyond the ability of the Soviet gas

industry alone to handle efficiently and ex-peditiously. The U.S.S.R. possesses the tech-nical knowledge to construct such a pipelineitself, but could not without massive do-mestic economic adjustment produce pipe ofadequate quantities and quality. Moreover,equipment could be paid for in exports of gasto the West. This is a clear case in whichWestern equipment and know- how couldmake a significant contribution to speedSoviet energy development.

In return, the pipeline will provide West-ern Europe with greatly expanded gas de-liveries. The gas may largely replace exportsof Soviet oil. This may somewhat offset pro-jected levels of dependence on Soviet energyas a whole, but that level is likely never-theless to rise. Likewise, the fact that theproject offers opportunities for Western ex-porters of energy-related equipment raisesthe potential for Soviet manipulation of com-peting suppliers. Much of the equipment to


photo Credit Oil and Gas JournalSoviet gas pipelaying barge used in the construction of pipeline from Urengoy to the Ukraine

be used in this project–compressor stations,pipelaying, and telecommunications equip-ment, for instance, could be manufacturedby firms in several Western countries. Thereis, therefore, strong competition among vari-ous potential Western suppliers. Moreover,discussions over the export pipeline are oc-curring in a period of heightened East-Westtension. The difficulty of assessing thesecosts and benefits, together with the magni-tude of the deal and its timing, make it a testcase for East-West energy relations thatmay well set a precedent for future projects.

A great deal of confusion has surroundedthe West Siberian gas export project.45 Onereason is that negotiations are still under-way and many details have yet to be settled.A second problem is the lack of a singleauthoritative source of information; ac-counts must often be assembled from peri-odicals in a number of different countries,and these are sometimes inconsistent or con-tradictory. Third, and perhaps most im-


portant, incomplete information on changingSoviet plans, together with a general West-ern lack of familiarity with Soviet geographyand geology (particularly the status andlocation of Soviet gas deposits), has led tothe persistence of a number of miscon-ceptions about the proposed route of the newpipeline and the source of the gas which it isto carry.

Yamburg is a supergiant gasfield locatedin West Siberia and extending north towardthe Arctic Ocean. It is said to contain one ofthe world’s largest untapped proven re-sources of gas—an estimated 2.6 trillioncubic meters. (This is equal to 2.1 billion tonsor 15.6 billion barrels of oil equivalent. ) Butalthough this field has given its name to thenew gas export pipeline which will supplyWestern Europe, it is itself not expected toproduce gas until at least the end of thedecade. Until that time gas destined forWestern Europe will come from Urengoy,the world’s largest gasfield, about 150 milesto the south. Initially, this gas will betransported through additions to the ex-isting pipeline network. For instance, con-struction of a 56-inch pipeline which parallelsthe Northern Lights line to the Czech borderis now well underway. (In April 1981, thisnew string had reached some 250 milesnortheast of Moscow.) This line is scheduledto be put into service in 1984, and is only oneof several new 56-inch pipelines planned forconstruction after 1982.

Another high-pressure 56-inch pipelinefrom Western Siberia is also planned. It isthe latter which is commonly referred to as“Yamburg.” The new export pipeline mayeventually have two legs. It would seem thatthe U.S.S.R. now plans to build the first ofthese by the mid-1980’s, reserving the latterfor the end of the decade.

There are both economic and politicaladvantages for the U.S.S.R. in exportingUrengoy gas. Unlike Yamburg, Urengoy isalready a producing field. It will be signifi-cantly cheaper for the Soviets to furtherdevelop Urengoy than to initiate operationsat Yamburg, and it thus makes good

economic sense to postpone development ofthe latter. Because key segments of the newline will follow the existing routes, construc-tion and borrowing costs should be sig-nificantly reduced. This is an important con-sideration. Estimates of the cost of this proj-ect have ranged from $15 billion to $20billion to as much as $40 billion. On thepolitical side, this plan may well be designed,at least in part, to minimize political con-troversy over the entire export scheme. TheWestern equipment which the U.S.S.R. willneed can now be purchased for expansion ofthe existing pipeline network, withoutnecessarily specifying for which project theequipment will be used.

Regardless of where the gas is to comefrom, the new pipeline to Western Europe(hereafter referred to as Yamburg to con-form to popular usage), together with the ad-ditional pipeline capacity already under con-struction, will allow a significant increase inSoviet natural gas exports to that region.Eventually this pipeline could bring Sovietgas to as many as 10 West European na-tions—West Germany, France, Italy, Bel-gium, Austria, Finland, the Netherlands,Switzerland, Sweden, and Greece. One West-ern estimate is that by 1985, Soviet naturalgas exports to Western Europe will increase120 percent over 1980 levels; by 1990, theycould exceed 1980 levels by 270 to 330 per-cent.46 These projections are shown in table90. The 1988-90 projections shown here, 90to 105 bcm, are the equivalent of 73 to 85mmt/yr or 1.5-1.7 mbd of oil. In 1980, theU.S.S.R. exported about 66 mmt of oil (1.3

46 Ibid,

Table 90.—Soviet Exports of Natural Gas toWestern Europe (in billion cubic meters)

Exlstlng transit Planned newpipeline and West Siberian

Year Total additions (Yamburg) pipeline

1 9 8 0 24.5 24.5 —19811983 “. 25.0 25.01984 32-46 32-46 —1 9 8 5 53.0 53.0 —1986 62-76 53-58 9-181 9 8 7 71-91 53-63 18-281 9 8 8 - 1 9 9 0 90-10.5 53-68 37.0SOURCE Wharton Econometric Forecasting Associates, Inc.

Ch. 12—West European-Soviet Energy Relations ● 373

mbd). The energy of value of Soviet gas ex-ports to Western Europe could therefore ex-ceed that of its oil exports by the end of thedecade.

WEST EUROPEAN POLICYPERSPECTIVES

At the heart of controversies over Yam-burg has been the question of whether or notWestern nations might become unaccept-ably subject to Soviet economic, political,and energy leverage by virtue of their par-ticipation. If Western nations such as WestGermany and France become more depend-ent on the U.S.S.R. for their gas, will theybecome in fact hostage to Soviet politicalpressure? This section reviews the relevantpolicy perspectives of groups in West Ger-many, France, Italy, and the United King-dom. These reflect concern about increasingdependence on Soviet energy among WestEuropeans, but also fairly strong support forthe project and considerable competitionamong the potential participants for con-tracts and sales. From the West Europeanperspective, the Yamburg pipeline offers at-tractive export and import possibilities, andprivate firms likely to expand their sales ifthe project materializes have been at thecenter of negotiations.

West Germany

The FRG has taken a leading role in allaspects of the Yamburg discussions, withWest German equipment suppliers–par-ticularly the steel firms—playing key roles.West German banks and Ruhrgas, the coun-try’s largest gas importer and distributor,have also participated. Industrial and finan-cial groups have evidently coordinated theirefforts closely with the West German Gov-ernment. But while the negotiations haveprimarily been carried on between Sovietofficials and West German manufacturersand bankers, the scope of the project and itspolitical sensitivity mean that governmentofficials throughout Europe have been con-sulted.

In recent months, there has been a gooddeal of debate about Yamburg among in-formed policy makers in West Germany. Thegeneral consensus is that the pipeline isdesirable for both economic and politicalreasons. This conclusion is based not only onthe general orientations of West German in-dustrialists and bankers toward trade withthe East, but also on a fairly detailed assess-ment of security implications, policymakersbelieve that trade acts as an incentive torestrained Soviet behavior in Europe, andmany claim that the Yamburg negotiationsmay well have acted as a deterrent to aSoviet invasion of Poland.

Although the focus of much of the discus-sion between the United States and the FRGabout Yamburg has been energy imports,the primary incentive for West Germany hasbeen equipment exports. For West Germanfirms such as Mannesman Steel Works,which last year exported to the U.S.S.R. 60percent of the large-diameter pipe it produc-ed, Yamburg represents the latest andlargest in a long series of pipeline projectswhich help to to employ a few thousandworkers. In fact, many West German gov-ernment and business spokesmen generallyview East-West trade as mutually beneficial,and the Yamburg project is particularly at-tractive because of the jobs it is likely tocreate. 47 It is not surprising that West Ger-man steel firms, including state-owned Salz-gitter, have actively lobbied for the project.

A second important attraction of thepipeline is its potential for expanding energysupplies and diversifying energy sources.Several factors—levels of total imports fromthe U. S. S. R., projected West German do-mestic production, and imports from alter-native suppliers—affect calculations of thesignificance of Yamburg for the FRG. WestGermany already receives about 16 percentof the natural gas it consumes from theSoviet Union. The new pipeline would sig-


nificantly increase Soviet gas supplies, butthe exact levels of dependence likely to re-sult are difficult to predict. This is partly dueto the abandonment of the IGAT II project,which has now reduced anticipated gas sup-plies from the U.S.S.R. Yamburg could notonly make up for IGAT II; it could also morethan double the volume of Soviet gas im-ported by the FRG in 1979 (9.8 bcm).

Forecasts of FRG dependence likely toresult from Yamburg vary not only ac-cording to assessments of IGAT II, but alsoaccording to forecasts of overall West Ger-man dependence on natural gas in the yearsahead. If the FRG increases its consumptionof natural gas from 60 to 80 bcm between1980 and 1990, and if supplies from theU.S.S.R. rise to 24 bcm, then Soviet gasmight represent more than 30 percent ofWest German gas consumption. The WestGerman cabinet in 1980 announced that im-porting up to 30 percent of its natural gasfrom the Soviet Union would not constitutea security risk.48 However, German gas firmsdo not need the permission of the govern-ment to import gas. Some observers es-timate that by the year 2000 the FRG couldbe importing 40 percent of its gas from theU. S. S. R.,49 but there is no concrete evidenceto suggest that this is likely.

Evaluations of future dependence alsohinge on assessments of the reliability andavailability of alternative suppliers of gas.Some West German observers view the So-viet Union as a reliable supplier—at least incomparison to the Dutch, who have threat-ened to cut off gas because of a dispute overprices. Algeria is another alternative, but ithas recently reneged on a contract for anatural gas liquefaction plant. Norway,which will be supplying small amounts ofgas to the FRG beginning in 1985, couldpotentially provide more if the Norwegiansdecide to develop more of their gas,50 but

4“Iler Spiegel, No. 26, 1980.‘qk$rolfgang Nlueller-llassler, “I)ie lrerantwortung d e r

(~asmanner,” b’ranhfurtrr A//~vnleirle z<~it[ln~, J a n . 1 ( ) ,1981, p, 11.

