1990S ENERGY CRISIS LOOMS FOR SOVIET UNION

The Soviet Union, the world's No. 1 oil and gas producer, believes it will be forced to endure the worst energy crisis in its history during the nation's new 5 year plan (1991-95).

New forecasts made by the U.S.S.R. Academy of Sciences indicate that "at best" combined Soviet production of the three major fuels-oil, gas, and coal-will increase less than 0.4%/year through 1995. If the most favorable scenario does not take place, it is possible Soviet energy production will decline during 1991-95.

The Academy of Sciences believes a continuing drop in oil production is inevitable through the mid-1990s. Natural gas flow will at best grow at a rate of about 2.5%/year, coal at less than 1%/year, and electrical power generation at most 1%/year.

It's calculated that from the standpoint of "standard fuel" volume based on the calorie equivalence of oil, gas, and coal, the U.S.S.R.'s total fuel production will fall during 1991 for the third straight year. This has never happened during Soviet peacetime.

Even with the dips reported for 1989 and 1990, the U.S.S.R. during the just ended 12th 5 year plan hiked total fuel production by 1.4%/year. Gains during 1981-85 averaged nearly 2%/year.

Moscow said that the U.S.S.R.'s entire fuel and energy complex fulfilled only 97.8% of its 1990 plan. On the basis of standard fuel, last year's oil, gas, and coal production fell 2.5% below the 1989 level.

Soviet power generation rose only 0.3% last year, and power shortages occurred in many parts of the nation.

TARGETS NOT MET

Writing in Moscow's newspaper Izvestia, Academician A. Sheindlin, vice-president of the International Energy Club, said fuel and energy forecasts made by the U.S.S.R.'s planners during the early 1980s were not fulfilled in practically every category. Instead of increasing as predicted, oil and coal production slid in 1986-90, while gas flow and power generation fell far short of targets.

Crude/condensate production slumped to less than 11.4 million b/d last year from 11.9 million b/d in 1985. The U.S.S.R. Academy of Sciences expects 1995 oil flow to be no more than 10 million b/d.

That would be the smallest volume since 1975 Soviet crude/condensate production of 9.82 million b/d. Oil represented 46.5% of the U.S.S.R.'s standard fuel production in 1980, then fell to 41.9% in 1985, 40.3% in 1988, 38.8% in 1989, and 37.4% in 1990.

Even so, Sheindlin said oil remains the nation's most important fuel.

He emphasized that further erosion in oil production would have a disastrous effect on Soviet industry, agriculture, gross national product, and living standards.

The academician sees a bleak short term outlook for crude/condensate production whether or not the U.S.S.R. succeeds in shifting to a market economy. He apparently believes neither large increases in capital investment in the petroleum industry by the Soviet Union itself-a seeming impossibility considering the nation's financial woes-nor foreign assistance through joint ventures or loans will fundamentally change the downtrend in crude oil production during 1991-95.

OIL RESERVES DRAWDOWN

Nearly 12% of the U.S.S.R.'s recoverable oil reserves have been produced, Sheindlin wrote. He said this figure will rise to 30-35% by 2010.

"Cost of developing new oil fields, preparation of reserves, and production is swiftly increasing, while the average yield of new wells is fading just as fast. In western Siberia's Tyumen Province, which produces most of the U.S.S.R.'s crude and condensate, production from new wells has fallen more than fourfold during the past 20 years.

"And all this is aggravated by the comparatively low quality of our drilling equipment.

"To achieve the volume of oil production our nation requires, we must achieve extensive introduction of advanced technology and improve organization of oil extraction. This can't be done without increased investment in the petroleum industry."

BEST BET: GAS

The Soviet energy industry's best bet for increased production is natural gas, Sheindlin said. There is "a real possibility" of increasing gas flow by about 50% during the long term-apparently to as much as 43 tcf/year vs. 28.78 tcf in 1990.

Sheindlin said, "But even under conditions of marked improvement in gas flow, the ratio of explored (proved, probable, plus some possible) reserves to production must be kept at a minimum of 15 years.

"It is believed that explored reserves are now only about 20% of potential reserves. Therefore, the prospects for constantly growing long term use of natural gas in our country are extremely hopeful."

However, the Izvestia commentary did not touch upon the sharp, unexpected slowing of growth in Soviet gas flow during the past 2 years.

