SOVIET FLOW SKIDS TO LESS THAN 10 MILLION B/D

Soviet oil production plunged to the lowest level in more than 15 years during late 1991 as the U.S.S.R. transformed itself into the Commonwealth of Independent States. Fourth quarter crude and condensate flow tumbled to less than 10 million b/d, according to new estimates. Production for the year fell to an average of about 10 million b/d, "or 10.1 million b/d at best," according to L.D. Churilov, former head of the defunct U.S.S.R. Ministry of the Oil and Gas Industry and now president of

Dec. 30, 1991

7 min read

Soviet oil production plunged to the lowest level in more than 15 years during late 1991 as the U.S.S.R. transformed itself into the Commonwealth of Independent States.

Fourth quarter crude and condensate flow tumbled to less than 10 million b/d, according to new estimates. Production for the year fell to an average of about 10 million b/d, "or 10.1 million b/d at best," according to L.D. Churilov, former head of the defunct U.S.S.R. Ministry of the Oil and Gas Industry and now president of the Russian republic's oil and gas corporation Rosneftegaz.

Size of the 1991 drop in Soviet oil production was by far the largest in the U.S.S.R's 70 year history. Flow slumped for an unprecedented fourth consecutive year.

Russian petroleum industry administrators expect commonwealth oil production to continue falling during 1992. U.S. and other western government officials, along with private economists, are urging that technical assistance to the former U.S.S.R.'s oil industry be given high priority to prevent economic collapse during the first year of the new commonwealth.

Average Soviet 1991 crude/condensate flow of about 10 million b/d com-pares with 11.4 million b/d in 1990, 12.14 million b/d in 1989, 12.45 million b/d in 1988, and record production of 12.48 million b/d in 1987.

The last time Soviet liquid hydrocarbon production was less than 10 million b/d was in 1975, when it averaged 9.82 million b/d. Flow surged to more than 10.39 million b/d in 1976.

PRODUCTION DETAILS

In an interview with the Moscow newspaper Pravda, Churilov detailed the plight of oil production in the former U.S.S.R. He angrily denounced past Soviet petroleum policies and criticized the indecisiveness of President Mikhail Gorbachev in dealing with the industry's growing problems.

Churilov noted that:

Before 1988, 10-12 significant new Soviet oil fields began production annually. Practically none was placed on stream during the past 3 years.
Drilling volume has fallen sharply since 1988. Three years ago the U.S.S.R. Ministry of the Oil and Gas Industry drilled 40 million m (131.2 million ft) of hole and completed 16,000 wells. Now drilling has decreased by 7 million m (23 million ft), and the former U.S.S.R. is completing about 3,000 fewer wells/year.
During the past 3 years, the Soviet reserves/production ratio for oil has increased. "But we have been unable to exploit these additional reserves because we lack financing and sufficient equipment," Churilov said.
The quality of reserves has fallen. Whereas 7 years ago new oil wells yielded 3033 metric tons/day (219-241 b/d), they now produce no more than 15-16 tons/day (109.5-116.8 b/d).
The nation's oil industry is on the verge of collapse, "in 1992, the country will be at best barely meet its oil needs," Churilov said. "But Russian republic requirements will be satisfied because Russia produces 90% of the former U.S.S.R.'s oil."
Domestic prices for Russian crude will triple or quadruple early in 1992 to no less than about 400 rubles/ton. After that, prices will be adjusted for inflation and other things.

RUSSIAN GOALS

Churilov said the main goals of the Russian republic's oil and gas corporation he heads are to move expeditiously toward "degovernmentization" and privatization of the petroleum industry and to break up state owned monopolies.

"Order will be introduced into oil sales," he said. "We are earnestly tackling the problem of diminishing the government's role in the petroleum industry, but it isn't easy.

"it is necessary to privatize oil enterprises and turn them into stock companies.

"in the future, we will have competing firms. That will create initiative and self interest-things we shouldn't fear."