““’~ orwegen will mehr (ias I.iefern ” Sl;ci(ivu t .sche Zeitung,Dec. 23, 1980.

Norway has proved extremely difficult todeal with in these matters. Nigeria will beginsupplying West Germany after 1984; and avariety of other nations might also sell LNGto West Germany.

Another factor which will influence the im-pact of increased levels of Soviet gas on FRGenergy import dependence is West Germandomestic gas production. While some ob-servers anticipate that domestic output willcontinue to supply Germany with about 30percent of its gas needs, others worry thatthe level of domestic production might fall,partly because important deposits may betechnically difficult to exploit.

West German spokesmen are skepticalabout the prospect of increased Soviet lev-erage over the FRG by virtue of its energyexports. First, at least until quite recently,the Soviet Union had the reputation of beinga reliable exporter. It is true that in 1981 theU.S.S.R. announced a 30 percent cutback ofgas deliveries to the FRG, but these reduc-tions caused little difficulty because WestGermany had alternative supply arrange-ments.51 On the other hand, while West Ger-man observers point out that Algerian andLibyan suppliers have been less reliable thanthe Soviets in years past, the Soviet Unionmay be said to have a far greater political in-terest in West Germany. The incentives touse such threats for political purposes maytherefore be stronger. Similarly, some arguethat the Soviets would be unlikely to sudden-ly withdraw or threaten gas cutoffs to theFRG since the Soviets themselves need theequipment and the hard currency which gasexports will provide. While this argumentmakes sense in the short term, according tothis logic, after the pipeline is in place, WestGermany could be more vulnerable to a sup-ply cutoff, or the threat of one.

A third line of reasoning holds that viablealternatives to Soviet gas provide a deter-rent to the U.S.S.R. use of political pres-sure. The FRG could buy gas from a number

“’Otto (;raf I.amhsdorff, ‘ ( Pladoyer fur sowjetishes F:rd-g a s , ” Rhc~ini.schc Alcrkur, (’hri,vt un(i ~i’~lt, No. 4, J a n . 1 7 ,1981.

Ch. 12— West European-Soviet Energy Relations - 375

of nations, including Holland. Current plansare to reduce Dutch imports as more WestSiberian gas begins to flow, but the Dutchhave evidently agreed in principle to providesupplies in the event of shortfalls of Sovietgas. There is also the possibility of LNGfrom the Persian Gulf. Secondly, since theWest German gas pipeline network is inter-connected, shortfalls could be equalizedthrough the country, and deficiencies in sup-ply from the Soviet Union could be compen-sated for by increased supplies from theNorth Sea, to which a pipeline now extends.52

Another protection lies in underground stor-age—about 2.5 bcm of gas are now stored un-derground and this is to be increased. (WestGermany also has oil stockpiles for about100 days. ) Fourthly, many contracts with in-dustrial users are “interruptible,” meaningthat industries are responsible for providingalternative energy for periods of up to 50days if necessary. And finally, more dual-fired burners will be used in industry so thatpower stations can switch to oil or coal inconnection with interruptible contracts. Inshort, according to spokesmen from the gasindustry, the FRG could now survive a totalcutoff in gas from the Soviet Union if it wereforced to do so. 53

One major, as yet unanswered, questionsurrounding the effect of a Soviet gas cutoffconcerns which customers would be most af-fected. Most Soviet gas will go to Bavaria insouthern Germany, site of the automobileand chemical industries. These may be lessvulnerable to energy supply interruptionsthan the more energy-intensive steel indus-try, concentrated in the north. The propor-tion of gas going to households is also an im-portant variable. Given present information,there is no way of evaluating the likely im-pact of cutoffs on these various consumers.

The tone of the West German debatesabout contingency planning and substitutesupplies suggests that under current condi-— — —

52 Answer to State Secretary A. ~’on L$’uerzen to Hundestagmem}wr I,int net- i n I )eu tscher 13undestag, [)rl~(’k .s[zche, 935,pp. 9-10.

‘ ‘I leinz ( ;unther Kemmer, “~$renn Nloskau a n (;ashahndreht, ” /)ic Zcit, .Jan. 211, 1 !)fi 1, p. 23.

tions, the West German Government be-lieves that most consumers would not begreatly affected by a cutoff in supplies fromthe Soviet Union—all other things beingequal. However, if such a shortfall were asso-ciated with a worldwide energy crisis, per-haps precipitated by an OPEC oil embargo,the ramifications could be much more seri-ous. To the extent that West German de-pendence on Soviet gas increases, contingen-cy planning becomes even more important.Timelags associated with substitution ofalternative forms of energy for Soviet gasmight cause hardship for certain consumers.While West Germany seeks to develop alter-native supplies and contingency arrange-ments, these cannot completely eliminatethe potential threat of a gas cutoff by theU.S.S.R.

At one time, financing was the most prob-lematic aspect of the pipeline for the WestGermans. The Soviet Union has been a reli-able creditor, paying back loans for previousgas-pipe deals an average of 3 years early.The West German Government does notsubsidize export credits. While the bankswould probably prefer to use a system offloating credit rates for at least part of theloans, West German equipment suppliers ob-ject to this arrangement since floating rateswould allegedly complicate supply contracts.The Soviet Union at first established a ten-tative arrangement for $5 billion in credits.This involved a consortium of more than 20West German banks, led by the DeutscheBank.54 In early 1981, a deal was worked outwhereby the banks would offer a fixed in-terest credit worth 9.75 percent (a nominalexternal rate of 7.75 percent plus a 2-percentincrease in charges for West German equip-ment). The credit was to last for ten years.As interest rates rose in West Germany,however, the Deutsche Bank and others be-gan to reconsider the Soviet credits.55 TheWest Germans have now found a new, ac-ceptable credit formula and negotiations

“’Ke~’in I)are, 4‘So~riet Gas Project I,oans Deadlock, ”l’iT7an(i(Jl ‘1’im(’s, hlar. 16, 1981.

“’See ,John \l. (;eddes, “(; ermans offer I,oan to So~’iets for(;as I)ipeline” 11’[1// .Str(~{~t .Jf)urnal F’eh. 2, 1 9 8 1 .


have turned to the question of gas prices.Credits are to be provided in stages, an ar-rangement that not only allows for the con-tingency that interest rates may go down,but which also helps to reduce the politicalsensitivity of the deal. West German financ-ing, instead of being concluded in dramatic,billion dollar segments, will take on a muchlower profile, incremental aspect.

In sum, both the official position of theWest German Government, and informalopinion in the FRG business community,strongly favor the pipeline project. Al-though groups within opposition partieshave expressed reservations and asked forrisk assessments, no party has come out inopen opposition. 56 Interest in contingencyplanning to minimize risks is growing. It ap-pears that, failing a Soviet invasion ofPoland or counterproductive pressure fromMoscow over the terms of the deal, the pipe-line will be built with strong support fromWest German firms.

France

French policy makers are interested in thepipeline project for the same reasons as theWest Germans–expanded gas supplies andequipment export opportunities. Delivery of8 to 10 bcm/yr of Soviet gas will add signifi-cantly to French dependence.57 In 1979,France received 1.9 bcm–less than 10 per-cent of its imported gas and about 7 percentof its gas consumption—from the U.S.S.R.Some observers estimate that by 2000 theU.S.S.R. might be providing almost 30 per-cent of French gas.

The Soviets have been negotiating withFrench firms for credits, which could amountto $4 billion, and for equipment, but thesediscussions slowed in early 1981 in anticipa-tion of the French election. Negotiationsover French credits continue, with the Credit

“’[i einz Riesenhuher in (’I)U CS~l }>r{~.s,s{’[ii(’r?st, Jan. 7,19H1

‘ I.’or est imates of Yamhurg gas exports to lrarious W’estF;uropean nations, see Rohert W’. Ball, ‘ 4 k;urope W’arms toSoki(’t (;as, ” l’f)rt((r~c, ,June 1, 1981, p. 7/+.

Lyonnais taking the lead for a consortium ofFrench banks.

Like the West Germans, French policy-makers have been generally positive towardthe Yamburg project. They have tended tobelieve that the Soviet Union will have along-term interest in assuring continued sup-plies of Western equipment, and that theU.S.S.R. will be a reliable supplier of energy.These beliefs were apparently unshaken bythe fact that in the winter of 1979-80, gasshipments from the U.S.S.R. to France fellabout 30 percent, due primarily to weatherconditions. The shortfalls evidently did notcause any great hardships.

It would be technically possible for theSoviet Union to reduce or cut gas supplies toFrance without affecting West Germany,although the reverse is impossible—i.e., acutoff of West Germany would also involveFrance. It would seem, however, that poten-tial Soviet economic or political leverageover France is relatively small and there areat present no obvious incentives for such acutoff. Additionally, the French have con-sidered—perhaps more carefully than theWest Germans—contingency arrangementsin the event of gas supply shortfalls. Francecurrently has 4 bcm of gas stored under-ground, and this stockpile will be doubled inthe next 10 years. Moreover, French plan-ners intend to place a ceiling on domestic gasuse, allowing no more than 45 percent of thetotal to be used for household consumption.Gaz de France also hopes to increase inter-ruptible supply contracts with industry dur-ing the next decade to about 30 percent of allindustrial contracts. Company spokesmensay that all Soviet gas will be sold on thebasis of interruptible supply contracts, andthat none of it will be used for home heating.

Despite this stress on contingency plan-ning and risk assessment, however, it wouldbe a mistake to suggest that France wouldbe unaffected by a Soviet gas cutoff. As isthe case with West Germany, if Soviet gassupplies reach levels of 30 percent or more oftotal gas consumption, the effect of a cutoff


could be significant, particularly if it oc-curred in the context of a worldwide energycrisis.

