SOVIET OIL PRODUCTION DROP MAY BE MAJOR, LASTING GLOBAL SUPPLY WOE

L.F. Ivanhoe
Novum Corp.
Santa Barbara, Calif.

A very critical future global oil supply problem is whether the current minor decline in U.S.S.R. oil production is:

1) a temporary aberration that will be quickly reversed by improved (Western) knowhow, funding, and exploration/operating techniques, or 2) the first indication of a major and inexorable decline in the mature U.S.S.R. oil production capacity due to geological restraints.

DECLINE LIKELY

There are several indications the second alternative may be the basic problem.

If so, future U.S.S.R. oil production will not continue "flat" as during the 1980's but may drop off during the 1990's and early 2000's almost as rapidly as it soared during the decades of the 1960's and 1970's (Fig. 1).

This long-term trend will be aggravated by any short-term interruptions due to strikes, etc. This dismal possibility will affect not only future U.S.S.R. oil exports for hard currencies, balances of payment, and ability to solve their economic and political problems but will also have major significance for the entire global oil supply.

It is commonly overlooked and omitted from many analyses that the U.S.S.R. is:

the world's No. 1 oil producer with 1988 production of 11.7 million b/d of oil plus 900,000 b/d of natural gas liquids for a total of 4.6 billion bbl/year;
the world's No. 2 oil consumer at 8.9 million b/d in 1988; and
the world's No. 2 oil exporter at 3.7 million b/d in 1988 after Saudi Arabia.9 The U.S.S.R. supplied about one eighth of the globe's total oil exports of 29.2 million b/d in 1988.

Part of the U.S.S.R.'s oil exports are in the form of semibarter trade with the Eastern Europe Comecon Soviet trading block-Warsaw military pact nations and Soviet foreign aid recipients in the less developed countries, plus cash sales for hard currencies to western Europe, and so on.

Whenever these U.S.S.R. exports decline, the Organization of Petroleum Exporting Countries will immediately replace them because no other country has a significant surplus of oil to export. The international price of oil to the importers can then be expected to increase to whatever is set by OPEC.'

MATURE PROVINCE

Oil reserves are still a military secret in the U.S.S.R., but production trends and semiofficial reserve estimates all point to the same conclusion: that the U.S.S.R. is a mature oil producing nation and its future yield may decline rapidly in spite of the Soviet's best efforts to maintain previous volumes.

Soviet statistics and claims tend to be optimistic due to the reporters' natural desire to please their bosses, the communist planners and government.

The U.S.S.R. has the world's largest natural gas reserves, used extensively and exported to Europe, where the gas is used as a substitute for fuel oil or coal in boilers, not as an alternative for motor fuels. NGLs are a by-product of natural gas production.'

Fig. 1 summarizes the annual U.S.S.R. oil production since 1930 and projects future production.

Past production looks like the left half of a classical M. King Hubbert production curve for an exhaustible resource, 2 with a steep surge in annual production from 1950 to 1980, then flattening at the crest of the curve, and the start of a precipitous decline after 1989.

Future production is projected on the second half of an ideal Hubbert curve, which is a mirror image of the 1950-1980 part of the curve.

PRODUCTION TO DROP

Unless major new reserves are found and immediately put on production, within 20 years U.S.S.R. oil production may be only 6 million b/d or half of the 1988 volume, about the same as in 1968. By comparison, U.S.S.R. oil consumption in 1988 was 8.9 million b/d.

The U.S.S.R. may be a net importer of oil soon after the year 2000.

The limiting factor for any nation's ultimate oil potential is geological rather than economic or technical.

Giant oil fields-those with estimated ultimate recovery (EUR) of 500 million bbl or more-are much more critical for U.S.S.R. oil production than in the U.S. due to the much greater size, more severe climate, and poorer infrastructure of the U.S.S.R.

Small fields are no more ,.economic" in the Russian arctic than they are in arctic Alaska.

U.S. COMPARISON

Fig. 2 summarizes the known discoveries of giant oil fields reported in the U.S.S.R. through 1985.1 8 The peak discovery period was during the 1960's, and no giant finds were reported from 1976-1985.

Forty giant and supergiant (EUR = +5.0 billion bbl) oil fields (1.6% of some 2,600 known oil fields) had been discovered in the U.S.S.R. through 1985; EUR thereof was some 70 billion bbl, or about 67% of all U.S.S.R. oil discovered to that date.

