OIL'S WOES RIPPLE THROUGH SOVIET ECONOMY

The U.S.S.R.'s record 1990 oil production plunge battered other sectors of the Soviet petroleum industry and was instrumental in pushing the nation's entire economy into deep recession. Here are some measures of how bad things are: Refinery utilization fell to the lowest point in decades. Petrochemical production dropped sharply because of feedstock shortages. Domestic oil consumption continued to erode during 1990 and dropped below levels reached in the late 1970s.

Jan. 7, 1991

5 min read

The U.S.S.R.'s record 1990 oil production plunge battered other sectors of the Soviet petroleum industry and was instrumental in pushing the nation's entire economy into deep recession.

Here are some measures of how bad things are:

Refinery utilization fell to the lowest point in decades.
Petrochemical production dropped sharply because of feedstock shortages.
Domestic oil consumption continued to erode during 1990 and dropped below levels reached in the late 1970s.
Crude and product exports fell so steeply that Moscow officials predict even the big oil price spike during the last 5 months of 1990 was unable to prevent the U.S.S.R. from registering the largest negative trade balance in its history.
The decline of about 6% in crude/condensate flow was a major factor in causing overall Soviet industrial production to fall during the first 11 months of 1990 and to make its worst showing in the year's final quarter.
The Moscow newspaper lzvestia reported that the U.S.S.R.'s overall fuel/energy production during the January-November period fell 1.2%, with November down 1.5%.
The pinch in energy supplies caused by the more than 700,000 b/d drop in crude and condensate flow for the first 11 months of 1990 was worsened by a 5% slide in coal production.
Record natural gas flow of nearly 29 tcf for the entire year was far from sufficient to offset shortfalls in production of other fuels. Electrical power generation barely held even with 1989's level.

An analysis by Salomon Bros., New York, under-scored the bleak Soviet oil picture and its dim outlook (OGJ, Dec. 31, 1990, p. 28).

DISMAL DETAILS

Soviet authorities believe oil production, exports, and domestic consumption will post further losses in 1991, with the economy continuing to slide at a disastrous rate ' If the 6% drop in oil production for January-November 1990 period holds true, Soviet crude and condensate flow will average about 11.4 million b/d for all of the year. That's down from 12.134 million b/d in 1989, 12.452 million b/d in 1988, 12.484 million b/d in 1987, and 12.031 million b/d in 1980.

Utilization of refinery distillation capacity during late 1990 may have fallen to 75% or less-lower than at any time since the end of World War 11.

lzvestia said production of automobile gasoline, diesel fuel, and heavy fuel oil declined 3-5% during the first 11 months of 1990. The shortage of aviation fuel was especially severe in the year's final quarter.

Polypropylene production fell 6% in January-November, polyethylene 3%, and fertilizer 8%. Manufacture of chemical fibers skidded as the year progressed and in November was 8% below the same 1989 month.

Izvestia predicted Soviet economic recovery is unlikely during early 1991. Moscow was unable to set 1991 production goals by Dec. 15. Targets for centralized procurement had not been determined, pricing policy was in chaos, and the budget deficit was expected to grow.

WHAT WENT WRONG

The Moscow magazine Soviet Life declared last month, "Today we can no longer be complacent toward our energy situation.

"Although the U.S.S.R. remains the world's largest oil producer, our unwise investment policies, excessively intensive development, and inadequate extraction equipment have brought negative results nobody would have imagined only a short time ago.

"One such result is a drastic fall in our oil production and, consequently, a reduction in our oil exports. Our experts estimate our oil deliveries to the West in 1990 will be less than half of what they were in 1988.

"Even with the recent oil price hikes, we will hardly be able to make up for losses we have sustained in production."

TURNAROUND POSSIBLE?

Soviet Life said there is some prospect for improvement in the U.S.S.R.'s oil flow.

"American experts agree,"it said.

"At least they assume the present situation in Soviet energy production can be radically and rather quickly changed with the help of western money and technology.

"They point to the slow rate of developing the oil rich pre-Caspian region, probably the world's largest deposit. One of the region's most spectacular fields-Tengiz-was discovered more than 10 years ago but hasn't produced a drop of oil thus far.

Soviet Life said the pre-Caspian region is only one of a number of untapped oil provinces in the U.S.S.R.

"We have at least six or seven more deposits of the same magnitude. But it will be very difficult to develop them without outside help.

"We pin hopes in this respect on joint ventures with such giant western companies as Chevron and Texaco. "

The Moscow magazine said in the more distant perspective many U.S. business interests have an eye on the "huge oil potential" of eastern Siberia and the possibility of moving its oil by pipeline to Alaska and the Lower 48 West Coast.

"Such a drastic reevaluation of the prospects for Soviet-American cooperation can be connected not only with the end of the cold war but also with the radically changed geopolitical situation. Isn't that why many of us are saying today that oil can turn old rivals into new friends?"