On the whole, it appears that while theFrench Government has supported the ex-port pipeline, it has been less enthusiasticthan the FRG. The new Socialist govern-ment may in time develop a different at-titude toward the project, but all the majorFrench parties have in the past indicatedtheir support. The French have left it to theWest Germans to take the lead in negotia-tions, but they are nonetheless committed—both to the prospect of increased Soviet gasimports and to the idea of continued tradewith the U.S.S.R.

ItalyItalian negotiations over Yamburg are at

a more preliminary stage than those of eitherWest Germany or France, Here, financingquestions loom large, and only limited dis-cussions have been held between Soviet of-ficials and Italian equipment suppliers.58 Thepipeline was the main topic at the March1981 meeting of the Italian-Soviet EconomicCommission, but the results were inconclu-sive. The Italian Government has decided toset up an interministerial commission tostudy the project.59 The question may even-tually be taken to a vote in the Italian parlia-ment—a move that would be unprecedentedin Italian relations with the U.S.S.R.

Given these uncertainties, it is difficult topredict the significance of the project forItaly. Yamburg could yield between 5 and 10bcm/yr of additional gas. Assuming a mid-level of 8 bcm, this would double Italian im-ports of Soviet gas (in 1979 these were 7bcm). 60 If Italian gas consumption reachesthe expected 40 bcm by 1985, Soviet sup-plies would account for 40 percent of Italy’sgas consumption. Extensive Italian partici-pation in Yamburg would thus ensure a con-

“1/ }.’lf~rinf), Nlar, H, 1 $)/i 1.‘“// (J’Iornu/[J, Nlar. 1 ‘7, 1981,

60 S e e s t a t e m e n t by. I“; nrico hl:inca, N1 inist [’r of ForeignTra(]e, in // ,tl[i i{l~{r,~, Nlar 14, 19X 1.

tinued high level of dependence on Sovietenergy.

Italy does not now have elaborate plans todeal with potential reductions in Sovietenergy supplies—a point worth noting, giventhe present level of Italian import de-pendence on Soviet gas. While the Italiangas corporation SNAM does not now haveinterruptible gas contracts, there are plansto introduce such arrangements if and whenthe pipeline project proceeds. There are alsoplans to increase stockpiles. At present,however, it would appear that the major con-tingency plan calls for use of the Algerianpipeline to pump additional supplies in theevent of an emergency.

On the equipment export side, a numberof Italian firms might participate, but thecentral issue has been financing. At ameeting of Italian and Soviet government of-ficials in March 1981, the Soviets reportedlyasked for credits to cover 85 percent of thefinancing of equipment exports worth $3 bil-lion to $4 billion, at an interest rate of 7 per-cent.61 The Italian Government is clearlydoubtful that these conditions can be met.Firms such as Finsider, which sells large-diameter pipe, and Nuovo Pignone, whichsells compressor stations, naturally favorthe deal, but financing problems have pre-cluded final agreement.

In sum, the Italians favor Yamburg, butwith some reservations. If financing prob-lems are solved–and this may be a majorobstacle—then the predisposition of Italianleaders is to participate. But there ismarkedly less enthusiasm here than in WestGermany or France. The Italians are boththe most dependent of this group on Sovietenergy, and the most cautious about con-tinued and increased reliance on the SovietUnion as a gas supplier.

Britain

Of the nations included in this study, Bri-tain has the least vested interest in the WestSiberian pipeline project. But although the

61 II }’i(~rr’no, Mar. 10, 1981.


U.S.S.R. would not provide gas to theUnited Kingdom, British firms such as JohnBrown, Rolls Royce, and Cooper Industriescould sell equipment for the project. Britishfinancial institutions have discussed thepossibility of extending credits to this end,but talks remain at a preliminary stage.

The pipeline has received less attentionin Britain than elsewhere in Europe or inthe United States. Government spokesmenclaim that the question of what constitutes areasonable or dangerous level of dependenceon Soviet energy is something that othergovernments must decide for themselves.There has been no official comment aboutthe desirability of the project from theperspective of West European energy secu-rity. Indeed, the British case illustrates theclear connection between the energy andtrade position of each Western nation and itsinterest in Soviet gas development. Morenearly energy self-sufficient than any of theother nations, and traditionally less involvedin East-West trade, the United Kingdom isunderstandably the least active participantin negotiations.


West Germany, France, and Italy all lookto the Soviet Union not only as a way to in-crease energy supplies, but also as an attrac-tive market for equipment exports. Barringunexpected political or economic devel-opments in Europe, therefore, the West Si-berian gas export pipeline will probably beconstructed, and West Germany, France,and Italy will certainly become more depend-ent on Soviet gas. While it is very difficult tomake precise determinations of the impact ofWest Siberian gas on the energy balance ofeach nation, reasonable estimates are thatboth West Germany and France could de-pend on the U.S.S.R. for about 30 percent ofall gas imports, and that Italy could receivealmost 50 percent of its imported gas fromthe Soviet Union, The corresponding per-centages for total gas and total energy con-sumption would depend on the energy bal-ance of each country at the time—a highly

uncertain matter. It must be remembered,however, that to some extent Soviet gas willreplace, not supplement, Soviet oil in thesecountries, and that even with these importlevels, energy dependence on OPEC is likelyto remain much higher than dependence onthe U.S.S.R. If the overall energy depend-ence of each nation examined here on theU.S.S.R. doubled, that dependence wouldrange from about 3 percent in the case of Bri-tain to nearly 20 percent in the case of Italy.

A sudden cutoff in gas supplies from theU.S.S.R. would impact each nation different-ly, but none would be immune from hard-ship—particularly in the context of a tight-ened world oil market or energy crisis. Allwould benefit by the development of more ef-fective contingency plans to allow for substi-tution of alternative energy supplies in theevent of a shortfall in Soviet gas. Such planswould diminish incentives for the SovietUnion to make use of its “gas weapon” topressure Western Europe. Emergency plan-ning would be most effective if it were under-taken by all the nations involved. Joint plan-ning would reduce the ability of the SovietUnion to divide Western Europe by playingone country off against another. However,the prospects for coordination of West Euro-pean policy toward trade and energy rela-tions with the U.S.S.R. are not bright.

PROSPECTS FOR WESTEUROPEAN POLICY

COORDINATION

One indication of Western Europe’s will-ingness and ability to coordinate policytoward the U.S.S.R. was its response to thetrade sanctions initiated by the UnitedStates against the Soviet Union followingthe invasion of Afghanistan. In January1980, President Carter announced that U.S.exports of certain agricultural commoditiesand of high technology items would berestricted. In March 1980, these restrictionswere intensified.

The extent to which America’s allies wereprepared to support these sanctions was un-


clear.” In the area of “high technology” (in-cluding computer systems, other advancedelectronic equipment, and automated ma-chine tools) a policy of “no exceptions” toCoCom controls was established. The expec-tation was that sales in these areas would bedrastically reduced. But, except for theUnited Kingdom, West European nations,on the whole, were and remain unsympa-thetic to the political use of economic pres-sures against the U.S.S.R. One important ex-ception was made to the CoCom “no excep-tions” policy—exports of spare parts for oiland gas pipelines were not restricted. 63

CoCom’s decision was based on the reason-ing that it is not in Western Europe’s in-terest to reduce the efficient functioning ofthe Soviet pipeline system which carriesenergy to the West.

In fact, the West European response to

the economic sanctions initiated by the U.S.was largely one of “every man for himself. ”As table 91 shows, during 1980 all of theallied nations reviewed here increased theiroverall exports to the U.S.S.R. (Japan andBritain were the most supportive of U.S.sanctions, and the French and Italian gov-ernments did limit credits for the SovietUnion.) 64 West European businessmen open-ly criticized the sanctions as ineffective andcontrary to the fundamental interest of theWest. Both West Germany and France offi-cially expressed their wariness of the sanc-tions; and discussions over the gas export—. — ——— —-—

62 U.S. Senate, Commit tee on llanking, }Iousing, and UrbanA ffa i r~, ,Suhcom mit tee on 1 n terna t iona 1 Fi na rice, ‘‘ (J. S. h; m-har-go of J+’o(A and ‘1’echnolog? to the Soyiet IJnion, ” ,Jan. 22and illar. 24, 1980, pp. 36 and 117.

“‘Ri(’hard N. Cooper, ‘Lh; xport Restriction on the LJ.S.S. R.,”(’urrcnt l’(~lic}, No. 211, /\ug. 20, 19N().

“’~’e(i[’rico Bungo, “Cossiga 1 nfuria, 11 P i a n o Manca,”’1, ‘}.’\prcs S(A .June 15, 19W, See also 1/ ~’if~rz’no, <June 15, 1980.

pipeline project and other deals continuedthroughout 1980. In a number of cases, WestGerman and French firms won contractswhich had been nearly completed by U. S.,Japanese, or British firms. In Britain, theThatcher government support for the sanc-tions was openly questioned in a report forthe House of Commons Foreign Affairs Co-mittee. The report concluded that a Westernembargo of technology needed by the SovietUnion for energy development might wellprove counterproductive by stimulatingSoviet aggression in the Persian Gulf. Thus,rather than responding with a set of jointpolicy initiatives, Western Europe remaineddivided.

This response not only illustrates the dif-ficulty which the United States has had–and may well continue to have—in influenc-ing West European trade relations with theU.S.S.R. It also reflects the limited ability ofEEC nations to coordinate East-West tradepolicies. The EEC treaty calls for develop-ment of joint trade policies toward CMEA.But, despite repeated efforts on the part ofEEC to persuade its members to negotiateone multilateral treaty with each CMEA na-tion, a joint approach has not emerged. EEChas legislation which prohibits the establish-ment of bilateral trade treaties, but itsmembers have circumvented the substanceof this position by concluding separate‘‘cooperation” agreements with East Euro-pean nations–for example, the FRG’s 197825-year agreement with the U.S.S.R. forlong-term cooperation in energy and trade.