Churilov favors establishment of large Russian oil and gas companies engaged in a wide range of activities from exploration and development to oil transportation, refining, and free market sales of at least part of the enterprises' crude and products.

The Rosneftegaz president told Pravda his corporation's formula for setting future crude prices makes more sense than that of the former U.S.S.R.'s central government. Besides realistic costs and inflation, the condition of relations with other republics in the new Commonwealth of Independent States will determine the price of Russian oil sold to them.

Churilov said falling oil production is pushing his nation toward chaos and bankruptcy.

"There are long lines at gasoline filling stations, airports are shut down for lack of jet fuel, ambulances stand idle, Kishineve (capital of the Moldavian republic) is in semidarkness, and residents of Khabarovsk and Chita (in eastern Siberia) shiver from cold."

OLD SYSTEM, NEW SYSTEM

In the past, Churilov declared, illegal oil industry activity flourished everywhere.

"The U.S.S.R. Council of Ministers or the Communist Party Central Committee made a decision, and the oil minister obediently saluted without considering whether the action was correct.

"Now that system has been essentially dismantled. The new Russian oil and gas corporation is quite democratic and operates on the principle of independence for its enterprises and organizations.

"Our relations with enterprises in other sovereign republics in the commonwealth will be business-like and will be built on the basis of understandings and economic agreements signed between Russia and these republics."

PRICE DISPARITY

Pravda quoted the Rosneftegaz president as charging that the Soviet central government had "unpardonably robbed" the U.S.S.R.'s oil industry by setting very low prices for the crude it purchased. "Is it normal," he asked, "that a ton of oil is 12 times cheaper than a ton of soda water?

"I recall another amazing fact. An American journalist recently showed how, by taking advantage of sharply differing ruble exchange rates, it is possible to buy a ton of our oil for a package of Marlboro cigarettes.

"We have exported crude through the Druzhba pipeline to formerly Communist (eastern European) countries in exchange for tomatoes and green peas. We have delivered oil to India and Yugoslavia for next to nothing."

Churilov said in the past, before the Gorbachev era, the U.S.S.R. exported 100-125 million tons/year (2-2.5 million b/d) of crude but because of ideological considerations sold only 30-40 million tons/year (600,000-800,000 b/d) to western nations for hard currencies.

"Even now other countries are profiting on their purchases of crude from us. We are delivering oil to the newly independent Baltic nations for the extremely low price of 70 rubles/ton, and they refine and sell it for hard currencies."

After persistent demands by oil workers, the Soviet government raised its purchase price for domestic crude "a little bit," Churilov said. Meanwhile, the price of equipment for the oil industry was allowed to jump sharply.

"This foolish pricing policy by the Soviet government pushed the oil industry toward catastrophe. Today, literally all petroleum enterprises are in financial trouble.

"For example, western Siberia's Surgutneftegaz Association, which produces more than 800,000 b/d, has 140 million rubles in unpaid bills."

Without money, the petroleum enterprises can't keep up with scientific and technical progress, Churilov said. "It's surprising that they still operate at all." The era of easy oil, "of golden gushers, so to speak," has passed, he said. "Instead of flowing wells, production must be artificially assisted, requiring corresponding capital investment and technology.

"We have neither one. And we must buy our equipment at free market prices while crude prices are held steady by government regulation.

"To all of this, we must add that our oil fields are located in more remote areas, are less productive, and have more complex reservoirs."

A special problem, the Rosneftegaz president said, is the oil workers' poor living conditions. "There are thousands of big and small problems no less vexing than those faced by our coal miners.

"Only the oil workers' high degree of conscientiousness keeps them from striking, as the coal miners have done.

"We oil industry officials predicted the current difficulties as early as 1981. We bombarded the U.S.S.R. Council of Ministers and the Communist Party Central Committee with reports and detailed statistics.

President Gorbachev made an inspection trip to western Siberia's Tyumen Province, the U.S.S.R.'s largest oil producer, in September 1985.

"But practically nothing changed," Churilov said.