By comparison, in the U.S. with its more developed infrastructure and capitalistic mineral right laws that encourage wildcatting for small fields, the 50 giant U.S. fields are only 0.2% of some 23,000 known oil fields and contain an EUR of 60 billion bbl, or 40% of all oil yet discovered in the U.S. lower 48 and Alaska.-3 4

Lower 48 oil production topped out in 1970 and has followed Hubbert's predicted geological decline curve downward the past 20 years in spite of the oil industry's best efforts to maintain production .6

A similar fate can be forecast for the U.S.S.R., but with a faster decline than in lower 48, where the many known small fields and extensive infrastructure cushion the significance of the decline of the giants (Fig. 3).

WHAT CAN BE DONE

Only a minor part of the total U.S.S.R. oil production of 4.6 billion bbl/year can be replaced by improving recovery techniques in its old oil fields.

Modern exploration will undoubtedly produce new discoveries; the question is their size?

What chance is there for a revival of giant oil field discoveries in the U.S.S.R. if they receive western help? Probably less than 25%.

Many people-Napoleon, Hitler, and others-have underestimated the Russians' capabilities. Style should not be confused with the ability to get a job done.

It must be remembered that the U.S.S.R. is not some struggling banana republic but the second greatest power on earth. It is technically sophisticated enough to rocket cosmonauts to space stations and run a modern military machine and can certainly explore for oil if it desires.

There is nothing mysterious about oil exploration, which is a very efficient technical procedure. If finding the giant oil fields inside its borders were easy, it would already have done so.

All accessible areas have been examined. The nation's onshore basins have been diligently prospected by competent Soviet scientists since 1945.

APPLYING WESTERN KNOWHOW

Soviet analog seismic technology and drilling knowhow may be 30 years behind current U.S. electronic digital seismic techniques.

However, the older tools were adequate to find most giant fields in the U.S.S.R.'s land basins just as the giant fields on land in the lower 48 states were found many years ago by surface geology and simple analog seismic techniques before 1950.

The giant fields are always the easiest to find because they are the biggest targets, so unusual technical skills were not essential to outline them in either the lower 48 or U.S.S.R. land areas.

Digital seismic is, however, essential for offshore exploration. But the untested offshore continental shelves of the U.S.S.R. are under Arctic Ocean pack ice, in which environment the world still has no oil field operating experience. New oil supplies from the Soviet arctic seas should not be counted on to provide a near term fix of the foreseeable U.S.S.R. production decline problems.

Tengiz, a large oil field discovered in 1979 just north of the Caspian Sea, was upgraded to supergiant status in the late 1980's .7

This field has such severe operating problems that its EUR, like that of many heavy oil and other difficult deposits, is still in doubt, However, it has enough reported potential to excite many major U.S. and European oil companies that hope to help develop it.

CONCLUSION

The Soviets will need all the financial and technical aid they can get to slow their inevitable production decline, and one supergiant Tengiz field will replace only 1-2 years of current U.S.S.R. oil production (4.6 billion bbl/year).

The equivalent of a new supergiant must be brought on production every year to sustain the present U.S.S.R. oil supply.

REFERENCES:

Carmalt, S.W. & St. John, W., 1986; Giant oil and gas fields; in Future Petroleum Provinces of the World; AAPG Memoir 40, pp. 11-53.
Hubbert, M. King, 1982; Techniques of prediction as applied to the production of oil and gas; in NBS Special Publication 631, Oil & Gas Supply Modeling, Proceedings of a symposium held at Department of Commerce Washington D.C., June 18-20, 1980, pp. 16-140, Ed. Saul 1. Gass; U.S. Department of Commerce, National Bureau of Standards,
Ivanhoe, L.F., U.S. vs. foreign oil deals; OGJ, Nov. 19, 1984, pp. 176-178.
Ivanhoe, L.F., Time is no longer on our side; OGJ, Sept. 7, 1987, pp. 70-71.
Ivanhoe, L.F., Future crude oil sup-ply and prices; OGJ, July 25, 1988, pp. 111-112.
Ivanhoe, L.F., Liquid fuels fill vital part of U.S. economy; OGJ, Apr. 23, 1990, pp. 106-109.
Lisovsky, N.N., Gogonenkov, G.N., and Petzoukha, Tengiz oil field, Pri-Caspian basin, a super giant of the '80s; abstract, AAPG Bull., May 1990, p. 706.
Roadifer, R.E., Size distribution of world's largest known oil, tar accumulations; OGJ, Feb. 24, 1986, pp. 93-100.
U.S. Department of Energy/Energy Information Administration, International Energy Annual 1988, report DOE/EIA-0219(88), National Energy Information Center, Forrestal Bldg., Washington D.C. 20585.