This limited coordination also exists inenergy policy, a fact largely the result of thediffering resource endowments and differing

Table 91 .—Exports of Western Nations to U.S.S.R. 1975-80 (millions of U.S. dollars)

United States ‘- - Japan France West Germany Italy United Kingdom Total 6

1975 . . . . . . . . 1,625 1,147 2,824 1,020 - 964 8,9141979 ., . 3,604 2,461 2,007 3,619 1,220 694 13,6051980 . . . . . 1,664 3,075 2,712 4,811 n/a 1,162 13,424

(without Italy)– 540/o + 24.9% + 35% + 32% NA + 67%

SOURCE 1975-79 UN SITC 1980 preliminary IMF data—


interests of the various EEC members.65

Discussions of energy security within EEChave dealt with such issues as oil stockpiles,conservation, and substitution of coal andother energy sources for oil, but it is notclear that even the small degree of coordina-tion achieved can be translated into the areaof East-West energy relations.

Efforts to promote multinational energycooperation have also resulted in discussionsof an ‘‘all-European energy conference.This idea originated in 1971 with a proposalby Soviet Prime Minister Kosygin for great-er East-West cooperation in energy.66 Pro-posals for such a conference have surfacedover the years at both the United NationsEconomic Commission for Europe (ECE)(both the United States and the U.S.S.R. aremembers) and at the Conference on Securityand Cooperation in Europe (CSCE), mostrecently at the 1980-81 Madrid CSCE meet-——————

65“See Georges Bronde], “ h;nt~rgy I’olicy and ~h(’ ~; F;(’, ” fi:n-crgJI Polic,)’, Septemlwr 1978, p. 231.

““l)ra(~iu, Apr. 7, 1971.

Interaction between Westernthe U.S.S.R. over the coursedecade–measured by both the

ing. The United States strongly opposessuch a conference and little progress hasbeen made on the proposal, although a firststep was taken in 1979 when the ECE es-tablished an ad hoc group, of “Senior Ad-visors to the ECE Governments on Energy. ”The major effort of the group so far has beento collect and study responses from membernations to an energy questionnaire. Oneproblem has been that energy data from theCommunist nations, particularly theU. S. S. R., has been either incomplete or unre-sponsive. In December 1980, ECE publisheda report on the energy problems of the ECEregion,” but especially given the oppositionof the United States, the future of this effortis uncertain. In fact, the all- Europeanenergy conference has become a politicalissue between the United States and itsallies in Western Europe who favor its con-vening.

CONCLUSIONSEurope andof the lastlevel of ex-

ports of Western equipment to, and importsof energy and raw materials from, the SovietUnion–has increased. While trade with theU.S.S.R. does not represent a great portionof the total exports of any of the Western na-tions examined here, this trade does con-stitute a significant proportion of productionfor certain industrial sectors (e.g., steel).Similar patterns exist with respect to im-ports of Soviet energy. No nation included inthis study receives more than about 10 per-cent of its total energy requirements fromthe U.S.S.R. However, in West Germanyand Italy, dependence on Soviet gas nowstands respectively at about 24 and 43,2 per-cent of gas imports, and 16 and 24 percent oftotal gas consumption. If the new WestSiberian gas pipeline project is completed,

such dependence will rise significantly forWest Germany, France, and probably Italy.The degree of overall dependence for eachWest European nation on Soviet energy willalso rise, but given the fact that Soviet gasexports will largely replace Soviet oil ex-ports, this increase may not be as large aswould otherwise be expected. The existingsituation is one of limited overall dependenceof Western Europe on energy from andenergy-related trade with the U.S.S.R.—butsignificantly greater dependence in certainindustrial and energy sectors. If the WestSiberian pipeline is built, Western Europe’sinterdependence in trade and energy withthe Soviet Union will increase further.

To a large extent, this trend may beregarded as a fait accompli. There is strongcommitment to energy and trade relationswith the U.S.S.R. among all of the nations


studied here, despite considerable variationin the salience of East-West energy andtrade for public policy debate. This variationcan be attributed to considerable differencesin the energy and export situations of thecountries. West Germany, by virtue of itshistoric ties, its geographic proximity, andits political concerns, e.g., with East Ger-many, is most active—both at the officialand at the private diplomatic levels—in ac-tively promoting interaction with the East-ern bloc. Italy, likewise, has developed a pat-tern of fairly strong energy and trade tieswith the U.S.S.R. and its allies. France, andespecially Great Britain, appear to perceiveless need to promote energy imports (in thelatter case because of North Sea oil, and inthe former because of plans to rapidly de-velop nuclear power). France, unlike Great

Britain, has played a strong role in exportsof energy-related equipment. The prospectsfor interaction between any of these nationsand the U.S.S.R. cannot be understood out-side the context of these differing nationalinterests, experiences, and perspectives.

This is not to suggest that there i sunanimity in any West European nationover energy imports from the U. S. S. R., par-ticipation in the gas pipeline project or sup-port of U.S. economic sanctions against theSoviet Union. Nevertheless, the generalpredisposition in each country examinedhere is to promote interdependence and to beunwilling to use trade as a lever in East-West political disputes. The latter Point is

well-illustrated by the fact that West Ger-many, France, and the United Kingdom allactually increased exports to the U.S.S.R. in1980—despite U.S. calls for trade sanctions.Of course, a variety of domestic politicalforces could change West European officialpolicies toward trade with the U. S. S. R., butinterdependence with the U.S.S.R. is cur-rently viewed as a fact of life. To a great ex-tent, this view is based on a positive attitude(rather than simple resignation) toward theperceived potential benefits which East-West interaction generally, and cooperative

energy development with the U.S.S.R. spe-cifically can confer. These benefits areperceived in both political and economicterms.

Unless the political situation changesdramatically, it is likely that the countries ofWestern Europe will participate in the devel-opment of the new West Siberian gaspipeline. If the project proceeds on the scalecurrently envisaged, it will lead to a signifi-cant growth in West European-Soviet en-ergy independence. The value of the equip-ment needed for the pipeline is double thevalue of all the exports of the industrialWest to the U.S.S.R. in the year 1979. Thus,completion of the project would be tanta-mount to a quantum increase in Westernequipment exports to and credit financingfor the U.S.S.R. In addition, while it is dif-ficult to make precise estimates of theamounts of gas the pipeline will provide toany one country individually or to WesternEurope as a region, dependence on Sovietenergy will probably increase in the FRCI,France, and Italy.

The gas pipeline project marks a signif-icant new development in East-West rela-tions. It will require a multinational effort onthe part of Western Europe, and it is precise-ly this dimension which may be of greatestlong-term significance to the United States.More than the increased trade and energyimport opportunities which the projectoffers—and in both of these areas WesternEurope’s relationship with the U.S.S.R.would still be considerably weaker than itsdependence on OPEC–a changed politicalclimate would offer both potential risks andbenefits. On the one hand, the project mayprovide an opportunity for the Soviet Unionto lever individual West European nations—thereby challenging overall Western unity.On the other hand, if the project stimulatesnew types of Western policy coordination, itcould change the overall context of East-West relations.

The critical question is whether Westernnations, either individually or in concert, can


act to limit the risks involved. (Any coor-dinated policy would necessarily involveJapan–the nation which supplied one-thirdof all energy-related equipment exports tothe Soviet Union in 1979. ) One area in whichjoint action could be useful is in assessinglevels of energy dependence likely to resultfrom new Soviet gas pipeline(s), andplanning for contingency arrangements inthe event of a supply shortfall. There isprecedent for such an effort; IEA hasalready undertaken such discussions in thecontext of dependence on OPEC oil. A crit-ical aspect of such a joint policy approachwould be plans for gas and oil sharing in theevent of a Soviet cutoff, including emergen-cy provision of gas and other energy suppliesfrom alternative sources.

A second area in which joint policy couldprofitably be developed is in further coor-dinating project negotiations at both officialand private levels. This kind of joint actioncannot be simply decreed; it must be builtcarefully and gradually. The absence of for-mal Western coordination may provide op-portunities for the Soviet Union to playfirms in one nation off against another. TheU.S.S.R. could, for example, use an attrac-tive offer of credit from one government tobargain with another. These tactics couldproduce a West Siberian project economical-ly more advantageous to the U.S.S.R. thanto the West. While firms generally tend to

prefer open competition, in this case thereare indications that, informally at least,some degree of cooperation has evolvedamong participating companies; informal ex-change of information concerning prices, in-terest rates and credit terms has set anunspoken context within which each partici-pant bargains with the U.S.S.R. Such com-munication, fostered by governments and bypublically owned energy companies, couldhelp to maintain Western unity. Recentmoves in IEA to establish a system tomonitor prices paid for oil are more formalbut analogous mechanisms. Maintaining theflow of information about pipeline negotia-tions is thus an important component of ajoint approach.

Some observers argue that a joint WestEuropean policy is not feasible–and that thepast 10 years of limited progress confirmsthis view. The question is whether there isany viable alternative for limiting therisks of increasing energy dependence onthe U.S.S.R. OTA’s analysis suggests thatunder current conditions, predipositions inWestern Europe would preclude the successof any attempt to “stop Yamburg.” A morefruitful approach, therefore, would be to de-velop mechanisms for anticipating and ame-liorating any negative consequences for theWestern alliance which the project mightengender.

CHAPTER 13

Soviet Energy Availabilityand U.S. Policy

CONTENTS

Page

CURRENT U.S. POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .386

The Export Administration Act of 1979. . . . . . . . . . . . ..................386Foreign Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......386U.S. Policy on Exports of Energy-Related Goods and Technology. . .......388

THE EMGARGO PERSPECTIVE . . . . . . . . . . . . . . . . . . ................389

Goals and Assumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........389Discussion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...................389

THE LINKAGE PERSPECTIVE . . . . . . . . . . . . . . . . . . .................390

Goals and Assumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........390Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...................392

THE ENERGY COOPERATION PERSPECTIVE. . . . . ...............394


THE COMMERCIAL PERSPECTIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395


CHAPTER 13

Soviet Energy Availabilityand U.S. Policy

The Soviet energy situation was broughtto the attention of the U.S. public in 1977when the Central Intelligence Agency (CIA)forecast substantial and steep declines inSoviet oil output by 1985.1 Although it hassince modified its position, the C I A as lateas April 1980 was predicting that the Coun-cil for Mutual Economic Assistance (CMEA)would be importing ‘‘at least" 1 million bar-rels of oil a day by 1985.2 The possibility ofimpending Soviet energy shortages and ofincreased competition for oil on world mar-kets thus raised a policy debate in theUnited States, a debate framed largely interms of whether or not. it is in the best in-terest of the United States to institute a pol-icy of helping the Soviet Union increase itsenergy production.