Official figures show the Soviet Union hiked 1990 gas production by only 680 bcf, or 2.4%. Flow of 28.78 tcf was considerably less than required to offset declines in energy production in the form of oil and coal.

In 1985, the Soviets boosted gas production by more than 2 tcf, or 9.7%.

While the U.S.S.R. remains by far the world's largest gas producer and exporter, 1990's Soviet gas flow increase was the smallest in 17 years. Prospects are that 1991 gas production will register an unimpressive gain at best, and some Soviet officials fear the volume could fall if industry conditions don't improve.

Proportion of gas in the U.S.S.R.'s fuel balance continues to rise despite the slowing growth rate. Gas, which represented only 27.7% of Soviet production of leading fuels in 1980, accounted for 43.2% last year, far surpassing oil and coal.

GAS TARGET SHORTFALL

Several years ago, Soviet officials were still forecasting gas flow of close to 35.3 tcf/year by the mid-1990s. That target now appears far beyond reach.

Sheindlin disclosed that the U.S. S. R. Academy of Sciences' new estimate of 1995 gas flow is 2.82 tcf less than forecasts made during the early 1980s. While not providing a specific figure, his statement indicated 1995 gas production of 32-33 tcf.

Soviet gas production goals for the 1976-80 and 1981-85 plans were easily met. In contrast, last year's gas flow of 28.8 tcf was well below the 12th 6 year plan's target of 29.5-30 tcf.

There is no indication the U.S.S.R. will face a scarcity of gas reserves in the 1990s or during the early years of the next century.

Soviet geologists recently hiked estimates of explored gas reserves to a record 1.87 quadrillion cu ft. That is equal to a 65 year supply at 1990's production rate.

Whereas the U.S.S.R.'s share of world proved oil reserves has been estimated at about 5%, some western energy authorities believe the Soviets may have 40% or even more of global gas reserves.

But administrative bungling, along with pervasive economic, political, and social chaos, has crippled the Soviet gas industry to a degree hardly conceivable only a few years ago. Cost of incremental gas production is soaring, and labor productivity has fallen.

Gas flow from the U.S.S.R.'s second largest field-Yamburg, north of the Arctic Circle in western Siberia-has been below expectations. The Soviet gas trunkline network has growing numbers of accidents. Installation of compression capacity is below target, distribution lines are inadequate, and gas processing plants lag requirements in number and quality.

EQUIPMENT PROBLEMS

Capital investment by the central government in the petroleum industry has been slashed severely. Moscow's proposals that the union and autonomous republics, along with debt ridden gas producing and transmission enterprises, compensate for the capital investment shortfall from the center are regarded as unrealistic by many petroleum industry officials.

With the ruble sliding toward worthlessness, Soviet pipe and equipment manufacturers refuse to make deliveries to producers and gas transmission administrations on conventional terms. Many annual contracts between equipment and materials suppliers and gas industry associations had not been renewed by early 1991, and strange barter deals have proliferated.

If conditions in the industry continue to deteriorate, 1991 Soviet gas deliveries to domestic consumers could fall more than 3.5 tcf below demand, said Y. Pochinkin, head of material and technical supply for the U.S.S.R.'s "Gas Concern," the much criticized successor to the former Ministry of the Gas Industry.

Interviewed by the Moscow newspaper Sovetskaya Rossiya, Pochinkin painted a dark picture of the gas industry's near term outlook. He said disruptions in deliveries of materials and equipment continue to be the norm, with gas producers frequently being gouged by monopolistic suppliers.

Soviet officials authorized a doubling of wholesale gas prices starting Jan. 1. But suppliers of pipe, equipment, spare parts, and building materials have jacked up their prices to gas producers as much as fivefold.

Suppliers often demand that gas producers make payment in hard currencies or by providing scarce goods such as lumber, metals, or even foreign made vehicles. Those kinds of business deals go beyond the bounds of barter and are tantamount to blatant racketeering, gas industry officials complain.

Because the central government allocates to itself practically all gas production and profits, the industry has little opportunity to earn hard currency.

And because Soviet manufacturers have become such unreliable suppliers of equipment and materials, gas producers have gone so far as to set up their own factories to produce urgently needed goods.

Western Siberian gas associations have bought a brick factory from Czechoslovakia, are financing their own cement plant in the city of Tyumen, and are trying to buy Finnish equipment to manufacture their own cable.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.