A.L. Johnson
Petroleum Consultant
Washington, D.C.
Johnson was employed for 10 years in the exploration and production department of Shell Oil Co. and for 22 years in the Central Intelligence Agency as an international oil and gas analyst.
Soviet oil production showed signs of age in the mid-1980s as output slipped, recovered briefly, and began a fairly steep decline at the end of the decade.
The rapid growth in oil output during 1973-83 fueled a surge in exports and windfall profits from the sale of more than 2 million b/d of crude and products at premium prices to western buyers. Oil revenues accounted for half of all hard currency earnings in this period of record level prices.
Last year, oil production fell about 300,000 b/d, but exports to western buyers were lowered 400,000 b/d, and hard currency earnings were trimmed accordingly.
This year, the decline will be greater. Exports to several East European clients were reduced about 15-30% by midyear.
Until the current production decline is arrested, exports and hard currency revenues are likely to be affected. The loss of vital hard currency could wreak havoc with Gorbachev's effort to modernize the Soviet economy during the next few years.
Unfortunately, Soviet oil prospects for the 1990s are not as bright as they were 10 years ago.
PRODUCTION YO-YO
Development of a pair of supergiant deposits-Romashkino and Samotlor-and about two dozen other giant fields enabled the Soviets to boost production rapidly from 500,000 b/d in 1948 to 12.3 million b/d in 1983.
At that point, normal maturation of production and rising water content led to higher well maintenance due to pump breakdowns and corrosion of tubular goods. Many wells ceased to flow in 1984, and the lack of pumping equipment caused oil production to fall for the first time since 1948.
Furthermore, corrosion of tubing and casing, as well as oil field gathering lines and pipelines, led to a near collapse of the West Siberian infrastructure.
In 1985, Soviet oil production slipped to 11.9 million b/d, which was less than 1980 production.
Soviet leaders voiced considerable displeasure over the dip in 1985 oil output. Accusations of mismanagement and erroneous reserve estimates appeared in the press as geologists and engineers blamed each other.
In 1986, a tremendous drilling and well repair campaign was launched to restore output to its previous high level, which proved successful. Oil production reached a record 12.4 million b/d in 1987 and remained there for most of 1988.
Last year, reports of idle wells, equipment breakdowns, and corrosion of tubing and casing resurfaced. Once again, shortages of pumping equipment and drillpipe, tubing, and casing were being experienced.
The situation did not improve in first half 1990. This year, however, the plants near Baku that produce most of these items experienced strikes and riots, which intensified a very acute logistics problem.
Oil production slipped to 12.1 million b/d in 1989. The rate of decline gained momentum in first half 1990, which may cause production to drop to less than 11.5 million b/d for the year.
WHERE THE PROBLEMS LIE
Despite recent announcements of major oil finds at Tengiz and elsewhere in the pre-Caspian basin and the possibility of yet another production turnaround, any Soviet effort to maintain recent high rates of production of 12 million b/d in the 1990s may prove unrealistic-if not impossible-for several reasons. The most critical reason is the 400,000 b/d reduction in the 1990 Tyumen production goal.
Moreover, if one superimposes the Kremlin's current political and economic turmoil on the mix of technical problems facing the Soviet oil industry, there may be little hope for any immediate solutions of a permanent nature.
Uncertainty that stems from the transition from communism to democracy, as well as from a centrally planned economy to a free market, may negate efforts to rejuvenate and reequip the ailing Soviet oil industry.
Continuing development of aging giant oil fields requires ever increasing amounts of capital, together with introduction of more sophisticated production methods and equipment over time. Soviet supply of these items is quite limited.
CHANGING RESERVES
Recent Soviet technical articles have noted an adverse change in the composition of the nation's oil reserves, which also increases demand for new production methods and equipment.
Having drilled up the best and largest deposits in the Volga-Urals and West Siberian producing regions, the Soviets are now focusing their attention on development of hundreds of small, widely scattered oil fields in all established producing regions except West Kazakhstan.
In terms of quality, transformation of the Soviet reserve base during the past 15-20 years has been quite radical. One official noted that easy-to-produce oil reserves had been reduced by half by 1989.
These reserves provided 90% of Soviet oil produced during 1960-85. Cumulative Soviet production exceeded 86 billion bbl for this period, of which 78 billion bbl came from the largest, best deposits.
Last year, these premium reserves provided 10 million b/d of the 12.1 million b/d produced in the U.S.S.R. These reservoirs are thick, porous, permeable, and easy to exploit as long as wells flowed. Unfortunately, most of these reservoirs are now in final stages of development.
Rapidly rising water production has accompanied the steady decline of oil output and accounts for 70-80% of fluid recovered. It will take many years to extract the remaining oil in these deposits, and it will be very costly to produce and dispose of 5-10 bbl of water for each barrel of oil produced.
In the future, the Soviets will be developing a multitude of small, remote deposits with difficult-to-produce reserves that currently account for 50% of the remaining undeveloped reserve. About 80% of these reserves are in West Siberia, the major producing region in the country. In 1988, this region provided 8.3 million b/d of the 12.4 million b/d recovered nationwide.
Almost all of the undeveloped West Siberian oil accumulations are small, reservoirs are thin (less than 10 m thick), permeabilities are low (less than 50 md), and well productivities are low. For example, new wells may average 70 b/d of oil plus 30% water. The latter rises to 90% in 100 days.
Many of the reservoirs are described as thin, nonhomogeneous, gas/oil accumulations in polymicaceous sands with widespread gas caps overlying intermittent water/oil zones with oil rings along the edge.
Several officials have said development of these deposits with existing technology and equipment is uneconomic under current guidelines for full cost accounting and self-financing.
Moreover, development of these low quality reserves will require the drilling of five to 10 times more wells in the future, which will raise the cost of new capacity sharply.
WATER PRODUCTION TO JUMP
All of the largest Soviet oil deposits have undergone intensive exploitation for at least 15-20 years, except for Tengiz and a few other discoveries in Kazakhstan. Most of these fields are now in the late stages of development, and water production is three or four times greater than oil output.
The Soviets expect water production to double in the 1990s. One prominent engineer estimated that more than 18 billion bbl of fluid were produced in 1989 to recover slightly more than 4 billion bbl of oil.
In 1988, when Soviet oil output was still at its zenith, the nationwide water cut was about 73%, compared with 67% for Glavtyumenneftegaz and 78% in the all important Nizhnevartovskneftegaz region, which includes Samotlor field. The latter supergiant produced 87% water, and gas lift operations were in disarray.
With increased water production, Soviet engineers have observed changes in the properties of liquid produced. These changes create different requirements for all producing installations to handle water, oil, and gas and to withstand their corrosive contaminants. The same is true for gathering systems and field processing units in aging fields.
In 1988, cumulative development and reduced spacing had seen the drilling of about 17,000 oil wells in Romashkino field. Each year the field's pipeline gathering system experiences more than 20,000 leaks and spills.
A similar number of wells have been sunk in Samotlor field, where fluid production and water percentages are much higher.
One Tyumen official announced recently that oil and gas output was being disrupted by a rash of main line accidents in this vital producing region. At least 1,132 ruptures occurred in first half 1990, or 15% more than in the same period of last year.
No mention was made of corrosion problems with oil well tubing and casing, but they probably are just as acute-if not worse.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.