Some favor a policy of promoting Ameri-can exports of energy production technologyto the Soviet Union in order to increase theworld total available supply of energy, toobviate extensive CMEA. A pressure on worldenergy markets, and/or to reduce the likeli-hood that the U.S.S.R. would intervene inthe Middle East to acquire oil it could nolonger produce in sufficient quantities athome. Adherents of the opposing view con-tend that assisting the development ofSoviet energy resources would help tostrengthen the economy of an adversaryand or that such assistance may conveydirect or indirect military benefits. The con-

1 Central Intelligence Agency, I)r(j i)j{’(1 \ ~i~r ,$’(~f {(I( oil IJr(J-

(1(~ ( t I () n. :~ pr i 1, 1 ~)~~: )~ro~l)()( t ~ /~Ir ,f’,jr ~(t ()// ~’r~}[l{i((i(~tt ,1

.f”~ippl(’m{n ({//,1 11(1111 \i.s, .Jul~ 1 !)77.‘1’[’+t im~)ny of .,\[] m ir:il Stansfi(’ld ‘1’urn[’r, 1 )irwtor of the

(’I ;$. lx’f{}r~’ t h~’ (’~)mnlitt (YJ on F:ner~~ and N a t u r a l I{e-~f)u r[t’s, [ T. ,S. StIn2 t [I. \pr 22, 1 9X()

cern here is with the transfer of dual-usetechnologies which have military applicationand/or the view that oil itself is a strategiccommodity. Another dimension of this posi-tion is concerned with the prospects of in-creasing Soviet energy (i. e., gas) exports toWestern Europe and the dangers of in-creased West European energy ‘‘depend-ence" on the U.S.S.R.

Whichever view one holds, the most directmeans by which the United States might af-fect Soviet energy availability would be bydeciding to export or withhold exports ofenergy (particularly petroleum) equipmentand technology to the U.S.S.R. Alternativesfor formulating a policy on U.S. energy-related exports to the Soviet Union can bebroadly divided into four basic categories:

policy options designed to bar the trans-fer of Western energy equipment andtechnology to the U.S.S.R.;policy options designed to use the in-ducement of increased exports or threatof curtailing production equipment andtechnology exports to exact politicalconcessions from the Soviet Union, i.e.,options designed to further a policy oflinkage or leverage;policy options designed to facilitateSoviet energy resource development asquickly and efficiently as possible, inorder to mitigate future energy short-ages in the world as a whole; andpolicy options designed to reap what-ever commercial advantages may beavailable from trade with the U.S.S.R.in all items except those of direct mil-itary relevance.

385


CURRENT U.S. POLICY

THE EXPORTADMINISTRATION ACT

OF 19793

U.S. exports of energy-related technologyand equipment to the U.S.S.R. are regulatedby the Export Administration Act of 1979(Public Law 96-72). This act is the latest in aseries of laws which for the past 30 yearshave sought to balance the dual objectives ofpromoting international commerce and safe-guarding American national security. Con-troversy over the proper weight to be ac-corded each of these interests has been con-tinuous, but over the years the thrust of U.S.trading policy has been gradually to expandopportunities for selling U.S. products andknow-how to Communist nations.

Under the present legislation, U.S. firmsseeking to do business with the Soviet Unionmust obtain validated export licenses if thegoods or technology they plan to sell appearon the U.S. Commodities Control List (CCI.).Most of the CCI. consists of items which arealso regulated by CoCom, the informal multi-lateral export control organization consist-ing of the United States and its NATO allies(minus Iceland, plus Japan). However, theUnited States does maintain unilateral con-trols over some 38 additional products andtechnologies. Many of these are energyrelated. The Secretary of Commerce, withthe advice of the Secretaries of State andDefense, may delete such items from theCCL. Items may also be added if these aredeemed to have significant military applica-tions, to be in short supply, or to relate tospecific foreign policy objectives. Inclusionin the CCI. does not mean that the item isnecessarily embargoed. Rather, it meansthat the potential exporter must file a licenseapplication with the Department of Com-merce (DOC).

‘For a legislative history of U.S. export control policy, aswell as descriptions of the U.S. export licensing procedureand of CoCom regulations. see Office of Technology Assess-

There are three circumstances underwhich a license application may be refused:the export will make a significant contribu-tion to the military potential of anothercountry; the item in question is in domesticshort supply; or the restriction is necessaryto significantly further the foreign policy ofthe United States.

Prior to passage of the 1979 Export Ad-ministration Act, the President’s discretionto control exports for the latter reason waslargely unlimited. Now, all foreign policycontrols expire at the end of each calendaryear. To renew them, the President mustnotify Congress and justify the reextentionon the basis of criteria which include theprobability that controls will achieve the in-tended foreign policy purpose in light of suchfactors as the availability of the goods ortechnology in question from other countries.

FOREIGN AVAILABILITY

This concept of “foreign availability”’ con-stitutes an important part of the Export Ad-ministration Act. Recognizing that the avail-ability from other sources of items controlledby the United States undermines the impactof U.S. policies and places U.S. firms at acompetitive disadvantage, section 5(f) stipu-lates that the Secretary of Commerce, in con-sultation with other Government agenciesand technical advisory committees, should:

. . . review, on a continuing basis, the availabilityto countries to which exports are controlled . . ,from sources outside the United States, includingcountries which participate wit h the UnitedStates in multilateral export controls, of anygoods or technology the export of which requiresa validated license . . . (In the event) that any suchgoods and technology are available in fact to suchdestinations from such sources in sufficient quan-tity and of sufficient quality so that the require-ment for a validated license for the export of suchgoods or technology is or would be ineffective inachieving the purpose set forth . . . the Secretary

ment, Technology and East-West Trade (Washington, D. C.:U.S. Government Printing Office, November 1979). This vol-ume also contains the text of Public Law 96-72.

Ch. 13—Soviet Energy Availability and U.S. Policy ● 387

may not, after the determination is made, requirea validated license for the export of such goods ortechnology during the period of such foreignavailability, unless the Presidcnt determines thatthe absence of such export controls under this sec-tion would prove detrimental to the national secu-rity of the United States,

The section goes on to require that thegrounds for such a determination, togetherwith an statement of the estimated economicimpact of the decision, be published. ThePresident is further enjoined to undertakenegotiations with foreign governments toeliminate the availability. In the absence ofsuch a Presidential determination, the Secre-tary of Commerce is directed to approve anyvalidated license application which meets allother requirements and which is for exportof goods or technology for which foreignavailability has been established.

Determinations of foreign availabilitythat are to be the basis for these licensingdecisions must be supported by “reliableevidence, including scientific or physical ex-amination, expert opinion based on adequatefactual information, or intelligence informa-tion.” The act specifically stipulates that‘‘uncorroborated representations by appli-cants shall not be deemed sufficient ev’idenceof foreign availability. Capability to moni-tor and gather information on foreign avail-ability of all goods and technologies subjectto U.S. export controls was to be establishedwithin the office of Export Administration(OEA), the part of DOC responsible for ex-port licensing, and each department or agen-cy of the United States with export controlresponsibilities, including the intelligenceservices, were required to furnish OEA withappropriate foreign availability in formation.

However, it is clear by now that the entireconcept of foreign availability is fraughtwith ambiguity and raises important prac-tical difficulties. Nowhere, for instance, doesthe 1979 Export Administration Act definethe terms ‘‘available without restriction,‘‘a~’ailable in significant quantity," or "com-parable quality.” Among the definitionalquestions pertaining to the meaning of

‘‘availability and “comparability” are thefollowing:

●

●

●

●

Must a foreign competitor have ex-pressed a willingness to sell to theU.S.S.R. for its goods to be considered‘‘available?” Must the U.S.S.R. have ac-tually approached the competitor; o rdoes the mere existence of goods andtechnologies outside the United Statescount as foreign availability?How do matters of price affect bothavailability and comparability: if aforeign item is cheaper or backed byforeign government export credits, howinferior need it be to the U.S. alter-native before it is no longer counted asevidence of foreign availability’?What are the parameters for assessingcomparable quality; are these differentfor many pieces of equipment or tech-nologies appearing on the CCL’? Mustitems be identical to be considered com-parable?Similarly, how are “significant quanti-ties” to be determined? Are - theserelative to the amounts the Sovietswish to purchase in the immediate salein question, to total world supply, ordoes their assessment involve compari-son of the manufacturing capacities ofU.S. industries and their foreign com-petitors’?

Aside from these conceptual difficulties,there have been enormous practical prob-lems involved in establishing a foreign avail-ability assessment mechanism in DOC. As-sembling sufficient information to answerthe kinds of questions suggested above is amassive undertaking and as of this writing itdoes not appear that the executive branchhas released the funds allocated by Congressto allot the staff and other resources nec-essary to complete this task in a systematicor comprehensive way.

Furthermore, even assuming that a clearconceptual framework for assessing foreignavailability and the resources to handle theresulting data existed, it is not clear thatpresent information-gathering mechanisms


would be sufficient to satisfy the terms ofthe act. Indeed, most of the information re-quired would have to be secured from privatefirms in foreign countries. Since a great partof this information might reasonably be ex-pected to be company proprietary, seriouspractical—if not legal and ethical–problemsmight be encountered.

In short, satisfying the present legal criteria for ascertaining foreign availability willbe expensive, time-consuming, and perhapsintrusive. The requirement in the act thatthis assessment be conducted “on a continu-ing basis” adds to these burdens. Given thefact that DOC’s foreign availability capabil-ities have yet to be fully instituted, it is dif-ficult to determine whether or not the provi-sions can be fulfilled in a cost-effective man-ner.

U.S. POLICY ON EXPORTSOF ENERGY-RELATED GOODS

AND TECHNOLOGY

In July 1978, in response to the U.S.S.R.’spolicies towards its dissidents, PresidentCarter decided to invoke foreign policy con-trols and to place exports to the SovietUnion of technology and equipment for theexploration and production of oil and gas onthe CCL. These items thereby became sub-ject to U.S. unilateral control, i.e., U.S. ex-porters were required to obtain validatedlicenses for petroleum equipment and tech-nology not included on the multilateralCoCom list. The absence of CoCom controlsmeant that firms in allied countries couldcontinue to export such equipment and tech-nology free of any restriction.4 Two impor-

4 Under (J. S. law, technology of U.S. origin requires a U.S.export license in order to he reexported from a third country.

tant assumptions underlay Carter’s deci-sion: the Soviet Union had a critical need forthe items in question, and it was largelydependent on the United States for theirSupply.5

Foreign policy controls on petroleum-related items were reaffirmed and reiteratedin January 1980, following the Soviet inva-sion of Afghanistan. In his letter notifyingCongress of the renewal of these controls,President Carter asserted that:

The control on the export of petroleum equip-ment to the U.S.S.R. provides a flexible foreignpolicy tool. When necessary and appropriate itcan be used to sensitize the Soviets regarding ac-tions which are damaging to United States for-eign policy interests . . . Discontinuation of thiscontrol would represent a change in policy notwarranted by existing circumstances in our rela-tionship with the U.S.S.R.6

At this writing, U.S. policy toward en-ergy-related equipment and technology ex-ports to the U.S.S.R. is under review. Forthe moment, applications for validatedlicenses for exports of oil and gas equipmentand technology to the U.S.S.R. are decidedon a case-by-case basis. Sales of end prod-ucts alone have generally been approved, butthose involving industrial manufacturingknow-how are acted on with a presumptionof denial. 7

Any new policy direction, as noted above,would fit broadly into one of four basic cate-gories. The following sections describe thefour perspectives from the point of view oftheir advocates, and discuss the implicationsof implementing each.

‘Samuel P. Huntington, “Trade, Technology, and Lever-age: l+~conomic’ Diplomacy, “ J’orvign I)olifj, fall, 1978, p. 76.

“1.etter of President Carter to }{on, Thomas 1]. ()’ Neill,I)ec. 29, 1979, in ThII (’f)rzgr[’.s,siotzul h’{’corci ,Jan. 29, 1980, p.[1 3/i 1.

‘llu,~inc.s,v Arrlerica, Apr. 7, 1980, p. 12.

. .

Ch. 13—Soviet Energy Availability and U.S. Policy ● 389

THE EMBARGO PERSPECTIVEGOALS AND ASSUMPTIONS

In the past, legislation has been intro-duced in Congress which has been designedto severely curtail the ability of U.S. firms tosell energy-related equipment. and technol-ogy to the U. S. S. R.8

Those who favor thispolicy orientation usually hold one or more ofthe following views with respect to suchsales:

1. Energy, and particularly petroleum,equipment and technology are dual-useitems, i.e., they may have military ap-plications.

2. Oil is itself a strategic commodity.3. Helping the U.S.S.R. to maintain or im-

prove its energy output bolsters the So-viet economy, contrary to U.S. nationalinterest.

This perspective, like the linkage perspec-tive discussed below, is often based on thepremise that the denial of American equip-ment and technology will significantly in-hibit the development of Soviet energy re-sources and Soviet energy output. I n thosecases where the United States is neither a

sole nor a preferred supplier of equipmentand technology, adherents of this positionhold that the U.S. Government can andshould undertake negotiations with its alliesto enlist their cooperation in a technologyembargo.

DISCUSSION

In a very few cases, energy-related tech-nologies and equipment have had the poten-tial for direct military use, The sophisticatedcomputers and other seismic equipment, in-cluding large main-frame computers, arrayprocessors, and advanced automated dataprocessing systems, sought by the U.S.S.R.certainly could convey military capabilities.Such computers and software are already un-

8 See, for example, The Technology Transfer Han Act, 11. R.140N5, introduced in tht’ Iiouse of Representati~es on Sept.14, 197X.

der both U.S. national security and CoComcontrols. It has been alleged that certainaspects of the technology required for themanufacture of oil drilling bits with tung-sten carbide inserts are militarily relevant.These allegations have been the subject ofconsiderable dispute and experts have dis-agreed over the military utility of this tech-nology.9 However, the final determination ofU.S. export licensing authorities, includingthe Department of Defense, was that thesetechnologies could be safely exported.

These instances are exceptions. The greatmajority of the energy equipment and tech-nology which the U.S.S.R. purchases fromthe West consists of items which have raisedfew questions from the standpoint of theirdirect military relevance. Defining fuel itselfas a strategic commodity, however, raises adifferent kind of problem-and invokes arather different policy, A decision to restrictthe export of items because of their economicor indirect, as opposed to direct, militarysignificance would be tantamount to revers-ing the trend of the last 30 years of exportcontrol in the United States.

The Export Control Act of 1949, by allow-ing the control of items of “indirect”military utility, in fact was aimed at pursu-ing a policy of economic warfare against theSoviet Union.10 This policy was abandoned,partly because it was recognized that itcould be effective only if adhered to byAmerica’s allies. In other words, a wide ar-ray of items which the U.S.S.R. wished topurchase from the West had become avail-able outside of the United States, in coun-tries far more dependent than was theUnited States on foreign trade. The UnitedStates appeared to be unable to convincethese alternative suppliers to impose the

—9 ‘‘Transfer of Technology and the Dresser Industries

Export 14icensing Actions, ” I Iearings hefore The PermanentSubcommittee on I ntestigat ions, Comnlittee on (;o~rernnwn-tal Affairs, LJ. S. Senate, oct. 3, 19’78.

10 OTA, op. ci~., ch. k’ 11.


same restrictive policies. Without suchcooperation, American firms lost sales toEuropean and Japanese competitors, andthe U.S.S.R. was nonetheless able to obtainthe nonmilitary goods and technologies itsought.

OTA has elsewhere explored the generalEast-West trade policies of those allied na-tions which are major Western trading part-ners of the U. S. S. R.11 The basic conclusionsof that analysis were that while America’sallies do not deny the basic necessity ofwithholding items of direct military signifi-cance from the U. S. S. R., East-West tradehas been economically more important toWestern Europe and Japan than to theUnited States. These countries tend to viewtrading with the Soviet Union as primarilyan economic issue, and to eschew the use ofexport controls for political purposes. Thelukewarm response with which the post-Afghanistan technology embargo wasgreeted in Western Europe and, to a lesserextent, Japan—as well as the 1980 statisticsreported in chapter 12 which show that tradebetween the Soviet Union and Japan, WestGermany, France, Italy, and the UnitedKingdom actually grew during the “em-bargo period”- indicate that these basicorientations have not changed.

Chapters 11 and 12 discuss in detail theattitudes of Japan, West Germany, France,Italy, and the United Kingdom to specifical-ly energy-related trade with the U.S.S.R. Ingeneral, it appears that for these nations,sales of energy-related technology and equip-ment to the U.S.S.R. pose no special foreignpolicy or national security concerns, norhave these transactions sparked intense de-

11 Ibid., ch. IX.

GOALS

Linkage isprospect of

THE LINKAGEAND ASSUMPTIONS

a policy which seeks to use theexpansion or curtailment of

12 Ibid., ch. IV.

bate. Indeed, in some of these countries suchsales are of significant economic importance.A U.S. policy of extending export controls toenergy-related items with economic andpolitical, but little or no direct militaryrelevance, is therefore unlikely to encountermuch sympathy or active cooperation.

The highly publicized gas pipeline deal, inwhich West European and Japanese exportcredits and equipment will be bartered forSoviet gas may change the context of thistrade, however. There is little doubt that themagnitude of the proposed project and itsimportance to the Soviet economy make it atransaction of particular significance. OTA’sresearch indicates that the potential West-ern participants are by no means insensitiveto both the economic and security impli-cations of embarking on this degree of coop-eration and interdependence with theU.S.S.R. Nevertheless, these nations appearto have decided—both in principle, and nowin practice—to proceed.

It is possible to posit circumstances underwhich the United States could persuade itsallies to reverse these decisions. A majorchange in the international climate precipi-tated by a Soviet invasion of Poland, for in-stance, could certainly cause either a tem-porary or a permanent halt to the gas exportpipeline project. In the absence of this kindof event, a U.S. policy initiative designed todiscourage continued or increased alliedenergy- related trade with the U.S.S.R.might have its best chance of success ifdesigned to offer allied governments positivealternatives, in the form of either realisticalternative energy supplies to replace Sovietgas or assistance in devising contingencyplans for Soviet supply interruption.

PERSPECTIVE 12

trade as a “carrot or stick” to exact policyconcessions from a trading partner. Theperspective itself accommodates a number ofdifferent points of view. Those who favorpursuing a linkage strategy may disagreeover the nature and scope of the goals which

Ch. 13—Soviet Energy Availabiiity and U.S. Policy ● 391

such a policy can further. These disagree-ments center on both the range of policieswhich linkage can or should hope to affect(i.e.. should future trade be linked to thetrading partner’s domestic policies—treat-ment of dissidents in the case of theU.S.S.R.–or should it be restricted toattempting to affect only major foreign pol-icies—such as the invasion of Afghanistan?)and on the kinds of trade which should beused as policy instruments (should the ex-tension of credits and most-favored nation(MFN) become part of a linkage strategy;should all trade be affected—includinggrain—or should the policy apply only totechnology trade?).

Adherents of adopting a linkage policy

toward trade with the Soviet Union may alsohold different basic perceptions of the natureof the U.S.-Soviet relationship and its poten-tial. Some believe that trade can have amoderating effect on international politicsby enmeshing trading partners in a “web ofinterdependence. Others see a fundamen-tally adversarial relationship between theUnited States and the Soviet Union. Theymay accept the fact that trade can be har-nessed to political purposes, but are skep-tical of the connection between trade and po-litical moderation. Here trade is justified on-ly if in return the trading partner makespolicy concessions.

Regardless of these differences, however,the belief that a linkage policy can be effec-tive entails acceptance of the basic proposi-tion that the potential exports in questionmust be of sufficient value to the U. S. S. R.,and the assumption that the United Stateseither has a monoply on these items, or fail-ing that, is a strongly preferred supplier.

Although different Administrations havedisagreed over the ways in which a linkagepolicy vis-a-vis the Soviet Union should beconducted, for some years America’s tradewith the Soviet Union has taken place withinthe context of linkage. U.S. efforts to usetrade to moderate Soviet behavior have in-cluded linking the extension of MFN statusand eligibility for official U.S. export credits

with the emigration of Soviet Jews (theJackson-Vanik amendment): linking the ex-port of a U.S. computer to the SovietUnion’s treatment of its dissidents; and cur-tailing both shipments of U.S. grain and theexport of technology after the Soviet inva-sion of Afghanistan.

There is little clear evidence so far that inany of these cases U.S. trade policy has hada measurable effect on Soviet foreign o rdomestic activities. Nevertheless, no overalldetermination of the success or failure oflinkage as a basic strategy has yet beenmade, and the results of these policies havebeen subject to varying interpretations. Thepotential effectiveness of a policy specifical-ly linking exports of U.S. petroleum equip-ment and technology is also the subject ofsome debate.

Opponents of such a policy may entirelyreject the notion that trade can be an effec-tive instrument to achieve political objec-tives. This view is held by a number of otherWestern governments and is often espousedby some American corporations. Others—often members of the petroleum equipmentindustry—contend that the United Stateshas little or no leverage in this area becauseof the wide foreign availability of the equip-ment and technologies desired by theU.S.S.R. .

On the other side, it has been contendedthat President Carter’s inclusion of energyequipment and technology on the CCL was amajor step in placing the United States in aposition vis-a-vis the U.S.S.R. “in which thetechnological door can be more easily closed,or swung near to being closed, if that seemsdesirable or necessary.”13 This assertion ispremised on the belief that for many items inthe area of petroleum technology and equip-ment, including downhole pumps, gas-liftequipment, drill bits, well completion equip-ment, and offshore drilling technology, theUnited States has virtually been the SovietUnion’s sole supplier, and that “this type ofequipment is absolutely essential to the

13Huntington, op. cit.


Soviets if they are to stave off a significantdecline in their oil production in the early ormid- 1980's.14

Such statements are supported by CIA’s1977 report which identified items of tech-nology and equipment particularly crucial toSoviet petroleum output. These includedseismic exploration equipment; rock drillbits; oilfield pumps and gas-lift equipment;large diameter pipe; offshore technology;rotary rigs, drill pipe and casings; multiplecompletion equipment; and secondary andtertiary recovery equipment.

In December 1979, however, PresidentCarter himself acknowledged that the list ofitems in which the United States was thesole or preferred supplier was somewhat nar-rower. His letter to Congress on December29 stated that for most items of petroleumequipment, “adequate quantities of similarequipment are available from foreignsources.” At the same time, “there is onlylimited foreign availability of some deepsubmersible pumps and seismic equip-ment.” 15 The implication presumably re-mained that these items were critical enoughto the U. S. S. R., and their supply controlledsufficiently by the United States, for theforeign policy controls to continue to beuseful in furthering U.S. objectives.

DISCUSSION

As chapter 6 points out, the foreignavailability assessment which was per-formed in the course of this study was in-hibited by the same conceptual and practicaldifficulties described above, and its resultsshould be considered suggestive rather thanconclusive. With this caveat, OTA’s find-ings tend to confirm President Carter’sassertion that, with few exceptions, ade-quate quantities of the energy equipmentsought by the U.S.S.R. are produced andavailable outside the United States, and thatthe quality of these foreign goods is general-

14 Ibid.15 Letter of President Carter, op. cit.

ly comparable to that of their U.S. counter-parts. The most important exceptions to thisgeneral finding are electric submersiblepumps and sophisticated seismic systems.But it does not necessarily follow that ob-taining the latter items from U.S. firms is socritical to the U.S.S.R. at this time that thethreat of their being withheld would result insignificant Soviet policy concessions. Nor isit clear that the fate of Soviet petroleum pro-duction in this decade is entirely or evenlargely dependent on them.

The United States is the only producer ofhigh capacity electric submersible pumps inthe Free World. Several years ago, theU.S.S.R. purchased relatively large amountsof such equipment. It will be recalled, how-ever, that although U.S. pumps are ofsubstantially better quality than theirSoviet counterparts, they never constitutedmore than a small portion of total Sovietstocks. Moreover, there is reason to believethat virtually all the American pumps in theU.S.S.R, are by now out of commission, andthe Soviet Union has not replaced them. In-deed, the Soviet Union has bought no U.S.pumps for the past 3 years—nor has its oiloutput declined over this period. I t seemshardly reasonable, therefore, to characterizethe Soviet oil industry as dependent on thistype of equipment. One or more of threethings appears to have occurred: the SovietUnion has found at least a partial substitutefor high-quality pumps (gas-lift equipment,purchased in France); in addition, it mayhave improved the quantity and/or the quali-ty of its domestic pumps; or planners mayhave decided that less than state-of-the-artequipment is acceptable.

Similarly, it is generally recognized thatthe United States is a preferred supplier ofseismic exploration equipment and that suchequipment could significantly improve thequality and efficiency of Soviet seismicwork. The United States also appears to bethe Western nation best able to provide theU.S.S.R. with the full range of services andcapabilities necessary for its exploratory ef-forts. Most of the oil hitherto discovered in

Ch. 13—Soviet Energy Availability and U.S. PolIcy ● 393— -.

the world, however, has been found in giantfields with exploration technology thatsignificantly lagged the present state-of-the-art. In any case, long leadtimes are usuallynecessary before newly discovered depositscan be developed, and it is not clear that ex-ploratory activities initiated now would pro-duce significant results before the latter partof the decade. Moreover, even though sys-tems with components assembled from anumber of different suppliers may be lessdesirable than those purchased in their en-tirety. the U.S.S.R. might well be able toreplace Armerican equipment with a collec-tion of items which, although not ideal, couldfunction significantly better than Sovietdomestic equipment.

There is a further issue. An important con-clusion of this study is that the status of theSoviet gas industry may be more crucialthan that of the oil industry to overallenergy availability. Here, the U.S.S.R. isquite dependent on the West—for the largediameter pipe and compressor stations itneeds to construct gas pipelines—but theformer item is not produced in the UnitedStates and there are multiple alternativesuppliers for the latter. It has been sug-gested that the United States may be thesole or preferred supplier of the heaviestpipelaying machinery used for installing gaspipeline, and that foreign manufacturing ca-pabilities may be insufficient to fully supplythe needs of the U.S.S.R. in this area. It isdifficult to either establish or disprove theaccuracy of this claim without access to de-tailed information about specific foreign cor-porations, but it must be recognized that theU.S.S.R. has in the past purchased pipelay-ing equipment from Japan.

The chances of the United States per-suading its allies to join it in an energy-related policy of leverage against theU.S.S.R. are as small as those of obtaining

agreement to an energy equipment and tech-nology embargo. The point is not simplythat the countries examined here—WestGermany, France, Italy, Britain, and Japan—each have an economic stake in East-Westtrade greater than that of the United States,or that they have been traditionally reluc-tant to engage publicly in linkage practices.While the danger of energy dependence onthe U.S.S.R. may seem to some to be theoverriding political concern for the entireWestern alliance, each nation approaches itstrade and energy relations with the U.S.S.R.from its own political perspective. These dif-fer among the allies themselves and fromthat of the United States. They range fromWest Germany’s natural preoccupation withWest Berlin in particular and Europeansecurity in general to Japan attempts tobalance its policies towards both theU.S.S.R. and the People’s Republic of China(see chs. 11 and 12 for a fuller discussion ofthese perspectives). It would seem that, re-gardless of U.S. judgments of the wisdom oraccuracy of their views, these nations havedetermined that the risks of a certain degreeof energy cooperation with the U.S.S.R. areoutweighed by other political benefits.

In sum, the immediate leverage of theUnited States over the Soviet Union in thearea of petroleum equipment and technologyis probably limited by at least three factors.First, the United States is the sole supplierof very few petroleum-related items. .Second,the U.S.S.R. has demonstrated some abilityto do without these items, at least in theshort term. Third, and perhaps most impor-tant, gas is the energy sector in which theU.S.S.R. is both most reliant on the Westand most dependent for its energy future—and with the possible exception of construc-tion equipment, the United States has littleto offer in this area that is unique.

84- 389 0-84 -26 : – ~


THE ENERGY COOPERATION PERSPECTIVEGOALS AND ASSUMPTIONS

Adherents of this perspective may holdone or more of the following views:

1.

2.

3.

Increased energy-related exports fromthe United States to the Soviet Unionreduce the chances that the U.S.S.R.will experience the serious oil produc-tion problems predicted by the CIA,and therefore the chance that it willeither have to import oil on world mar-kets or have an incentive to intervene inthe Middle East.Such U.S. exports, by helping theU.S.S.R. to produce more oil, help to in-crease worldwide energy availability.This is a positive development no mat-ter where such oil is located.The trade ties established with the So-viet Union during the period of detentewere a positive step toward drawing theU.S.S.R. into the world economy, amove which should increase that coun-try’s interest in maintaining worldpolitical and economic stability.

DISCUSSION

Here, the basic premise is the obverse ofthat of the embargo perspective, i.e., it isassumed that American technology andequipment could make a significant positivecontribution toward increasing Sovietenergy availability in the present decade.OTA's findings cast doubt on this assertion.It is certainly true that American and orother Western petroleum equipment couldassist the U.S.S.R. in overcoming many ofthe problems presently caused by equipmentof inferior quality and insufficient quantity.It could also speed the development of off-shore resourses. But while it is undeniablethat Western exports have made important,albeit unquantifiable, contributions to Sovi-et petroleum output in the past and couldcontinue to do so in the future, policychanges in both the United States and the

Soviet Union would be required for such as-sistance to have maximum effect.

In its report, Technology and East-WestTrade, OTA identified the lack of officialU.S. export credits as the primary legal bar-rier to the expansion of trade between theUnited States and the Soviet Union. There isno reason to believe that this problem wouldnot continue to hamper such expansion. Butthe willingness of the United States to sellon favorable terms is only half of what isneeded for American exports to extensivelyaid the U.S.S.R. The Soviet Union must alsobe both able and willing to buy the items itneeds in sufficient quantities, and to usethem in an efficient and productive manner.

A frequent theme throughout this reporthas been the difficulties posed by the Sovieteconomic system in utilizing both domesticand foreign technology effectively. While itmay be true that imported equipment ismore productive than the closest Sovietequivalents, it is also usually the case thatWestern equipment and technology per-form less well in the U.S.S.R. than in thecountry of origin or other Western nations.It cannot necessarily be assumed, therefore,that simple shipments of equipment ortransfers of technology could easily solveSoviet energy problems.

This problem is exacerbated by the factthat the U.S.S.R. has traditionally been un-willing to allow the hands-on training byWestern personnel which would make West-ern equipment and technology most produc-tive. Nor has it appeared very willing toallow Western firms to participate exten-sively in Soviet energy development. Someovertures in this direction were made beforethe invasion of Afghanistan, but little hascome of them. Not only would such activeparticipation greatly expedite this develop-ment, but it would also give American andother Western companies the incentive,presently lacking, to become more extensive-ly involed in the U.S.S.R.

Ch. 13—Soviet Energy Availability and U.S. Policy . 395

Furthermore, hard currency shortagespresently constrain the amounts of energy-related items which the U.S. S. R. can import.The Soviet Union has traditional} kept itstrade with the West relatively small. Notonly has it been unwilling to become depend-ent on the West, but it has been quite con-servative in amassing a Western debt (espe-cially compared to the nations of EasternEurope). As chapter 8 points out, one conse-quence of this hard currency shortage is thatdifferent sectors of the Soviet economy com-pete for the ability to purchase from theWest. Energy equipment and technology im-ports have thus been highly selective.

It is not entirely clear, moreover, that theU.S.S.R. will necessarily be propelled ontoworld markets for oil. Indeed, as chapter 2has noted, if thc CIA ever intended to fosterthis expectation, it no longer holds this view.OTA has identified worst case or ‘ p e s s i m i s -

t i c ’ scenarios which show conditions underwhich the Soviet Union could have a net oildeficit, but a number of factors make this ahighly, uncertain basis on which to planpolicy. First, more optimistic scenarios areprobably more likely, i.e., the U.S.S.R. couldcontinue to export oil for hard currencywithout extensive U.S. help. Second, thed e g r e e to which the U.S.S.R. is able tosubstitute gas for oil, both in domestic con-sumption and in exports, seems the morecrucial variable. In other words, the overallSoviet energy balance, not simply oil produc-tion, will be important in determining theways in which the U.S.S.R. is able to handleits energy situation in the 1980’s. Third, hard

currency constraints would almost certainlyminimize or even prevent such purchases.

It must also be pointed out that anySoviet decision to intervene in the MiddleEast—either militarily or through policy in-itiatives directed at OPEC governmentsneed not necessarily be driven by a domesticneed for oil. The vital U.S. interest wouldseem more than sufficient to give theU.S.S.R. a reason for acting in this areashould it wish to do so, The availability ofadditional oil, assuming that conditionsallowed local cooperation or Soviet ability tooperate the oil fields itself, might be an at-tractive bonus, but is is hardly a necessarycondition.

Finally, institutions presently exist forfostering multilateral cooperation in energysupply issues. For instance, the SovietUnion has requested that the U.N. EconomicCommission for Europe sponsor a high-leve]conference which would consider possibil-ities for multilateral energy cooperation. TheUnited States has hitherto opposed the con-vening of such a conference. Presumably thereversal o f t h i s pos i t i on would signalAmerica interest in participanting in Sovietenergy development. In addition, policy-makers might wish to consider the formula-tion of a broader allied policy perspective onSoviet energy , arrived at either on a bilateralbasis, through NAT(), or through the Inter-national Energy Agency. It must be notedthat the West European nations themselveshade made little progress toward developinga unified East-West energy policy for theirown region.


2

3

has little prospect of convincing Amer-ica's allies to cease their own exports.An embargo of U.S. energy technologywould, therefore. have little effect onthe U.S.S.R., and the prospect of suchan embargo confers very little leverage.on the other hand, the ability of theUnited States to significantly enhanceSoviet oil production, thereby relievingeconomic pressure on the U.S.S.R. andincreasing the amount of oi l in theworld, is also constrained by the factorsdiscussed in the previous section.I n any case, Soviet energy industriesare enormous and the U. S. S. R. has agood record for being largely self-suffi-cient in areas where Western help is noteasily forthcoming.

Given this line of reasoning, it becomessensible to argue for the United States aban-doning the area of energy as a promising con-text for its Soviet foreign policy, and reapingwhatever economic benefits can be conferredby sales of energy and equipment to theU.S.S.R., so long as these have no directmilitary relevance. Such a policy would notnecessarily have to be accompanied by theextension of export credits on favorableterms. The ability of American firms to com-pete with West European and Japanese com-panies for sales of energy-related items tothe U.S.S.R. could be significantly enhancedsimply by removing U.S. unilateral exportcontrols on such items.

DISCUSSION

Givcn a desire to facilitate–or at least notto unduly impede—nonn~ilitarily sensitiveexports to the U.S.S.R., there is room forsignificant improvement in the administra-tion of export license applications. The ex-port licensing system is complex, and giventhe volume of applications it handles, hasworked with reasonable eff iciency. Pro-cedures could be instituted to streamline thesystem. however, without tampering with itsbasic structure or effectiveness. Such pro-cedures might eliminate the present, seem-ingly unwarranted. occasional delays which

have subjected the entire export licensingsystem to criticism.

It must be recalled that Soviet trade withthe West has never been large in absoluteterms and that, except for grain sales, [J. S.market shares in this trade have been rela-tively modest. The cost and difficulty ofdoing business with the U.S.S.R., Americanexport license procedures, and the ineligibili-ty of the U.S.S.R. for U.S. export creditshave all been limiting factors. There is littleor no reason to expect that this situationcould change without dramatic changes inboth U.S. export and Soviet import policies.Thus, while individual firms might well beable to conclude lucrative individual con-tracts for items of energy-related equipmentor technology, it is highly unlikey that thesesales would be large enough to affect theU.S. economy in general or even specific in-dustries in any crucial fashion.

Aside from these economic cons id r ra -tions, there is a political dimension to thecommercial perspective. Given the relativelylimited opportunities for the United Statesa lone to significantly influence Sovietenergy availability in the present decade,and given the difficulties which would cer-t a in ly a r i se in a t t empt ing to pe r suadeAmerica allies to curtail their own energyrelations with the U.S.S.R., U.S. policy-makers might well choose not to expend po-litical “chips” —either in negotiations withthe USSR or with allied nations—by makingSoviet energy development an area of con-tention. Removing energy-related exportcontrol issues from the political agenda, inother words, might possibly enhance thechances of obtaining allied cooperation inother aspects of East-West policy. If thecommercial perspective is pursued for thesemotives, the extent of the trade it w o u l d

engender becomes a secondary cons ide r -a -tion.

A FINAL NOTE

The perspectives and policy options dis-cussed in this chapter apply to the present

Ch. 13—Soviet Energy Availability and U S Policy ● 397

state of the relationships between the SovietUnion and the West. But the judgments anddecisions of both U.S. and Allied policy-makers can and will tend to shift over time,in response to changing economic and politi-cal conditions. For instance, dramatic eventsinvolving the Soviet position in EasternEurope could drastically alter the views ofboth Soviet and Western leaders on the op-tions open to them, and on the national in-

terests which would shape their choices. Incontrast, the overall parameters of Sovietenergy supply and demand are unlikely tochange rapidly, because of the sheer size ofthe resources and infrastructure involved.Thus, even should their perceptions of na-tional interests change, policy makers willstill have to reckon with the limits imposedby the strengths and weaknesses to theSoviet energy industries.

Appendix

—Appendix

COMMITTEE ON BANKING, HOUSING, AND

URBAN A F F A I R S

W A S H I N G T O N , D.C. 20510

Udal 1, Chairman

401

Appendix ● 4 0 3

May 2, 1980

The Honorable Morris UdallChairmanOffice of Technology Assessment235 Cannon House Office BuildingWashing t on, D. C. 20515

Dear Mr. Chairman:

Future relations between the United States and the Soviet Unionwill almost certainly b e shaped in part by issues arising from energysupply and demand. The U. S. intelligence assessment is that the Sovietbloc will be forced to import petroleum by 1985, and the Soviets haveacknowledged that they face impending problems in maintaining currentlevels of oil and gas production and delivery. The implications forthe U. S. of Soviet entry onto world oil markets are enormous. Congressshould , therefore, be aware of ways in which the U. S. could influenceSoviet energy production.

One critical area of uncertainty is the manner and extent towhich U. S. technologies could affect Soviet oil production and, thereby,Soviet energy policies.

Little is known about the potential contribution of Americantechnology to Soviet energy development, or precisely how Americanequipment compares technically to that available from other Westerncount r i es. It is often difficult to identify sole or unique suppliersof equipment and technology, and to determine the costs to the importerof resorting to second best choices. Better analysis in this area couldhave important implications for U.S. policies on exporting energytechnology.

As Chairman of the House Foreign Affairs Committee, I requestthat the Office of Technology Assessment conduct a full-scale assess-ment of the possible effects of American technology upon Soviet energyavailability during this decade. Such a study could draw partly uponthe material OTA has already assembled for its recent major study onTechnology and East-Rest Trade.


The Honorable Morris UdallMay 2, 1980Page Two

The study should address the following questions:

First, what equipment and technology are needed by the Soviet Unionfor its energy resources? In particular, what is the role of advancedcomputers and computer systems in expanded energy production? This maybe partly illuminated by analysis of past energy technology purchases.

Second, what problems inhibit the applicability and the efficientuse of imported energy technology in the U.S.S.R.? Such problems mightrange from geology, infrastructure, and lack of trained manpower toinappropriate institutional structures. What affect will particularforeign technologies have upon these problems?

Third, to what extent is the United States the sole or preferredsupplier of energy technologies likely to be sought by the U.S.S.R. , andwhat is the nature of and capabilities of those technologies?

Fourth, what would be the near or medium term (to 1990) impactson Soviet oil (or other energy) production of either an expansion orcontraction of American energy technology exports?

Your cooperation in this matter would be greatly appreciated.

With best wishes, I am

Chairman

CJZ:giy

Appendix ● 405

Honorable Ted Stevens , ChairmanTechnology Assessment BoardOffice of Technology AssessmentWashington, D. C . 20510

Dear Mr. Chairman: